There were many factors that contributed to our recent financial bubble: deregulation, cheap money from the Fed, failure to enforce remaining regulations, crony capitalism, hubris, speculation, leverage, and fraud among other problems. While fraud wasn't the only issue, it was and is a significant contributor to the credit bubble. Restraining fraud is a necessary but not sufficient condition for a sound financial system. Congressional investigations in recent years have put ample evidence of fraud in the public domain.
To illustrate just one type of malicious mischief, Senator Carl Levin (D. Mich.), Chairman of a senate investigative panel, issued a memo stating that Goldman "magnified the impact of toxic mortgages." The Wall Street Journal reviewed data showing that a $38 million subprime-mortgage bond created in June 2006 was referenced in more than 30 debt pool causing around$280 million in losses to investors by 2008. In other words, Goldman kept repackaging, reselling or protecting (buying credit default protection on) losers. It took the wrong kind of nerve for Goldman's CEO to say he was doing "God's work."
Arianna Huffington pointed out that the financial system is rigged and that offenders get off lightly:
Until the Securities and Exchange Commission sued Goldman Sachs for fraud in April of 2010, it was easy to forget that we have a regulatory agency designed to protect the public from the pillaging of corporate America. Six months earlier, the SEC has arranged a settlement with JPMorgan that showed how rigged the system is. The banking giant agreed to pay a $25 million penalty and cancel $647 million in fees owed by Alabama's Jefferson County as the result of a complicated derivatives deal that blew up in the county's face. As part of the settlement, JPMorgan neither admitted nor denied wrongdoing--despite overwhelming evidence that it had engaged in plenty of wrongdoing.Third World America P. 153
On Friday, September 2, 2011, The U.S. Federal Housing Finance Agency (FHFA), the regulator for taxpayer-subsidized mortgage lending guarantors Fannie Mae and Freddie Mac, filed lawsuits against 17 of the world's largest banks over suspect mortgage loans which helped exacerbate the U.S. housing crisis. Both Fannie Mae and Freddie Mac were placed in conservatorship in September 2008 after they nearly collapsed. The FHFA claims banks misrepresented the value of the mortgage loans and mortgage securities they underwrote, arranged, and sold.
So far the banks being sued include Bank of America Corp along with its Countrywide Financial Corporation and Merrill Lynch & Company divisions, Goldman Sachs Group Inc., JP Morgan & Chase & Co, Citigroup Inc., Deutsche Bank AG, Barclays PLC, Nomura Holdings Inc., Morgan Stanley, Ally Financial Inc., Credit Suisse Group Inc., First Horizon National Corp, General Electric Co, the HSBC North America Holdings unit of HSBC Holdings, The Royal Bank of Scotland Group PLC and Société Générale SA. The FHFA is just getting started.
Critics of Fannie Mae, Freddie Mac, and their previous regulator, OFHEO, say that they were sophisticated investors, and they should have known better. William K. Black is a former bank regulator who played a role in hundreds of successful prosecutions after the Savings and Loan Crisis. He told the Wall Street Journal: "It's a great myth that you can't defraud sophisticated financial parties." Particularly when loans are fraudulent and material information was not disclosed.
The Financial Crisis Inquiry Commission published evidence from the testimony of officials of Clayton Holdings(among others), a due diligence firm, that underwriters and rating agencies ignored evidence of suspect loans and did not disclose this information to investors.
The FHFA's complaint involves tens of billions of dollars in potential recoveries that will benefit taxpayers. Yet, as Arianna Huffington points out, banks continue to find ways to get Americans to subsidize problems that the banks themselves were chiefly responsible for creating. Consumers struggle to keep up with payments as the unemployment rate rises along with prices for food, energy and healthcare. Meanwhile, job creation hovers near zero.
When consumers fail to keep up, banks, trying to offset losses in other areas, turn around, hike interest rates, and impose all manner of fees and penalties--all of which makes it less likely consumers will be able to pay off mounting debts.
Third World America Pp. 77 & 78.
