The following is an excellent excerpt from the book “THE DIVIDE: American Injustice in the Age of the Wealth Gap” by Matt Taibbi from Chapter 1 titled “Unintended Consequences” on page 38 and I quote: “By Barack Obama’s second term, it was clear to most rational observers of the financial sector that the crash of four years before hadn’t been some kind of accidental market screw-up—not a “thousand-year flood,” as some pundits first called it. Instead, it had been a widespread crisis of institutional policy. And a core part of this policy, it turned out, was crime.
Not mere technical violations, mind you, not just a thumb in a scale here and there, but crime, real crime, the kind of thing people once went to jail for. Specifically, this was a massive criminal fraud scheme, something akin to a giant counterfeiting operation, in which banks mass-produced extremely risky, low-quality subprime mortgages and with lightning-quick efficiency sold them off to institutional sucker-investors as highly rated AAA bonds. The hot potato game targeted unions, pension funds, and government-backed mortgage companies like Fannie Mae on the secondary market.
It was a modern take on the Rumpelstiltskin fairy tale. Big banks took great masses of straw (i.e., the risky home loans of the poor, undocumented, and unemployed) and spun it, factory style, into gold. (i.e., AAA-rated securities). They used a technique called securiztation that allowed banks and mortgage lenders to take vast pools of home loans belonging to underemployed janitors and immigrants and magically convert them into investments that were ostensibly as safe as Microsoft corporate bonds or the sovereign debt of Luxembourg, but more lucrative than either.
The sudden introduction of these magic mortgage bonds into the marketplace pushed most every major institutional investor in the world to suddenly become consumed with the desire to lend money to American home borrowers, even if they didn’t know to whom exactly they were lending or how exactly these borrowers were qualifying for their home loans.
As a result of this lunatic process, houses in middle- and lower-income neighbors from Fresno to the Jersey Shore became jammed full of new home borrowers, millions and millions of them, who in many cases were not equal to the task of making their monthly payments. The situation was tenable so long as housing prices kept rising and these teeming new populations of home borrowers could keep their heads above water, selling or refinancing their way out of trouble if need be. But the instant the arrow began tilting downward, this rapidly expanding death-balloon of phony real estate value inevitably had to—and did—explode.
In other words, it was a Ponzi scheme, no different than the Bernie Madoff caper, only executed on an exponentially huger scale. The scheme depended upon the ability of a nexus of large financial companies to factory-produce and sell these magic home loans fast enough, and in big enough numbers, to continually keep more money coming in than going out.
Once the bubble burst, lawsuits were filed everywhere and whistle-blowers emerged by the dozen, showing, in graphic documentary detail, how nearly every major financial company in America had chosen to participate in this enormous fraud. It was the very definition of systemic corruption, but curiously, despite what looked like mountains of evidence, almost nobody with any connection to the crisis was even threatened with criminal prosecution.
For instance, court filings showed that Bank of America—a Covington & Burling client, remember—had teamed up with the unscrupulous, now-defunct mortgage lender Countrywide to sell more than a billion dollars’ worth of questionable loans to Fannie and Freddie. They had done so through a special mortgage loan program that, unbelievably, was named “Hustle” in internal bank documents. Under “Hustle,” Bank of America intentionally removed underwriters and compliance officers from the loan origination process, explicitly aiming to make sure that loans “moved forward, never backward.”
Then there was Washington Mutual, which became part of JPMorgan Chase—another Covington & Burling client—after a taxpayer-subsidized shotgun merger in 2009. Once the sixth-largest bank in America, WaMu was selling $29 billion worth of subprime loans every year during the height of the crisis. After its collapse, investigators from the Senate’s Permanent Subcommittee on Investigations uncovered evidence that the bank had conducted its own internal investigations into the mortgage markets as early as the mid-2000s, and had found fraud in as many as 83 percent of the loans produced by some of its own regional offices. Yet the bank did not alert regulators, did nothing to stop the fraud, and continued to sell billions in subprime for years.
Then there was Wells Fargo, yet another Covington & Burling client, which between 2002 and 2010 certified at least 6,320 home loans for federal backing, despite the fact that the bank itself, in its own internal assessments, had found that these loans were “seriously deficient.”
Citigroup, another client of holder’s old firm, had done essentially the same thing, having “defrauded, falsified information or misled federal government entities” by falsely certifying information or misled federal government entities” by falsely certifying thousands of loans for federal backing during the crisis years. It eventually paid $158 million in civil fines for their behavior, but nobody was ever charged or indicted for the crime.
Between 2005 and 2007, Goldman Sachs underwrote more than $11 billion of mortgages backed by the federal government and sold billions more in mortgage-backed products. When the bank’s senior managers saw, in late 2007, that the great masses of mortgage products they were producing were toxic and destined to blow up to catastrophic effect, the bank not only didn’t alert regulators but accelerated its efforts to sell off its dangerous products to hedge funds, other banks, and other unsuspecting customers as quickly as possible. “Let’s be aggressive distributing things,” said CFO David Viniar. “Are we doing enough to sell off cats and dogs.?” countered CEO Lloyd Blankfein, referring to the loser mortgages on the bank’s books.
