[RD] 1,000,000 Obamas

[Timsup2nothin]

Yeah, so the fact that 90% of appraisers reported feeling pressured to inflate property values...in 2006...means...nothing to you? Nothing at all? Do you think it would mean nothing to a court, particularly coupled with specific testimony regarding the "handpicking" of appraisers who would play ball by lenders?

"Reported feeling pressured"? I felt pressured to give a low bid every time I bid a job, ever. Still do, and I'm certainly not the only one. Does that mean there is some cabal artificially suppressing the home repair market? Frequently, customers who have no ability to recognize any other differences will in fact just take the lowest bid. Is that "handpicking" contractors who will "play ball," or is that the natural force of the very definition of a free market?

If you can get your jury to consist of nothing but people who work on a fixed labor agreement and then buy things exclusively on a 'priced as marked' basis you have a shot. But I don't see you getting that jury. Anyone who operates, or has operated, in a negotiable position in a market is going to see reasonable doubt.

 

[Lexicus]

Again, I just don't think you have more authority on these questions than people like Richard Bowen and William Black. Sorry.

 

[Timsup2nothin]

Again, I just don't think you have more authority on these questions than people like Richard Bowen and William Black. Sorry.

I don't either...but notice that they didn't prosecute. It's easy to say "well, I'd have won if I'd played."

 

[Lexicus]

I don't either...but notice that they didn't prosecute. It's easy to say "well, I'd have won if I'd played."

They didn't prosecute because Bowen was a whistleblower, not a prosecutor, and Black resigned from the Clinton administration when Clinton destroyed the government's ability to build criminal cases against banksters.

 

[Timsup2nothin]

They didn't prosecute because Bowen was a whistleblower, not a prosecutor, and Black resigned from the Clinton administration when Clinton destroyed the government's ability to build criminal cases against banksters.

So it isn't "I'd have won if I had played," it's "I'd have won if I had not been out of the game, sitting in the top row of the bleachers, drinking a beer." Okay.

 

[Lexicus]

Black won when he did play. Which is a helluva lot more than you or I can say, having only spectated.

Presumably, it was also totally impossible to get any criminal convictions during the S&L crisis because no one can really tell the difference between criminal conspiracy and "market forces," yet he managed to do it then.

 

[Timsup2nothin]

Black won when he did play. Which is a helluva lot more than you or I can say, having only spectated.

Presumably, it was also totally impossible to get any criminal convictions during the S&L crisis because no one can really tell the difference between criminal conspiracy and "market forces," yet he managed to do it then.

That's because there was obvious fraud involved. I used to play cards with a guy doing fifteen years for the S&L crisis, and yes, repeated pump sales circulating parcels among a closed circle in order to produces ever rising 'comps' prior to dumping off all the parcels in a worthless subdivision is fraud, whether a bank is involved or not. When those circulating pump sales are financed by an S&L that collects fees and interest on all of them, and then the dump sales are scattered out by making all of the victims arrange their own financing, it is actually a win for the S&L as well. The damage was distributed, if noticed at all (a lot of people bought a "retirement property" and just paid for it without ever realizing that the price had been pumped, so even their own bank never saw any harm). It's only when something draws attention to the scheme before it has reached fruition that it hurts the cooperating S&L, because they are stuck holding all the partially pumped but basically worthless parcels as collateral.

There were schemes like that in just about every little podunk town in the country, and had been for years. But when Whitewater drew attention to them and they all collapsed at once it was a total fiasco. People started checking out what that retirement property they had bought down south was really about, and stopped paying. Properties that were partway through the pump cycle got abandoned by fraudsters fearing prosecution and they all went bad at once. Disaster for the S&Ls. And of course any such scheme did require a cooperating loan officer who would turn a blind eye to the obvious circulation of the parcels.

When the prosecution started it was pretty easy to identify the developer and loan officer involved. The pump rings generally consisted of family members and friends of the developer, so "either you plead guilty and get fifteen years or we prosecute all of the friends and family you dragged into this mess...unless one or more roll on you in which case you go away forever" led to a whole lot of uncontested convictions, and of course collusion between the now guilty developer and one or more loan officers was pretty obvious so they plead too. But that doesn't mean that anyone involved in said prosecutions was some sort of hot shot genius of a trial lawyer.

