The Question, As the Feds Broaden a Mortgage Fraud Probe, Will the White Collar Perps of Subprime Crime Ever Do Time?
New York, May 6: There is a time in the life of every writer when you find yourself fearing that you have become a robo call phone machine — repeating the same message over and over and with diminishing results.That’s how I felt after 8 months of silence after labeling the credit crisis a “subcrime” scandal, lashing out at the fraudulent activity at its core and calling for the investigation and prosecution of wrong doers. Almost no media outlets accepted this way of framing the problem although, as usual, the British press was ahead of its American cousins in putting the blame on the bankers, not the borrowers.
When the FBI announced a probe of 14 mortgage companies, I thought that finally some investigators were on the case. But then, word leaked that they were only going after small fish even as big banks reported losses in the billions.
Bank robberies have always been up the FBI’s alley, and after all, this is a bank heist case, perhaps one of the biggest in history. Only it was the banks that were doing the heisting.
The New York Times reported May 5th that a new criminal investigation was finally underway.
A G-Man explained anonymously: “The latest inquiry is broader and deeper…This is a look at the mortgage industry across the board, and it has gotten a lot more momentum in recent weeks because of the banks’ earnings shortfall.”
At last, institutional fraud may be on the agenda. At last, deeper questions are being asked. There have been some Congressional hearings but so far none have risen to a Watergate type level prompting in-depth investigations fueled by subpoenas.
Slowly, oh so slowly, news outlets are recognizing this is a big crime story, one they missed for years, or at least since 2002 when subprime securities started being packaged for sale.
Reports the Washington Independent:
“As loans made to borrowers with decent credit begin to fail at a surprisingly rapid rate, it’s becoming clear that widespread fraud helped support the entire mortgage system — from borrowers who lied on their loans, to brokers who encouraged it, to lenders who misled some low income borrowers, to the many lenders, investors and ratings agencies that conveniently and deliberately looked the other way as profits rolled in.
Despite its widespread role, fraud hasn’t yet been at the forefront of proposed rescue plans, which center on refinancing people out of loans now resetting to higher rates.”
Why would reputable bankers and respected investment houses engage in these dishonest activities? The short answer: money, and lots of it.
Sales from Collateralized Debt Obligations (CDOs) jumped from $157 billion in 2004 to $559 billion in 2006 according to a study for the North Star Fund by Kevin Connor. Ten investment banks in all were underwriters for 70% of some $486 billion in securitizations in 2006. The banks had a motto: “It’s all about capital.”
Subprime-related securities produced large, multi-million dollar bonuses for traders and executives as well as high revenues for the firms. In the years when business was booming CEOS at big firms were making $10 to $50 million annually apiece. Collectively, in 2006, a year before their fall the big banks earned a stunning $130 billion.
Even after these practices came to light, hefty bonuses continued. Wall Streeters walked away with $31 billion at the end of 2007, only one billion less than the year before. Executives who were fired still received multi-million dollar payoffs.
Most media outlets considered this business as usual, not shocking or illegal.
Not even when some of these loans were called “liars loans” in the industry as when loan orginators colluded with or advised borrowers on how to lie on their applications. It was all done with a wink and a nod reported the Washington Independent. They interviewed many insiders and experts who contended that:
“…..pervasive fraud was, indeed, a problem — on the lender’s side. At the peak of the housing boom, they say, the nation’s mortgage system was set up to promote and encourage outright fraud in order to close a loan — and everyone, from brokers to loan officers to Wall Street, looked the other way. Borrowers also were put into products like payment-option arms that were unsuitable — and lenders knew it. “They were pushed like Vioxx, with very little regard for their dangers,” said Kathleen Keest, senior policy counsel with the Center for Responsible Lending, a research group that investigates predatory lending.
Wall Street was not a passive player either because of all the money they made from subcrime transactions. In some cases they paid more for loans with predatory characteristics. Loan originators at the local level — as sleazy as many were — reported that it was the Wall Street firms that dictated the types of loans they wanted and their underwriting criteria. Thus the so-called “secondary market” was really in charge.
This is why I and others insist this was a Wall Street crime wave built around predatory practices. The people who had the most were deeply complicit in ripping off the people who had the least. What’s worse, they had no legal liability in these unscrupulous deals.
How did America’s leading business magazine respond after the credit crisis brought Wall Street to its knees? FORTUNE called the credit crisis “both totally shocking and utterly predictable.” For them it was shocking not because of the human devastation or the millions of families who were cheated and faced foreclosure or because of the rippling effects on our society, but because the “best minds in the business…managed to lose tens of billions.”
And “predictable?” Again, not due to the lack of regulation or the enabling of shoddy products by our government but “because whether it’s junk bonds or tech stocks or emerging-market debt, Wall Street always rides a wave until it crashes.” What a contrast to the usual celebratory coverage, but also what a cop-out to explain it all away.
