A Massive Bank Fraud that Calls for Jail Terms

Not a Mortgage Meltdown, Not a Sub-Prime Crisis

‘Tis the season to be jolly, but no one said it was a time to bail out criminals who properly belong in jail.

Not a Mortgage Meltdown, Not a Sub-Prime Crisis
‘Tis the season to be jolly, but no one said it was a time to bail out criminals who properly belong in jail.
I am sick to death of watching the hand-wringing on the part of our
Treasury Secretary and Chairman of the Federal Reserve, when they ought
properly to be searching for a special prosecutor and asking for
indictments. Both Bernanke and Paulson came very late to this party,
but they are misleading the country, perhaps criminally.

is a federal crime (under the RICO Act) to aid, abet or participate in
criminal activity as part of an ongoing criminal organization. What
part of that does the Sec-Treas and Fed-Chairman not understand?

The balloon that has not yet gone up is public (and media) recognition
of the extended and complicit fraud committed by lenders, mortgage
packagers, hedge funds and others who, for purposes of personal greed, created a whole class of liar-loans. They were even called that in the trade—liar-loans.
That complicity does not necessarily (but may well) include either
outright collusion or a creative blind-eye on the part of federal
regulating agencies.
Paulson runs one and Bernanke another.
The public is confusing (and being encouraged to confuse) the housing bubble of the last half-dozen years with the sub-prime mortgage fraud.
They are different animals and the  criminals of the latter are trying
mightily to cover themselves with the blanket of the former.

  • The ‘housing bubble’ is like other recent enthusiasms for
    investments that seemed ever to increase in value, to a point where
    they attracted a ‘bandwagon’ effect. You were a fool if you didn’t buy a second home, flip it for profit and buy another.
    Getting sucked in to a bubble may be bad judgment, but it’s not a
    crime. Like all other investments, you roll the dice, take a chance,
    maybe win and maybe lose.
  • The invention of the sub-prime mortgage as an investment vehicle,
    carried to the extremes it was, then sliced and diced into opaque
    securities to entice investors is quite obviously criminal. The purpose
    was not to create a broader base of homeowners. The intent was to
    fraudulently expose a new (and invented) class of borrowers. Those with
    no credit and no assets, would be introduced to a bait and switch of
    monumental proportion. The purpose was to steal money.

What probably makes this a criminal activity under the RICO Act is
the extent to which lenders colluded in the fraud, the interstate and
international processing of those fraudulent loan documents, including
the transfer of vast quantities of cash and (most damning of all) the
intent to cover the fraud by salting otherwise worthwhile investments.

This blatantly criminal activity is being characterized by our
president, Secretary of the Treasury, Fed Chairman and mainstream media
as a “difficulty in which millions of Americans may lose their homes.”
It is not that. It is an extended and multi-level scheme
whereby lenders extended fraudulent credit (in the form of mortgages)
to un-creditworthy borrowers, for their own profit.  Conflict of interest doesn’t even begin to describe their crimes against the corporate assets of third parties.
These crooked lenders, in order to entice the creation of mortgages they knew to be worthless, hired salesmen on commission, ignored credit rating requirements and allowed borrowers to declare unsubstantiated incomes, all for the sole purpose of making the loan and taking the fees.
Willing participants are not hard to find in the pay-off chain among appraisers, homebuilders, loan-application ‘advisors’ and former shoe-salesmen sent out to hawk home-ownership to people too poor to buy their shoes.
Just like in the early stages of the Enron investigation,
plea-bargainers will be found and exploited at the lower levels. The
veracity of their sworn testimony will reflect their specific (and
provable) knowledge of duplicity way up there in the plush environs of
corner-suites. There’s a lot of sweating going on up there at the
moment about what e-mail went where and to whom.
Lenders thought these liar-loans wouldn’t come home to roost, because they packaged off the liability to others, knowing
full well the paper was worthless. Repackaged into bonds, which were
knowingly over-rated by bond rating agencies (for a cut), these
worthless investments were priced according to faked risk assessments,
made to look like high-return low risk investments.

