Dealing with the "Dirty Dozen" Control Frauds
Simultaneously, we should put in place a system to replace the existing cover up of the condition of other banks with vigorous investigations and honest accounting. The priority for these investigations should be the "Dirty Dozen" -- the twelve largest banks. The Fed cannot conduct a credible investigation. It has taken so many fraudulent nonprime loans and securities as collateral that it is the leading proponent of covering up these losses.
The FDIC should lead the investigations (it has "backup" regulatory authority over all banks), but it should hire investigative experts to add expertise to its Dirty Dozen examination teams. The priorities of the teams will be identifying existing losses and requiring their immediate recognition (the regulatory authorities have the authority to "classify" assets that can trump the accounting scams that Congress extorted from FASB). The FDIC should prioritize the order of its examinations of the largest SDIs on the basis of known indicia of fraud. For example, Citi's senior credit manager for mortgages testified under oath that 80% of the loans it sold to Fannie and Freddie were made under false reps and warranties. The Senate investigation has documented endemic fraud at WaMu (acquired by Wells Fargo). The FDIC should sample nonprime loans and securities held by Fannie, Freddie, the Federal Home Loan Banks, and the Fed to determine which nonprime mortgage players originated and sold the most fraudulent loans. This will allow the FDIC to prioritize which SDIs it examines first.
We should also create a strong incentive for financial entities to voluntarily disclose to the regulators, the SEC, and the FBI their frauds, their unrecognized losses, and the officers that led the frauds -- and to fire any officer (VP level and above) who committed (or knew about and did not report) financial fraud. Any SDI that originated or sold more than $2 billion in fraudulent nonprime loans or securities should be placed in receivership unless it has conducted a thorough investigation and made the voluntary disclosures discussed above prior to the commencement of the FDIC examination, and developed a plan that will promptly recompense fully all victims that suffered losses from mortgages that were fraudulently originated, sold, or serviced.
We make three propositions concerning what we believe to be institutions that are run as "control frauds". To date, this situation has been ignored in the policy debates about how to respond to the crisis. The propositions rest on a firm (but ignored) empirical and theoretical foundation developed and confirmed by white-collar criminologists, economists, and effective financial regulators. The key facts are that there was massive fraud by nonprime lenders and packagers of fraudulent nonprime loans at the direction of their controlling officers. By "massive" we mean that lenders made millions of fraudulent loans annually and that packagers turned most of these fraudulent loans into fraudulent securities. These fraudulent loans and securities made the senior officers (and corrupted professionals that blessed their frauds) rich, hyper-inflated the bubble, devastated millions of working class borrowers and middle class home owners, and contributed significantly to the Great Recession -- by far the worst economic collapse since the 1930s.
Our first proposition is this: The entities that made and securitized large numbers of fraudulent loans must be sanctioned before they produce the next, larger crisis. Second: The officers and professionals that directed, participated in, and profited from the frauds should be sanctioned before they cause the next crisis. Third: The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, e.g., through fraudulent foreclosures. Foreclosure fraud is an inevitable consequence of the underlying "epidemic" of mortgage fraud by nonprime lenders, not a new, unrelated epidemic of fraud by mortgage servicers with flawed processes. We propose a policy response designed to achieve these propositions.
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.
We will deal with objections to our proposal in the next piece.
Peter J. Wallison: If It's Incredible, Don't Believe It
by Alan Gray
http://newsblaze.com/story/20101116120222nnnn.nb/topstory.html
. . .a foreclosure that entails savagery, fraud, corruption, greed, intrusion, peril, trauma, desolation, shocking deviation from established law and court rules and procedures, and reprisals for whistleblowing and for not relinquishing one's home to sham foreclosure is a riveting story worth being told.
* * *
. At some point after foreclosure had been filed, the victim discovered that the modification consisted of a contract between the homeowner and a fictitious lender.
* * *
Along various stages of foreclosing on the victim's home, lawyers, sheriffs and judges enabled collection of the debt that was created by Wells Fargo's fraudulent loan modification.
* * *
Specifically detailed in the victim's narrative is the manner in which the victim believes the home was acquired for the foreclosure lawyer through a straw buyer at the collection lawyer's fake auction.
A review of the process found some errors, but none that would alter the foreclosure outcomes.
Fraud is false representation of fact—whether by words or by conduct, false or misleading allegations, or concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.
Fraud requires five elements: (1) false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.
So far, no evidence, nor even credible allegation includes all the necessary elements of fraud. This is under review by at least one state attorney general (foreclosures are governed by state law, not federal), I've heard of just one person suing as a “victim” of robo-signing. One person? Where are all the personal injury lawyers?
I'll provide you examples of the 5 things you cited above.
(1 + 2 + 3) Citigroup's head underwiter admitted they knew 60% of the loans were below quality at the time they were securitized. They still continued to package the loans and lie about their quality when marketing the securities. This is all documented in FCIC testimony.
(4) Investors relied upon Citi's and other bank underwriting claims to make purchasing decisions. The packaged loans were not of the quality they were supposed to be.
(5) This is one is obvious.
Next you're going to tell me Bernanke saw the housing crash and that he wasn't lying when he said under oath in congress that he would never "monetize the debt".
If a home owner pays his mortgage off to the last penny, being the bank does not have the note.
Will he ever receive full legal title?
But ownership of the mortgage has been clouded by the re-selling of loans in secondary markets, and the use of mortgages as collateral for mortgage-backed securities (a decades old practice, completely legal, even the federal government has been doing that through GNMA for decades).