Warren Buffet, perhaps America’s most successful investor, sounded disgusted:
“Wall Street is going to go where the money is and not worry about consequences. Wall Street is reaping what they’ve sown,” he shrugs. Said his vice chairman, “If this were an Alice in Wonderland fable, you’d say it’s too extreme. It wouldn’t work as satire. Adults are not going to behave this way.”
But adults did — and continue to. So far, they have been well rewarded as well. The question is: what are the rest of us, and our prosecutors going to do about it?
News Dissector Danny Schechter edits Mediachannel.org. He directed In Debt We Trust, the doc that first exposed subprime loans. (Indebtwetrust.org) He has just finished a new book on this calamity called Plunder. Comments to dissector@mediachannel.org
The question is: what are the rest of us, and our prosecutors going to do about it?
I know the answer! We’re going to elect or appoint them to public office! Problem solved.
Based on the utter lack of investigation/prosecution for any of countless violations of law and the constitution we have been experiencing for the past 7-8 years, I seriously doubt that “Watergate” would be any more than an archived news story about a break-in at the Watergate Building.
Will the perpetrator of the sub-prime mortgage crisis do jail time?
HELL NO!
Ain’t greed wonderful?
And I’m not holding my breath.
I’m afraid homeowners who are encouraged to seek counseling from the non profits (who are in bed with the lenders) aren’t encouraged to challenge their loans for non conforming to Truth In Lending laws… and instead accept loan modifications or other temporary measures. It should be known that in exchange for some temporary relief, the homeowners are “tricked” into waiving their legal rights against future claims against the lender for predatory practices, or violations to Federal TILA.
Lenders will only do what is in their own best, financial interest.
My non profit org is helping distressed homeowners in their fight to keep their homes…. and we’re not in bed with the lenders.
Read Fight Foreclosure! www.spoch.org
Given the corruption of the Department of Justice under the Bush administration as long as the sub-prime crooks keep sending campaign checks to the Republican Party there isn’t a chance in hell they will be prosecuted.
A Mishawaka Indiana doctor was raided by the Feds and the state Medicare/ Medicaid agencies a year ago, according to sources close to the practice the case against the Dr. is a slam dunk, but the Dr. also donates to the Republican Party and to republican candidates. I have little doubt that the reason he hasn’t been arrested are his politics.
http://www.wndu.com/home/headlines/7446641.html
Many of these individuals were DIRECTLY responsible for the junk bonds and S&L meltdown of the 1980’s, the dotcom bubble and the Enron debacle.
Like most criminals, these “white collar” perps are inclined to commit the same crimes over and over, especially since few are ever prosecuted.
They teach their children the same mechanisms and most get away with their assets (where’s the RICO Act?).
A significant number of these individuals live in Texas, California and New York and are semi-respected members of their communities. Most are also large political contributors.
The perps won’t but perhaps some of their underlings will.
Will the White Collar Perps of Subprime Crime Ever Do Time?
Not a chance with Bush’s Men In Black robes on the bench.
Got any names, charliej? I would like to picket their homes, their clubs, their children’s private schools.
The perpatrators are still in business and will continue to rip off borrowers until the financial industry is subjected to at least New Deal-level regulation and preferrably more regulation than that.
I obtained seven mortgages between 1974 and 1998 and the only time I wasn’t ripped off by the mortgage initiator was for two of those loans, both of which were FHA loans. The only reason I wasn’t ripped off on those two is because FHA loans are subject to more regulation (such as fees lenders can charge , etc.) than other loans.
The mortgage business is too inherently corrupt to function ethically without a lot of regulation. Although neocons love to quote scripture when it serves their purpose, they conveniently fail to cite scripture that addresses the crooked “moneylenders” as the Bible refers to them.
No, of course they won’t. Silly question.
Not only the people on that side of the desk should be brought to justice, but some of their house flipping customers should as well. One in four houses that sold years before this were bought on speculation, not for living in and not for renting. When you turn a necessity like housing into a hot commodity like futures trading, you know you are headed for disaster.
There were people out there that refinanced the flip house(s) for 100% of peak sale price. Who ever made those loans was either a nut case or a greedy criminal. But the flippers that refinanced just walked away with hundreds of thousands of dollars of the mortgage companies money. It was legal bank robbery and they are getting away with it!
Of course they won’t. And its not just because of the Republicans. The Democrats will also protect them.
The Hillary campaign has always had strong ties to Wall St. See R.Rubin and the first Clinton Administration. And the Obama campaign has actually out-fundraised Hillary amongst Wall St execs (see opensecrets.org or many news stories).
Its a good bet that Wall St isn’t pumping money into these campaigns just so the next administration can prosecute them.
I volunteer for a consumer org made up of people who had construction defect problems and wanted to do something about it. It’s been in existence for about 15 yrs. I’ve been with them 7. Years ago, even before I joined, the org’s president and others were helping homeowners who’d been scammed by builders’ in-house lenders. Everyone involved in scamming the homebuyers had connections; the realty agents, title co’s, lender, builder, and of course political connections are nothing new between business and govt. Industries lobby to make our laws “business–friendly,” or as some anonymous person once called it, “fraud-friendly.”
