Richard S. Fuld Jr., former chairman and chief executive officer of Lehman Bros., testifies before the House Financial Services Committee last month.
Foreclosures- The End Game of Wall Street’s Fraud, Lies and Deceit
May 9th, 2010 · No Comments · Foreclosure
One of the many problems those who are fighting foreclosures have to deal with is the fact that some judges and most people on the “outside” of the mortgage meltdown don’t understand that the Fat Cats set the mortgages up to fail from the very beginning–because mortgages that were “bad” paid the Fat Cats much more at the outset. Now this is wild and insane stuff….how can mortgages given to people that have no hope of ever paying them (even if the economy didn’t crash)? The answer lies in the lies, greed, fraud and arrogance that dominated Wall Street when these loans were created–a culture that continues to victimize normal Americans today.
If you really want to go insane watch this CBS News report here which details how Goldman Sachs was making millions of dollars by selling “shitty” deals to their institutional investors. It just makes me furious to hear these guys gloating over making millions while at the same time refusing to admit to even the slightest amount of wrongdoing. The homeowners really were on the lowest end of the “dupes” totem pole, but they were not the only ones taken.
The book Chain of Blame details the unholy alliances that were formed between the subprime lenders and Wall Street and how the subprime lenders and Wall Street kept competing with one another to create “shittier” and “shitter” deals. The bottom line is in order to keep making more insane profits, the bad actors had to keep making loans that were increasingly less likely to be paid in the long term because loans that performed would not provide the bigger payouts that came from the bets they made on the back end that the portfolio of loans would fail.
The national media is starting to pick up on this. The quotes below are from a story in today’s St. Petersburg Times.
A central part of Lehman’s business was making and selling “liar’s loans” under its Aurora subsidiary. It was a suicidal enterprise. These kinds of loans, where borrowers have an incentive to inflate income or assets, are set up to fail. Black estimates that every dollar lent on a liar’s loan loses 50 to 85 cents.
In the short term, making these loans produces significant apparent but fictional income — and correspondingly huge bonuses for executives. Only later do the loans create real catastrophic losses for those holding them.
Lehman was the world leader in originating these loans. In the first six months of 2007, Aurora was lending more than $3 billion a month of subprime and liar’s loans. This guaranteed senior management extraordinary paydays. Even as the fall was becoming evident, the firm’s CEO and chairman, Richard Fuld, was awarded $40 million in total compensation for 2007. (Much of it in stock that later became worthless.)
Undoubtedly, the firm’s top executives knew that making fraudulent loans was its primary source of income. But Lehman assiduously attempted to hide that fact, classifying its liar’s loans as “prime” loans in disclosures, Black says. Had Lehman disclosed the true nature of the loans it was selling, no one would buy them and the firm would have been found out as insolvent.
To various degrees this kind of deceit was the business model of every player in the subprime mortgage lending and securities market: every bank that loaned money without documenting a borrower’s credit worthiness, every firm that securitized loans without examining the lender’s loan files, every accounting and law firm that helped fudge disclosures, and every credit rating agency that rated a mortgage-related security as safe without sampling the underlying loans.
So what’s all this got to do with the little ‘ole homeowner sitting in foreclosure today?
One of the most important things we’ve all got to understand, and a key point we’ve got to make sure our judges start to understand, is that the very same lies, fraud, greed and unethical conduct that is now being exposed on such a massive scale in Wall Street and in Washington has migrated into our courtrooms.
Many judges and attorneys still cling to a naive and antiquated professional worldview wherein attorneys, as officers of the court, remembered that they are officers of the court and do not make false statements or engage in misleading practices before the court. The problem is the entire foreclosure system is now functioning based on fabricated documents, forged documents, false and misleading statements and gross violations of the most basic ethical standards. Two documents that are part of nearly every foreclosure file illustrate this point.
1)The affidavits of amounts due and owing that are filed in nearly every case do not meet the most basic evidentiary standards and they cannot be relied upon as evidence to grant foreclosure.
2)The assignments of mortgages or endorsements that are filed in nearly every case are either outright improper on their face (such as when the assignment post-dates filing of the suit) or questionable such as endorsements that “appear” on documents from failed or defunct subprime lenders that ceased functioning years ago.
