Thursday, October 14, 2010
It's Time For Jail Terms
So I'm listening to Andrea Mitchell and Jim Cramer explain the Foreclosure Fraud Crisis as they wail and rend their garments about how terrible it will be for just everyone if these poor banks are held responsible for this problem because the whole economy will implode.
That's nonsense. People should go to directly jail at this point, do not pass go. The real estate market is still officially fucked and while everyone wants it to "find its bottom" coddling the big financial institutions and their crooked subsidiaries and contractors has not worked all that well for average Americans at any point in this ongoing crisis (or for Democrats for that matter.) The only people who are benefiting from the capitulation to the Big Money Boyz's threats and hoary predictions on this one are the Big Money Boyz and the GOP. The economy still sucks and will continue to suck until the incentives for this criminal behavior and self-destructive malfeasance are stopped.
Here's how the Washington Post describes the "problem" today:
Beyond sloppy documents, the foreclosure debacle has exposed one of Wall Street's little-known practices: For more than a decade, big lenders sold millions of mortgages around the globe at lightning speed without properly transferring the physical documents that prove who legally owned the loans.
Now, some of the pension systems, hedge funds and other investors that took big losses on the loans are seeking to use this flaw to force banks to compensate them or even invalidate the mortgage trades themselves. Their collective actions, if successful, could blow a hole through the balance sheets of big banks and raise fundamental questions about the financial system, financial analysts and a lawmaker said.
....Local laws in most states dictate that each time a mortgage changes hands, the transaction needs to be recorded in courts or county offices. But the speed with which the loans were being generated during the housing boom and then pooled together and passed around Wall Street meant that big financial firms took shortcuts, consumer lawyers said.
Well no kidding. It's not as if the people in charge weren't warned: Here's a piece I wrote way back in 2007
Even those with good motives among the powers-that-be (and there's reason to be suspicious about many of them) continue to believe they can finesse this problem with band-aids or superficial remedies to keep the rubes quiet until the invisible hand fixes everything. They are petrified in the meantime that unless they give the oligarchs what they want, they will pull the plug and then where will we be?
And speaking of Big Shitpile, one of the big problems in this fetid mess is the complexity of it. Bankruptcy courts are having a hard time even figuring out who actually owns these properties that are in foreclosure. You can be sure that this is not the only case where "ownership" in American has become vague and obtuse. And there's a reason for it.
Bill Moyers Journal featured an piece not long ago in which this issue was discussed in depth:
Exhibit #1: Habana Health Care Center in Tampa, Florida, purchased by a group of private equity firms in 2002. "Within months, the number of clinical registered nurses at the home was half of what it had been a year earlier...budgets for nursing supplies, resident activities and other services also fell..." "When regulators visited, they found malfunctioning fire doors, unhygienic kitchens, and a resident using a leg brace that was broken..."
Basing its report on state government data, the TIMES says 15 at Habana died from what their families contend was negligent care. But when families sue, they often can't find out even who owns the nursing homes because of the complex corporate structures private equity firms have created to cover their tracks.
It's this kind of capitalism that drives John Bogle up the wall, as you're about to learn. John Bogle believes owners should be in charge — and accountable. He's known and respected world-wide as the father of index funds and the founder of The Vanguard Group, one of the largest mutual funds anywhere, with over a trillion dollars in assets. FORTUNE magazine named him one of the four giants of the 20th century in the investment industry. TIME magazine called him one of the world's 100 most powerful and influential people. Among his six books is this one THE BATTLE FOR THE SOUL OF CAPITALISM and more recently THE LITTLE BOOK OF COMMON SENSE INVESTING. In the current issue of DAEDALUS, the Journal of the American Academy of Arts and Sciences, he has a blockbuster of an essay on democracy in corporate America. You'll find it on our Web site at pbs.org. I talked with John Bogle when he was in town earlier this week.
BILL MOYERS:What does it say to you that the real owners of the nursing home, the private investors have created this maze of smoke and mirrors that make it virtually impossible to find out who the owners really are?
JOHN BOGLE:Well, that's so typical of much that's going on in American finance, the way we structure these financial instruments, which are stock certificates or debt instruments. But it's the same thing of the removal of your friendly, local neighborhood bank holding the mortgage and being able to work with you when you fall on hard times to some unnamed, often unknown, financial institution who couldn't care less.
BILL MOYERS:These private equity firms that own these nursing homes wouldn't even talk to THE NEW YORK TIMES. They won't talk to reporters. I mean, there's no accountability to the public.
JOHN BOGLE: There's no accountability. And it's wrong. It's fundamentally a blight on our society.
BILL MOYERS:What does it say that big private money can operate so secretly, with so little accountability, that the people who are hurt by it, the residents in the nursing home have no recourse?
JOHN BOGLE:It says something very bad about American society. And you wonder — the first question anybody would have after reading the article — how in God's name do they get away with that? Well, we have all these attorneys that are capable of devising complex instruments, and money managers who are capable of devising highly complex financial schemes. And there's kind of no one to answer to the call of duty at the end of it.
The fallout from the Bush market is likely to be immense and just as with everything else of this era, it's going to be nearly impossible to hold anybody responsible.
This is magical thinking. There is not going to be any easy way out of this. The invisible hand may be working but it often works on a very, very long timeline and many bad things can happen to a society while it does its thing. Meanwhile, every incantation and folk medicine they've applied to this problem has resulted in another round of infection. It's time to open up the wound and completely clean it out. The patient will heal much faster and it's far less likely to die in the meantime.
