Our system of government will not survive unless we the people believe that it will respect, abide by, and enforce the Rule of Law, the Constitution and the Bill of Rights against all violators, regardless of race, ethnicity, gender, sexual preference, or class.
We rely on the Department of Justice and our various state attorneys general to protect our inalienable rights to life, liberty, and the pursuit of happiness. They and the police departments they supervise and rely upon to investigate and prosecute crimes, are the law enforcement arms of our federal and state governments.
At the expense of we the people who are victims of the biggest financial fraud committed in history, the Obama Administration’s proposed settlement of the real estate forfeiture crisis protects the banks that willfully and intentionally committed the crime. Moreover, the crime continues and there is no assurance that it will stop if the state attorneys general agree to the proposed settlement.
This situation is upside down and all wrong because the proposed settlement protects and rewards the criminals who committed the biggest financial fraud in history. If this case settles, how can anyone who is not a member of the 1% have any faith that our government will enforce the Rule of Law, the Constitution and the Bill of Rights against all violators, regardless of race, ethnicity, gender, sexual preference, or class?
The answer is self-evident.
We have reached a critical turning point in our history. If the state attorneys general adopt this outrageous and obscene settlement proposal, what little faith people still have in our federal and state governments will evaporate like the morning dew as the Sun rises bringing massive civil unrest and increasingly violent revolution.
Millions of people have been irreparably harmed, including people who were fraudulently induced to purchase intentionally overpriced homes with little or no money down financed by adjustable rate mortgages that would later skyrocket beyond their ability to pay the monthly payments and institutional investors, particularly pension funds, suckered into buying worthless mortgage backed securities. In search of ever higher profits for shareholders and mult-imillion dollar bonuses for CEOs and upper management, the TBTF banks have severely compromised and probably destroyed a working legal system governing real estate transactions to prevent frauds that was developed over hundreds of years reducing risk by protecting the integrity of sales so that buyers and sellers knew what they were purchasing and whether there were any restrictions on their use of the property or clouds on title.
Burning Down The House: Dynamite Live Performance By The Talking Heads
Author’s Note: This is another missing chapter from Namaste: If Not Now, When? I apologize for the length of this chapter as it is somewhat longer than the previous chapters presented. I decided not to break it into 2 parts as it is a complicated subject and I did not want to disturb the flow and continuity. Thanks to all for reading. I welcome comments.
Previous chapters can be found here in my Diaries or at my blog.
Barack Obama is a horrible president whose policies evidence idolatry for the filthy rich, loathing and contempt for the poor, and unqualified support for outright criminal predation toward the middle class. On those rare occasions that he uses the presidential bully pulpit, he uses it for so-called “hippie punching” to attack, insult, and marginalize socially progressive democrats who dare question his authority and the wisdom of his decisions. Difficult to imagine a worse set of undesirable qualities in a president during a time of great financial upset.
There is no evidence that he has any empathy or desire to assist people who are suffering through the Main Street Great Depression. For example, his response to the real estate forfeiture crisis, or Forfeiture Gate, is an excellent example of his stubborn and pervasive unwillingness to help people whom banks defrauded.
In September 2004, the FBI began warning about an “epidemic” of control frauds in real estate mortgages initiated by lenders. A “control fraud” occurs when someone who controls an apparently legitimate business, such as a bank, uses the business as a means to commit fraud.
As William K. Black, an Associate Professor of Economics at the University of Missouri in Kansas City and the former Senior Regulator in charge of investigating the Savings and Loan fiasco during the Reagan administration explains, control fraud epidemics typically occur when financial deregulation, desupervision, and perverse compensation systems create a “criminogenic environment.” After reviewing the real estate forfeiture mess, he concluded in a piece that he wrote for the Huffington Post, dated February 25, 2009:
(1) the FBI accurately described mortgage fraud as “epidemic;”
(2) nonprime lenders are overwhelmingly responsible for the epidemic;
(3) the fraud was so endemic that it would have been easy to spot if anyone looked;
(4) the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a “don’t ask; don’t tell” policy;
(5) willful blindness was essential to originate, sell, pool and resell the loans;
(6) willful blindness was the pretext for not posting loss reserves;
(7) both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed;
(8) the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses;
(9) the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation;
(10) many of the big banks are deeply insolvent due to severe credit losses;
(11) those big banks and Treasury don’t know how insolvent they are because they didn’t even have the loan files; and
(12) a “stress test” can’t remedy the banks’ problem – they do not have the loan files.