Advocates and judges have only recently become aware of just how failed this whole system is. Some judges are just covering their eyes, holding their noses and continuing to grant foreclosures despite the growing body of evidence that the law firms and the clients they represent are engaged in such widespread and systemic improper practices. This will all come back to haunt every American for decades to come. The biggest problem is this represents a fundamental breakdown in the rule of law. Courtrooms and judges are no longer owed respect and honor and fear…the pressures placed on our courts have turned them into fast food flop houses operating in servitude to the Millionaire Foreclosure Mills. The only real objective is to plow through these hundreds of thousands of foreclosures as quickly as possible so that the foreclosure mills and their clients can continue to make millions.
Ignore long established rules of evidence
Ignore new rules of the Supreme Court of Florida
Ignore blatant and not so blatant fraud
Ignore expectations of professionalism and respect for judges and the courts by Millionaire Foreclosure Mills that have decided their profits are more important than treating the courts with respect.
There is one thing missing from this whole calculus and that is the fact that these practices and procedures are producing failed titles to property. In the rush to plow through all these foreclosures, we’re creating a nightmarish scene of destruction where title to real property will be thrown into chaos for decades to come. Some judges get it (do a google search for New York Judge Schack) and many, many more will get it in the decades to come when we title lawyers come back before them to vacate judgments of foreclosure that were improperly granted. That’s enough for this morning, but obviously much more of this to come.
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What's criminal is what is legal
By Robyn E. Blumner, Times ColumnistIn Print: Sunday, May 9, 2010
As the financial reform bill wends its way through the Senate, one has to wonder whether lawmakers understand the true nature of the massive fraud that was perpetrated on this country. They should be listening to William Black.
Black, a former senior banking regulator during the S&L crisis and now a professor of economics and law at the University of Missouri-Kansas City, has been speaking out over Wall Street's culture of criminality. He wrote the book The Best Way to Rob a Bank is to Own One and knows all the white-collar criminal tricks from the inside.
To illustrate just how rotten the investment banks had become during the last decade, Black laid out in prepared testimony before Congress last month the way now-defunct Lehman Bros. was able to loot huge sums for executives, even as it was writing its own death warrant that would ultimately wipe out its shareholders.
A central part of Lehman's business was making and selling "liar's loans" under its Aurora subsidiary. It was a suicidal enterprise. These kinds of loans, where borrowers have an incentive to inflate income or assets, are set up to fail. Black estimates that every dollar lent on a liar's loan loses 50 to 85 cents.
In the short term, making these loans produces significant apparent but fictional income — and correspondingly huge bonuses for executives. Only later do the loans create real catastrophic losses for those holding them.
Lehman was the world leader in originating these loans. In the first six months of 2007, Aurora was lending more than $3 billion a month of subprime and liar's loans. This guaranteed senior management extraordinary paydays. Even as the fall was becoming evident, the firm's CEO and chairman, Richard Fuld, was awarded $40 million in total compensation for 2007. (Much of it in stock that later became worthless.)
Undoubtedly, the firm's top executives knew that making fraudulent loans was its primary source of income. But Lehman assiduously attempted to hide that fact, classifying its liar's loans as "prime" loans in disclosures, Black says. Had Lehman disclosed the true nature of the loans it was selling, no one would buy them and the firm would have been found out as insolvent.
To various degrees this kind of deceit was the business model of every player in the subprime mortgage lending and securities market: every bank that loaned money without documenting a borrower's credit worthiness, every firm that securitized loans without examining the lender's loan files, every accounting and law firm that helped fudge disclosures, and every credit rating agency that rated a mortgage-related security as safe without sampling the underlying loans.
It was a game of "financial don't ask, don't tell" as Black dubs it, that at its core was an epidemic of corruption.
Why was this allowed to continue even though the FBI warned as early as 2004 that mortgage fraud was massive? Because, Black says, officials at the Federal Reserve and Securities and Exchange Commission were ideologically opposed to fulfilling their regulatory role.
