Posted on 09/14/2007 9:16:11 AM PDT by SirLinksalot
What if NBC’s “TO CATCH A PREDATOR” program really did turn its sensationalistic gaze on predatory lenders? It would be consistent, wouldn’t it, with all the true crime shows that dominate the airwaves? And they wouldn’t have to commission new graphics or a a title either.
You would think they would want to get ahead of the Courts and the State Attorney Generals who will, one day, be prosecuting what I call the “Subcrime scandal.” After all, it’s a story with billions of dollars missing, millions of victims, and perhaps the whole global economy at stake.
It may never happen and not just because NBC’s parent company GE is a big lender. Its more. because in-depth investigative journalism seems to have been displaced by all the celebrity pandering.
Stories like this don’t just follow the money—a key axiom of reporting…but they are about money and the way big-time white collar crime works. They are about sleaze merchants in suits, big time investors who routinely violate laws and expect their master of the universe status to guarantee they will never get caught. A recent survey on Wall Street found a majority of those quizzed believe something is only wrong once you get caught.
THE ROGUE’S GALLERY
We have seen a whole rogue’s galley of these corporate thieves go down in recent years. We have read about the Enrons and the WorldComms and seen the perp walk of big time CEO’s like Miliken and Kazlowski before they face justice. They are not bailed out. They are jailed out.
Why not in this scandal?
Part of the problem is you really do need subpoena power and teams of investigators and accountants to take apart their phony ledgers and deceptive sales spiels. In the Bush years, tax cuts are going to the rich while the IRS is browbeating the middle class.
Many of the people who should be investigating the mortgage criminals have themselves taken money from real estate lobbies and financial institutions or been working for the industry in some way. We saw how Democrats, for example, caved on the so-called bankruptcy reform bill.
It’s not so hard to get a handle on the story. Start with some of the disgruntled employees of those mortgage companies who were just dumped from some of the best paying jobs in their lives after the companies imploded because of their own shady practices. Many are ready to talk if only to expunge their own consciences. The rats are off the sinking ship and know how leaky it was.
STEALING PEOPLE’S HOMES
There are frauds to be found an every level including mortgage servicing frauds that are designed to steal people’s homes.
A Real Estate expert explained this to me this way:
“Not too many years ago, if you borrowed money to buy a house or a car, you visited your local bank. Assuming you were approved, the money came from your bank and the follow-up (the “servicing”) was handled by that same bank. If you had a problem, you knew who you could speak with and where to find him or her. The system worked pretty well. But only greed could cause a seemingly good system to go awry. And the heart of all greediness is Wall Street, of course.
Realizing that these loans were a good investment for the banks, Wall Street decided to figure out how to take a piece of the pie. And hence the mortgage backed security was born. By buying in bulk various mortgage loans, Wall Street could take the role (and the lions share of the profits) of the bank without the inconvenience of opening branches. Banks, in turn, could keep lending endlessly, just as long as they kept refilling the pot by selling off the old loans and lending anew. And just to give you that homespun feeling (and to earn the banks a few extra dollars) your local bank would continue collecting your payments and forwarding them on each month – essentially lending a familiar brand name and adding a warm and fuzzy feeling to this anonymous multi billion dollar Wall Street enterprise.
It all seemed well enough – invisible, in fact – until the horror stories that have recently begun to emerge. And more are coming. Behind the wall lurks an empire of greed mixed with incompetence and lack of concern. And why should you care? Because every loan you take out – car loans, mortgages, personal loans – might very soon belong to someone else, located thousand of miles away from you and sometimes with the very worst of intentions. Your local banker will now make his decision not based upon his or her own criteria but based upon his ability to sell your loan to someone else. And if those anonymous loan-buying monoliths decide that they are no longer enamored with, for example, your type of small business loans, or mortgages in certain neighborhoods ...well you might be out of luck no matter how stellar your payment history or credible your need.”
Adds the website www.MSFraud.org:
“These are not "predatory lenders." These companies do not loan money. They operate in the lending industry after-the-fact. They take on a function that a lender doesn’t want - the backroom functions of handling payments, escrow accounts, annual statements, dealing with borrowers, collections, etc. The perpetrators of the loan servicing scam acquire the servicing rights to loans that other companies have already made. (Loans that were deliberately constructed by predatory lenders are ideal for processing through servicers that specialize in aggressive collections or rapid foreclosure processing, but the loan servicing scam can be operated against any mortgage loan if the servicer acquires the rights from the lender.)”
