A Lump of Coal

Obama and Geithner: Government, Enron-style

Matt Taibbi, Rolling Stone

POSTED: December 20, 10:06 AM ET

The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.

Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Beyond that, as Jeff points out, Obama is simply not telling the truth about the supposedly insufficient penalties available to regulators. Employing the famous "mistakes were made" use of the passive tense, Obama copped out in his December 6 speech by saying that “penalties are too weak.” As Jeff points out, what Obama should have said is that “the penalties my own regulators chose to dish out were too weak”

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What makes Obama’s statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud.

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Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud!

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Obama and Geithner are engaged in the same sort of activity, only they’re trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer – and suffer, incidentally, on Barack Obama’s watch.

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(B)y taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they’re doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well.

The problem with companies like Lehman and Enron is that their executives always think they can paper over illegalities by committing more crimes, when in fact all they’re usually doing is snowballing the problem so completely out of control that there’s no longer any chance of fixing things, thereby killing the only chance for survival they ever had.

This is exactly what Obama and Geithner are doing now. By continually lying about the extent of the country’s corruption problems, they’re adding fraud to fraud and raising such a great bonfire of lies that they probably won’t ever be able to fix the underlying mess.

Too little, too late.

Nevada AG Masto Sues LPS for Document Fraud

By: David Dayen, Firedog Lake

Friday December 16, 2011 12:16 pm

LPS did commit the document fraud. But they did it on behalf of mortgage servicers. So you can figure out the next step up the chain here. Masto is closing in on the big banks in a similar fashion as Martha Coakley did in Masachusetts.

LPS stands accused of a “pattern and practice of falsifying, forging and/or fraudulently

executing foreclosure related documents.” Nevada is a non-judicial foreclosure state, so these documents typically were the ones sent to county recording offices. But they were used as the basis for the foreclosure, and the documents were indeed fraudulent. So these are wrongful foreclosures, and thousands of them. The suit alleges that LPS forced employees to notarize up to 4,000 of these fraudulent documents every day. To get this done, they demanded their employees engage in forgery, to keep up the speed on the document processing, and they had their employees notarize documents without knowing the underlying material or without even witnessing the original signing, which is the purpose of notarization.

And LPS lied about this, time and again, attributing the irregularities to “clerical errors” or other back office mistakes. Instead, this was policy. They cut corners to maximize profits and emphasize speed. And that included illegal document fraud.

Masto alleges other violations in the suit, including a kickback scheme whereby Nevadans paid for “attorney’s fees” that went right back to LPS. And by the way, this is not some fly-by-night organization; LPS is the industry leader in providing document processing for foreclosures. They do over half of all the foreclosure documents in the country. And nobody should believe that this sweatshop type of atmosphere was somehow limited to Nevada.

Masto asks in the suit for $5,000 per violation (remember they signed thousands of fraudulent documents every day) and $12,000 per violation if it was directed against an elderly or disabled person. Masto also wants a special monitor to “ensure that deceptive documents and practices are corrected and improper foreclosures are remediated.”

Harris Sues Fannie and Freddie for Information in Mortgage Investigation

By: David Dayen, Firedog Lake

Wednesday December 21, 2011 6:16 am

Kamala Harris, the Attorney General of California, sued government-sponsored enterprises Fannie Mae and Freddie Mac over information on foreclosures in California. Rather than the endpoint of the investigation, this is the beginning of it; Harris wants information out of Fannie and Freddie that they have so far been unwilling to provide.

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The lawsuits in foreclosure fraud all have their own specialized nature. Martha Coakley has taken on the big banks for stealing homes. Beau Biden sued MERS. Eric Schneiderman is focusing on securitization. Catherine Cortez Masto charged LPS with systematic document fraud. And now Harris has targeted Fannie and Freddie. This puts her in conflict with the FHFA, an independent agency that has at times acted on its own, suing 17 banks over representations and warranties claims and even sharing information between its inspector general and Schneiderman. An FHFA attorney said the volume of information Harris requested was “staggering” and questioned whether Harris had the ability to issue the subpoenas.

The importance of settling that question is obvious: if states can investigate Fannie and Freddie, even if they are under the auspices of a federal conservator, then they have access to the misdeeds of mortgage giants that currently own or guarantee over half of the market. The SEC did just bring civil fraud charges against former Fannie and Freddie CEOs and other executives on securities fraud, but Harris is looking into specific acts against borrowers in her state. If the subpoenas are upheld here, it could open the floodgates.

Meanwhile, there will be no settlement from Tom Miller and his crew by Christmas, as they miss yet another deadline. In fact, the banks are increasing their demands, essentially wanting immunity from CFPB regulations on past mortgage origination. So to those who say that we need a settlement to provide immediate aid to borrowers, well, there isn’t going to be any settlement, because the banks don’t want to give up more than a pittance and they want release from practically all liability.

Tom Miller Can’t Even Lie Well Anymore: Not Only No Deal By Christmas, As Promised, But Banks Upping Demands Even As Attorneys General Leave Table

Yves Smith, Naked Capitalism

Tuesday, December 20, 2011

We’ve commented previously on Tom Miller as the contemporary exemplar of what in the 1960s was called a credibility gap. Readers no doubt know that he is the lead negotiator on behalf of the state attorneys general in what was formerly called the 50 state attorney general [mortgage] settlement. (Notice separately how the state AGs are providing cover for several Federal banking regulators, HUD and the Department of Justice, which are also parties to this deal).

A partial recap: Miller started by promising criminal prosecutions, then reneged. He has refused to do investigations, then had the temerity to try to claim they took place). He said there would not be a big waiver on mortgage liability, when as we discussed, that was the only thing Miller & Co. could offer that would get a deal to the numbers he had unwisely committed himself to (north of $20 billion). And several state attorneys general have walked from the deal precisely because they object to the plan in motion: a big release for an impressive-sounding number, when they have an inadequate idea of how much questionable activity is being forgiven.