 

[Lexicus]

But that doesn't mean that anyone involved in said prosecutions was some sort of hot shot genius of a trial lawyer.

I'm not suggesting Black is a "hostshot genius of a trial lawyer." I am suggesting he is a lawyer who has specialized knowledge in building criminal cases against people like the S&L fraudsters.

And what you described in the S&L situation all applies to the 2008 crisis. It is "obvious fraud" for mortgage issuers to issue liars' loans that are not underwritten. It is "obvious fraud" for banks to buy and sell securities based on these mortgages without doing due diligence. It is "obvious fraud" to design a compensation structure that essentially forces people to deal in these things to get commissions. And so on.

The problem with all of this is that Clinton in the 90s decided to make the regulatory apparatus "serve" the industries it was supposed to be regulating. This was, in retrospect, a far more effective (ie, damaging) strategy than the Republican mainstay of starving agencies and changing rules and things like that. So the way it manifested for banking and financial regulation was that the whole institutional process that allowed regulators (with specialized knowledge of how control frauds such as those in the S&L crisis) to interface with prosecutors to build criminal cases against the people guilty of engineering those control frauds.

This was why William K Black and other prosecutors were able to put people in jail as a result of the S&L crisis, which was, by the way, tiny compared to the more recent Great Recession crisis and left a correspondingly tiny evidence trail. And its absence is why no one really responsible ended up going to jail for the frauds that led to that crisis...and that in turn is because the Obama administration's official ideological position was for substantive deregulation. Which remains the status quo, need it even be said, under Trump.

Obama could have reinstated the criminal referral process easily enough, if he had wanted to, but he didn't want to. Personally I think that given we built an atomic bomb and went to the moon, the idea that we couldn't successfully prosecute these guys if we had really wanted to doesn't even pass the smell test.

 

[Timsup2nothin]

I'm not suggesting Black is a "hostshot genius of a trial lawyer." I am suggesting he is a lawyer who has specialized knowledge in building criminal cases against people like the S&L fraudsters.

And what you described in the S&L situation all applies to the 2008 crisis. It is "obvious fraud" for mortgage issuers to issue liars' loans that are not underwritten. It is "obvious fraud" for banks to buy and sell securities based on these mortgages without doing due diligence. It is "obvious fraud" to design a compensation structure that essentially forces people to deal in these things to get commissions. And so on.

The problem with all of this is that Clinton in the 90s decided to make the regulatory apparatus "serve" the industries it was supposed to be regulating. This was, in retrospect, a far more effective (ie, damaging) strategy than the Republican mainstay of starving agencies and changing rules and things like that. So the way it manifested for banking and financial regulation was that the whole institutional process that allowed regulators (with specialized knowledge of how control frauds such as those in the S&L crisis) to interface with prosecutors to build criminal cases against the people guilty of engineering those control frauds.

This was why William K Black and other prosecutors were able to put people in jail as a result of the S&L crisis, which was, by the way, tiny compared to the more recent Great Recession crisis and left a correspondingly tiny evidence trail. And its absence is why no one really responsible ended up going to jail for the frauds that led to that crisis...and that in turn is because the Obama administration's official ideological position was for substantive deregulation. Which remains the status quo, need it even be said, under Trump.

Obama could have reinstated the criminal referral process easily enough, if he had wanted to, but he didn't want to. Personally I think that given we built an atomic bomb and went to the moon, the idea that we couldn't successfully prosecute these guys if we had really wanted to doesn't even pass the smell test.

"To issue 'liar's loans'," more technically known as "stated income loans" was not inherently illegal at the time. Having been self employed or commissioned for a lot of my life, and having worked in the finance office of car dealerships where self employed people bought cars, I've been on both sides of stated income loans. Do they get as good an interest rate as someone with a slot machine job would get? No, but that's an acknowledgement that self employed people and people on commission are a higher risk. So, simply put, not only was this "issuing of liar's loans" not "obvious fraud," it wasn't even fraud...unless you have some sort of evidence trail indicating there was some sort of collusion and that someone at the time knew the income was falsely stated. Good luck with that.