The builder-lender arrangement was marketed as one-stop shopping, and “helping people achieve the dream of homeownership,” etc. I cannot think of one complaint about predatory lending that our org has gotten that didn’t involve use of the builder’s lender. And, these type of complaints that combine construction defects and predatory lending have increased. Digging thru my old papers recently I found a 2001 example of a housing development where 25 homeowners walked away from severely defective new homes, (foreclosed), because there is so little practical legal recourse. They had a home warranty with an arbitration clause, another abomonation IMO, and were just ripped off. We knew then, that construction defects alone could be an economic disaster if it kept going the way it was. Add predatory loans and we didn’t have to wait long to see the damage unfold before our eyes.
Our org was one of many voices trying to get law enforcement to step in, and warning that these practices would end in a national economic disaster. Anyone in a position to stop it looked the other way.
I don’t believe for a minute that these industry experts were innocent or ignorant of what was going on or the consequences. They knew what they were doing, and knew that it could do real damage to the country, not just so-called isolated incidents of various consumers losing everything. How many thousands or millions of isolated incidents does it take before they’re not isolated incidents anymore?
The industry insiders did not care, because they could make millions before it crashed. The FBI reported in 2006 that 80% of mortgage fraud was done by insiders. And yet nothing was really done or reported that much until banks and investors said they were the victims. When it was “only consumers,” it was not a big deal!
This effort to breathe life back into housing by bailing out banks and builders is just a ploy to keep the party going a little longer, so a few more CEO’s can grab a few more millions, before it all crashes again. Of course, this bailout was marketed as being for homeowners, to keep them in their homes, which is so deceptive and low it makes me want to hurl.
Many in the housing and finance industries committed crimes and should go to jail. Instead, they’re lobbying congress for a multi-billion dollar bailout for themselves.
So, do I think any will really go to jail? Not the big well-connected ones. They, like others have already done, will pay a fine and admit no wrong doing, if anything. HUD fined about 6 of the big builders this year and that is exactly what happened, and it’s not the first time. Corporate control of our govt has got to stop before we’ll see any reduction in corruption and white collar crime. So far the only ones I’ve seen really punished are the small time crooks who either never had, or lost, their connections and fortunes, and could not buy their way out of it. Even so, many of those are still doing their deeds, some while out on bail. I hope I see some of the big co’s CEO’s sent to jail, but like others of you, I’m not holding my breath. I’m focusing on consumer education, but haven’t abandoned efforts to hold the crooks accountable in the meantime.
Ken Lay is laughing at us from the deck of his yacht on the Sea of Eternal Damnation.
Will the war criminals ever be indicted? Will the domestic enemies of our Constitution ever be indicted? Will the torturers ever be indicted? Will anyone who told over 900 lies thousands of times in order to launch an illegal invasion be indicted? Will anyone ever go down for the energy terrorism perpetrated against California ever be indicted? Will Karl Rove ever be indicted? Will any executive criminals from Halliburton, Bectel or Blackwater be indicted? Will the “anthrax killer” ever be, er, caught and then indicted?
No - they got Wesley Snipes and 75 pot smokers at, of all places, a college. Mission f**king accomplished.
To jump start the economy all credit card debts and interest on mortgages should be forgiven.
The terms were illegal. Why should people be expected to repay snakes?
I am appalled at the terms respected corporations allowed to prevail.
It seems like the gov. was involved because they use the same agenda as the IRS.
This ruined the world economy.
Shut millions of people out of the opportunity to save and invest-instead turned them into debt slaves.
Our country’s agenda should be job creation-not ripping off the poor and middle class to support the rich.
Oh well guess all of the taxes will have to come from the rich now.
Plausible answers to the article’s headline question:
Only if they do not pay enough bribe money to those with the power to prosecute.
When pigs fly.
The law only applies to those who CAN’T afford lawyers!
Hmm, weren’t the lot of you calling the people losing the homes stupid last week. Now that the bankers may have had something to do with it we should lynch them next?
I agree the people who were getting zero down 110% loans to flip a house do deserve to lose. It’s the only way they will learn. However, when I just had to claim bankruptcy because my taxes and insurance have gone up so high that the two combined monthly are higher than my mortgage payment and the only way I may have a chance of holding onto my house is to sell everything I own, well I take offense.
Schechter wrote, “it has gotten a lot more momentum in recent weeks because of the banks’ earnings shortfall.”
-if that’s the only reason the authorities re investigating this crisis, then he already has the answer to his question.
““If this were an Alice in Wonderland fable, you’d say it’s too extreme. It wouldn’t work as satire. Adults are not going to behave this way.” But adults did — and continue to. So far, they have been well rewarded as well. The question is: what are the rest of us, and our prosecutors going to do about it?”
My guess is that prosecutors are going to do very little about it since our government officials have decided to bail-out these misfits with our tax dollars.
The most any of us can do is stop making payments on our debts, which would ultimately create economic chaos. At that point, Congress might actually consider passing legislation which would alter the behavior of these misfits on Wall Street and return some “normalcy” to this country.