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Archive for the ‘William Black’ Category

Jim Rogers, when he made that statement, was referring to the lunacy of using public money to preserve failed private enterprise in a “capitalist” economy. That is what we did, after all. We saved failed institutions, failed individuals, and failed thinking. That is wrong on many levels. But we went a step further: we saved dishonesty, criminality, and corruption. That is a far more serious proposition.

Bill Black is arguably the most important voice when it comes to the criminality that was preserved. If you are not well-versed in the criminal aspects of the crisis and in Gresham’s Dynamics, the following is an important video to watch (I recommend following the Powerpoint presentation while running the video – filmed 2/18/2010):

Powerpoint slides from the presentation can be viewed here.

Steinhardt Lecture 2010 at Lewis & Clark College presents Dr. William Black from The Resource Lab on Vimeo.

Capitalism requires failure. Without failure, the worst actors game the system so that they are able to thrive. In the process, they deprive honest entrepreneurs of opportunities that make a capitalist economy stronger and more resilient. Without failure, Gresham’s Dynamics – in banks, in ratings agencies, in government, in academia – are perpetuated and catalyzed. And without failure, moral hazard corrupts the thinking of all market participants; they are taught that crime pays and honesty is, in some ways, punished.

We have perpetuated criminal environments that are not going to resolve themselves. Those environments are once again buried in profits and bonuses and rising stock prices and lobbyist-written legislation that creates opacity. But the criminality has not been addressed. Since our leaders are not undertaking the house-cleaning that could rid us of the worst actors and send a message to others, we have to expect the corrosive results of institutionalized dishonesty to continue to undermine our capitalist economy in fundamental ways. Unfortunately, we likely will not have the luxury of being able to lower interest rates and loosen credit availability so as to paper over our economic problems next time… we have played those cards.

The USA has arguably been stressed to its limits when it comes to public debt, private debt, currency debasement, and interest rate drops. Add in rampant dishonesty in the highest echelons of private and public power, and we are facing a serious threat to our well-being.

Predicting how this will play out is impossible. But ignoring the big issues is a mistake. At the very least, if you want to protect yourself and your community, you have to pay attention to what is happening in our macro-economy. And since no mortal with a job outside of finance can possibly stay on top of these issues, it is vital to find analysts who are not compromised.

Capitalism Without Failure

Congressional Testimony of William K. Black regarding the 2008 Lehman Brothers failure.  It’s fraud.  It’s all fraud and Congress has been advised.  They should no longer be allowed the plausible deniability of ignorance.

On December 13, 2011, the Wall Street Journal published an article entitled “Banks in Push for Pact.” It was an obscure article buried in the real estate section.  The article contained this clause:  “Under the proposal, banks would be released from legal claims tied to servicing delinquent mortgages as well as certain mortgage-origination practices….”  Opponents of this proposed amnesty for mortgage-origination fraud have charged repeatedly that the federal government and Tom Miller, the Attorney General of Iowa, who is leading the settlement negotiations, support the amnesty.  Previously, Miller’s key lieutenant, but not the Obama administration, angrily denounced the charge.

The Four Levels of Control Fraud Involving Mortgages

Home lenders, particularly those making liar’s loans, typically committed endemic “accounting control fraud” on multiple levels.  Control fraud occurs when the persons controlling a seemingly legitimate entity use it as a “weapon” to defraud.  Accounting is the “weapon of choice” for financial control frauds.  Mortgage frauds can be grouped into four levels, each of them exceptionally widespread:  loan origination fraud by the lenders and their agents, the fraudulent sale of fraudulent mortgages, the fraudulent pooling and sale of collateralized debt obligations (CDOs) in which the underlying was largely fraudulent mortgages, and foreclosure fraud.

Loan Origination Fraud

The classic economics article describing such frauds is George Akerlof and Paul Romer’s “Looting: the Economic Underworld of Bankruptcy for Profit” (1993).  The recipe” for accounting control fraud by a lender (or purchaser) has four ingredients.