There is a paperwork problem. There may be instances of securities fraud clouding tiyles to certain homes, but courts of equity will not force any homeowner to pay twice regardless of the cloud created by sloppy paperwork of secondary mortgage markets.
1. Watch Michael Moore's "Capitalism, A Love Story". Pay close attention to the part where the leaked Citibank memo comes into play. Next, pay attention to the "irony" regarding the fact that the FBI was close to nailing some of these "perps" when 9/11 occurred...hmmmm....
2. Understand that when the bailout first came up, Congress voted it down, but in a backroom deal with "Hey-now!" Hank Paulson it went through without a hitch with such teflon language that whatever happens next, the "smartest guys in the room" will be exonorated! Hmmmm...
3. Next we have the presidential election. You think Obama getting elected was a miracle? I think the republicans didn't want the job, knowing what was instore for the next president. How else do you explain Sarah Palin as a running mate when there were so many more talented and qualified Republicans out there. Hmmmmm.....
4. Flash forward to Tuesday's election. Once again the Right have trotted out some of the most unbelievably strange candidates it's only fitting that this election season has resembled a cross between a situation comedy and some Bravo reality show.
End game? The Reich (ummm Right) continue to camouflage their underhandedness under the guise of restoring America when all they are doing is restoring more $$$ back in their pockets! They will continue to blame Obama for policies that were started under Bush. And the rich? Just keep getting richer.
We just can't afford these banksters anymore, their services are too expensive to for America.
To bad their failure is a dream, will never happen, they are too powerful.
Fin Reg passed this year has restored much of Glass-Steagall, but derivatives remain largely unregulated (this needs to change, and I expect it to over time as the massive amounts of derivatives in the market place unwind and run their course). One obstacle is not all derivatives are created equal. Some amplify risk, others don't. Some derivatives are very useful and should remain in use. Some, for example, are fully backed by US Treasury obligations held in trust. Some are fully collateralized, but the collateral itself is subject to valuation risk. And some are backed by nothing (e.g., so-called "naked shorts," and to a large extent "credit default swaps" which really aren't investments but are credit insurance policies issued in excess of the net worth of the company providing the insurance. It will take time to put together meaningful regulation of derivatives.
At the moment the international banker-speculators irrationally demand that derivative trading loses be covered by government bailouts. The US must assert its' sovereignty and disown/refuse any such obligation and demand the return of the previous bailout trillions as they were fraudulently procured. The bailouts are a definite drag on the economy.
There is absolutely no incentive for banks to refinance, rather than foreclose. They’ve hedged their bets on the losses.
These toxic mortgages are nothing more than the pawns being used in the derivatives game.
These sham loans were created for the sole purpose of giving hedge funds high-yield debt to buy.
These fraudulent loans were invented to cheat consumers, into defaulting on their loans. These toxic sub-prime loans, are the fuel that underlay derivative securities and the homeowners are just the collateral damage of this fraud.
It's as if your neighbor went out and bought fire insurance on your home. Then torched it, in order to collect that insurance. Meanwhile, you are left homeless, literally out on the streets.
These banks rigged these loans to play a Wall Street insurance scam. This scam is still going on today and has no end in sight.
Back in April of this year, Senator Byron Dorgan from North Dakota, attempted to pass an amendment to stop these practices within the Finance Reform bill, but Chris Dodd, worked behind closed doors with Republicans to table it.
These fraudulent loans along with this current practice of fraudulent foreclosures, are merely the bait-n-switch to cover up the real money making action in Derivatives and Hedge Funds.
It is why we are still seeing billions being made on Wall Street, while Main Street has been left to die.
Then what? Abolish money?
No incentive for banks to refinance? Then how do you explain over half a million permanent mortgage restructures successfully avoiding foreclosure just from the government HAMP plan? And many more mortgages restructured independently of the HAMP program. I guess the banks were just being nice because they had no incentive to do these restructurings.
ksker, I do sympathize with your emotional response, but you have been more abused by the writers of this blog playing on your fear and anger than you have by the banking system. Contrary to popular opinion, banks do not profit from foreclosures.
These are the institutions that fund the worlds intelligence agencies to cause trouble for all those who dare hold them accountable... I 've always read about these groups but it was always about other nations and I never thought that those tactics would be used on American shores...
They've manipulated our laws to become above them....
http://www.truthdig.com/greatamerican
In 2006 FASB permitted mark to market accounting as a step toward the controversial International Financial Reporting Standards. In two quick years the global financial system collapsed when the MTM speculative oil bubble burst between July 2008 and September 2008. The September 2008 financial crisis was 100% about soured speculative oil derivative contracts, not mortgages.
Today's financial crisis is about the mortgages.
Please take a few minutes to read my public comment to the Securities Exchange Commission regarding my personal experience with alternative energy:
http://sec.gov/comments/df-title-ix/short-sale-disclosure/shortsaledisclosure-11.htm
Be sure to check out the attached files #1 & #2 at the bottom of the comment page. You will be shocked and stunned.
Good that people are finally starting to wake up to that fact.
Tan Man Angelo Mozillo commits security fraud, gets a fine, and continues to live free.
Ain't 'Merica great?
Where’s the Note?
http://action.seiu.org/page/speakout/wheresthenote
I'm a paralegal and I am concerned that the homeowners get a "legal" foreclosure process not a fraudulent one, which is the case with many, especially with the robo signatures. Many of these people that are losing their homes put large down payments and even tried to get a loan modification, all to no avail.