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Sen. Carl Levin
(Photo: U.S. Dept. of Defense)
In case you've been mesmerized in the past couple of days by news of Republicans saying millionaires shouldn't have to pay more taxes, the Pentagon saying that cutting its budget will endanger Americans and Paul Ryan saying the President tricked him by inviting him to sit in the front row for his spending-reform speech Wednesday, you may have missed two important stories from The New York Times, both written by Gretchen Morgenson and Louise Story.

The first was Naming Culprits in the Financial Crisis, coverage of the just-released 650-page report of the Senate Permanent Subcommittee on Investigations, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse:

“The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions,” [Committee co-chair Carl] Levin said in an interview. “The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest.” …

The bipartisan report includes 19 recommendations for changes to regulatory and industry practices. These include creating strong conflict-of-interest policies at the nation’s banks and requiring that banks hold higher reserves against risky mortgages. The report also asks federal regulators to examine its findings for violations of laws.

Good weekend reading, it would seem. But the problem with asking those federal regulators to look into violations is the subject of Morgenson's and Story's second piece, published Thursday, In Financial Crisis, No Prosecutions of Top Figures.

They take note of what many critics of the financial crisis have been pointing out for two years: After the collapse of many savings and loan operations in the 1980s, thanks to efforts across several government agencies working together in task forces, 1100 cases were referred for prosecution and 800 S&L officials ultimately found themselves in the slammer. This time, however, no senior executives have been indicted, much less imprisoned.

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,” said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis. “But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.” …

“If you look at the last couple of years and say, ‘This is the big-ticket prosecution that came out of the crisis,’ you realize we haven’t gotten very much,” said David A. Skeel, a law professor at the University of Pennsylvania. “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.” …

“When regulators don’t believe in regulation and don’t get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions,” said Henry N. Pontell, professor of criminology, law and society in the School of Social Ecology at the University of California, Irvine. “If they don’t understand what we call collective embezzlement, where people are literally looting their own firms, then it’s impossible to bring cases.” …

Cranking down the level of regulation has allowed, or better said, encouraged those supposedly being monitored to run wild. Just how far regulation reduced is exemplified by what Mortensen and Story found in data put together by a group at Syracuse University in  Transactional Records Access Clearinghouse. In 1995, for instance, bank regulators referred 1,837 cases to the U.S. Department of Justice. In 2006, just 75 cases were referred. And, since then, including the worst years of the crisis, an average of only 72 cases a year have been referred for criminal prosecution.

While the cats slumber, the rats collect their bonuses.

The question now, as always, is what will happen to the recommendations the Senate committee has produced. Will they head for the archives like the January report of the Angelides Commission, whose web site doesn't even exist any more? Will any of those missed prosecutions now show up on Justice's radar?

If the government dealt with street crime the way it has handled the financial crisis, the outcry would be registering 8.9's on the Richter scale every day of the week, in and out of Congress. And we'd be building more prisons if that's what it took to house the crooks. Instead we have the cricket chorus.

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Comment Preferences

  •  Jack Schitt.... (17+ / 0-)

    is my guess as to what will be done about it.

    And his beautiful wife, Nada Paso

    It's not a fake orgasm; it's a real yawn.

    by sayitaintso on Fri Apr 15, 2011 at 07:07:33 AM PDT

  •  The administration's and Congress's (17+ / 0-)

    failings in responsibly handling the finaical sector 2009-2010 was part and parcel of the 2010 election results.

    They have yet another chance to redeem themselves, this one in time for 2012 election.

    Hopefully they understand that words and promises alone won't rally the level of enthusiasm they'll need to face the tea party music.

    Hoepfully they understand that only populism in action will.

    Centrist incrementalism in D.C. + Progressive incrementalism in activism = GLOBAL PLUTOCRACY Forget about what you believe OR "do". It's what you achieve.

    by Words In Action on Fri Apr 15, 2011 at 07:08:54 AM PDT

  •  Findings on its way to the DOJ, where (20+ / 0-)

    stories like this go to die.

    This could be a very popular campaign 2012 issue.

    But, no.

    No home. No job. No peace. No rest.

    by A Runner on Fri Apr 15, 2011 at 07:09:54 AM PDT

  •  Meanwhile... (21+ / 0-)

    Last year J.P. Morgan CEO Jamie Dimon made $20.8 million-- that’s $57,031 a day.