On the other hand...as I already said the S&L crisis was a direct result of decades of simultaneously running hundreds (thousands? tens of thousands?) of pump and dump schemes all across the country. A pump and dump, once discovered, leaves an evidence trail a mile wide as well as a gaggle of cooperating witnesses. It doesn't even matter if it wasn't really a crime, just a deal gone sour, you still get a guilty plea.

 

[Lexicus]

"To issue 'liar's loans'," more technically known as "stated income loans" was not inherently illegal at the time.

No, it wasn't "inherently" illegal...but any regulator with a clue should have seen the high incidence of liars' loans and immediately been able to tell that something illegal was going on. Liar's loans themselves also have a very high incidence of fraud, which, again, actually is illegal.

So, simply put, not only was this "issuing of liar's loans" not "obvious fraud," it wasn't even fraud...unless you have some sort of evidence trail indicating there was some sort of collusion and that someone at the time knew the income was falsely stated. Good luck with that.

There was a paper trail showing that the banks' employees were not underwriting these loans. There was a paper trail showing that the bank's officers had crafted compensation structures that would induce the employees to issue loans without underwriting. There was a paper trail showing that other banks bought securities based on these loans without checking the underwriting data.
The whole point of a liars' loan is that it is a form of financial "don't ask, don't tell". Its very existence means that the bank was not underwriting the loan.

The definition of liar’s loan is that the lender does not verify the borrower’s income (and more extreme liar’s loans do not verify the borrower’s job or assets). The CEO causes the lender to make liar’s loans for the purpose of inflating the borrower’s reported income, which makes it possible for the lender to make more and larger loans, which enriches the CEO.

The failure to verify the borrower’s income produces massive fraud and what economists call “adverse selection.” As a result, at the time the loans are made, they represent in economic reality a loss. The loans have a “negative expected value” at the time they are made. This exemplifies the great truth that the WSJ cannot seem to comprehend – underwriting appears to the ignorant to be a cost center for a home lender, but it is actually an honest bank’s most important profit center.

On the other hand...as I already said the S&L crisis was a direct result of decades of simultaneously running hundreds (thousands? tens of thousands?) of pump and dump schemes all across the country. A pump and dump, once discovered, leaves an evidence trail a mile wide as well as a gaggle of cooperating witnesses. It doesn't even matter if it wasn't really a crime, just a deal gone sour, you still get a guilty plea.

The financial crisis was essentially an elaborate and far-reaching pump and dump scheme, is what you don't seem to get.

 

[Timsup2nothin]

And, once again, stated income loans were not illegal at the time. Yes, they had a high incidence of failure. But that does not mean that you can just pick one and say "well, that one was fraudulent." Some (many? most?) of them actually weren't. The fact that Mr Black uses this emotionally charged term, "liar's loan," and then goes on to cite a definition as if it were an actual technical term, is the kind of showboating that impresses a jury...right up to the point that opposing counsel calls him on it and reveals the play for what it is. A made up term used because "ooooooh, that sounds really bad" in place of an actual term for an actual thing that has no particular legal issues. Stated income loans were an acknowledgement that not everyone can just plunk down a paycheck stub and say "yup, this is what I get every two weeks, no more, no less." They weren't some sort of spontaneous creation invented by a cabal of CEOs for their own enrichment.

Meanwhile, "what you don't seem to get" is that reductionist simplifications don't work in criminal courts. Why stop at "well, it's essentially a pump and dump scheme"? Let's just go with "it was essentially armed robbery," or maybe "well, it was basically just like lighting the bank on fire so please convict the accused of arson, we don't need any evidence here"? Unless you can walk twelve ordinary folks step by step through this "elaborate and far reaching pump and dump scheme" and associate every step with some person acting with criminal intent you've got nothin'.

And you are gonna be hard pressed to get even one step down the path, because when a stated income loan that maybe should never have been issued goes bad the person who has actually committed fraud, by the letter of the law, is invariably the borrower. They are the one who signed a binding statement saying "this is my income" that can be demonstrated to be false. Their value as a witness when they say "the loan officer told me to lie" is severely restricted by the indisputable fact that they committed fraud. If you can collect a bunch of these known criminals and they all tell a very similar story about a particular loan officer then maybe you can get a conviction against that loan officer on multiple counts of conspiring with all these fraudsters in their individual fraud cases. Now you have yet another convicted criminal as a witness, and you are going to prop him up in court to say "the company made me do it with their policies"?

