Saturday, August 18, 2007

John Edwards' Sub-Prime Lending: Su Casa es Mi Casa Ahora

It was the Wall Street Journal which first reported the story of John Edwards supposedly unwitting foray into the murky world of sub-prime lending. It seems Edwards had a spare 16 million dollars he didn’t know what to do with so he put it into an investment company he consulted for. Edwards’ former employer and investment firm Fortress Investment Group LLC has sent out thirty-four notices of foreclosure on New Orleans Katrina victims, according to the Wall Street Journal.

Fortress Investment Group LLC is the parent of other sub-prime lending institutions which are foreclosing on the homes of poor hurricane Katrina victims. Edwards says he worked for Fortress to learn all he could about international finance, and says he didn’t know anything about the sub prime business Fortress and its affiliates were conducting. Wouldn’t you like to have him for your lawyer?

The Wall Street Journal article gave a few examples of what sub-prime lending was all about. Apparently, it’s a sort of ass-backward way of getting the hard-working poor like the Monteses (depicted in one of the Journal articles) into housing they can’t afford at high interest rates, piggyback loans, and prepayment penalties.

Common sense tells you that poor people should have lower interest loans, one at a time, and with no prepayment penalties. What’s the purpose of a prepayment penalty except to provide a windfall to greedy mortgage brokers and lenders? You should be financially punished for paying off your debt early?

Right now, just about everyone in government wants to crack down on the “deceptive practices of predatory lenders”. The irony of it is that the same people who want to crack down on sub prime lenders are the same people who have pressured government and banks to relax responsible lending practices to help the poor buy houses. Their constituents in the banking, investment, and financial areas were all for it so long as they were making money. Now that the bubble has burst, you have candidates like John Edwards and Hillary Clinton proclaiming their renewed fervor as “champions of the poor and downtrodden”

To avoid the appearance of bottom-feeding, populist candidate Edwards has now promised to assist all the homeowners being foreclosed due to involvement with the company Edwards consulted for. Part-time work at Fortress Investment Group LLC provided Edwards with a salary of approximately $476,000 for the year 2006. In addition, Fortress Investment Group personnel were heavy contributors to the Edwards presidential campaign to the tune of $150,000.

Clearly, populism has rewards that are both political and financial. However, when brazen hypocrisy masquerades as populism, people are rightly disgusted.


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