1. Extreme growth by making (or purchasing)
2. Loans of extremely poor quality at a premium yield
3. While employing extreme leverage, and
4. Providing grossly inadequate allowances for loan and lease losses (ALLL)

Origination fraud involved a series of mutually supportive frauds: inflating the borrower’s income, inflating the appraised value of the home, providing grossly inadequate allowances for loan and lease losses (ALLL), and failing to recognize losses on fraudulent loans held in portfolio.  It was also common for federally insured lenders to file false reports with and make false statements to the regulators.  Lenders that made liar’s loans were “accounting control frauds.”  Their CEOs cause them to create perverse incentives to suborn the supposedly independent experts to provide opinions that inflate values and understate risk in order to aid and abet the underlying accounting fraud.  These perverse incentives create a “Gresham’s” dynamic in which bad ethics drives good ethics out of the marketplace.  The result is “echo” fraud epidemics.  Each of these frauds constitutes a federal felony.  Most of the frauds I have described are also felonies under state law.  Collectively, there were millions of origination frauds with a total dollar amount of fraudulent originations well in excess of $1 trillion.

The Fraudulent Sale of Fraudulent Loans

The second level of fraud is the fraudulent sale by the lenders of the fraudulent loans.   This form of fraud required endemic false “reps and warranties.”  Roughly 90 percent of liar’s loans were sold, so this second level of fraud also constitutes millions of federal and state felonies and roughly $1 trillion in fraudulent sales.

The Frauds involved in Pooling Fraudulent Loans to Create and Sell Fraudulent CDOs

The third level of fraud is the sale of collateralized debt obligations (CDOs) “backed” by fraudulent liar’s loans through false disclosures.  This level of fraud constitutes tens of thousands of federal felonies and roughly $1 trillion in fraudulent sales.

Foreclosure Fraud

The fourth level of fraud is foreclosure fraud.  The best known of these frauds involved the commission of hundreds of thousands of felonies through the filing of false affidavits to secure foreclosures (inaptly called “robo signing”).

Massive Foreclosure Fraud Generated the Global Settlement Discussions

It was this last level of fraud that prompted the settlement discussions.  What one must keep constantly in mind when dealing with lenders that are control frauds is that they and their senior officers will be represented by the best criminal defense lawyers.  America still does many things superbly, and we do lawyers really well.  The fraudulent officers who control banks engaged in control fraud will spend bank funds like water for their defense lawyers.  The old joke is that when one is dealt lemons one should make lemonade.  In law school, however, we consider that the “C minus” answer.  When dealt lemons; the best lawyers seek to make Dom Perignon.

Consider the setting – you represent a systemically dangerous institution (SDI) that was the beneficiary of a federal bailout.  Your client has made hundreds of thousands of fraudulent liar’s loans and fraudulently sold the great bulk of them.  If your client is held responsible for these frauds it will have to reveal that it is massively insolvent and face receivership.  Your client is also one of the largest mortgage loan servicers in the world.  A small law firm representing a borrower has taken the deposition of one of your client’s key employees who signed the affidavits necessary to support roughly ten thousand foreclosures a month – and admitted that the key statements she has made in each of those affidavits is false.  The somnolent federal government had finally been forced to admit that the banks have engaged in endemic foreclosure fraud.  The states are also involved.  This would be a nightmare scenario for any normal client.  For an SDI, however, it was an opportunity.

L’audace, encore l’audace, toujours l’audace!

(Audacity, more audacity, always audacity: the white collar defense lawyer’s creed)

One of the secrets to being an extraordinarily effective elite criminal is also true of their lawyers – audacity.  Elite white-collar criminals can frequently get away with grotesque criminal conduct if they use their exceptional advantages provided by wealth, privilege, and seeming legitimacy.   Even within the ranks of elite white-collar criminals, however, the CEOs who control SDIs – particularly during a financial crisis that they caused – are unique in their power to commit crimes with impunity.  They hold the national, even global, economy hostage.  Treasury Secretary Geithner has made this strategy simple by displaying the “Stockholm Syndrome.”  He has fallen in love with the criminals that are holding our economy hostage.  Geithner claims that the fraudulent SDIs are so fragile that they would collapse if they were even investigated seriously for fraud.  He conveniently ignores the fact that the primary reason for the SDIs’ fragility is that their CEOs looted the banks.