My “deep throat" has more:
“But it gets worse. For those lucky enough to be granted the loan for which they have applied, the selling off of that loan means that other people are now in control of their financial destiny. And these loan purchasers have a profit motive that has little to do with winning your repeat business. They don’t even want to know you. These loan buyers are divided up into two parts, known as the the “A” and the “B” piece buyers. The “A” buyers are generally anonymous investors with little interest in the day to day affairs of lending money. They get a lower return in exchange for their “safe” senior position. The “B” piece buyers (also known as the “Special Servicers”) are the high rollers, the high-yield profiteers. They are predators. And they are a very big part of what is terribly wrong with this equation. Loan documents are slowly being tailored to their needs, to include new fees and charges and rights in the so-called fine print. The more onerous the terms, the greater the opportunity to profit from the unsuspecting borrower. “
These practices were common, even pervasive in industry where every scam and sheme is carefully thought out. In some states, State Attorney General are going after some brand name firms like Ameriquest. You may remember them from their superbowl ads legitimizing their practices. They are now out of business, gone, busted, and sold to Citi-Bank. But there are still legal settlements being imposed on them
THE AMERIQUST SCAM
Example: A $295 million Settlement Fund has been established to provide restitution payments to certain Ameriquest borrower
This Web site provides information about the States’ January 2006 settlement with Ameriquest Mortgage Company (the “Settlement”). On this Web site you will find detailed information about the Settlement and who may be eligible to receive restitution payments, as well as answers to frequently asked questions.
WE NEED TO HEAR FROM THE VICTIMS
They include the people who thought they were getting something for nothing and thought they were scamming the lenders. (That’s like the casino gamblers who always think they will beat the house but rarely do), We need to read the stories of the scammers who are literally stealing peoples homes. Please see an excellent series in the Chicago Tribune about their perfidy.
According to writer Alan Gabor, the number of people suckered into subprime loans may number as many as TEN MILLION. And these people are pissed and want to be heard but the business press is barely touching the surface of their stories.
"Those ten million families who finally got that home loan through the sub prime market makers on Wall Street who hawk junk bonds just as quickly as they can hawk junk mortgages, a product which has already developed into a multi-trillion dollar a year trading market, are all having a difficult time sleeping at night.
GOING UNDERGROUND
While the debacle continues to unfold, millions of homeowners may never again obtain credit in this country, impacting the economy for a long time to come…perhaps as long as a decade.
Those damaged borrowers are thoroughly fed up and sick and tired of the government, the banking system, and the crooks on Wall Street who keep sucking the lifeblood out of America’s economy. They want nothing more to do with debt, bankers, Wall Street or even the American government. They simply drop out and go into the underground economy. And the powers that be can do nothing about it. When you have more than 10 million people with bad credit defaulting on loans over a two year period you have some serious problems on the horizon for the global economy."
BATTLING IN THE COURTS AND AGAINST THE COURTS
And let's hear from the people who fought back and found the Courts working in collusion with lenders and helping them foreclose on their property even when they don’t own it. Listen to people like Jack Wright of Dallas Texas who tells his whole story on the www.MSFraud.org website:
"In April 1997, I was alleged to be in default on my mortgage and the mortgage company, claiming to be the true party in interest (the owner/holder), was going to foreclose.
I was not in default and had all the documents to prove it. After one year of the mortgage company’s refusal to correct their accounting errors, I was forced to file a law suit to protect my home from an illegal foreclosure.
For the next seven (7) years (costing me more than $2 million in legal expenses and lost wages), I watched the court[s] repeatedly grant judgments in favor of the mortgage companies. These errant judgments were granted without either mortgage company presenting a scintilla of evidence to support their allegations and in stark contrast to my preponderance of evidence and material facts."
In the end he lost his home and can’t afford to fight any more in the courts. There are many sad and depressing stories like this that will anger the public if and when they hear them
RIPPING OFF INVESTORS
These scammers targeted their own class and community. Henry K Lieu writes on Asia Times On Line charging many investors were defrauded because these corrupt practices were never disclosed;
It is now clear that material information about the true condition of the financial system along with material information of the financial health of major US banks and their financial-company clients has been systemically withheld, over long periods and even after the crisis broke, from the investing public who were encouraged to buy and hold even at a time when they should have really been advised to sell to preserve their hard-earned wealth. The aim of this charade has not been to enhance the return on the public's investment, but to exploit the public trust to shore up a declining market and postpone the inevitable demise of wayward institutions."