Charles Ferguson, the documentary filmmaker who produced No End in Sight, about the never ending mismanaged war in Iraq, also produced Inside Job, which details how the financial collapse that began in 2008 was caused by the criminal greed of the global financial elite empowered by government deregulation and the viral spread of rapacious neoliberal free-market ideology. These billionaire Masters of the Universe, or the MOTU, do not believe in right or wrong. They only believe in making money. For example, in an interview by Andrew O’Hehir of Salon.com, Ferguson said,
When I started making the film I knew that there had to have been some bad behavior, but I had no idea that on a very large scale people had designed securities with the intention of selling them and gambling on their failure. I was stunned when I discovered it.
* * *
If there’s a place in the world where you can make a billion dollars by being a criminal, that place is going to attract criminals. And if you have a system that is appropriately regulated so the only way that you can make money is by doing something worthwhile, you are not going to attract criminals to run that industry.
We now have a situation where the way that you can make the most money is by doing criminal things. And you get away with it. You can even destroy your own company. In some cases, destroying your company is the way that you make the most money. And that’s bad. Personally, from the experience of researching and making this film, I think that legal controls on the structure of executive compensation are a very important part of fixing this.
By the way, from the experience of starting my software company, I can tell you that people in high technology are extremely aware of this. I dealt with the venture capital firm that invested in my company and they were extremely clear. They said: You’re going to get a salary. It’s going to be $100,000 a year. It’s never going to go up. You will never get a bonus. You will have no outside activities of any kind. You will not make a dime doing anything else. Your stock will vest over five years. And if you want to make money, you make that stock worth something. Period. It’s really simple.
The real estate foreclosure crisis is a desperate effort by the insolvent TBTF banks, which Professor Black calls systemically dangerous institutions, or SDIs, to avoid liability for fraudulently selling worthless mortgage backed securities (MBSs) and collateralized debt obligations (CDOs) to institutional investors. Criticizing the Obama administration’s decision not to reign in the TBTF/SDI banks as “insane, he says,
The administration may be proposing no new laws to make the oligarchs even bigger, but it (1) has encouraged their growth through acquisitions of failed banks and (2) stood silent and useless as many of the SDIs have continued to grow. It is insane to allow the SDIs to continue to exist and it is doubly insane to allow, much less encourage, them to grow.
In what I can only describe as knowingly and intentionally aiding and abetting the biggest criminal bank fraud ever perpetrated, the Obama administration and the Congress successfully convinced the professional Financial Accounting Standards Board (FASB) to rewrite long standing accounting rules allowing the banks and the Federal Reserve, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral, to refuse to recognize hundreds of billions of dollars of losses.
According to William Black and Randall L. Wray, the FASB’s new rule produces enormous fictional “income”and “capital” at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.
The inflated asset values allow the Fed and the administration to ignore the Fed’s massive loss exposure and allow Treasury to spread propaganda claiming that TARP resolved all the problems — at virtually no cost. Donovan claims that we have held the elite frauds accountable — but we have done the opposite. We have made the CEOs of the largest financial firms — typically already among the 500 wealthiest Americans — even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.
If the government does not hold the fraudulent CEOs responsible, who is supposed to stop the epidemic of elite financial fraud? The Obama administration’s answer is the fraudulent CEOs themselves, at a time of their choosing. You can’t make this stuff up.
The banks and the Obama administration accuse the borrowers of misrepresenting their assets and borrowing more money than they could afford to pay back. Under this scenario, the banks are the victims and they are entitled to forfeit the homes and kick the deadbeat borrowers into the street with all of their stuff. Black and Wray destroy this argument.