They can also use “their” bank to buy the modern equivalent of indulgences for even the most destructive frauds.  There are two non-exclusive means of buying indulgences.  The most obvious means is political contributions.  The finance industry is the leading funder of both political parties. The less obvious means of buying immunity arises from the dysfunctional nature of DOJ policies for (not) prosecuting major firms for serious felonies and the ability of the CEO to use corporate funds to purchase personal immunity from criminal prosecutions.  Five facts about the criminal defense of large firms must be kept prominently in mind when considering the defense of banksters.  First, the CEO will gladly trade off billions of dollars in payments by the bank and its liability insurers in order to secure immunity from criminal charges against the CEO and the senior officers who could implicate the CEO.

Second, the Department of Justice (DOJ) has essentially ceased to prosecute large firms for serious felonies.  DOJ was so traumatized by the consequences of prosecuting Arthur Andersen that it has decided to allow large firms to enter into “deferred prosecution” agreements (in which prosecution is, in reality, perpetually deferred).  Arthur Andersen had entered into two deferred prosecution agreements, and DOJ offered it a third, when AA refused the agreement and went to trial.

Third, while I have referred to the firm as the “client” and the firm and its insurers typically pay for the attorney fees and fines, it is the CEO that can hire and fire outside counsel.  Outside counsel, therefore, are chosen by fraudulent CEOs because they are willing to aid and abet the CEO in looting the real client (the firm).  This is a classic example of the fraudulent bank CEO deliberately creating a Gresham’s dynamic in which the least ethical members of the “independent” profession drive the most ethical out of lucrative representations.  In criminology jargon, control frauds are criminogenic.  Fraudulent CEOs use their ability to make compensation for officers, employees, and independent professionals perverse in order to create environments that cause widespread frauds that aid and abet the lender’s fraud scheme.  To put it in plainer, biblical English:  fraud begets fraud.

Fourth, the settlement payments are typically deductible from taxes.  This means that the defendant’s actual burden of paying the fine is much smaller than the announced amount of the fine.

Fifth, defense counsel typically promise to pay some portion of the fines to the victims of the fraud.  This is a brilliant tactic.  It makes the government attorneys feel good about the settlement and it allows them to bash opponents of the settlement as blocking relief for the victims.  The tactic, of course, is cynical and dishonest.  The weak settlement is what prevents a far greater recovery for the victims of the fraud.  The government does not have to wait for a settlement to aid the victims of foreclosure fraud.

Settlement discussions by counsel for control frauds with the government and shareholders are all about exceptionally able and zealous legal representation of the CEO at the expense of the client, its shareholders, and the public.  Only vigorous regulators and prosecutors can protect the firm, shareholders, and public from looting by these CEOs and the allies they generate.

The Proposed Deal: The $1 Trillion Lagniappe

The obvious deal that criminal defense counsel for banks always seek is to trade a showy amount of fines for de facto or even formal immunity for the CEO and other senior officers who led the frauds and became wealthy through the frauds.  Here, the defense counsel were far more audacious – they are demanding immunity not only from prosecution, but even from investigation, and they are demanding immunity for crimes they committed that have never been investigated by the state and local prosecutors.  The foreclosure fraud cases, while enormous, are by far the least of the banksters’ worries.  The potential loss exposure from the foreclosure fraud is measured in the tens of billions of dollars.  The potential loss exposure from fraudulent home loan originations is in the trillions of dollars – and a trillion is a thousand billion.  The banks’ CEOs are demanding, for a puny $25 billion, a release from liability for foreclosure fraud.  That is obscene on multiple levels.  Even President Obama concedes that the banks treat such fines as a mere “cost of doing business” (by which he means the “small tax on the wealth obtained by elites through doing fraudulent business”).  The senior officers involved in the fraud should be imprisoned.  Giving them immunity, allowing them to keep their bonuses “earned” through fraud, and keeping them in leadership roles are all despicable acts that should be anathema to every prosecutor.