    The malfeasance is truly mind boggling.  Yet, they continue to be rewarded for their crimes.  Handsomely.  And they continue to buy legislation and propaganda to convince dumbass Americans that unions, public workers and teachers are the villains.  

    "The most authentic thing about us is our capacity to create, to overcome, to endure, to transform, to love and to be greater than our suffering."

    by rlharry on Fri Apr 15, 2011 at 07:10:42 AM PDT

  •  Regulation has a point. Let's drive it home (9+ / 0-)

    Regulations aren't put into place for shits and giggles.  Regulation keeps the bad apples from spoiling the bunch.

  •  Most of the problem S&L's in the 80's... (9+ / 0-)

    were small time compared to the Wall Street banks that creaed this current scanday..  There were a few very large S&L's but most were smaller.

    More Main Street than Wall Street.

    I am here to represent the democratic wing of the Democratic Party. Roar louder!

    by Josiah Bartlett on Fri Apr 15, 2011 at 07:11:56 AM PDT

  •  Checkout Phil Angelides' latest... (13+ / 0-)

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Fri Apr 15, 2011 at 07:14:35 AM PDT

    •  Inside baseball, Bob. I'm a big fan of Zero Hedge (1+ / 0-)
      Recommended by:

      (signed myself up a while back), but how many people actually read it?  This needs to go out to 300 million people, not 3,000. Joe the plumber would not like this, but does he even know about it?

      We all need to meet at the steps of the Capitol Building. We should be able to rally at least as many people as Wisconsin teachers did.

      Men never do evil so completely and cheerfully as when they do it from a religious conviction. -- Blaise Pascal

      by RJDixon74135 on Fri Apr 15, 2011 at 09:04:19 AM PDT

      [ Parent ]

  •  Statue of limitations (10+ / 0-)

    What I would like to know is if/when statute of limitations issues become a problem.

    I don't trust any of this, frankly, and think it might be a political game.  I just watched this kind of thing play out with respect to the torture tapes.  The guy who destroyed the tapes was under investigation.  Everything went dark for awhile.   Then the statute of limitations approached, still nothing. Then it passed.  And they issued a report - no indictments. Game over.

    This could be the same type of thing -- Dems, for political reasons, try to look tough on the banksters, but in the end, do nothing.

    We need something real here.

  •  If I were a Federal judge, I'd dismiss every (3+ / 0-)
    Recommended by:
    PhilK, 4Freedom, Odysseus

    single case before my bench, based upon the fact that Congress dictates by their refusal to have the DOJ prosecute these Wall Street / Bank criminals, that Justice is not equal. Therefore, until such time as Justice is equal, all those before me would be free.

    Hope has a hole in it when Republicans come, bringing shackles and sorrow; branding their greed on the backs of the poor. - Wendy Connors

    by Wendys Wink on Fri Apr 15, 2011 at 07:15:53 AM PDT

    •  A bit extreme, no? (0+ / 0-)

      The Constitution provides for a speedy trial.  There are thousands of cases in federal courts which need justice as well.

      " My faith in the Constitution is whole; it is complete; it is total." Barbara Jordan, 1974

      by gchaucer2 on Fri Apr 15, 2011 at 07:36:01 AM PDT

      [ Parent ]

      •  Not any more exteme than the DOJ letting these (0+ / 0-)

        Wall Street/Banker crooks wander around free to continue their plunder of Americans. That's the point. Equal Justice means equal justice.

        Hope has a hole in it when Republicans come, bringing shackles and sorrow; branding their greed on the backs of the poor. - Wendy Connors

        by Wendys Wink on Fri Apr 15, 2011 at 08:58:08 AM PDT

        [ Parent ]

  •  One tiny piece of the response (17+ / 0-)

    My father (an economist), my son (a graduating college senior) and I watched "Inside Job" last night, and committed today to address a small piece of the problem.   One small part of the root cause of the economic collapse was that prominent academic economists received significant compensation from financial interests who stood to benefit from their papers endorsing market deregulation, but those potential conflicts of interest were not identified.  As they say in "Inside Job", if a biomedical researcher received 80% of their compensation from drug companies, we would want to know that when reviewing their research: why should economists be different. We will be looking for a way to revive a plan sent to the American Economics Association and subsequently rejected that would require as a matter of professional standards to identify compensation received from parties who stood to benefit from economic papers..  

