Chink in the armor of auditors and bond rating agencies?

Matt Taibbi gives us a bit of hope that some justice will be done:

[T]he lead auditor reviewing one of the world’s largest investment banks [Lehman] had no idea what a series of regularly-occurring billion-dollar transactions committed by her main client were, and apparently wasn’t interested. It also didn’t seem to bother E&Y that Lehman was not disclosing any of this to its investors in its SEC filings. My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible. Without accountants and raters signing off on all the bogus derivative math and bad bookkeeping, a lot of this mess would never have happened.

Continue ReadingChink in the armor of auditors and bond rating agencies?

Senator Bernie Sanders discusses the immense magnitude of the backdoor bailout

Senator Bernie Sanders has presented some jaw-dropping facts about the financial bailout at Huffpo. He frames his article by mentioning that back in 2009, when he asked Fed Chairman Ben Bernanke to identify the institutions that received a backdoor bailout from the Fed, he refused. Sanders refused to accept that answer. Instead, he worked hard to force an amendment into the "Wall Street Reform" bill, and we now know some of the startling things Bernanke refused to admit:

After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion-dollar bailout of Wall Street and corporate America . . .

We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.

We also learned that the Fed's multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout. Among those are General Electric, McDonald's, Caterpillar, Harley Davidson, Toyota and Verizon.

Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks -- Deutsche Bank and Credit Suisse -- which were the largest beneficiaries of the Fed's purchase of mortgage-backed securities.

Sanders has written a blistering piece in which he argues that the biggest banks padded their own executive's pockets, refused to lend to small businesses, used near-zero interest loans they obtained from the Fed to buy Treasury securities and that they continued to gouge consumers through high credit card fees. He suggests that those banks that received this corporate welfare could also have used this money to work out mortgage loans. He is aghast at the conflicts of interest. I am so relieved to know that we have at least one politician who is willing to shoot straight with the American people.

Continue ReadingSenator Bernie Sanders discusses the immense magnitude of the backdoor bailout

Matt Taibbi reports from his front row seat at a foreclosure court trial docket

Matt Taibbi's newest article should be required reading for anyone who wants to support the desires of banks to expeditiously foreclose on home loans. Taibbi showed up at a Florida foreclosure docket to give an insider's view. You will be amazed at the conduct of the judge (it is described toward the end of Taibbi's article). Here's the link: Courts Helping Banks Screw Over Homeowners: Retired judges are rushing through complex cases to speed foreclosures in Florida. Here's an excerpt:

At worst, these ordinary homeowners were stupid or uninformed — while the banks that lent them the money are guilty of committing a baldfaced crime on a grand scale. These banks robbed investors and conned homeowners, blew themselves up chasing the fraud, then begged the taxpayers to bail them out. And bail them out we did: We ponied up billions to help Wells Fargo buy Wachovia, paid Bank of America to buy Merrill Lynch, and watched as the Fed opened up special facilities to buy up the assets in defective mortgage trusts at inflated prices. And after all that effort by the state to buy back these phony assets so the thieves could all stay in business and keep their bonuses, what did the banks do? They put their foot on the foreclosure gas pedal and stepped up the effort to kick people out of their homes as fast as possible, before the world caught on to how these loans were made in the first place. . . . When you meet people who are losing their homes in this foreclosure crisis, they almost all have the same look of deep shame and anguish. Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government. That's why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won't pay their fucking bills. And that's why most people in this country are so ready to buy that explanation. Because in America, it's far more shameful to owe money than it is to steal it.

Continue ReadingMatt Taibbi reports from his front row seat at a foreclosure court trial docket

Good questions for Bank of America

Dan Froomkin summarizes the antics of Bank of America. William K. Black has a lot of unanswered questions for Bank of America.

Black, writing alone, also corrected President Obama’s assertion during his interview with Jon Stewart, that chief economic adviser Larry Summers had done a “heckuva job.” Summers did not resolve the financial crisis, Black wrote, he just papered over the problem. In another solo effort, Black warned that papering over the problem will actually increase the total cost of the crisis in the long run, and he concluded that “the administration's banking policies have attained the terrible trifecta: terrible economics, terrible ethics, and terrible politics.”

Continue ReadingGood questions for Bank of America

William Black: Stop the banks. Indict the banksters.

Wire fraud and mail fraud are extremely serious federal crimes. Thousands of people who have perpetrated fraud through the mail or through telecommunications of any sort have been sent to prison for up to 20 years.  The U.S. Department of Justice warns that prosecution of wire fraud is not always merited, however. Prosecutorial resources should not be expended where fraud is a small piddling crime. For example:

Prosecutions of fraud ordinarily should not be undertaken if the scheme employed consists of some isolated transactions between individuals, involving minor loss to the victims, in which case the parties should be left to settle their differences by civil or criminal litigation in the state courts. Serious consideration, however, should be given to the prosecution of any scheme which in its nature is directed to defrauding a class of persons, or the general public, with a substantial pattern of conduct.
What, then, should we make of the decision by the biggest banks in the United States to spew millions of lies through the mail in the zealous attempts to kick people out of their houses?  Everything about this bank fraud meets the test for serious fraud.  Not isolated.  Not between individuals.  Not involving minor losses to victims.  The victims, for the most part, cannot settle their differences by litigation because they have been put into desperate financial situations by the lenders, working hand-in-hand with the bank.  And yes, this scheme is directed to defrauding a large class of persons, and the general public is going to suffer the consequences of this "substantial pattern of conduct," namely, the large tracts of foreclosed homes in their neighborhoods. Note too, that the federal fraud statutes kick up the penalty to up to 30 years in prison "if the violation affects a financial institution."  Of course, the politicians and bank are going to argue that the increased penalty only applies if the institution is the victim. Then maybe it's time to pull out that wonderful quote by Anatole France:

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.

In steps bank regulator/investigator William Black, into the fray.  Black is one of the few nationally prominent voices I completely trust with it comes to the conduct of banks over the past few years (and yes, decade).  Here is the solution Black offers, one that politicians are going to choke on because the banks own Congress.

S&L regulators, criminologists, and economists recognize that the same recipe that produced guaranteed, record (fictional) accounting income (and executive compensation) until 2007 produced another guarantee: massive (real) losses, particularly if the frauds hyper-inflated a bubble. CEOs who loot "their" banks do so by perverting the bank into a wealth destroying monster -- a control fraud. What could be worse than deliberately growing massively by making loans likely to default, converting large amounts of bank assets to the personal benefit of the senior officers looting the bank and to those the CEO suborns to assist his looting (appraisers, auditors, attorneys, economists, rating agencies, and politicians), while simultaneously providing minimal capital (extreme leverage) and only grossly inadequate loss reserves, and causing bubbles to hyper-inflate?

This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed "fraud in the inducement." Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done -- so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

I should add that there are many cases where foreclosure is perfectly appropriate.  On the other hand, there are hundreds of thousands of cases where disreputable loan originators such as Ameriquest and Countrywide systematically lied to borrowers, sticking them into loans that the borrowers had no hope of paying off when the hyper-charged "adjustable rate mortgage" came into effect two or three years later.  Add in the deceitful "yield spread premiums," hidden fees and the many lies about prepayment penalties, and you've got enough fraud to fill the courts of this land for many years to come, where banks who foreclosed based on these shameful scenarios should be punished and forced to make amends to the homeowners.   That is what should happen.

Continue ReadingWilliam Black: Stop the banks. Indict the banksters.