But after watching this video at http://finance.yahoo.com/...
I think I better understand:
As you can see, this former regulator, William Black, who is also an Associate Professor of Economics and Law at the University of Missouri — Kansas City had very insightful comments. Namely, that the FBI entered into a strategic alliance with the mortgage bankers a while ago and now really can't investigate because of that conflict of interest.
William Black says that effectively the FBI (I am sure with the full authority and express consent of the Bush Administration) has entered into a strategic alliance with the mortgage banks and that is the reason that there have been no investigations so far in this "Great Wall Street Swindle" (term coined by the Canadian Broadcasting Corporation in their documentary pretty recently).
Since there have been no investigations at all into the bank failures and mortgage fraud so far, that means that it will be difficult (though not impossible) for an Obama Administration to investigate this wrongdoing and bring the culprits to justice. Black rightfully points out that there is a statute of limitations that Obama and his forces will have to contend with...so effectively they will be working against the clock (which is difficult because complex financial fraud investigations are tricky and painstaking and take numerous years to complete...I know, since I am a Certified Fraud Examiner and have worked on many white collar crime investigations in my career, and each and every one can be a bear to deal with...though they can be rewarding when you discover the missing piece in the puzzle that unlocks the clue to solving the mystery).
Tracing the transactions, recreating the financial statements (as they currently are, would have been without the purported "fraudulent" transactions, and identifying the "damages"), identifying who knew what when (so that you can prosecute the higher-ups - CEOs, CFOs, Chief Risk Officers - rather than just the low level employees - e.g. appraisers, mortgage bankers), engaging expert witnesses, and creating a solid legal plan for bringing cases to trial is a very long and convoluted process. It is not easy, typically takes many years to complete, and requires clear focus and determination by trained experts in forensic accounting.
So, this task is one of many that Obama will have to get his arms around very, very quickly if he really wants to focus on ending this "abuse of power" and "corruption" and restore confidence back to the American people and the world-at-large.
Moreover, I think Black is right-on when he says that one of the major obstacles in dealing with this now is that there is no poster child for the "Great Wall Street Swindle" since there was no investigation done when the crimes were being committed. It is much more difficult to investigate crimes through looking at document trails and trying to talk with hostile witnesses (executives / employees potentially subject to different violations like 10-b-5 violations - see http://en.wikipedia.org/...).
It is more difficult to understand what occurred, it is more difficult to find and reconcile the evidence, and it is more difficult to convince a jury of those violations when the evidence is less than straigtforward. That is, it is much easier to infiltrate a target, get them to map out how things work in the organization, and identify the key stakeholders / method of doing business (but, alas, this is not possible now that the ponzi scheme has collapsed and the institutions at issue are largely bankrupt / out of business).
Additionally, dealing with no clearly identifiable villain complicates matters from a PR standpoint because it makes it much easier for the bad-guys to try to get better press (and say to CNN for example that the FBI is ganging up on me...we are no worse than our counterparts), and Obama will need good PR to effectively prosecute these sorry excuses for human beings who committed rampant fraud and then have their hands out to the taxpayer begging for money.
Lastly, Black is also correct when he says that there is no one who has been willing recently to hold evildoers accountable for their frauds. Elliot Spitzer used to be the one that was known nation-wide for going after corruption on Wall Street, but as we all know, he was taken down during this year's Primary season due to his complete and total lack of morals and corruption with a call-girl, Ashley Duprey. This has left a void in fighting corruption on Wall Street, and no one has taken over that mantle yet.
This is a very significant issue - prosecuting and jailing the ones responsible for this financial meltdown - and it is my hope at least that Barack Obama as POTUS and Eric Holder as Attorney General will really provide a solid break from the corrupt GW Bush Administration by not just not being the bad guys but by being willing to punish the bad guys (all bad guys). Abuse of power cannot be tolerated in government, in the Oval Office, on Wall Street, and / or on Main Street. We need adequate checks and balances in our government (just like the Founding Fathers envisioned and penned), we need to recognize greed as a sin that should be punished (so that this kind of financial debacle never, ever happens again and hurts innocent people), and I think doing these things will restore integrity to our country and the world more than perhaps anything else.