  •  Gretchen Morgenson (3+ / 0-)
    Recommended by:
    phenry, PhilK, Meteor Blades

    Not "Mortensen."

    "The difference between the right word and the almost-right word is like the difference between lightning and the lightning bug." -- Mark Twain

    by Brooke In Seattle on Fri Apr 15, 2011 at 07:16:07 AM PDT

  •  Sternly worded letter - TM. n/t (3+ / 0-)
    Recommended by:
    PhilK, jds1978, 4Freedom

    Then they came for me - and by that time there was nobody left to speak up.

    by DefendOurConstitution on Fri Apr 15, 2011 at 07:16:40 AM PDT

  •  5 minutes and 0 comments. (9+ / 0-)

    Are people just stupefied and numbed by the degree to which the upper echelon members of the political, corporate and military government domineering apparatuses can get away with crimes and go unpunished any more?

    Is it sucking the will from the people?

    Or leaving more and more feeling like they might have to take matters in to their own hands?

    It's a dangerous condition for a government to allow to develop.

    •  Yes, it's making people feel powerless (4+ / 0-)

      to do anything about anything at all.  And creating a sucking hole of cynicism about both parties.  What can the average guy do about this?  Nothing.  And if the ones who can do something won't do it, then..what's the use?  Both parties appear equally corrupt.  
      Frustration, resentment, and anger.  Yeah, that's how you want voters to feel about you..not.

      •  I assure you both, this apathy will not last. (5+ / 0-)

        As the anti-union, anti-government movement shows its ugly face, it is creating pushback around the country.

        When the causal factors are taken into consideration and more widely understood, as the great Grey Lady is beginning to encourage, there will be more and more pushback. And, fortunately, there is the pivotal 2012 election year coming up.

        The failures of those elected in 2010 are highlighting the importance of regaining lost territory in 2012.

        Those who deny freedom to others deserve it not for themselves. - Abraham Lincoln

        by 4Freedom on Fri Apr 15, 2011 at 07:38:40 AM PDT

        [ Parent ]

      •  Move your money. (3+ / 0-)
        Recommended by:
        sherlyle, Meteor Blades, Wendys Wink

        move your money project

        Fundamentally, this is the most direct thing that you can do.  We can build a dossier on licensed professionals who are willing to back away from greed.

        We can cut the worst of the worst out of it.  Even if only by degrees, degrees matter.

        Collective action.  Build a small dollar investment fund.  Find ways that individuals, cities, and counties can do the work that states and DC aren't.

        Organize.  It's not just for unions.

        -7.75 -4.67

        "Freedom's just another word for nothing left to lose."

        There are no Christians in foxholes.

        by Odysseus on Fri Apr 15, 2011 at 08:32:54 AM PDT

        [ Parent ]

    •  Obama is complicit in this - its his DOJ after all (6+ / 0-)

      So the usual suspects stay out of Wall Street threads (same with ones on Pvt Manning)

      "There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill."

      by bay of arizona on Fri Apr 15, 2011 at 08:10:51 AM PDT

      [ Parent ]

      •  True. I think it's time for a snail mail campaign (2+ / 0-)
        Recommended by:
        cpresley, Pescadero Bill

        to Obama on this. Email is too easy and too common these days (although we could do both). A tsunami of pen on paper would make a bigger impact today.

        Men never do evil so completely and cheerfully as when they do it from a religious conviction. -- Blaise Pascal

        by RJDixon74135 on Fri Apr 15, 2011 at 09:16:46 AM PDT

        [ Parent ]

  •  So depressing to read those articles (8+ / 0-)

    yesterday. The 'audacity' of Sheila Baer. The only people who tried to do something about it (e.g. risk management personnel at large banks) were summarily fired for pointing out excessive risk.

    "I've taken up sculpting recently. Landscapes mostly." ~ Yogi Bear

    by eXtina on Fri Apr 15, 2011 at 07:23:11 AM PDT

  •  For the millionth time already, (1+ / 0-)
    Recommended by:
    Wendys Wink


    No use boo-hooing or righteously pointing it out.  It's OBVIOUS, CRIMINAL, and SHAMEFUL.  The virus of greed has infected the entire system, from the Justice Department, to the Oval Office, to Congress, and the free market.

