Bill Black’s Nightmare has become reality

(9AM EST – promoted by Nightprowlkitty)

  Eighteen months ago William Black was interviewed by Bill Moyers on PBS. The subject of the interview was fraud.

WILLIAM K. BLACK – when we look at these liar’s loans, we find 90 percent fraud. 90 percent. And we find that most of the frauds are not induced by the borrower, but they’re overwhelmingly done by the loan brokers.

No real questions asked. Certainly no answers checked. In fact, we just had hearings last week about WaMu, which is also a huge player in these frauds. Washington Mutual, which used to make, run all those ads making fun of bankers who, because they were stuffy and looked at loan quality before they made a loan. Well, WaMu didn’t do any of that stuff. And of course, WaMu had just massive failures. And who got in trouble at WaMu? Who got in trouble at Lehman? You got in trouble if you told the truth. They fired the people who found the problems. They promoted the people that caused the problem, and they gave them massive bonuses.

 It wasn’t just low-level employees. Matthew Lee, vice-president of Lehman Brothers, was fired without advanced notice for trying to expose the fraud in his company. It’s what Black refers to as “control fraud”.

 This was all known in the months after the 2008 collapse, yet there hasn’t been a single, solitary executive sent to jail for causing this disaster. So why should anyone be surprised that the fraud on Wall Street has continued to get worse?

In November 2007, the rating agency Fitch dared to look at some loan files. It found fraud in nearly every single file reviewed.

 In April, University of Texas economics professor James K. Galbraith had this to say: “You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies.”

  Galbraith says millions of mortgages were counterfeits, not mortgages.They were then “laundered” through securitization. The commercial banks were the “fences” while the investors were the “marks”.

The Housing Bust’s Enron

 How did the fraud get to epidemic levels? It was all part of the ideology of Fed Chief Alan Greenspan.

“I don’t think there is any need for a law against fraud.”

 – Alan Greenspan to Brooksley Born

 In fact, the FBI warned about an “epidemic” of fraud in the mortgage industry all the way back in 2004. They predicted it could lead to the “next S&L crisis”.

  Three years later, with mortgage fraud at its peak, the FBI went into a “partnership” with the Mortgage Bankers Association to supposedly combat mortgage fraud. What happened instead was to define out of existence fraud by the lenders.

 Why is the government so reluctant to pursue all this fraud? Because they are heavily invested in it.

 the Fed now owns nearly $1.5 trillion of toxic assets that have no bid (meaning no one but the Fed wants them). They would have less of a bid if there was even more uncertainty about the loans that fill them. The Treasury is directly backing $400 billion of government-sponsored entity (GSE) securities, and is indirectly backing another $6.8 trillion. If foreclosed homes couldn’t be sold because of fraudulent paperwork or had to wait for more detailed inspections, you can imagine how difficult selling assets stuffed with faulty loans might be.

Thus we see an unintended consequence of the Wall Street bailout – the government is now partnered with crooks in a criminal pyramid scheme.

 The FDIC, while in control of IndyMac Bank, bank control officers were robo-signing foreclosures.

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 The recent Fraudclosure Scandal (aka Foreclosure-Gate, aka robo-signers) is getting the media attention that the original Wall Street fraud never got. Yet few are putting the two together.

 Has no one considered the idea that the foreclosure fraud is merely the end stage of covering up for the original mortgage fraud?

 The foreclosure fraud is so blatant that the foreclosure mills have published price lists for forging documents. The prices are very reasonable.

 Consider this: The same mortgages were pledged multiple times.

 The game was to move money under a scheme of deceit and fraud. First sell the bonds and collect the money into a pool. Second take your fees, third take what’s left and get it committed into “loans” (which were in actuality securities) sold to homeowners under the same false pretenses as the bonds were sold to investors…

  since multiple parties were making the same claim in these side contracts and guarantees, counter-party agreements etc. the actual documents could not be allowed to appear nor even be created unless and until it was the end of the road in an evidential hearing in court. They used when necessary “copies” that were in fact fabricated (counterfeited) as needed to suit the occasion.


 The banks are trying to bluff us and say that it was all a temporary process problem, but few are buying it. Attorney generals in all 50 states are investigating the issue. Lawyers of foreclosed homeowners are drawing up lawsuits. BofA is being sued for racketeering. State judges are finally viewing the bank’s paperwork with skepticism. Cook County Sheriff Tom Dart has simply stopped enforcing foreclosure evictions.

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 If you want a real potent signal of what people really think, just look at what the big money is doing.