UPDATED since a lot of people were saying that there was no evidence to support this:
While the FBI is investigating these companies a little bit (but I am not sure that they will be able to do it quickly enough since these are all in the "very preliminary stages"), it seems pretty clear to me that there was probably mortgage fraud that occurred at these big companies and there was definitely financial mismanagement with regard to MBS (Mortgage-backed securities).
Here are some links:
General discussion of what / who the FBI is investigating very preliminarily
http://money.cnn.com/...
WAMU accused of fraud by former employees (ABC Nightline did a special on it)
http://www.flippingfrenzy.com/...
Ohio attorney general sues Freddie Mac over alleged mortgage fraud
http://www.nbc24.com/...
Alleging that the Federal Home Loan Mortgage Corporation, more commonly known as Freddie Mac, secretly and intentionally participated in one of the largest housing investment deceptions in modern U.S. economic times," Ohio Attorney General Marc Dann last Friday filed a securities fraud class action lawsuit in federal court in Youngstown, Ohio. The action was filed on behalf of the Ohio Public Employees Retirement System..."I would like to commend the trustees and staff at OPERS for supporting my effort to hold Freddie Mac accountable for the role the company and its top executives played in bilking investors and fueling the foreclosure crisis that is destroying neighborhoods across our state and the entire nation," Mr. Dann said. "By authorizing me to bring this suit on their behalf they are protecting the interests of the pension plan, the workers and retirees who depend upon it, and the taxpayers whose hard-earned dollars fund it. And they are also sending a loud and clear message to Wall Street that this type of fraud and manipulation will not be tolerated by the people who live on the Main Streets that are being devastated by what Freddie Mac has done."
The lawsuit alleges that despite repeated public denials and assurances to the contrary, Freddie Mac was deeply invested in the sub-prime mortgage industry and failed to disclose that it was not protecting itself from the billion-dollar risks it incurred. In addition to Freddie Mac and its officers, the lawsuit seeks to hold Freddie Mac committee directors personally responsible for their recklessness and secrecy about Freddie Mac’s investments and resulting losses in the sub-prime housing mortgage industry.
As of September 25, 2008, AIG being investigated by FBI for fraud at http://www.ajc.com/...:
Law enforcement officials said Tuesday that the FBI was investigating the New York-based insurer for potential fraud, as well as mortgage finance companies Fannie Mae and Freddie Mac, and investment bank Lehman Brothers Holdings Inc.
The inquiries will focus on the financial institutions and the individuals who ran them, a senior law enforcement official said.
The law enforcement officials spoke on condition of anonymity because the investigations are ongoing and are in the very early stages.
Countrywide Said to Be Subject of Federal Criminal Inquiry
http://www.nytimes.com/...
on March 9, 2008 (pretty much the earliest investigation into mortgage fraud that I am aware of)
The federal authorities have opened a criminal inquiry into Countrywide Financial for suspected securities fraud as part of the continuing fallout over the mortgage crisis, government officials with knowledge of the case said on Saturday.
The Justice Department and the Federal Bureau of Investigation are looking at whether officials at Countrywide, the nation’s largest mortgage lender, misrepresented its financial condition and the soundness of its loans in security filings, the officials said.
Lehman
This seems fishy to me (not necessarily illegal, but suspicious nevertheless) at http://bankimplode.com/...:
Lehman includes debt in its calculation of equity. Say what?
It’s always worrisome when a company changes a key definition of a closely watched measure of financial performance. In a note in its earnings release, Lehman said it has a new definition of "tangible equity," or the hard assets that it has left over after subtracting its liabilities. This is a measure of net worth, the yardstick by which investment banks are valued. Lehman’s new definition allows for a higher portion of long-term subordinated borrowings (which it calls "equity-like") in tangible equity...
Other good articles on similar subjects:
1 - http://www.dailykos.com/...
2 - http://chuckgallagher.wordpress.com/...
My point in all of this is that these investigations should have started a long time ago. I know better is later than never, and I have faith that Obama will really act on these investigations, but I want to call attention to the fact that potential mortgage fraud is a very real crime and should be investigated with resolve. I blame the Bush Administration for not doing this (but as we all know, the list of things to blame on Bush are long and growing longer by the day).
Thoughts?
Comments are closed on this story.