    Shining a light on the issue is as futile and as productive as ignoring it.  Industries OWN Congress and WRITE THE LAWS in the 21st Century.  

    If citizens are going to get the government to work FOR THEM, they are going to have to accumulate $ via organizations, buy their own share of Congress, and start writing the laws to benefit them; just like corporations do.  It's how the system works. Plain and simple.  

    Stop pointing and shouting within the echo chamber, and actively make moves to compete with industry within the system!

    •  Perhaps you could tell specifically what actions.. (2+ / 0-)
      Recommended by:
      cpresley, lotlizard are organizing in this regard so that others may emulate you.

      Don't tell me what you believe. Tell me what you do and I'll tell you what you believe.

      by Meteor Blades on Fri Apr 15, 2011 at 08:44:45 AM PDT

      [ Parent ]

      •  The actions that I am taking... (1+ / 0-)
        Recommended by:

        The actions that I am taking personally are just like I summarized.  I am fully supporting and financially donating to organizations like Progressives United; which are building up funds ( 4/15/11: "Russ Feingold's PAC Raises $1 Million To Fight Corporate Influence."  Although this amount isn't NEARLY enough, it is at least a promising start for an organization that was only launched on Feb. 16, 2011) that can be used in efforts to influene changes mentioned (and requested of visitors) on their agenda poll page.  

        I highly encourage others to also seek out and donate time and/or a few dollars to, and spread the news about organizations like this who they feel represent the changes that they want to see.

        •  Also... (1+ / 0-)
          Recommended by:

          Organinzing and/or participating in local US-UnCut rallies in your local region can be another way of effecting change.

          The more UnCut rallies are held, the more likely change can be achieved.  

          Find ways to be active by using more than just your keyboard!  

  •  Mr. Geithner says: (3+ / 0-)
    Recommended by:
    PhilK, Brooke In Seattle, cpresley

    (courtesy of naked capitalism)

    "I don’t have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world," he [Geithner] said. "It’s the same thing for Microsoft or anything else. We want U.S. firms to benefit from that." He continued: "Now financial firms are different because of the risk, but you can contain that through regulation."

    An ambulance can only go so fast - Neil Young

    by mightymouse on Fri Apr 15, 2011 at 07:27:38 AM PDT

  •  TBTF leads to TCTP (4+ / 0-)

    Too big to fail -> too criminal to prosecute.

  •  That's b/c the crooks are a shadow govt. (6+ / 0-)
    If the government dealt with street crime the way it has handled the financial crisis, the outcry would be registering 8.9's on the Richter scale every day of the week, in and out of Congress.

    ....Wall Street and parasite capitalism seem to have both political parties in their back pocket.  TARP was the epitomie of bipartisanship.    

    I hate to break this to you, but General Electric is not on your side

    by jds1978 on Fri Apr 15, 2011 at 07:29:56 AM PDT

  •  Cold War May Ultimately Turn Out to Have Ended (6+ / 0-)

    in a tie, with US and Russia both as corporate kleptocracies.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Apr 15, 2011 at 07:32:30 AM PDT

  •  The feds will prosecute anybody who volunteers (5+ / 0-)

    any information of wrongdoing by these fucking parasites.

  •  Parker Games just announced (2+ / 0-)
    Recommended by:
    OHdog, Wendys Wink

    in their new version of Monopoly the banker will get a "Get Out of Jail Free" card.

    I don't know what consciousness is or how it works, but I like it.

    by SocioSam on Fri Apr 15, 2011 at 07:36:39 AM PDT

  •  The Prez sez: (0+ / 0-)

    "We must look forward"

    “In the beginning there was nothing, which exploded.” Terry Pratchett

    by 420 forever on Fri Apr 15, 2011 at 07:37:37 AM PDT

  •  This is a shitty deal (8+ / 0-)

    The lack of accountability, the lack of meaningful action in all this time is a goddamn shitty deal for those of us 99% not in the bankster and their enablers exclusive clubs.

    Last night Matt Taibbi and Elliot Spitzer were on AC360 discussing the new report. Taibbi said if only one of the big squid would do 6 months in a max security prison the criminal trend would cease and desist. Spitzer said he wanted Holder to resign if he did nothing about the results of the report.

    I tend to agree with both of them. I expect, though, that nothing will be done. A little lip service for a news cycle or two, then, oooh look over there! something new. This is all another campaign faux populist bauble to dangle in front of the base for a minute. Color me jaded on this one.