Under RICO, a person or group who commits any two of 35 crimes—27
federal crimes and 8 state crimes—within a 10-year period and, in the
opinion of the United States Attorney bringing the case, has committed
those crimes with similar purpose or results can be charged with

SenpatrickleahyFaked, insider dealing, co-conspirators and liar-loans. Securities fraud is a RICO offense. Easy to see why the Fed and Treasury are looking for anything but a special prosecutor.
Fortunately for them and unfortunately for the nation as a whole
(which will end up picking up yet another trillion-dollar tab), this
Congress is short on the courage to prosecute.
In a fascinating article in last Sunday’s San Francisco Chronicle, attorney Sean Olender writes;

just unveiled Thursday, comes the “freeze,” the brainchild of Treasury
Secretary Henry Paulson. It sounds good: For five years, mortgage
lenders will freeze interest rates on a limited number of “teaser”
subprime loans. Other homeowners facing foreclosure will be offered
assistance from the Federal Housing Administration.
unfortunately, the “freeze” is just another fraud – and like the other
bailout proposals, it has nothing to do with U.S. house prices, with
“working families,” keeping people in their homes or any of that

The sole goal of the freeze is to prevent owners of
mortgage-backed securities, many of them foreigners, from suing U.S.
banks and forcing them to buy back worthless mortgage securities at
face value – right now almost 10 times their market worth.

ticking time bomb in the U.S. banking system is not resetting subprime
mortgage rates. The real problem is the contractual ability of
investors in mortgage bonds to require banks to buy back the loans at
face value if there was fraud in the origination process.

Even the most cursory and disinterested evaluation of what actually
went on, would admit that what’s lying out there, with its legs in the
air, in the middle of the world’s financial road and stinking to high
heaven, looks like fraud. Perhaps more damning, it smells like fraud to any prosecuting attorney with a nose.
So the challenge for Paulson and Bernanke is to stay up late, pull in
every marker they ever were owed, fly all over the world and try any
possible charade to keep it from ever getting to a prosecuting attorney. That’s going to be tough. This criminal plot was dreamt up and hatched in the United States, but the liability was off-shored with a vengeance.
There’s hardly a major bank in the world that hasn’t taken a bath in
sub-prime fraud loss. Billions have been written down and in some cases
tens of billions, with the big, ugly chunk of yet-to-be-uncovered
deceitful securities still under water. Banks may write down and shrug
to maintain their reputation. Investors are steely-eyed and have no reputations, that’s why they are investors.
Bernanke Paulson & Company are trying desperately to keep lawsuits from flying, because the fraud is so widespread and the losses so enormous
that we’re no longer talking about recession, but crash. There isn’t
anyone in the investment community today who even knows what a crash is. But they have all heard the word (just as they have heard white-collar crime) and would like to avoid the experience.
So there will be an enormity of arm-twisting, some payoffs, herds
and flocks and schools of early retirements and the steady
night-and-day hum of shredders.

The truly super-wealthy survive crashes, at least they did
seventy-five years ago, when we last checked. They lose half of what
they have, but the other half is worth five times what it was and so
life goes on quite nicely. No need to get rid of the Rolls.
What the super-rich do not survive all that well is prison. A number
of them have toddled off in that direction recently and it’s not been a
pretty sight—all those trophy wives twisting their handkerchiefs and
salivating to start a do-over at the Hampton place, spruce up Central
Park West a bit. The rich and famous pull their time at Fed country
clubs in warm climates, but a cell is still a cell.

Olender again–
The catastrophic consequences of bond investors forcing originators to
buy back loans at face value are beyond the current media discussion.
The loans at issue dwarf the capital available at the largest U.S.
banks combined, and investor lawsuits would raise stunning liability
sufficient to cause even the largest U.S. banks to fail, resulting in
massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

. . It is truly amazing that right now everyone in the country is
deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of
America and others as the best group to work out a solution to this
problem. No one is talking about the fact that these people created the
problem and profited to the tune of hundreds of billions of dollars
from it.

. . . The next time that Paulson is before the Senate
Finance Committee, instead of asking, “How much money do you think we
should give your banking buddies?” I’d like to see New York Sen. Chuck
Schumer ask him what he knew about this staggering fraud at the time he
was chief of Goldman Sachs.

This has been a Congress that has failed and failed and failed to hold
anyone’s feet to the fire of responsibility in (or out) of government.
Good luck with Chuck Schumer—one of the two deciding votes that allowed
Mike Mukasey to be the man responsible for bringing charges.
There’s that word again, responsible.
Americans, swallowing the malarkey of the Fed and Treasury trying to work in the interests of homeowners,
are going to find themselves picking up the tab. There are lots of tabs
since George Bush came to be seated in the Oval Office—tabs for

  • trillions given away to the likes of Paulson and his buddies,
  • tabs for war profiteering,
  • for two unfunded wars and
  • for the privatization of government services along with
  • record deficit budgets.

The amazing truths that will finally be uncovered as this current
generation is poked, prodded and forensically autopsied, will all be
tales of trusting oblivion. Willingly, we trudged off into the blinding
lights of consumerism, never asking why or where or how
we were being led and by whom. If we end up broke and having to grow
chickens and tend a garden to survive, there is not a single man or
woman among us who will know how.
We will have lost it all and have only a confused look on our faces to show for it.
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