(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.
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.
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.
[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.