Who are these “wayward institutions?” We are talking about some big, well-known institutions, brand name banks and investment firms, the hoi paloi of Wall Street. Many were deeply implicated along with the regulators and rating services who did nothing and, in effect, colluded with and covered up criminal ponzi schemes and worse.
UNIVERSITIES HELPED THE SCAMMERS TOO
On Campuses, professors and students are speaking out against sweetheart deals between the universities and credit card companies that gouge the students. Says In Debt We Trust Editorial advisor Robert Manning in Business Week:
"Universities are pursuing sweetheart deals with credit card companies, and offering up premiere marketing locations and student names and addresses for a big profit," says Manning, director of the Center for Consumer Financial Services at the Rochester Institute of Technology. "It's a clear conflict of interest."
A TIME TO ACT
This is just the tip of the iceberg. There are so many stories and so many cases. Once they start getting attention, this story will broaden out, and we will see a much deeper rot.
It is then that we can begin to fight for debt relief including a moratorium on foreclosures and the criminal prosecution of the profiteers. This time it is the big fish who could fry. It will only happen when an enraged public demands justice.
Visit StopTheSqueeze.org. Organize screenings and get involved!
There is a bit of overstatement in this article. For example:
“While the debacle continues to unfold, millions of homeowners may never again obtain credit in this country, impacting the economy for a long time to come…perhaps as long as a decade.”
Even people that go bankrupt can start over in 7 years. Credit rating can be rebuilt over time. Federal law requires credit to flush out evens past 7 years.
Here is what I know, you know, and everyone knows. Pay your mortgage on time and you keep your house.
The definition of predatory lending to me is bilking elderly people out of the remainder of their lifesavings - people who genuinely, by their advanced age and declining faculties, are taken advantage of.
But the vast majority of “suckers” are simply people who got greedy and couldn’t say “no” to instant gratification. When my wife and I bought our first house, not many years ago, we took a 30-yr fix at 6.0%. According to our various friends and colleagues, we were nuts for not getting an ARM at about a percentage point lower. Ultimately, to us, it wasn’t about scalping a percentage point for a few years and refinancing later on. It was about looking at an historically excellent fixed rate, with a payment we could afford, and knowing that we would never have to worry about unforseen problems in the marketplace. Knowing we would be able to sleep at night, regardless, was worth the extra point we would be paying in interest. It was simply good enough for us.
When we went to the closing, at the title office - I’ll never forget this - the Realtors and title officer sat in utter amazement as we actually READ the terms of the mortgage contract. They told us, “no one ever reads these contracts.” My wife and I were just like, “you’re kidding right?” They said they weren’t. People just sign away. I said, “So people are committing to massive amounts of debt without reading the fine print? Are people that stupid?” Their response was silence.
Just amazing. People inevitably make their own beds. A scant few are legitimately screwed by criminal elements, but too many people have their head in the clouds and got what was inevitable.
I’m pretty sure Milken got done for tax evasion (both his own and helping others in theirs).
Sinclair writes, concerning over-the-counter (OTC) derivative contracts, that they are:
Without regulation.
The issuers and the individuals who trade them are regulated by the SEC and by voluntary associations like ISDA and the NASD which are in close contact with government regulators on a continuous basis.
Without listing on public exchanges.
I'm not sure why this is a problem. Options on equities were traded without a public exchange for years. Most corporate bonds - a product that has been traded liquidly for well over 150 years in this country - are not listed on public exchanges.
Without standards.
This is a complete lie. Everyone who trades these contracts comply with the standards of ISDA and other derivative trading associations. I'm unaware of any market players who are willing to do business with anyone who refuses to sign on to association standards.
Not in the least bit transparent.
Of course they are. Registered investment companies are requried by law to keep records of all such transactions.
Without an open market of the bid/ask type.
What other sort of market is there? Of course such markets exist. Thousands of OTC contracts trade every single day.
Dealt in by private treaty negotiations.
I have no idea what this even means. Financial transactions are always negotiations and usually private.
Without a clearing house.