This recurring problem of regulators cozy with the industry they regulate means that financial reform must go beyond giving regulators more power and tools. It needs to impose clear legal duties on the financial sector with stiff consequences, which don't currently exist, for failure.
Two amendments offered by Sen. Arlen Specter of Pennsylvania would do just that. The first would impose a fiduciary duty on broker-dealers to act in the best interest of their investor customers, with criminal penalties for willful violations. The second would make those who aid and abet securities fraud civilly liable, a way to hold accountable all the professionals — appraisers, lawyers, accountants and others — who help cover the tracks of fraud.
Despite the recent swipe at Goldman Sachs by the SEC and a possible federal criminal probe, there has not been enough focus on the gross criminality infecting huge swaths of the financial sector. The economic meltdown was caused by deceivers, swindlers and defrauders who, in a just world, would be trading their pinstripes for prison stripes. If only.
[Last modified: May 07, 2010 03:04 PM]
Copyright 2010 St. Petersburg Times
There are 5 comments
Pugh wrote: There's a book out wherein a lawyer explains the average business owner commits three felonies a day. If you have ever deleted any Email from a computer you use with your business, for example, you've committed a felony. The laws are insane. Even the evil clowns who write the regulations can't understand the nightmare police state they've created. Yet these mentally deranged lawyers demand more power, more control, more laws. Blumner and her cronies work for dark forces trying to create a climate of criminalized confusion. They represent the anti-freedom. True, the devil is going to throw some of you in prison to shock the rest of into servile poses.May 8, 2010 7:54 AM 0Log in to vote 3Log in to vote Report Abuse
Pugh wrote: I'm not a banker. I work day labor. I paint and fix up people's houses. Sometimes I change windows and doors, etc. This month my job got criminalized. Under a new law, the Environmental Protection Agency requires contractors to take expensive precautions and get certified or face a fine of up to $37,500 every day for changing somebody's window without first making a mountain of paperwork, doing lab work and paying fees. One might think $37,500 is a lot to a guy who makes $100 a day. To comply with the regulators, you've got to pay $300 and take a eight-hour class all about the shiny new rules and then pay another $200 for government permission to go back to work. EPA lawyers say the costs and crippling fines are not excessive. If any of you plan any renovations around the house you are gonna pay big brother big time to do it legally. And who wants to go to prison for changing an old window? Blumner and these degenerates in our government are gonna get their pound of flesh from us all.
May 8, 2010 8:23 AM 0Log in to vote 2Log in to vote Report Abuse
JerryEmmonsIsDead wrote: This is a good op-ed piece by Ms. Blumner, but it only scratches the surface. A good read is "The Cheating Culture" by David Callahan. Mr. Callahan observes and examines the broad cultural implications of Americans' rampant proclivity to cheat their own system - out of convenience or greed or just habit. Keep this in mind the next time you do your taxes, or roll through that right-on-red stop sign down the street. The Wall Streeters are merely reflections of our culture - only they have systemetized cheating. Every day I see parents teaching their kids how to cheat; they do this merely by driving while their kids are in the car. They ignore traffic laws, stop signs, all out of a sense of convenience, haste, entitlement, whatever. And what do such habits beget? Well, it just might result in a late-night call from the cops someday, saying your their teenage son is plastered all over the highway. And then they will cry out: How could this have happened to us?
May 9, 2010 8:17 AM 1Log in to vote 0Log in to vote Report Abuse
weidnerlaw wrote: A great article. The follow up should be how the lies, fraud and greed have now migrated into courtrooms across the country as lawyers hired by the banks to foreclose fabricate documents and create false evidence as the final step in the chain of fraud, lies and deceit. Judges are only now starting to realize what's happening...hopefully the press will continue to pick up on all this and follow the evidence....see my blog at www.mattweidnerlaw.com for details.May 9, 2010 8:39 AM 4Log in to vote 0Log in to vote Report Abuse
JerryEmmonsIsDead wrote: Yeah, a FEW judges are now demanding some sort of proof from the foreclosers. (See Anthony Rondolino, for example.) However, our judges should have been demanding such proof all along. Only took a couple years and millions of foreclosures to go skipping by before a FEW judges actually woke up to what was happening in their own courtrooms. Now, how about the REST of them?
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