Friday, December 21, 2007

Mortgage Fraud, Whose?

"Skyrocketing foreclosures are a testament to how easy it was to borrow from mortgage lenders in recent years. It may also have been easy to steal from them, to judge from a multimillion-dollar fraud scheme that federal prosecutors unraveled here in Atlanta. The criminals obtained $6.8 million in mortgages from Bear Sterns Cos., including a $1.8 million mortgage to Calvin Wright, a New Yorker who told the investment bank that he and his wife earned more than $50,000 a month. ... Fraud goes a long way to explaining why mortgage defaults and foreclosures are rocking financial institutions, Wall Street and the economy. The [FBI] says the share of its white-collar agents and analysts devoted to prosecuting mortgage fraud has risen to 28% from 7% in 2003. ... It didn't take a rocket scientist to steal a fortune from mortgage lenders in recent years. ... In an unrelated case, an Atlanta attorney with no criminal record was sentenced in August 2005 to 30 years in prison on a mortgage-fraud conviction. ... Bear Stearns says falsified income and asset documents are difficult to detect 'if they are part of a sophisticated fraud ring'," WSJ, 21 December.

I say again, "Round up the usual suspects", Captain Renault in "Casablanca", 1942. $6.8 million? That's 10% of Goldman Sachs Lloyd Blankfein's $67.9 million bonus. What's going on? Why is the FBI chasing these peanuts? Why not investigate major banks, monolines and Wall Street houses SEC reports?

As the S&L crisis unfolded, 1979-86, the Feds tried to make it seem the result of "fraud" as opposed to a more innocent explanation: mismatched maturities. It's good "guerrilla theater" to see a few miscreant "perp walks". Most people are not interested in bad lending practices. In the end, only about 3% of S&L industry losses arose from fraud as opposed to bad lending.

Now the Feds are trying to garner public sympathy for the banks by portraying them as victims of unscrupulous fraudsters as opposed to their having victimized whoever bought recent bank products like CDOs. Banks as Katrina victims!

On 21 January 1990, Ben Stein (BS) wrote in the NYT, "The New Organized Crime". "John Gotti, you poor, obsolete loser. You've missed the boat. You forgot Willie Sutton's lesson-go where the money is. ... Breathlessly, the announcer talked about how the take was in the tens of thousands of dollars, and how the raid [on a gambling bank] marked a major coup in the war on organized crime in [NYC]. If it's true, it's a joke. 'Organized crime?' Next to a bakery in Queens? With guys in T-shirts running it? With a take of tens of thousands of dollars? From betting on football games? ... The real organized crime, the riskless kind that pays off in the hundreds of millions and billions, is across the river, in lower Manhatttan, on Broad Street, on Wall Street. It's across the continent, in a gleaming marble cube on Rodeo Drive. The only truly meaningful kind of taking of other people's property--the kind that adds up to enough to support an army--of lawyers--is being done by the American financial establishment. ... Example: the sale of fraudulent bonds. ... That's modern organization. That's modern crime. The [SEC] won't bother you. ... The old-style organized criminal had at least to deliver gin or prostitution. But the new way, the Wall Street way, means you don't deliver a thing. You run the company into the ground, you take from the stockholders unreasonably. You sell a worthless bond, and nobody lays a hand on you. It is a lesson for you John Gotti. ... Be in finance. Be in management of a public company. They learned from you and now you can learn from them". Imagine, BS wrote that almost 18 years ago. What's changed? Here's a link: http://www.nytimes.com/1990/01/21/business/forum-the-new-organized-crime.html.

3 comments:

Anonymous said...

GW --- If the political heat gets hot enough, we will have another "someone being made an example of" a la Keating and Lincoln Savings -- and the rest will receive a Monopoly ticket to avoid even the hint of a question of their behavior. --- HDF

Independent Accountant said...

HDF:
I agree, Uncle Sam will need at least one person thrown into the volcano to appease the public. My nominee: Mozillo of Countrywide. He seems to be getting bad press and never worked for Goldman Sachs!

Blissex said...

«As the S&L crisis unfolded, 1979-86, the Feds tried to make it seem the result of "fraud" as opposed to a more innocent explanation: mismatched maturities. It's good "guerrilla theater" to see a few miscreant "perp walks". Most people are not interested in bad lending practices. In the end, only about 3% of S&L industry losses arose from fraud as opposed to bad lending.»

And way less than 3% of S&L executives wee jailed. And a lot of that "bad lending" was arguably illegal, even in the criminal sense, if not necessarily fraudulent in a simple sense.

But business leaders (not Uncle Sam) and their well paid delegates in Congress (almost all the Republicans, a good chunk of Democrats) write the laws and run the agencies to protect themselves.

Yes, the USA business classes occasionally throw one of theirs to the wolves to show that sometimes someone gets caught. But on the whole the USA business class and their servants in Congress get away with it, when they don't get bailed out massively with the money of the little people.

Winners do whatever it takes.