Alan Grayson has been way ahead of the curve on this and Democrats across the country are following. There's no excuse not to unless they actually want to further destroy the economy and lose their elections.
You can sign Grayson's petition "Not Too Big To Jail" here. Here's the letter he sent today to Robert Mueller and the US Attorney of Florida today:
Dear U.S. Attorney O'Neill and Director Mueller,
When it comes to foreclosures, there is mounting evidence of a state of rampant lawlessness in Central Florida. There are increasing signs that big banks routinely evade laws meant to protect homeowners, in many well-documented cases of ‘foreclosure fraud.’ Despite the demonstrated existence, for instance, of ‘robosigners’ signing affidavits attesting to documents that they have never seen, the parties engaging in such misconduct are not being brought to justice. Big banks are mischaracterizing this as mere ‘technical problems,’ and apologizing only where there is clear and very public evidence of harm.
It is not enough for big banks only to apologize for fraud, perjury, and even breaking and entering – when they are caught. It is time for handcuffs. Fraud does not become legal just because a big bank does it.
On September 20, 2010, after my office found evidence of systemic foreclosure fraud perpetrated by big banks and foreclosure mills, I called for a halt to illegal foreclosures.
Since then, big banks such as Bank of America, JP Morgan Chase, GMAC, PNC and others have suspended foreclosures or foreclosure sales. These banks are still claiming that the massive fraud they have perpetrated amounts to nothing more than a series of technical mistakes. This is absurd. This is deliberate, systemic fraud, and it is a crime.
To give but two of the many available examples, attached is a deposition from an ex-employee of one of the largest ‘foreclosure mills’ in the state, the Law Offices of David Stern. In it, this employee testifies under oath that it was routine for that office to falsify documents regarding military records, in order to move foreclosure cases along more quickly.
The local media has reported on the case of Nancy Jacobini; a contractor for JP Morgan Chase broke into her home after the bank mistakenly foreclosed on it. JP Morgan Chase ‘apologized’ for terrifying her. But , US ; we have a system of laws. I am writing to ask you to enforce them.
The organized and systematic manufacturing of falsified documents to deprive people of their homes is not only a threat to the integrity of the legal system. It also aggravates and extends the weakness in the housing market. Who is going to feel comfortable buying a home if a big bank can simply take it, whether or not that bank has a right to it? Given the securitization of mortgage-backed securities, this misconduct is a threat to our securities markets as well. But fundamentally, this is a question of protecting basic
property rights – if you don’t own it, then you shouldn’t try to take it. Without clear property rights, and a legal system that insists on clear proof of those rights before transferring ownership by force, the economy will fall apart.
If perpetrators of perjured affidavits and other systematic criminal activity can get off simply with civil liability – or even less, an insincere bureaucratic apology – the freedom that Americans enjoy will erode quickly in the face of lawless seizures of property. I appreciate your work on the joint Middle District of Florida’s Mortgage Fraud Initiative, and respectfully request that the efforts of your offices turn towards reining in this rampant criminality.
Barry Ritholz agrees:
The absurdity of illegal activity, criminal conduct, rampant fraud has reached a point where the nation much declare “No More.” We must begin the process of identifying criminal actors — and prosecuting them.
The latest twist on the criminality/foreclosure fraud: The hiring of untrained, incompetent burger flippers to act as lawyers or paralegals in the processing of foreclosures.
As I wrote yesterday, these banks are once again holding the country hostage with their threats that if anything should be done about their criminality they'll blow up the whole damned place. Well, they already are ---- in slow motion. If we want to find a "bottom" to this market, they need to institute a serious cram-down program to help real people work out these messed up mortgages instead of allowing the banks fix their balance sheets through fraud and the market to stabilize by throwing people into the streets. It's not working.
And everybody needs to stop worrying about the moral hazard of letting average people off the hook for their mortgages and worry a little bit more about the moral hazard of continually allowing these huge financial institutions to get away with murder.
Update: Somebody needs to start thinking like Iceland.
Update II: Democratic Senators are on the case and send a letter to Geithner and Bernanke:
WASHINGTON, DC— U.S. Sens. Sherrod Brown (D-OH), Tom Harkin (D-IA), Barbara Boxer (D-CA), Debbie Stabenow (D-MI), Sheldon Whitehouse (D-RI) and Mark Begich (D-AK) today sent a letter to Obama Administration officials, including Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke, urging action following recent news reports of widespread improprieties and mistakes in the foreclosure processes employed by mortgage servicers.
“There have been attempts to dismiss the reported violations as minor technical paperwork errors, and to employ the defense that these were harmless errors because the homeowners were in foreclosure and would have lost their houses anyway. These are not technicalities, they are not isolated cases – it is likely that over 200,000 foreclosures have now been suspended – and these improprieties cast doubt on the foreclosures in question,” the senators wrote.
“The systemic problems that are being uncovered in the current mortgage market are remarkably similar to the predatory practices employed during the subprime mortgage crisis,” the senators continued. “Your agencies have tools at your disposal to address the substantial challenges facing homeowners in the mortgage market, and you are able to respond more nimbly than Congress to this emerging crisis. The ample record of homeowner abuse should compel you to act expeditiously in the best interest of homeowners and investors.”
Has even one national Republican said anything about this?
Could someone in the press find it in themselves to ask one of them about it? (If it's too complicated, maybe someone could call a banker a "whore" so they'd have a hook.)
digby 10/14/2010 12:45:00 PM