That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry — indeed, it was the desired outcome. This was something the lending side knew, but which few on the borrowing side could have realized.
The homeowners were typically fraudulently induced by the lenders and the lenders' agents (the loan brokers) to enter into nonprime mortgages. The lenders knew the "loan to value" (LTV) ratios and income to debt ratios that they wanted the borrower to (appear to) meet in order to make it possible for the lender to sell the nonprime loan at a premium. LTV can be gimmicked by inflating the appraisal. The debt to income ratios can be gimmicked by inflating income. "Liar's" loan lenders used that loan format because it allowed the lender to simultaneously loan to a vast number of borrowers that could not repay their home loans, at a premium yield, while making it look to the purchaser of the loan that it was relatively low risk. Liar's loans maximized the lender's reported income, which maximized the CEO's compensation.
The problem is that only the most sophisticated nonprime borrowers (the speculators who bought six homes) (1) knew the key ratios they had to appear to meet, (2) had the ability to induce an appraiser to inflate substantially the reported market value of the home, and (3) knew how to create false financial information that was internally consistent and credible. The solution was for the lender and the lender's agents to (1) instruct the borrower to report a certain income or even to fill out the application with false information, (2) suborn an appraiser to provide the necessary inflated market value, and (3) create fraudulent financial information that had at least minimal coherence.
When the overburdened homeowner began missing payments, late fees and higher interest rates kicked-in, boosting the stated income of mortgage servicers and the value of the securities. Not coincidentally, the biggest banks own the servicers and could maximize claims against the mortgages by running up the late fees. It was quite convenient to "misplace" mortgage payments, so even homeowners who were never delinquent could get hit with fees and higher rates. And when payments were received, the servicers would (illegally) apply them first to the late fees, meaning the homeowners were unknowingly still missing mortgage payments. The foreclosure process itself generates big fees for the SDI banks.
And, miracle of miracles, the banks would end up with the homes and get to restart the whole process again — from resale of the home through the financing, securitizing, and fee-for-servicing juggernaut.
Unfortunately, it did not go quite as smoothly as planned. The SDIs were supposed to act like neutron bombs — killing the homeowners but leaving the homes standing, to be resold. The problem is that wiping out borrowers lowered the value of real estate, crushing not only the real estate market but also construction and through to all associated sectors from furniture and home restoration supplies to big ticket purchases that rely on home equity loans. It also led to questions about the value of the securitized toxic waste manufactured and held directly or indirectly by financial institutions.
Next, a few judges began to question the foreclosures, as they saw case after case in which the banks claimed to have lost the paperwork or submitted amateurishly forged documents. Or, several banks would go after the same homeowner, each claiming to hold the same mortgage (Bear sold the same mortgage over and over). Insiders began to offer depositions exposing fraud and perjury. It became apparent that in many and perhaps most cases, the trusts responsible for the securities (often these are "special purpose" subsidiaries of the banks) never received the "notes" signed by the borrowers — as required by both IRS tax code and by 45 of the US states. Without the notes, billions of dollars of back taxes could be due, and the foreclosures violate state law. Finally, the Attorneys General of all fifty states called for a foreclosure moratorium.
I cannot imagine a stronger issue for a populist president to seize and use to turn his fortunes around as well as those of his party, but not Barack Obama.
He sided with the criminal banks and added insult to injury with his worthless Home Affordable Mortgage Program, or HAMP that cruelly raised financially struggling homeowner’s hopes while setting them up to miss mortgage payments by telling them to miss a payment so that they would qualify for the program and then inventing reasons to extend the application process and finally rejecting them at about the same time that the banks initiated the fraudulent foreclosure process with forged documents. So many people have been burned that hardly anyone applies to enter the program anymore. Only $12 billion out of the $65 billion authorized by Congress for the program has been spent.
Why it is almost as if the president is a full fledged member of the MOTU conspiracy to steal people’s homes. Either that or he is dumber than a box of rocks. I believe all of us can agree that he is not the latter.
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