Money is being put in taxpayers' pockets in the form of "recoveries" while being extracted again in the form of subsidies and cheap funding to shaky banks that continue to award record pay and record bonuses as they gouge consumers. We can expect more of the same if we continue to let banks off with a slap on the wrist for malfeasance--along with a taxpayer subsidized fine--while banks neither admit nor deny wrongdoing.
Banks won't change until we follow the law and take "prompt corrective action." Banks that committed widespread fraud should be placed in receivership. Bank of America was cited by William K. Black and L. Randall Wray in their October 2010 post as the place to start, and I agree.
On December 8, 2010, I presented an analysis to the Federal Housing Finance Agency (FHFA) in Washington D.C. of key causes of our current financial crisis: "Repairing the Damage of Fraud as a Business Model." The phrase "fraud as a business model" comes from a comment referenced in the presentation made by Richard Cordray, then the Attorney General of Ohio and the current Director of the Consumer Financial Protection Bureau, when he discussed foreclosure fraud.
Repairing the Damage of "Fraud as a Business Model"
Where are the consequences? Where is the punishment? Consequences and punishments are very clear for someone who knocks over a 7-11 for $100: the consequences and punishments should be equally clear for rich, white-collered criminals who cause far worse damage to far more people.
What agencies and individuals are supposed to be taking care of this? If they are corrupt, who is watching them? The buck (literally) has to stop somewhere.
Luckily we'e got the Tea Party though to save us from regularion, accountability and change ;)-
If you want to know more about the illusory nature of regulation, take a look at the twists & turns of The Commodity Futures Modernization Act of 2000. Then, for a real life in real time application/implementation, take a look at Matt Taibbi's brilliant piece of journalism, 'Looting Main Street: How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece'
http://www.rollingstone.com/politics/news/looting-main-street-20100331
Then, watch "Repairing the Damage of Fraud as a Business Model" again.
But when the Government takes TAX Pay Money and gives it to Banks who charge interest for no interest. So they will make loans to the home owners and small businesses. When all they have to do is have the FED say do it or loose FDIC
Surely not a No interest load form the public, or assuming the AIC DEBT of 300 Trillions, 27 Trillion bailouts?
As you say: Once you have Crony Capitalism how do you tell which government or business is to blame
2nd Amendment is all that is left. America is rotten to the core
Google "RIGHTtoCOÂNSENT" to learn HOW.
Amend the Constitution to 1 man 1 vote for Policy and not Representatives. It does not work anymore than Communism
This isn't to say we shouldn't try. But first we need a law instituting a lifetime ban on government regulators taking a job or any kind of contracts or favors from industries they regulate. Of course, to get such a law, we'd have to go through Congress, which is entirely bought and paid for by the same industries. So, first we'd have to elect people other than Democrats and Republicans to Congress.
But then we'd have to make sure that someone other than Dems and Repubs could actually run for office. But that's in the hands of state election commissions, which in turn are controlled by Dems and Repubs.
Oh, to heck with it.
You have plenty of LAWS you need the WILL to stop Crony Capitalism
You can write in Ron Paul, Dennis Kucinich or Sarah Palin because the are against the Crony Capitalist who won't let them RUN in a General Election
Tragically, the police were, are, or hope to be very soon, on the payroll of the looters and recipients of very large bags of loot.
But if you steal 300 Trillion you get more regulators. Like what regulators are the problem or the solution.
Rule of Law and enforcement of it
The saddest part is that nobody responsible is in jail.
America can blame themselves but they never will...accountability is a seldom used word anymore and so is self-reliance or introspection...and we can add reality to that list too.
It seems our system of laws and regulations have been replaced by the Ferengi Rules of Acquisition.
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These tricksters have unlimited funds to pay really smart people to think up sneaky ways to game the system. Then the government pays people peanut wages to work for the regulatory authorities and they're out - gunned. If an SEC or FDIC or OCC employee is really smart enough to figure it out then eventually they're going to go work for private industry. Do you really think we are going to pass a law prohibiting someone from working for the government to leave and go work for private industry?? Of course not.
What's really disturbing is how financial manipulation makes billions of dollars without producing anything of value to society. It's un-american.