But what came next went beyond scandal as usual.  The banks then demanded a lagniappe – a little something extra, for free, in a New Orleans restaurant – they wanted immunity for loan origination fraud.  The slight difference is that this lagniappe is worth trillions of dollars to the frauds.  It sickens me to inform the reader that the Obama administration is eager to provide the frauds with this lagniappe.  The Department of Housing and Urban Development (HUD), led by Secretary Shaun Donovan, is actively pushing this scandalous deal, with strong support in the background from Treasury Secretary Geithner.  The silence of Attorney General Holder, and President Obama, on this travesty is exceptional.

Worse, the banks are seeking immunity even from investigation of the over trillion dollars in mortgage origination fraud – and the Obama and Bush administrations’ supposed “investigations” of mortgage origination fraud by the large lenders that made the mass of liar’s loans are all unworthy of the word “investigations.”  It would take roughly 100 investigators, working for years, to do a serious investigation of any of the largest liar’s loan lenders.  There has never been, remotely, such an investigation by the federal government of the any large liar’s loan lender.  The Obama administration is reported to support the fraudulent financial CEOs’ dearest dream – de facto immunity even from investigation of over a trillion dollars in fraudulent liar’s loans origination.

The Republican Party and its candidates for the Party’s presidential nomination are not criticizing Obama’s proposed formal surrender to crony capitalism.  They only wish they were in complete power and could cash in even more heavily on the tidal bore of campaign contributions flowing out of the finance industry.

Miller, and everyone involved, knows there was endemic origination fraud

Miller no longer denies that he has joined the administration in favoring the banks’ most cherished dream – amnesty for originating a trillion dollars in fraudulent home loans.   Indeed, the settlement is designed to prevent even investigations of the mortgage origination fraud.

I confess that I am so naïve that I would have believed it impossible that any federal or state governmental entity would enter into such an abject surrender to crony capitalism.  Once I learned that they were seriously contemplating such a travesty I could not believe that Miller would support it.  I believed his lieutenant’s (Mr. Madigan’s) denunciation of criticism of the proposed amnesty.  (I have reviewed Madigan’s comments in preparing this piece and I see that they were artfully crafted to be disingenuous.) The testimony of Thomas J. Miller, Attorney General of Iowa, at a 2007 Federal Reserve Board hearing shows that he knows that the lenders engaged in massive origination fraud.

Over the last several years, the subprime market has created a race to the bottom in which unethical actors have been handsomely rewarded for their misdeeds and ethical actors have lost market share…. The market incentives rewarded irresponsible lending and made it more difficult for responsible lenders to compete. Strong regulations will create an even playing field in which ethical actors are no longer punished.

Despite the well documented performance struggles of 2006 vintage loans, originators continued to use products with the same characteristics in 2007.

Miller, T.  2007.  “Comments to the Federal Reserve Board ofGovernors on Adopting Regulations to Prohibit Unfair and Deceptive Acts andPractices under the Home Ownership and Equity Protection Act (HOEPA).” (August 14).  Miller was correct. We know that it was overwhelmingly lenders and their agents that put the lies in “liar’s” loans.  We know that 90 percent of liar’s loans were fraudulent.  We know that the industry massively increased the number of liar’s loans after warnings that the loans were endemically fraudulent.  The growth rate of liar’s loans was so rapid (over 500% from 2003-2006) that these fraudulent loans caused the housing bubble to hyper-inflate.  We know that no government entity ever caused any entity to make or purchase (and that includes Fannie and Freddie) liar’s loans.  Indeed, the government repeatedly warned of the dangers of liar’s loans.  We know that by 2006 roughly one-third of all home loans made that year were liar’s loans – which means there were millions of fraudulent loans made annually and, collectively, trillions of dollars in fraudulently originated home loans.