    •  Spitzer also (1+ / 0-)
      Recommended by:

      said that criminal charges would be very hard to prove...because you have to prove intent. He said that civil cases could be made.

      And Taibbi's opinion that one prosecution was just thrown out there,unsubstantiated. Bank robbers get convicted all the time,but that does not deter others.

      Gathering the kind of evidence needed to actually prove criminal or civil charges would be a painstakingly long process,as these guys will destroy all evidence,I am sure.

      Even as Levin questioned the one guy on how the e-mail that talked about a ''shitty deal''...he just threw it back saying that he thought it was a superior assessing his performance,ie..that he made a shitty deal on these particular securities,not that they were shitty secruities.

      If this was some kind of slam dunk prosecution,they would do  is not. It is so complex,it would be very hard to get a jury to understand it,let alone prove it.

      We would all like to find the guilty parties and perp walk them...but just not that easy. In the S & L scandal,there were certified signed off financial statements to the SEC that made it much easier to find the culprits and the evidence was on file.

      •  It's hard work, (5+ / 0-)


        The corruption, dishonesty  and malfeasance involved in this financial crisis is undermining the very foundation of this nation and global economies alike. I can think of no more basic and essential problem to address by the current administration than this one. It underlies everything.

        That it is a difficult problem to solve is NOT an excuse.

        •  I do not (0+ / 0-)

          care how hard of work it is...I care about successful prosecutions....if you charge these guys,you better be able to win,or you look like fools. They will have the best defense lawyers money can buy,and the evidence will be neglible. Unfortunately,just stamping our feet and screaming that someone did something will not be a very successful prosecutory strategy,I fear.

  •  The only effective laws pertaining to these (1+ / 0-)
    Recommended by:

    crooks are the laws that protect them from us. Nobody from either party, no non-partisan appointee, is going to bite the hand that feeds him.

  •  As someone who did their time on Wall Street, (1+ / 0-)
    Recommended by:

    I remember a trader being hauled off the floor for malfeasance by the feds.

    Once the country has been made more aware of the names and crimes of the evildoers, I think there will be a hue and cry for prosecution. I do not think Wall Street is invulnerable, and I think that prosecution will proceed because of the desire to regain seats lost in 2012, and the vulnerability of the divided Republican/Tea Party gang.

    We can be part of the pushback. I have contacted my congressman and senators and let them know my stand on prosecuting Wall Street malefactors. The response has been pretty positive. But then again, I live - fortunately - in Vermont, and Welch is doing yeoman's service in the House on this, and of course, Bernie kicks ass in the Senate.

    Those who deny freedom to others deserve it not for themselves. - Abraham Lincoln

    by 4Freedom on Fri Apr 15, 2011 at 07:47:17 AM PDT

  •  When does this attitude change? (2+ / 0-)
    Recommended by:
    Odysseus, lotlizard

    I think the present attitude toward Wall Street will change with the end of the current social networking bubble, because in this case Goldman Sachs is hosing their very best customers, who won't be able to get out of literally hundreds of billions of dollars in lost income.

    This will cause many in the ultra-rich to realize that the differences between Goldman and Bernie Madoff are not great at all, and that they, too, can become victims of financial crime.

    And when the ultra-rich realize that people are ripping them off and then demanding political protection, they will revolt. More here

    by Dana Blankenhorn on Fri Apr 15, 2011 at 07:47:21 AM PDT

  •  Nothing will be done. (1+ / 0-)
    Recommended by:

    This IS our modern version of "oversight".   Doing nothing until a massive problem occurs, ignoring most of the roots of the problem and focusing mainly on the end result, holding investigations where politicians gang up on easy bad guys for political points, then concluding by saying, "yep, something definitely went wrong here!".

    Then they all continue with business as usual and if anybody questions why nothing was done they say, "We did something!  Look at all those investigations we held and all the wrongdoing we uncovered!"

    Wash, rinse and repeat.

  •  what to do, give money to obama reelection? (0+ / 0-)

    no way, not paying to enable more of this.  Manning get tortured for telling the truth while people destroying the US drive around in their new ferraris.

  •  If you haven't obliterated your keyboard in a fit (2+ / 0-)
    Recommended by:
    cpresley, lotlizard

    of rage yet, I strongly encourage you to read Glenn Greenwald's article on the US's two tiered justice system. Powerful stuff.

