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Generational Dynamics Web Log for 23-Oct-2010
23-Oct-10 News -- Foreclosure crisis will cost $10 trillion

Web Log - October, 2010

23-Oct-10 News -- Foreclosure crisis will cost $10 trillion

William Black: Despite massive fraud by bankers, no one is being charged

Prof. William K Black on dereliction of duty by FBI

William K. Black is a professor at the University of Missouri, and was the senior regulator investigating the savings and loan crisis of the 1980s.

I've quoted him before, comparing today's investigations into the mortgage crisis to those he led in the early 1990s. He appeared on Bloomberg TV on Friday and made some remarks that are worth quoting.

Black says that the current mortgage crisis is 40 times as bad as the 1980s savings and loan crisis, in two different ways:

"First, the dollar losses to the public in the savings and loan crisis were roughly $150 billion. And most estimates of this crisis put it at around $10 trillion in losses overall.


William K. Black <font face=Arial size=-2>(Source: Bloomberg TV)</font>
William K. Black (Source: Bloomberg TV)

The second thing is the savings loan crisis didn't cause any macroeconomic disaster, didn't cause a recession, much less a great recession that came very close to being the second great depression."

Black says that the evidence is overwhelming that massive fraud has occurred:

"This is a crisis that we know empirically involved million of fraudulent mortgages being made. We know that the losses are out there. We know that the industry extorted FASB to gimmick the accounting rules, so they didn't have to recognize the losses. We know that the Fed has huge positions as collateral in these fraudulent mortgages. We've seen the Fed, Ambac, Fannie, Freddie, Pimco, Blackrock -- all pulling back after investigating tens of billions of dollars of mortgages, and saying, these were sold under false representations and warranties -- frauds, and absolutely no one has gone to jail for it."

This is really an amazing charge, though it's not surprising. It's amazing because Black backs it up with plenty of evidence, and it's not surprising because we've known for a long time that something like this was coming.

Black also gives some amazing statistics about criminal convictions:

"And the problem is we have zero criminal referrals out of most of the regulatory agencies. In comparison in the savings and loan debacle again - maybe 1/40th of the size -- we had thousands of criminal referrals, we got over a thousand priority felony convictions of the elites - these are not the little tellers, the vice presidents -- these are the top people at the savings and loans.

There are NONE now. The regulators have to serve as the sherpas to have successful criminal prosecution. We've got to do the heavy lifting, and we have to do the guide function, because the FBI can't possibly do this on its own.

Next thing that has to be done - the FBI formed a partnership with the Mortgage Bankers Association -- that's the trade association of the perps."

This shows the difference between the Silent generation, who were still in charge at the time of the S&L crisis, and the Boomers and Gen-Xers, who are in charge today. Thousands of people were charged and convicted in the S&L crisis, while NOBODY is being charged and convicted in today's crisis, which is 40 times larger.

I wanted to check out Black's last sentence -- about the FBI forming a partnership with the Mortgage Bankers Association (MBA), which he calls the trade association of the perpetrators. I found references to it on the FBI web site and the MBA web site.

Both of these references continued the evidence of a bizarre farce. The people in the FBI and MBA who are dealing with this problem are incompetent criminals themselves.

The original March 2007 notice on the FBI web site says that:

"Today the FBI and the Mortgage Bankers Association (MBA) entered into an agreement to combat Mortgage Fraud. The FBI and the MBA will make available a Mortgage Fraud Warning Notice as a proactive means of educating consumers and mortgage-lending professionals of the penalties and consequences of this criminal activity."

I had to read this three or four times before I could convince myself that I was understanding what I was reading. The FBI and MBA are combatting mortgage fraud by allowing a one-page FBI notice to be used by the MBA for educational purposes. Click here for a PDF of the notice.

Are we dealing with children here? Do these people think that a one-page notice is actually going to make some difference?

Next, the MBA site has a page on mortgage fraud that contains a reference to the same agreement.

Here's the definition of mortgage fraud:

"Mortgage fraud is defined as material misrepresentation intentionally providing false information to deceive or mislead a lender into extending credit beyond the limits of what would normally be extended if the facts were known. Information or documentation is considered false if there is clear and convincing data that the information or documentation lacks truth or accuracy."

You can see here why Black is condemning this ridiculous agreement.

This definition of "mortgage fraud" makes the bankers into the victims, when they're the principal perpetrators.

I don't know what to say about all this, Dear Reader. I'd like to come up with some reasonable explanation, but all of this is so completely preposterous that there are no words to describe it.

All I can say is that we're dealing with crooks at the FBI and crooks at the MBA.

You can see why there were thousands of criminal referrals in the savings and loan crisis, but ZERO criminal referrals in the current crisis, as Black says.

As I've been saying for years, the circumstantial evidence indicates that there must have been massive fraud by banks. The banksters who created structured securities that became "toxic assets" are claiming that they didn't know that real estate prices would ever fall. Well, that excuse may be valid for the years 2002-2005, and part of 2006, but by then it was clear that the real estate bubble was bursting, and there was at least reasonable doubt that the computerized models were wrong. But instead of warning investors of these doubts, the banksters redoubled their efforts in 2007 to sell as much as possible before the game was up.

Then, as I described in "Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud," the Financial Crisis Inquiry hearings showed that the computerized models for the creation of the structured securities were based on assumptions that were mathematically impossible, once again providing evidence of massive criminal fraud.

Then in yesterday's posting, "22-Oct-10 News -- Foreclosure mess turns into a major crisis," I discussed increasing evidence that bank employees -- now called "robo-signers" -- never bothered to read mortgage documents they were signing: either the mortgage approvals in the 2005-2008 time period, or the mortgage foreclosures in the 2008-2010 time period.

Now, William Black is providing even more circumstantial evidence of massive fraud. Companies like Ambac and Pimco are rejecting mortgage-based securities because they've investigated the underlying mortgages and found them to be fraudulent.

And yet, as Black points out, the FBI is in bed with the Mortgage Bankers Association, the people who committed the fraud, with the result that not a single criminal referral has been made.

And you can see why the Boomers and Gen-Xers are so incompetent, greedy and nihilistic compared to the people in the Silent generation. I've been saying for years that the current crisis is caused by the unique relationship between the greedy, nihilistic, destructive Generation-Xers and their bosses, the greedy, incompotent Boomers.

It seems that every few days something new comes out to prove that that statement was no exaggeration. People in the past accused me of exaggerating in many of the things that I said, but as events are unfolding today, it's obvious that what's going on in the world is far worse than even the very pessimistic picture I painted in the past. It's really sickening.

(Comments: For reader comments, questions and discussion, see the 23-Oct-10 News -- Foreclosure crisis will cost $10 trillion thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Oct-2010) Permanent Link
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