What must be done

Our economy and our democracy cannot succeed under crony capitalism.  Please join me in writing to Congress, the administration, your state attorney general, the media, and any court that must approve this proposed settlement.  It is a disgrace.  President Obama is, of course, correct that some actions can be illegal but exceptionally unethical and damaging.  He is about to take precisely such an action in derogation of his oath of office to defend and protect the constitution of the United States of America.  The fraudulent CEOs of the banks that became wealthy by causing the financial crisis and the Great Recession are treating us as fools who will give trillion dollar plus gifts to the least deserving, most arrogant, and least ethical elites.  Have we fallen so low as a people that we will allow this to happen?

Please join me in supporting the Attorney Generals of New York, Delaware, and California who have opposed this settlement.  As for President Obama, I hope that he will make this New Year’s resolution:  “I resolve to honor my oath of office and faithfully execute the laws of the United States and defend its constitution, which is premised on justice and the rule of law.  No person, no matter how elite, is above that law.  I have today asked Messrs. Bernanke, Geithner, and Donovan for their resignations because of their support for bailing out the elite banks and granting de facto amnesty to fraudulent financial CEOs.  I, and my new Attorney General and new Secretary of the Treasury, have mutually resolved to make the vigorous prosecution of the elite financial frauds that drove the ongoing crisis our mission. ”

William K. Black – New Economic Perspectives

Now we’re talking…

60 Minutes’ December 11, 2011 interview of President Obama included a claim by Obama that, unfortunately, did not lead the interviewer to ask the obvious, essential follow-up questions.

“I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.”

http://www.cbsnews.com/8301-18560_162-57341024/interview-with-president-obama-the-full-transcript/?tag=contentMain;contentBody

Obama did not explain what Wall Street behavior he found least ethical or what unethical Wall Street actions he believed was not illegal. It would have done the world (and Obama) a great service had he been asked these questions. He would not have given a coherent answer because his thinking on these issues has never been coherent. If he had to explain his position he, and the public, would recognize it was indefensible.

Bill is a very bright guy who I’ve interviewed on Blogtalk before.

His blind spot is in his failure to recognize the deadly embrace between Congress, the Executive and the Banks.  Without the bubbles that the banks inflate Congress and The Executive cannot overspend, and without that offshoring of jobs cannot happen, the looting cannot happen, none of it can happen.

In short you have Bill’s criminogenic environment but in point of fact it is mutually profitable for everyone except the ordinary person.  He gets serially raped by these practices.  The truth of not only the underlying practice but its duration is found in my now-many-times-reproduced chart:

There is no resolution to this problem that does not put a stop to the behavior that causes that chart to come into existence and be maintained.

There is also no financial stability possible until this practice ends.

Government cannot spend more than it takes in via taxes.  It’s that simple.  Nobody wishes to deal with this but it is the intentional refusal to deal with this fundamental truth head-on and live within it’s confines that leads to all of these frauds.

In 2007 and 2008 I started publishing The Market Ticker focusing on this exact point and the abuse of leverage in the financial system.  Nobody wanted to hear it.  Then the 2008 collapse happened.  You’d think that the pain of that collapse would have forced the government to act, to force financial institutions to pull that leverage out of the system and reverse their perversities, to put a stop to the stupidity.  Perhaps support for a short period of time while that was done would have been reasonable, perhaps not.

But none of that happened.  Instead, what happened is that the support was provided and the government did it level damned best to prevent the removal of the leverage that was endemic in the system.  Specifically, everything possible was done to prevent the clearing of home prices and deflation of those “values” (which were utter and complete crap – and still are.)

Now we’re doing the same crap: This morning it is reported on CNBC that European banks are buying sovereign debt at 5% coupons and borrowing the money from the ECB at near zero for three years.  This is a scam as BASEL allows them to buy these bonds with zero capital!

This is a doomsday trade: If the trade “works” and there is no blowup they’ll make more money than they’ve ever made before.  If it blows up the guys on the other side of the trade will get zero because they can’t pay.  Instead of leverage coming out it’s being added!

This crap has to stop.

