That’s Josh Rosner on Parker/Spitzer talking about the mortgage bond fraud, which is just a part of all the separate and interlocking frauds performed by the financial industry over the last decade, which is swiftly leading us to a reckoning that could be catastrophic for the second time. L.Randall Wray calls it the biggest scandal in human history, and something he’s been aware of for the past several years.
We have long known that lender fraud was rampant during the real estate boom. The FBI began warning of an “epidemic” of mortgage fraud as early as 2004. We know that mortgage originators invented “low doc” and “no doc” loans, encouraged borrowers to take out “liar loans”, and promoted “NINJA loans” (no income, no job, no assets, no problem!). All of these schemes were fraudulent from the get-go. Property appraisers were involved, paid to overvalue real estate. That is fraud. The securitizers packaged trash into bundles that ratings agencies blessed with the triple A seal of approval. By their own admission, raters worked with securitizers to provide the rating desired, never looking at the loan tapes to see what they were rating. Fraud. Venerable investment banks like Goldman Sachs packaged the trashiest securities into collateralized debt obligations at the behest of hedge fund managers–who were allowed to choose the most toxic of the toxic waste—then sold the CDOs on to their own customers and allowed the hedge funds to bet against them. More fraud [...]
Now we know that it was not just the mortgage brokers, and the appraisers, and the ratings agencies, and the accountants, and the investment banks that were behind the fraud. It was the securitization process itself that was fraudulent. Indeed, the securities themselves are fraudulent. Many, perhaps most, maybe all of them.
(Do read Wray’s solutions, at the link.)
The foreclosure fraud is merely the last link in this chain, the final fraud that the banks hoped could get these toxic assets (we didn’t know how toxic) off the books. They got caught.
And yet, the banksters who committed these atrocities, who crashed the economy once and now maybe twice, who brought untold suffering upon millions if not tens of millions, think you punks are to blame.
Wall Street’s reaction to the allegations that some banks cut corners while foreclosing on 3 million homes since 2007: Pay your mortgage in the first place [...]
“If you didn’t pay your mortgage, you shouldn’t be in your house. Period. People are getting upset about something that’s just procedural,” said Walter Todd, portfolio manager at Greenwood Capital Associates.
Some said the issue is one of personal responsibility for one’s own debts.
“Everyone’s responsible for following the law. If we all don’t have to pay our mortgage, should we just stop paying taxes, too?” said Anton Schutz, president of Mendon Capital Advisers. “Your mortgage didn’t get to a robo-signer by accident, it’s because you’re not paying.”
That could be the most arrogant article I’ve ever seen in an American newspaper. These ingrates think they shouldn’t dare be challenged. And the line “everyone’s responsible for following the law” in the context of making excuses for not following the law is pretty rich.
Set aside the fact that mass unemployment (caused by the financial crisis), mass recasting of loans (caused by fraudulent and predatory origination) and crashing home prices (caused by poor lending standards and a predatory bubble popping) are the chief causes of foreclosures. The “pay your mortgage” argument has even less resonance when you realize that the servicers routinely broke the law that demands they work with the borrower to avoid foreclosures. This is hard-wired into every servicing agreement, and they simply ignore it, preferring to collect fees on the foreclosure. There’s not one step in the process where the servicers weren’t criminally negligent, from predatory lending to document fraud and robo-signing, and every single step in between. Spare me the moralizing.
The banksters may try to lash out their customers, but the investors know the score. The banks ruined the housing market, to sum it up. In addition to bank stocks falling rapidly yesterday, credit default swaps for banks are skyrocketing. Nobody wants to insure them.
It is not yet clear what the consequences will be if large quantities of mortgage-backed securities turn out to be flawed – or how the problem could be solved.
“If the basic principles of property law have been violated here . . . it may be extremely difficult to fix,” said a source involved in government oversight of financial institutions who spoke on the condition of anonymity because of the uncertainties involved. “There is a chain of questions that no one seems to know the answer to.”
Rosner sees the potential for a Lehman-type collapse as investors try to jam the banks with the faulty MBS, all of which could be called into question. I laughed at one analyst’s prediction that this would result in just $10 billion in losses. Maybe on the first day.
Daniel Indiviglio, seeking government solutions for the mess, brings up a possible convergence of the Federal Reserve using QEII to buy up all the MBS they can find, saving the banks from getting stuck with the losses in the name of “stimulus.” Not pretty.
But it’s probably more plausible than the terms “bank holiday,” “mass prosecution,” “national mediation board” and the like. You know, the ones which would actually solve the problem. Until we get out from under this massive fraud, you can forget about an economic recovery.