GE's subprime lender had a business model based on fraud. Welch wants to shut down government investigations that will expose GE's dirty laundry.
By now, everyone knows about Jack Welch's baseless smear against Obama and the BLS jobs numbers. He didn't "feel" that the numbers were right. In February he said, "I don’t feel undertaxed in any way at all.”
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It's worth remembering GE's role in fomenting the subprime crisis, and the government investigations that a Romney Administration would likely shut down. Though Welch retired from GE more than a decade ago, his GE shares, and his rate of taxation, would be impacted by a second Obama term.
WMC's Sleazy Subprime Business
GE owned one of the most crooked subprime lenders and loan servicers in the business, a California outfit called WMC. As BusinessWeek noted in 2008, "WMC underwrote some of the crappiest subprime loans."
Its business model was based on fraud. As Mike Hudson, the Woodward/Bernstein of the mortgage crisis, wrote:
Dave Riedel, a former compliance manager at WMC, says sales reps intent on putting up big numbers used falsified paperwork, bogus income documentation and other tricks to get loans approved and sold off to Wall Street investors.
One WMC official, Riedel claims, went so far as to declare: “Fraud pays.”
How well did GE address WMC’s fraud problems?
[...]
Riedel, who worked as quality-control manager for the lender’s largest production division, claims that after he informed a GE official about fraud inside the lender, WMC’s management demoted him — reorganizing him out of his job, taking away his office and his staff and forcing him to sit at a desk for months without a job title.
“I didn’t have any files,” Riedel told iWatch News during a series of interviews. “I basically stared out a window.”
Two other former WMC employees confirm Riedel’s account of his transfer. “Everyone knew,” Argueta, the former risk analyst, says. “We all knew why he’d been moved to our section, from a nice comfy office out to the cubicles.”
General Electric didn’t answer questions from iWatch News about the accounts provided by Riedel and other ex-employees. It also declined to provide detailed answers to a series of questions about how much it knew about alleged fraud at the Burbank, Calif.-based lender and what steps it took to deal with it.
[...]
By early 2006, Dave Riedel had begun to rebuild his career inside WMC.
He helped put together a presentation in May 2006 aimed at giving GE officials a sense of how serious WMC’s fraud problems were. Riedel says an audit of soured loans that investors had asked WMC to repurchase indicated that 78 percent of them had been fraudulent; nearly four out of five of the loan applications backing these mortgages had contained misrepresentations about borrowers’ incomes or employment.
Riedel also helped work on a computer program designed to dig out fraud across the company’s loan portfolio. It sifted through a swarm of data, including evidence that many borrowers submitted multiple applications with income figures that mysteriously grew from one application to the next. Then it spit out a fraud alert flagging applications that appeared to have false information.
Riedel hoped that the company would use the data-tracking program on a real-time, wide-scale basis, he says.
It was at a meeting about the computer program, Riedel says, that an executive declared “fraud pays” — explaining that it didn’t make sense to slow the gush of loans going through the company’s pipeline, because losses due to fraud were small compared to the money the lender was making from selling huge volumes of loans.
The Federal Housing Finance Administration, acting on behalf of Freddie Mac, is now
suing GE for its fraudulent loan origination practices.
It's a safe bet that Eric Schneiderman, who heads up Obama's task force to go after unscrupulous parties in the mortgage loan crisis, will go after GE.
And under Dodd-Frank, which the GOP has vigorously opposed, GE is likely to be subjected to enhanced regulatory scrutiny because GE Capital is likely to be named as a systemically important entity, like AIG.