There were no clearing houses for stocks, bonds or non-OTC derivatives for decades. Eventually there will probably be a brisk enough market for OTC derivatives to the point where a clearing house makes sense, but it is a developing market.
Unfunded without financial guarantee of any kind.
No standard derivative has a financial guarantee. Most corporate bonds have no financial guarantee. Shares of stocks have no financial guarantee. Mutual funds have no financial guarantee. This could be Sinclair's most idiotic statement yet.
Functioning as contracts of specific performance.
Ummm, what are "contracts" for? When I contract with a builder to finish my basement, I expect a specific performance - i.e., that the builder finish my basement! What is the point of a contract if the parties do not abide by its specific terms?
Of a character or ability to perform that is totally dependent on the balance sheet of the loser in the arrangement.
So? If I buy a share of stock hoping that it will go up and it goes down - I lose money. That's life. If I buy an OTC derivative and it expires out-of-the-money, I lose the premium I paid. Is Sinclair suggesting that individuals who enter into voluntary financial transactions should be guaranteed not to lose any money?
Evaluated by computer assumptions made by geeks, market-inexperienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
This is just ignorance wrapped in insults. OTC derivatives traders generally have deep market experience in various financial products and they do not all hold to a doctrinaire view of regression theory. just because Sinclair isn't good at math doesn't mean that people who are good at math don't know what they are doing.
Now in the credit and default category and are considered by accepted authorities as totaling more than $20 trillion in notional value.
That's probably a large exaggeration. And even if it were not, it would represent just a small fraction of the world financial markets.
Notional value becomes real value when the agreement is forced to find a real market for ending the obligation, which is how one sells it.
That it is the whole point of any financial obligation.
To put it kindly, this Sinclair guy has literally no clue what he is talking about.
This was a classic abuse of prosecutorial power (by then U.S. Attorney Rudolph Giuliani, ironically) in the use of RICO statutes to strong-arm accused white-collar criminals into pleading guilty to lesser offenses. Milken's real "crime" was that he was an unapologetic insider trader but could not be proscuted for that because SEC regulations against insider trading that were in force at the time did not apply to the bond market.
What about the people who lied about their income?
John
Seriously, tell the truth now. Is this satire?
He admitted that he sold securities to buyers and then bought them back at a lower price.
That happens every day in every market.
In theory, this results in a book loss which can be used for tax purposes - but this hardly the only reason why this happens.
Thank you for your response. I’ll follow Sinclair’s future comments with a more critical eye.
“In the Bush years, tax cuts are going to the rich while the IRS is browbeating the middle class.”
I knew it would end up being Bush’s fault!
freshcarrion; vulturegram
Boy I hope you don’t believe any of the slop this guy’s selling...
How do they say “adjustible” in Spanish?
Felonious is as Felonious does.
[What about the people who lied about their income?]
Go Directly to Jail. Do not Pass Go.
Yet this is all so true. FOLLOW THE MONEY. So many charlatans, extrememly well represented here on FR btw, made fortunes on this ponzi scheme. True the morons they used should and will pay the price of their stupidity, but the greedy abusers should have their miserable coiffed, contempible heads on pikes at the gates of Ron Reagans shining city on the hill. Same schiesh different tage
Thanks for an excellent post.
My view is that much of the rot we've seen in the economy over the last two decades is due to the disappearance of the Depression from our collective memory.
My grandparents (born 1910-1912) viewed taking on new debt with about as much enthusiasm as getting a root canal without anesthesia, and that lesson has stuck with me all my life.
I now have “vulturegram” bookmarked. It’s the best pointer to economic news on FR.
Brief Summary, Not Excerpts:
Alan Greenspan predicted in a new book coming out on Monday, September 17th -- that the Fed will have to raise interest rates to double-digit levels over the coming years. Otherwise, a new round of inflation may tear apart the U.S. economy.
His new book, The Age of Turbulence predicts the effects of globalization will naturally lead to more inflation worldwide as countries like China, Mexico and India are forced to raise wages.
In the meantime, Fed Chairman Bernanke has been keeping interest rates at 5.25%, or may be planning lower them. Greenspan’s assertion that the Fed may have to double interest rates suggests the Fed may create a new BUBBLE crisis by tinkering with rates now.
That is from the guy who singlehandedly created at least three MASSIVE bubbles and invented the U.S. bubble economy.
Want to learn more about what is really going on in the real world?
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