    “In the beginning there was nothing, which exploded.” Terry Pratchett

    by 420 forever on Fri Apr 15, 2011 at 08:17:26 AM PDT

    •  Where do they start? (0+ / 0-)

      Do they procecute original loan applicants who might have lied about their income?

      Or the loan orginators who did not check the applicants information?

      Or those above them who legally sold off the mortgages they wrote?

      Or those above them who legally bundled those mortgages and secruritized them and sold them?

      Or the ratings services who gave them a solid rating?

      Or the gang at the very top who sold these secrurities and also hedged the securities they happened to hold?

      Or the insurer who hedged them at the AIG level?

      Was any of this illegal? I do not know,just asking.
      Clearly,if they can prove they knew they were selling fraudulent securities, they could charge them with that,but did the salesmen know? Who exactly knew? Moodys?

      •  Your hypothesis presumes (4+ / 0-)

        The sequence of events occurred the way you presented them.

        The actual sequence was quite the opposite.

        The securities folks in a subsidiary of the big banks or investment banks would build a "hypothetical" security of say 5000 mortgages that were all 5/25 negative amortization adjustable rate loans.

        They would then build models with "hypothetical" weighted average life calculations for defaults, etc.

        They would also build the models of a "hypothetical" security with a composition that had say 40% of the loans from California, 10% from Florida, %5 from Nevada, 5% from Arizona and the rest from all over the country. They would also have in the "hypothetical" security a composition that reflected 40% cash-out refinances, 50% original purchases, and the rest refinances of existing loans. They would do similar things for owner occupancy. Single family, multiple family properties, etc.

        After this they would then take that "hypothetical" security to Moody's, etc. and see how that would be rated. And they would make adjustments to the security to get the various tranche ratings they needed.

        Having done this, they would line up investors in advance for buying this security.

        After that, they would then tell their sibling mortgage warehouse financing arm that they were looking to fill a security with 5/25 negative amortization ARMs with the characteristics in the "hypothetical" model.

        In turn, these entities would tell Joe's Mortgage and Bait Shop that they would pay $500 for every mortgage they could sell that was a 5/25 negative amortization ARM with the right characteristics.

        Finally, every last person coming into Joe's Mortgage and Bait Shop would be steered to 5/25 negative amortization ARMs whether or not that would be the best mortgage to take or not.

        It was absolutely NEVER the case that people at the bottom of the food chain were out there writing all kinds of crazy mortgage products and then taking them to the banks who, in turn, they had to try to figure out how they might package them and sell them to investors. It ALWAYS started from the top down.

        If you go out to the SEC site and look up any of the MBS out there you will see prospectus after prospectus that EXPLICITLY state that the tables and figures - including the weighted life averages and loan composition - were hypothetical and that the model may not reflect the actual composition or calculated figures once it is actually created.

        If it were to flow the way you presume then there would never be the case where the prospectus would be based on hypothetical models rather than the actual composition.

        •  Arrow. Zing. Bullseye. Thank you. n/t (3+ / 0-)
          Recommended by:
          cpresley, lotlizard, priceman

          Don't tell me what you believe. Tell me what you do and I'll tell you what you believe.

          by Meteor Blades on Fri Apr 15, 2011 at 10:08:18 AM PDT

          [ Parent ]

          •  You're welcome (3+ / 0-)
            Recommended by:
            a gilas girl, lotlizard, priceman

            It is important for people to understand how the process worked.

            Otherwise people might be left with the impression that somehow the bankers were at the mercy of millions of borrowers and there was nothing they could do about it.

            There isn't a chance in the world that these big banks would finance a loan that they hadn't already sold - via the hypothetical model -  as they certainly didn't want to carry them on their books.

            There isn't a chance in the world that Joe's mortgage and Bait Shop would broker a mortgage that they wouldn't get paid for.

            Was there fraud by borrowers and mortgage brokers? Sure. But nowhere near the degree of fraud conducted by the biggest banks.

            The MBS - as well as CDO and CDS - market was all conducted by the same small set of firms all playing different roles in each others deals. That spells out racketeering and they should do to bankers running these operations - not just the CEOs - what they have done to the organized crime families.

