Could It Be? More Handcuffs?


Hoh hoh hoh what’s this?

California Atty. Gen. Kamala Harris, saying that years of unscrupulous lending still haunts the state, is creating a 25-person task force to target mortgage fraud of any size — from small operations that preyed on troubled borrowers to corporations that sold risky loans as safe investments.

Aha.  Now we’re seeing something useful.  Gee Kamala, why did it take this long?  And can I ask whether you’ve figured out how to get around the pesky statute of limitations problems?

• Corporate fraud, including instances in which bundled mortgages were sold as securities to the state or its pension funds under false pretenses. Harris said her office plans to prosecute some cases under California’s False Claims Act, which she described as “one of those very powerful tools that California uniquely has … to pursue, in essence, what are false claims that are submitted to the state.”

It’s called “control fraud” Kamala.  Go ask Bill Black about it; he wrote the book.  Literally.  And he was entitled to, seeing as he prosecuted and jailed something like 1,000 banksters last time around during the S&L mess.

• Scams, including instances in which consultants, lawyers and others took fees from people in foreclosure, saying they would help the homeowners get loan modifications or other remedies, but delivered nothing.

That’s a target-rich environment. 

• Fraudulent lending practices, including deceptive marketing, failure to fully disclose loan terms and qualifying people for loans who couldn’t afford the terms.

You mean the wonderful models that were designed for one and only one purpose: To force serial refinancing so as to generate fee income, all propelled on the back of two presumptions:

  • House prices would rise forever, and therefore the bank could simply steal the appreciation by constructing a loan that would effectively guarantee your reappearance in their office in two or three years.

  • If the first didn’t happen, the bank didn’t care as they had sold off the bad loan to someone else, claiming it was a good loan.  We know this factually happened because Citibank’s former Chief Risk Officer testified under oath before the FCIC that 80% of their loans written in 2007 did not meet quality standards.  Yet they sold them onward anyway.

She goes on with:

“We are looking at a situation of up to $640 billion in wealth having been lost because of this wave of foreclosures that has hit the state,” Harris said, referring to the decline in homeowner equity.

It’s not quite that simple.  See, the so-called “equity” was never really there is in the first place.  You can’t lose what you never had, or to put it another way, the fraud caused the “equity increase”; discovery of it, and the deflating of the bubble simply removed that which was falsely claimed to have occurred.

But that’s wordsmithing.

Many Wall Street financial institutions — private equity firms, hedge funds and banks — bundled often poor-quality mortgage loans into securities during the boom years and sold them to major investors, including pension funds. That resulted in billions of dollars in losses when borrowers defaulted on the loans, triggering the financial crisis.

There’s nothing wrong with making dangerous loans and selling them.  It only becomes illegal when you lie about what’s in the box.  If you tell someone that the box is full of used dog food, that’s legal. 

But what would anyone pay for a box of used dog food, as opposed to one full of premium chocolates?

Ah, there’s the problem you see.

Presented properly to a jury, given the under oath statements already made, it shouldn’t be that tough.

It’s not about inability to prove the case – it’s about political will to go after institutions that have formed some of the biggest campaign funding sources over the last decade.

The announcement is good, but as always the proof is in the follow-through.

The Market-Ticker