THE BIG LIE: BANKS DID NOTHING ILLEGAL

EDITOR’S COMMENT: The Obama administration is functioning out of fear instead of proactively getting involved in the solution to the largest economic and societal threat this country has faced since the civil war. He is right when he talks about income and wealth inequality but apparently blind to the how we got there. The spin is that we got to this point because of normal fluctuations, cycles and excess “exuberance” in the marketplace and that eventually it will all work out.While appealing, this is dead wrong.

The notion that Wall Street didn’t break any laws is absurd. And the failure to enforce existing laws is what is driving the anger of the public over our current economic condition as well as dumbing down any prospects we might have for recovery. The broken laws and lack of enforcement are the sustaining cause of our current problems.

State Attorney Generals are getting it — that there was outright fraud, securities violation, tax evasion and fraudulent filings for disclosure at local, state and Federal levels.But they are limited by Federal officials taking the position that the “paperwork” problems in foreclosures is something that needs to be straightened out — rather than recognizing that banks have been doing this paperwork for hundreds of years and if it is all screwed up it is because the Banks want it that way. The result is a corrupted real estate registry in all 50 states and corrupted financial system all backed up by a corrupt government.

It is true that derivatives were effectively deregulated in 1998. But the fraud at the closing table with the homeowners and the fraud at the closing table with investors are facts, not theory. The Wall Street spin takes nothing away from the fact that lies were told that were intended to create reliance on facts that didn’t exist and that the liars knew the lies were lies and knew that anyone who did business with them would lose money while the liars on Wall Street were  making money hand over fist stealing what was intended as “investment” money from both institutional investors on one hand and feckless borrowers on the other.

There is no scenario under which the average individual could perform the same acts without getting free room and board at state and federal expense — in prison. The prison lobby should be all over this, with all their privatized prisons and profits. Here is a large population of potential inmates. By this point in the savings and loan scandal of the 1980’s there were already more than 800 people in jail — and this fraud is hundreds of times larger.

As pointed out by Smith, this is a target rich environment involving Wall Street banks, appraisers, rating agencies, real estate brokers, closing agents, title agents, auditors for public companies and others who intentionally disregarded their duties and who knowingly broke the laws resulting in the filing of millions of fraudulent documents to foreclose on property that they would abandon as soon as they had squeezed the last ounce of “fees” out of the deal.

The reason enforcement and economic recovery are so integrally related is that in any case of fraud, the aim is to get as much restitution to the victims as possible thus righting the wrong. The obvious legal and pragmatic solution to the foreclosure crisis is to allow anyone who has a chance of paying anything reasonable toward the house to remain there. Everyone knows it. The obvious legal and pragmatic solution to the foreclosures that are “in the pipeline” ready to depress market prices even further is to take them away from the banks who stole them and do something else with them, which include giving them back to the owners who lost them in wrongful foreclosures.

When someone is tricked out of their money, like in the Madoff situation or dozens of others you hear less about, the government steps in and gets as much money and property back as possible to the victims. Why not now? why is there no recognition that our credibility as a nation in the world markets and on the world stage of politics depends upon us adhering to the fundamental principle that we are a nation of laws and not men. Every step we take away from restitution to the homeowners and the investors who put up the money is a step away from a nation of laws, towards a nation of men, which inevitably leads to absolute power and absolute corruption.

BY YVES SMITH, NAKEDCAPITALISM.COM

While quite a few bloggers, prosecutors, economists, and other experts have taken the Administration to task on mortgage-related abuses, the mainstream media for the most part has not seriously challenged the mind-numbing Obama claim that the banksters did nothing illegal.

Reuters refreshingly opposed that bullshit assertion frontally yesterday. In a piece pointedly titled, “The Watchdogs That Didn’t Bark,” reporter Scot Paltrow shows that the mortgage arena is a target-rich environment:

The federal government, as has been widely noted, has pressed few criminal cases against major lenders or senior executives for the events that led to the meltdown of 2007…

The government also hasn’t brought any prosecutions for dubious foreclosure practices deployed since 2007 by big banks and other mortgage-servicing companies.

But this part of the financial system, a Reuters examination shows, is filled with potential leads.

The article is very much worth reading in full, and sets forth specific examples of abuses, such as:

Document fabrications and forgeries (the article points out how the US attorney’s office has gone after forgeries of high school diploma and sports memorabilia but can’t be bothered with the much bigger stakes housing market)

Illegal foreclosures on active duty servicemen, which are criminal misdemeanors under the Servicemembers’ Civil Relief Act

Exaggerating the amount owed by charging for services never performed and overstating how much the borrower was in arrears

False claims in court that the bank had offered borrowers mortgage modifications

Persistent and “outrageous” misstatement of material facts by foreclosure mills

As readers of this blog know, this isn’t close to a complete list. You can add foreclosing on homes where there is no mortgage, foreclosing on burned-down homes where the insurer has made payment in full, mortgage baits and switches at closings and telling borrowers they had to default to be eligible for HAMP. The only bit of good news is there is a LPS investigation underway, but it has been ongoing since 2009. Funny how Catherine Masto in the comparatively small Nevada attorney general’s office has made more progress from an at the earliest October 2010 start date.

And we still have the banking industry repeating its mantra: everyone who lost his home was delinquent. Yes, in a kangaroo court, the accused will always lose. But the Washington Post runs this sort of propaganda in a woefully ignorant op-ed arguing in favor of the less than 50 state attorney general settlement, based on the false premises that a deal will lead to meaningful principal mods and that the lack of a deal (as opposed to pervasive abuses that are also keeping investors away from private label paper) is the source of the dreaded “uncertainty” and hence must be eliminated. (Adam Levitin has already admirably dispatched the reasoning, such as it is, that underlies this op ed, which is a rehash of tired arguments).

Notice the Reuters article doesn’t even get to frauds on investors: double dipping (charing both investors and borrowers for the same fee), misrepresentations to investors (false certifications by trustees and servicers that they held the collateral in good order, Section 11 Securities Act by making representations about loan quality when they never reviewed the loans), and other abuses (such as reporting foreclosed properties being sold months after the fact to allow them to collect additional servicing fees).