            •  I appreciate (1+ / 0-)
              Recommended by:

              your description of how this kind of security is built.
              I yield to your knowledge.
              So, in terms of prosecution, which part of this is illegal?
              It does sound totally crooked,but were there laws in place that were broken?

              Are you saying they built these securities with the express intention of having them fail so they could go short on them and make a killing?

              How could the ratings services be so blind,or were they in on the scheme also?

              Just to be clear,I am not arguing for the folks that perpetrated this fiasco,but just trying to figure out how difficult it would be to prosecute them and the likelhood of successful convictions,and who exactly would  be charged.

              •  The part that is illegal has to do with fraud (2+ / 0-)
                Recommended by:
                lotlizard, priceman

                This occurred on a couple of levels.  The first level was in the construction of the MBS itself. The banks knew at the time of origination, especially at the end of 2006 into 2007, that defaults were rising. They also knew, in the case of negative amortization loans, that much of the borrowers could not afford the payment at a proper principal/interest payment. That is, they knew in advance that they were essentially creating a ponzi because the borrower would have to refinance later at an even higher principal amount - maybe beyond the price for houses in that marketplace.

                What was important is that they created many of these MBS to meet certain high rates of fixed income returns that the "investors" allegedly wanted. They were intentionally creating products that would require side-bet CDS. Worse, as we have seen in several of the lawsuits by the likes of MBIA and Ambac that the actual composition of the MBS did not meet the characteristics described in the prospectus.

                This was especially true of the count of loans that were originated at 80 LTV (loan to value), 90 LTV and 95+ LTV. One of the tricks of the trade was to originate a home equity loan simultaneous to the mortgage wherein the purpose of the home equity loan was to circumvent the need for private mortgage insurance and/or meet down payment requirements or to create, falsely, that the LTV was at a certain level or in the case of California, Nevada, Florida and Arizona these were often used to avoid having to create a jumbo mortgage.

                By the way these home equity loans were packaged into their own separate MBS where the purpose of the home equity loan - in this case for malfeasance as described above - was not properly disclosed. So investors in these MBS literally had no idea that most, if not all of the home equity loans, had absolutely zero and almost certainly negative equity behind them right out of the box.

                The ratings agencies also knowingly rated "hypothetical" models rather than the actual contents. And the legal counsels also attested that all of the legal requirements in the production of the MBS were met and it was in conformance of all applicable laws.

                There are many examples on the SEC site where if you look at the monthly report to investors - there are usually a couple of them before the reporting requirement expires - where you see loans reported as delinquent or even in foreclosure or bankruptcy right out the box. That, according to the Pooling and Service Agreement (contracts that are also on the SEC site), are expressly not allowed.

                The real true fraud is on the taxpayers in the form of all the taxpayer money given to the banks. And this happened, as we know, at the CDS level in the case of AIG. But it also occurred at the CDO level in the case of many institutions. And what happened there was nothing short of a crime. One of the deals that came out of the AIG fiasco was a CDO called Adirondack II. This deal illustrates part of the way they put the FDIC and the taxpayers on the hook for what was going to be a certain failure.

                In deals such as Adirondack they had about $500 million of assets - cash flows from MBS, CMBS, ABS, corporate bonds etc. However, the largest components of deals like these were tranches that were called mezzanine - years down the road of receiving "principal" payments (not principal as in a mortgage payment) and received very little cash flow. So what they would do is issue $1 billion in commercial paper backed by $500 million is cash flow poor assets and dump those on the money markets, pension funds, port authorities, state and municipal governments lending in the short term markets.

                The whole point of the MBS structure was to take the risk of mortgages off of the banks balance sheets and allegedly remove the risk to depositors. However, what Wachovia did with Adirondack was to turn around and make Wachovia Bank NA (the subsidiary with the depositors) what is called the 2A-7 Put party. It refers to a section of the rules but the Put party is a guarantor. That means that if the money market participants force a redemption or the CDO can't pay back the commercial paper at maturity the Put party has to do so. Thus, Wachovia ended going through hoops to ultimately put the absolute riskiest part of the MBS deals right back onto the depositors of Wachovia along with the FDIC and taxpayers. This was a fraud on everyone.

                If you ever wanted to know why the government had to step in and backstop the entire commercial paper market this is the reason - though the government has never said so lest the depositors out there would believe their money to be unsafe.