 Fidelity National Financial Inc. is requiring banks to sign foreclosure warranties.

 Major investment bond funds Pimco and BlackRock are calling on BofA to take back $47 Billion worth of mortgage-backed securities.

 Fannie Mae and Freddie Mac regulators are also looking to recoup billions in losses from bad mortgages they bought from the banks.

 Even more ominous, major hedge funds are taking positions against the banks.

 Besides the major institutions, hedge funds like York Capital and Moore

Capital have been jumping into the game recently, buying up bad debt in the

hopes it will eventually be bought back, according to traders and money

managers. Both funds declined to comment.

   “Any hedge fund with a distressed desk is contemplating this trade,”

said one analyst who insisted on anonymity. “The idea of bottom-fishing

vulture funds buying this stuff up for a nickel on the dollar so they can

sue the banks to get 100 cents must be pretty odious for the Treasury,

which bailed out the banks in the first place.”

 The lawyers, title companies, bond funds, and hedge funds have all turned on the major banks. It’s a shark feeding frenzy now that blood is in the water, and someone isn’t going to come out of it alive.

 How much will this scandal cost the TBTF banks? The early estimate by JP Morgan is $55 Billion. However, if you remember early in the subprime bust, Fed Chief Ben Bernanke estimated the ultimate cost to the economy of around the same amount. It turned out to be in the trillions of dollars.

  Jim Rickards estimates that fraudclosure will cost Wall Street “hundreds of billions” of dollars, which is more than the banks can afford. That would ultimately lead to TARP 2.

 However, it should be blatantly appearant to all but the most dim human beings that the cost of this mess is not the most important issue. It is the criminal conduct of the overpaid bank executives on Wall Street.

  Throwing these crooks in jail is no longer just the moral thing to do. It is the necessary thing to do. Yet the Obama Administration has carefully avoided using the word “fraud” to describe foreclosure-gate. The Republican Party is even worse, complaining that new, watered-down financial regulations are too onerous.

  If these crimes are not punished then we are facing a 3rd world kleptocracy, and anyone who thinks you can change a system like that from within is a fool.

  We have arrived at the moment when the rule of law is being questioned. When the very idea of what America stands for is in doubt. Are there two legal systems, one for the rich and another for the poor? Is the law itself for sale? Is the government compromised all the way to the top from being in bed with Wall Street?

  If the largest theft in American history can be carried out in broad daylight and the thieves suffer no consequences, then perhaps those right-wing, anti-government gun-nuts have more sense than the rest of us do.

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[Update: This is from today’s news.

 The Federal Reserve Bank of New York’s effort to recover taxpayer money used in bailouts during the crisis may be at odds with its mission to ensure the stability of the financial system…

  Concern that Bank of America may be forced to buy back soured mortgages helped send its stock down almost 5 percent in the last two days, wiping out $5.92 billion of its market value. The decline runs counter to the Fed’s goal of strengthening the banking system after the worst crisis since the Great Depression.

  “This is an inherent conflict,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “They’re transferring the loss from what would have been Bear Stearns through the Fed to the originators of the mortgages. That’s an odd chain, and I don’t know how you manage that.”

 Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases, said Kathy Patrick, the bondholders’ lawyer at Gibbs and Bruns LLP in Houston. Patrick represents investors who own at least 25 percent of so-called voting rights in the deals and stand to recover “many billions of dollars,” she said.

  The Fed has no choice except to shield the assets it acquired as it stepped in to prevent a collapse of the financial system, said Joseph Mason, a finance professor at Louisiana State University in Baton Rouge.

 I don’t know about the rest of you, but I feel the screwjob coming.  


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    • gjohnsit on October 21, 2010 at 06:52
  1. not backwards.  I kid you fucking not.

    the administration is focused on ensuring future compliance, rather than on looking back to make sure homeowners and investors weren’t harmed during the reckless boom years. The administration is “committed to forcing institutions to change the way that they conduct business,” Obama’s top housing official said, “to make sure these problems don’t happen again.”

    via digby

    Responsibility-shirking, law-evading, post-deserting rat-fucker.  Fuck Obama with barbed dicks from hell.

  2. entire fabric of American Society. Not only are banks

    creating contracts out of thin air and injecting them into the world economy, but overreaching itself is now eating away like a cancer at the social fabric of the country: Credit card fees, banking fees, investment fees, check cashing scams and insane interest rate charges for poor people buying cars, refrigerators etc. And now we’re seeing insane healthcare insurance costs. But it’s not just the costs themselves that are cancerous, but the very underlying adhesion contracts themselves that the average American can’t fathom. Throw in a tax system that is rigged against American workers, and the slow deterioration of American Democracy is almost unstoppable.

