THE AMAZING RESULT OF CALIFORNIA FRAUD TRIAL COULD CHANGE THAT
Finally, Wall Street gets put on trial: We can still hold the 0.1 percent responsible for tanking the economy.
Wow, when I read that I had to do a double take. For those of us that have been following this story since the economic meltdown began, and have been involved in trying to assist folks with their efforts to stay in their homes, this news has been ‘a long time coming’.
What’s behind this news is a case in Sacramento California where people were being prosecuted for mortgage loan fraud by the Feds. The defendant’s attorneys took the approach that the defendants were not the parties that commited the crime, but rather it was the lenders and greedy bankers that set up the entire pipeline and assembly line of ‘fraudulent’ mortgage loan origination, underwriting, and ultimate securitization pools of the Promissory Notes.
Myla and I were dead center in this story when we look back and remember what it was like in real time from 2001 through 2008. We had a long career as Mortgage Brokers and Real Estate Brokers. We can recall the ‘roll out’ of the “Alt-A and Sub-Prime” mortgage programs, and all of the NEW mortgage lenders that were popping up every five minutes, coming to the office to solicit us for our business, etc. After these account reps left the office, we would just sit back and talk about “how fricken crazy” it all sounded, and could not imagine how such loan programs would ever ‘last’. Or, what the quality of the borrowers would be that would accept such crazy terms ie; interest only payments for a couple of years before their loans re-set to adjustable terms with ‘incredibly high margins’ over the base index value. A train wreck in the making, no doubt about it.
In fact we had some account reps that would openly tout the fact that if the borrowers had to go “full doc” due to their super low FICO scores, but in reality the borrowers wouldn’t have the income to qualify that these lenders would just “create the employment documentation” internally in their offices, as they just want to “fund the loan”. It was just routine for them.
Coming from a traditional corporate mortgage background we could not relate to what we were being told by these lenders, and frankly were mortified by what we saw and heard. We wanted no part of it. We knew things could not possibly turn out right (which they did not).
What we did not realize at the time, was what the Wall Street bankers and government regulators were actually involved in creating the biggest PONZI scheme in history. And all of the iconic banking names were promoting the whole affair; Countrywide, Chase, WAMU, Bear Stearns, Goldman Sachs, Citibank, Lehman Brothers, on and on. We would often comment on the fact that it seemed like we had been transcended into the “Twilight Zone”, things were definately different.
“As it happens, a trial just ended in Sacramento in which a jury was convinced that “executives intended to make fraudulent loans.” Here’s the thing, though: It wasn’t the government that made the case against the financiers; it was the defendants.”
“And lenders so didn’t care back in the bubble days. They invented liar’s loans and blanketed the country with them during the Oughts not because the poors talked them into doing it, or because the liberals in the Bush Administration forced them to do it—on the contrary, the government warned them against issuing these things, just as the government warns us against swallowing arsenic. The reason bankers did it was because liar’s loans were making bankers rich.”
“Do you see what I’m saying? Executives do not always share the interests of the corporation that employs them. They weren’t “defrauding themselves,” as our federal protector laughs, they were defrauding the suckers that paid their bonuses, the shareholders that invested in them, the European pension funds that believed their excreta was Grade A Prime.”
“The name for this kind of scheme is a “control fraud”; it happens when the officers who control a firm use their power over the firm to enrich themselves while driving the firm itself to the boneyard. The country has seen control frauds many times before; indeed, the man who invented the term was a regulator of S&Ls during the S&L meltdown of the 1980s, and he saw the pattern so many times back then that he wrote a book about it. I am referring to my friend Bill Black, a professor of economics and law at the University of Missouri-Kansas City and also a Distinguished Scholar in Residence for Financial Regulation at the University of Minnesota’s School of Law. Control fraud, Black says, always follows the same recipe, with banks growing rapidly by making vast numbers of extremely risky loans, executives immediately getting rich with big bonuses, and the bank eventually collapsing under the weight of those malicious loans.”
“When I got Bill Black on the phone last week, he talked about the case as a watershed moment. “I came out there to say, ‘Look! there are lions roaming the campsite!’ They took down the global economy!,” he told me. “And jurors can understand this. You say that you can’t get a prosecution. We will come to your back yard and show you how to get a prosecution. Because we’ll do it as a defense. Even though we have no FBI agents, no subpoena authority. . . , we’ll put on a successful prosecution. And we’ll show to you that jurors can understand this.”
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