                One of the other things out there was that the servicers would also go out and make side arrangements with mortgage insurers that were contrary to the mortgage insurance policy issued. Just Friday Fannie Mae issued a notice to servicers to cease this practice and to disclose any and all side arrangements they had made. If the mortgage insurers aren't paying out according to the policy - but perhaps (likely) giving to the servicer to the detriment of the investors - then it is Fannie Mae (the taxpayers) that are on the hook for money shortages under the guarantee structure of FNMA MBS. This too would be a fraud on the investors and the taxpayer.

                And we haven't even gotten to what is probably the ultimate fraud and that is that it is likely the majority of mortgages out there were never legally transferred to the MBS trusts in the first place. So absolutely everything that occurred after that act was an intentional fraud against the investors, borrowers, FDIC, state and county governments, money market participants, taxpayers - everyone. That means that a bank holding the senior tranche of the MBS and using that cash flow asset as collateral to borrow money from the money markets to, in turn, buy US treasuries did so fraudulently, and knowingly. The act of selling the certificates of the Trust knowing the mortgages were never transferred was a fraud right from the start. Collecting payments from a borrower to pay an entity that wasn't legally entitled to receive payment, and doing so knowingly, was also a fraud from the minute the first principal/interest payment was made.

                Right now Fannie and Freddie probably have millions and likely tens of millions of mortgages that they don't, in fact, own. They never owned them and legally they can never own them after each MBS was considered closed.

                People who aren't in foreclosure or have never missed a payment have been refinancing houses and taking those loan proceeds and paying off banks that didn't even own those mortgages in the first place. Worse still, because the MBS Trusts don't own the mortgages the party that does could come out of the woodwork at any time and make a claim against the property for payment. This is a fraud on the title insurers.

                The bottom line is that there are so many instances of fraud alone that the government could be prosecuting these criminals left and right. All they have to do is start prosecuting and believe me the rats will start singing like a canary. Look at how many of the robo-signers gave up the ghost in testimony in the courts rather than be on the hook alone for thousands of instances of perjury.

                I am sure, with a little digging, they can find kick-back schemes and other crimes as well. Not to mention the people working for these banking entities that had fiduciary and regulatory responsibility to report illegal activities they were aware of and chose not to do so - which under several statutes is also a crime.

  •  What will be done about it? (0+ / 0-)

    We have top men working on it right now.

  •  Marie Antoinette anyone??? (0+ / 0-)

    I say we drag these idiots out of their mansions and top floor offices and...? Oh well, I can day dream right?

  •  Is Patrick Fitzgerald available? (0+ / 0-)

    A Special Counsel could be appointed by the Attorney General to investigate allegations of financial crimes by Wall Street insiders, and others.  

    "11 dimensional chess" is a clever form of using magical thinking to obfuscate the obvious.

    by Zinman on Fri Apr 15, 2011 at 09:23:55 AM PDT

  •  As Paul Lynde would say: (6+ / 0-)

    "I could just scream." Seriously, thank you MB, for your keeping your eye on the prize, because MSM sure as hell isn't. I look forward to more reports on what is or isn't happening. If the Justice Department tried and convicted some of these felons, the Democrats would sweep in the next election, though that would not help the millions who lost jobs, homes, life savings. But, it would be a start.

    I think, therefore I am. I think.

    by mcmom on Fri Apr 15, 2011 at 09:37:10 AM PDT

  •  Once again (1+ / 0-)
    Recommended by:

    I will just say that this country no longer stands for justice.  

    We invaded a country for no good reason, and we cannot as a nation admit it.  We pollute and bully at will and cannot see ourselves as bullying polluters even when we try.  We apply different rules to different income classes, and we cannot see ourselves as unjust on that ground, when in fact it is the text book definition (from Aristotle) of an unjust state.  

    The very sense for justice is dulled and diverted here.  Folks scream over the fact that there are abortions in their state, but can't for the life of them sense anything wrong with a nation where the top 1% take half of the nation's income in a given year.  They are aware of case after case in which the rich get off scott free in cases where they themselves would have been convicted on a quarter of the evidence -- and yet they see their country as some sort of beacon of justice and righteousness in the world.  

    Our justice dept needs something to do besides torture Mannning --

    How about probing the mortgage mess?

    Youth lives by personality, age lives by calculation. -- Aristotle

    by not2plato on Fri Apr 15, 2011 at 02:41:38 PM PDT

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