Bill closes his column (and you should read the whole thing) with:

To date, Bush and Obama have prosecuted none of the mortgage frauds in the top nine levels. I urge reporters to ask him to explain three things about his statements to 60 Minutes. • Why are there no prosecutions of the felons that drove the crisis and occupy the nine worst rungs of unethical and destructive acts? • Explain the five unethical acts by elite financial institutions that you consider the most destructive and least ethical – but which you believe to be legal. How do you rank the degree of unethical conduct and destruction in those acts? • What specific statutory provisions did you propose to make those five unethical acts illegal? As enacted, which provisions of the Dodd-Frank Act made those five unethical acts illegal? Who has been prosecuted for those formerly legal but seriously unethical and destructive acts that were made illegal by the Dodd-Frank Act?

Reporters will have to be persistent in coordinating their follow-up questions to get Obama to provide direct answers to these questions. I request that private citizens write President Obama to ask him to provide specific, written answers to these three questions. I will be proposing a series of questions that I will urge citizens to demand answers to because it is clear that the regular media will rarely ask demanding questions of elite politicians or bankers. It is up to us to hold them accountable and end the doctrine of Presidential Amnesty for Contributors.

The important factor here Bill is that it’s not just PACs, although certainly “money in politics” hasn’t helped.  It’s the fact that no matter where you look Congress and The Executive have not only bought into the scam of ever-increasing leverage in the system they have been some of the worst abusers of this by making political promises that cannot be fulfilled any other way.

We will never address the true cause of the problem until we come to understand and accept that the promises made by the political class to Americans in the form of forward entitlement promises and similar games in the federal budget process are part and parcel of the scam and they are entirely reliant on the banking system running a serial bubble machine and never being forced to reconcile their books lest all of those promises disappear in a puff of smoke!

Neither left or right sides of the aisle will tell the truth about this — but in fact we must if we are to ever find economic stability.

The following is a transcript of a recent speech given by Professor William Black on an Economics Panel regarding the fradulent roots of our current crisis and the urgent need for criminal prosecutions among major US banks.

In the Savings and Loans crisis, which was 1/70^th the size of this crisis, our agency made over 10,000 criminal referrals that resulted in the conviction on felony grounds of over 1,000 elites in what were designated as major cases. And to pick up on what’s just been said, this is not just some sidelight to economics, this is why we have recurrent intensifying crises, is these epidemics of fraud from the C-Street—from the CEOs and CFOs.

In the Savings and Loans crisis, the inevitable National Commission said that fraud was invariably present at the typical large failure. In the Enron era, always frauds from the very top of the organization, and in this crisis the frauds came from the very top of the organization again. But what’s different in this crisis? In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals. They got rid of the entire function. And so there are zero convictions of anybody in the elite ranks of Wall Street. And if they can defraud us with impunity they will cause crisis after crisis and they will produce maximum inequality.

The group that has the audacity to refer to itself as the productive class is the largest destroyer of lives, jobs, and of wealth of any group ever produced in this world. They wiped out six million existing jobs and five to six million jobs that would’ve been created. As you’ve heard, they’ve left 26 million Americans wanting full-time work with no ability to find that work. If you look at just losses in the household sector, it is $11 trillion. A trillion is a thousand billion. And then they have the nerve to say they are the productive class; and, not this journalist, but what we get as faux journalism today, repeats this endlessly as if it were a fact—that they create jobs. They destroy jobs. They are mass destroyers of jobs.

I told you I would bring you a message of hope. I will disagree a little bit with a fact pattern about the Reagan administration and re-regulation on Savings and Loans, because that’s where I was. I will tell you this: everyone opposed our re-regulation of the industry. The big deregulation bill, the equivalent of the repeal of Glass-Steagall and such, occurred in 1982 and became effective in 1983. By November 1983, we were already re-regulating the Savings and Loan industry. And we were called re-regulators because that was the greatest swear word the Reagan administration believed existed—to call people re-regulators. But this was not partisan—a majority of the members of the House at the time it was controlled by Democrats co-sponsored a resolution saying do not go forward with re-regulation.

Five US Senators who became known as the Keating 5 because the most infamous fraud of that era got them together—and who, by the way, did Charles Keating and that fraud use to recruit the Keating 5? Brought him as a lobbyist to walk the halls of the Senate—a guy named Alan Greenspan. Who also put in writing Lincoln Savings posed no foreseeable risk of loss. It was only the most expensive failure—a 3000 position error. And after he got everything wrong in the most important issues he had ever dealt with, after that fact we named him Chairman of the Federal Reserve because we promote incompetence if it helps the 1%.