The incident crime in your conspiracy is so far removed from the target of your conspiracy charge that you really want to prosecute that you haven't a snowball's chance. The CEO is going to say "I pushed, hard, of course, it's a competitive industry. But I never intended for the company's point of contact agents to encourage our customers to commit these crimes. If any of them actually did that I truly regret it and would certainly like to see them prosecuted to the fullest extent of the law."

Other than swimming upstream all the way from the convicted fraudster customer you are going to need to prove a criminal intent to defraud the bank at the top. A memo saying "here's a way to get more business, we just need to get our agents to make fraudulent loans." Think you are gonna find one of those?

 

[Lexicus]

They weren't some sort of spontaneous creation invented by a cabal of CEOs for their own enrichment.

No, they weren't created for that purpose. But the term "liars' loans" originated because these kinds of loans are known, and have been known since the S&L crisis and even earlier, to have a ridiculously high incidence of fraud. Institutions that use them as a regular business practice are invariably criminal enterprises whose CEOs are using the liars' loans as a tool for personal enrichment. Banks that do business with institutions that deal in liars' loans as a regular business practice are also criminal enterprises whose CEOs are using liars' loans (or more accurately, securities based on the liars' loans) for personal enrichment.

Meanwhile, "what you don't seem to get" is that reductionist simplifications don't work in criminal courts.

Are you really under the impression that I think the arguments I'm making in this thread are the same ones that would be made in court?

And you are gonna be hard pressed to get even one step down the path, because when a stated income loan that maybe should never have been issued goes bad the person who has actually committed fraud, by the letter of the law, is invariably the borrower.

Wrong:
http://www.latimes.com/business/hiltzik/la-fi-mh-fraudulent-lenders-20140925-column.html

Black, who is associate professor of law and economics at the University of Missouri-Kansas City, was an expert witness for the defense in the Sacramento case. He may have delivered the key testimony blowing up the government's contention that the defendants were the main fraudsters. His testimony was that executives at the lending institutions deliberately created a system to make fraudulent loans as a recipe for personal enrichment.


The government had charged Yevgeniy Charikov, 42, a Sacramento real estate agent, and three others with buying properties, flipping them at inflated prices, and submitting fraudulent documentation to lenders Aegis Wholesale Corp. (which filed for bankruptcy in 2007) and GreenPoint Mortgage Funding (now part of Capital One) to obtain loans on the properties.

Black testified that the very business model of Aegis and GreenPoint depended on their making fraudulent loans--their executives were determined to make the companies grow fast, to collect lavish compensation, and sell off the problem loans in the secondary market so they would be someone else's problem when they blew up. Companies like like GreenPoint and Aegis couldn't grow fast and book huge profits by serving the market of good borrowers with mortgages commensurate with their ability to pay--that market was too small and too competitive. So they chose to make loans that didn't require verifying the borrowers' incomes.

In the Sacramento case, the jury essentially found that the truth or falsity of the documentation the borrowers provided was immaterial--the lenders would have made the loans anyway.

This is the point where you're like "hey, maybe this guy Black knows something I don't..."

Think you are gonna find one of those?

"Those" were essentially papering the walls at all these institutions. The evidence was there, the criminality was clear, nothing was done about it because the deregulators running the government didn't want to do anything about it.

 

[Timsup2nothin]

No, they weren't created for that purpose. But the term "liars' loans" originated because these kinds of loans are known, and have been known since the S&L crisis and even earlier, to have a ridiculously high incidence of fraud. Institutions that use them as a regular business practice are invariably criminal enterprises whose CEOs are using the liars' loans as a tool for personal enrichment. Banks that do business with institutions that deal in liars' loans as a regular business practice are also criminal enterprises whose CEOs are using liars' loans (or more accurately, securities based on the liars' loans) for personal enrichment.

So Ford Motor Credit is a criminal enterprise? I got two stated income loans from them.

 

[Lexicus]

Add "in the mortgage business" to that paragraph where applicable.

 

[Timsup2nothin]

Add "in the mortgage business" to that paragraph where applicable.