    Even the majority of higher education students in this country are being shackled with debt they’ll never be able to throw off. States are selling off property to pay their obligations, and public institutions are being forced to cannibalize themselves and hustle for money.  

  3. Consider this: The same mortgages were pledged  multiple times.

    See, now that’s what the whole idea of the proper chain of title is supposed to preclude.  If that happened often at all, this will create financial havoc even if every single such mortgage gets properly paid off.  After all, proper payoffs only pay off once, and if the mortgage was repeatedly hypothecated, the multiple holders of the same mortgage aren’t all going to be able to be paid off with the proceeds from the single proper payoff.

  4. …another step closer to the abyss…

  5. assured me last night on Bloomberg that the government has looked into it and there is nothing ‘fundamentally flawed’ with the way the banks securitized home mortgage loans or in the way they are foreclosing them. It would not be good for the housing market to interfere and freeze or slow down the process. Digby has a good snarky post about this….

    Lets not Look Back at the Burning Carnage in the Rearveiw Mirror……….

    “Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended,” Donovan said at a Washington press briefing. “First and foremost, we are committed to accountability, so that everyone in the mortgage process — banks, mortgage servicers and other institutions — is following the law. If they have not followed the law, it’s our responsibility to make sure they’re held accountable.”

    He added, however, that the administration is focused on ensuring future compliance, rather than on looking back to make sure homeowners and investors weren’t harmed during the reckless boom years. The administration is “committed to forcing institutions to change the way that they conduct business,” Obama’s top housing official said, “to make sure these problems don’t happen again.” ………….

    ‘The deadbeat citizens, however, must be held accountable lest the country creates a monstrous moral hazard. Believe me, it’s not something that our dear leaders want to do. It’s just that no functioning society can allow average people to believe that they are more important than the wealthy owners who need to risk other people’s money for the good of the country. It’s tough love. We should be grateful for it.’


    • banger on October 22, 2010 at 14:34

    The USA definitely had it’s moments of brutality and corruption like any other society. The face was that up until the mid-seventies this country provided its people with the best wages and standard of living in the world, materially speaking though by the 70’s the rest of the world was catching up and beginning to pass us. Since that time the direction has been south in every way except technologically and that has been a very mixed blessing for reasons that I won’t go into now.

    My point is that this fraud crisis which is the 2008 collapse and all that has followed has been allowed to stand. Neither reform nor justice has happened. The 2008 election was the “fraud election.” We had a fraudulent candidate promising change that brought only stability for the oligarchy–Obama may have had some reformist intentions but, for whatever reasons, he, in my view, did not even make an attempt at reform and “change.” As such the country is over. When you have massive corruption in the ordinary sense, blatant disregard of the law, and conscious intention to violate the Constitution by the Bush administration one would have expected the following administration to be institute both justice and reform. That hasn’t happened and won’t happen. The country is done—whatever we live in it is not the country that had its first election in 1789. The continuity has been broken.

    Look at our political situation. We have one party of the center-right and one party on the far-right. The latter party appears to have as its main agenda the utter destruction of civilization as we know it and substituting a very primitive neo-feudal order. In my view that is where we are heading since I see no counter-force.  

  6. What everyone is still missing, including most lawyers, is that the deeds of trust and the mortgages of the last ten years or so, clearly show how securitization is different from times past.

    In the good old days, the deeds of trust and mortgages gave lien rights to the noteholder.  Under securitization, that all changed.  Under securitization, lien rights are given to a strawman called MERS, not to the noteholder.

    In the old system, a borrower, a title company or a prospective purchaser could find out who the noteholder was by simply checking the deed records which stated who the lienholder was.  Since  the lienholder and noteholder were the same, everybody knew who had the note.

    But undersecuritization, the noteholder becomes a complete mystery, because the lienholder always remains this strawman, MERS.  Now it is virtually impossible to find out who holds the note or even if the note exists, and the lenders refuse to tell even when asked by borrowers.

    It was these deed record shenanigans created by the wizards of Wall Street that made all of the subsequent fraud easily possible.  Securitization took a transparent public deed recording system and turned it into a secret private system.

    Is anyone really surprised that such a system would be conducive to fraud?  It is Taylor made for fraud.


    You can link to the draft law review article by clicking on the link called:

    “And threatens to crumble into dust….”

    The law professor who is writing this article summarizes the legal situation in the best fashion I have seen yet to date.

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