The Reagan administration was so outraged that we were closing insolvent Savings and Loans with great political support that the Office of Management and Budget threatened to file a criminal referral against the head of our agency on the grounds that he was closing too many insolvent banks. Do we have that problem recently? You see Geithner out trying to close the big powerful banks? And that Reagan administration tried to appoint two members—there were only three members running the place—so this would’ve given control to Charles Keating, the most notorious fraudster in the Savings and Loans crisis, who selected two individuals to run the agency that would then not regulate him. One of them got knocked out on ambiguous political grounds and the other I had to blow the whistle to get him to resign in disgrace, but of course they didn’t prosecute him.

We can prosecute these frauds. The Federal Housing Finance Administration has just filed complaints saying 17 of the largest banks in America committed massive fraud—endemic fraud—and that there’s a paper trail proving that they did so. So where is the Justice department? Why is it not indicting these clear frauds?

When you are told no one could see this crisis coming, ask them about the subprime crisis of 1990 to 1991. It’s a trick question. As all good things do in the world of fraud, this one started in Orange County, where you had significant people making liars loans. Now, remember, it is the lenders who put the lies in liars loans, not the borrowers. We know this empirically. And we stopped that—because it was insane—as regulators. And guess what happened? The leading folks making liars loans gave up their federal charter, gave up federal deposit insurance, and became a mortgage bank for the sole purpose of escaping regulation. And they changed their name. Some of you will recognize this name—to Ameriquest. Ameriquest was the leading predatory lender that in addition to making liars loans every day of the week targeted minorities to destroy that wealth you just heard about. They targeted Latinos, they targeted Blacks, and they were caught. They were caught three times doing this and the justice department refused to prosecute. Instead they settled for four hundred million dollars and guess what happened to the head of Ameriquest? Did he: a) resign in disgrace, b) was he indicted, or c) did we make him our ambassador to the Netherlands? Got it and won. How hard is this to figure out? Why do you think we made him our ambassador to the Netherlands? Because he was the leading political contributor to president of the United States of America. And that’s bad but what comes next is far worse. Remember, this is the most notorious fraud in the nation. It targets minorities. Everybody knows it does so. Two entities rushed to acquire these personnel and this business and their names—Citicorp and Washington Mutual—who become two of the most notorious frauds in all of this.

So timewise I’ll stop here but the case is, when we prosecuted, we had a ninety-percent conviction rate when they had the best criminal defense lawyers in the world and they spent money like water to protect the CEO from going to prison. So when they tell you no one can stop this, it is utter nonsense. I’ll leave you with these statistics: the FBI warned of this in September 2004. In open testimony, it warned expressly that there was an epidemic—I’m quoting—an “epidemic of mortgage fraud” and it predicted it would cause a financial crisis. If that’s not enough, the industry own anti-fraud experts in 2006, in writing, went to every mortgage banker in America and virtually every other lender and said three things: 1) stated income loans are an open invitation to fraudsters, 2) the incidence of fraud in such loans is 90%, and 3) these loans deserve the phrase—used by the industry behind closed doors—they are liars loans because they are pervasively fraudulent. How big did they get? Well, what did the industry do after it was warned? Did it stop making these loans? No! It massively increased the amount of these loans such that by 2006, one out of every three home loans in America was a liars loan. And that’s why we have a crisis and it came from the very top of these organizations, and it went through—as the FHFA said in its complaint—the largest banks in the world were endemically fraudulent. It is not a few rotten apples. It is an orchard of one percenters who are rotten to the core.

William K. Black

h/t Financial Sense

And you wonder if it can happen — it, incidentally, being the people banding together and saying “no more fraud damnit!”

Yes, it can.  Note who this is, where he’s speaking, and think very, very carefully about whether attacking a group that is listening and willing to act on this correct perspective is wise.

The Market-Ticker

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