Not just banks but everybody in the entire factory process was involved. When a longtime financial executive named Michael Winston joined Countrywide in the mid-2000s, he was startled one day to see a license plate belonging to one of the booming mortgage company’s top executives that read “FUND ‘EM.” When Winston asked the executive what the plate meant, he was told that Countrywide’s policy was to give loans to everyone.
“But what if the person has no job?” Winston asked.
“Fund ’em,” the Countrywide executive laughed.
At the ratings agencies like Moody’s and Fitch and Standard & Poor’s, which performed the critical-to-the-fraud function of overrating the toxic mortgage securities, high-ranking executives openly discussed in emails the corrupt corporate strategy of giving phony ratings in exchange for cash from the big banks. “Lord help our fucking scam,” wrote one executive from Standard & Poor’s. In another, one of the company’s top analysts complained that the firm’s model for rating mortgages was no more accurate than “flipping a coin.”
The basic scheme—mass-producing and mismarking mortgages—was exacerbated by other major industrywide ethical failures. Many of these same firms, in their desperation to cut every conceivable cost en route to the creation of mortgages, knowingly engaged in mass perjury by creating whole departments of entry-level cubicle slaves devoted to “robo-signing”–read: inventing–chains of title and other key documents. In other cases, they hired outside companies to do the dirty work for them.
In just one single locale, the clerk’s office in Essex County, Massachusetts, thirteen hundred different mortgage documents, including chains of title, were discovered to have been signed buy a “Linda Green,” although the signatures were written in twenty-two different styles. “Linda Green” worked for a company called DocX, which at the height of the boom was processing about half of all the foreclosure documents in the United States.
Similar piles of documents signed by corporate phantoms with names like “Crystal Moore” and “Bryan Bly”” and “Jeffrey Stephan” were found by the hundreds and thousands in virtually every county courthouse in America.
Many of the same banks also engaged in mass tax evasion by unilaterally bypassing untold millions in local county registration fees, using instead a private electronic registry system called MERS that had been created by Wall Street—Countrywide founder Mozilo was the “Inspiration” for the system’s creation—specifically as a means to avoid paying legally mandated fees to local county clerks’ offices for paper registrations. (“SAVE MONEY, REDUCE PAPER-WORK,” read a MERS brochure.) In the late 1990s, companies like Chase, Bank of America, Fannie, and Freddie had gone searching around for a legal opinion that would justify the creation of this electronic registry system.
The firm that ended up writing that opinion was, you guessed it, Covington & Burling. In 2004 the same firm reaffirmed the supposed legality of this tax-evasion-enabling registry system in yet another opinion letter, again on behalf of the great banks and mortgage companies that benefited directly from the shortcuts this system provided.”
(MATT TAIBBI DID A BEAUTIFUL JOB OF PORTRAYING JUST EXACTLY HOW THESE BIG INVESTMENT BANKERS EXPLOITED THEIR CUSTOMERS TO FORCE THEM TO EVENTUALLY GO BANKRUPT FOR THE BENEFIT OF BIG INVESTMENT BANKS LIKE JPMORGAN, BANK OF AMERICA, CITIGROUP AND WELLS FARGO AND I QUOTE FROM PAGE 22:
“During this whole time, at the end of the Bush years, Eric Holder was in private practice at Covington & Burling, a major corporate defense firm based in Washington, D.C. The firm’s clients at the time included four of the biggest banks in the world: JPMorganChase, Bank of America, Citigroup, and Wells Fargo, in addition to Freddie Mac and a little-known mortgage-registration company called MERS.
In the cozy confines of C&B, Holder seemed to experience, if not a change in heart exactly, a change in perspective. His 1999 memo, though ignored by the Bush administration on the Collateral Consequences score, had survived and become unintentionally important policy (the way a joke becomes unintentionally funny) in other arenas.”
WHILE PRESIDENT OBAMA HAS DONE SOMEWHAT BETTER THAN PRESIDENT GEORGE W BUSH DID, THE NEW PRESIDENT WE ELECT IN 2016 MUST BE BETTER IN SOLVING THE PROBLEM, OTHERWISE, THE MIDDLE CLASS WILL BE TOTALLY ELIMINATED AROUND THE WORLD. THE 99 PERCENT, VIRTUALLY DIRT POOR, WORKING FOR A FEW BIG INVESTMENT BANKS AND BILLIONAIRES, CREATING A LOT OF CLASS WARS AROUND THE WORLD, WHICH OUR DELICATE ENVIRONMENT CAN’T STAND. IT HAS TO WORK IN UNITY AND IT CERTAINLY ISN’T DOING THAT TODAY.
LaVern Isely, Overtaxed Independent Middle Class Taxpayer and Public Citizen and AARP Members