Why? The big difference between a car loan and a mortgage is that in a mortgage the collateral might catastrophically lose value while in a car loan it certainly will.

 

[Lexicus]

Why? The big difference between a car loan and a mortgage is that in a mortgage the collateral might catastrophically lose value while in a car loan it certainly will.

Well, I suppose I would be highly suspicious of any car dealership where a significant portion of the financing consisted of stated income loans. But I don't really know enough about the car business to speak on it, and so I'll add the qualification to what I said above.

Here are some facts about liars' loans in the mortgage business:

The incidence of fraud in liar’s loans was 90 percent (MARI 2006). Liar’s loans are a superb “natural experiment” because no entity (and that includes Fannie and Freddie) was ever required to make or purchase liar’s loans. Indeed, the government discouraged liar’s loans (MARI 2006). By 2006, roughly 40% of all U.S. mortgages originated that year were liar’s loans (45% in the U.K.). Liar’s loans produce extreme “adverse selection” in home lending, which produces a “negative expected value” (in plain English — making liar’s home loans will produce severe losses). Only a firm engaged in control fraud would make liar’s loans. The officers who control such a firm will walk away wealthy even as the lender fails. This dynamic was what led George Akerlof and Paul Romer to entitle their famous 1993 article — “Looting: the Economic Underworld of Bankruptcy for Profit.” Akerlof and Romer emphasized that accounting control fraud is a “sure thing” guaranteed to transfer wealth from the firm to the controlling officers.

 

[Timsup2nothin]

I would question any lender if 40% of their loans were stated income loans. The fraction of the population that needs stated income loans is small, and even if you consider that there will be some concentration of those people with companies that are more reasonable about making them 40% is a ton. I'll grant that there is no practical way to get to 40% without knowing that you are making stated income loans to people who are fully capable of getting a regular POI loan. In that, yes, you know that you are making loans to people who are committing fraud. However, that doesn't mean that you are somehow empowered in sorting the frauds from the people who really do need stated income terms.

 

[Lexicus]

However, that doesn't mean that you are somehow empowered in sorting the frauds from the people who really do need stated income terms.

No, but there are plenty of other facts that demonstrate this.

In particular note this bit of text I quoted above:

In the Sacramento case, the jury essentially found that the truth or falsity of the documentation the borrowers provided was immaterial--the lenders would have made the loans anyway.

The "frauds" in such a situation are not borrowers who are "lying" on their documentation, the "fraud" is the lender that demonstrably doesn't care whether the borrowers are lying or not.

 

[Timsup2nothin]

I'll grant that there was *a* jury convinced that this "doesn't care" was demonstrable. I think that that is a very tough hill to climb, generally.

And, for the record, the finding that borrowers who did in fact lie on their documentation are 'just poor innocents' is absurd. To get a stated income loan the average person has to tell an absolutely outrageous whopping lie. If you want a stated income loan and you work pretty much anywhere you have to come right out of the box lying. You can't say "Oh, I work at General Ordinary Payroll, but no I don't have a paystub so just put me down for $5000 a month and get me a stated income loan." You have to have kept that paystub providing regular employer completely to yourself so that when you claim 'self employed, $5000 a month' it isn't contradictory.

Now, maybe a loan officer is orchestrating this and telling the General Payroll Company worker right from the gate 'don't tell me that.' Or maybe they are actively taking charge when the documentation comes out and openly advising the customer to commit fraud and how to do it. But in either of those situations the pretense that the working Joe said "oh, sure, self employed, lemme sign that" without knowing the game was afoot is just silly.

 

[Lexicus]

Now, maybe a loan officer is orchestrating this and telling the General Payroll Company worker right from the gate 'don't tell me that.' Or maybe they are actively taking charge when the documentation comes out and openly advising the customer to commit fraud and how to do it. But in either of those situations the pretense that the working Joe said "oh, sure, self employed, lemme sign that" without knowing the game was afoot is just silly.

My understanding is that some of the time, it was more or less like this. The loan officers were orchestrating the situation and basically inducing people to commit fraud. But even in situations where they weren't, do you want to convict the kingpins in charge of a drug operation or spend a whole bunch of time convicting their customers on the street?