Tag: Fraud

Subverting the rule of law? How dare I? Well the 4th amendment, due process, kill lists, and the NDAA also speak to my title. Yes, they speak to it despite those that decided politicians were more important than the principles they pretended to have in 2004 now outed as hypocrites mostly. However, that being said, I’m talking about subverting the rule of law in a different way but equally as damaging on the economic front.

After all, it was at the SOTU merely just a year ago that President Obama assured us that something was going to be done about the Wall St. perpetrators of our mortgage and foreclosure crisis. This was a crisis in which they defrauded consumers with sub-prime NINJA loans pumping up the housing bubble and then dumping the private debt overhang onto the economy destroying over 10 trillion in housing wealth. This left consumers with massive loads of private debt and everyone else jobless like this recovery.

This White House’s DOJ has made a complete mockery of the concept of Justice in and of itself. That illusion of Justice is perpetuated to this day and normal people are devastated because of it. Let President Obama know you are not amused. I have.

The former special inspector-general of the troubled asset relief program (TARP), Neil Barofsky says that it is time for a “post mortem” analysis former Treasury Secretary Timothy Geithner’s doctrine, the preservation of large banks, the largesse of Wall St. and the perversion of of the US criminal justice system. In this article posted at naked capitalism, Mr. Barofsky looks at the effect of the “Geithner Doctrine” and the weak response to the LIBOR scandal:

The recent parade of banking scandals, such as the manipulation of Libor rates by Barclays, Royal Bank of Scotland and other major banks, can be traced back to the lax system of regulation before the financial crisis – and the weak response once disaster struck.

Take the response of the New York Federal Reserve to Barclays’ admission in 2008 that it was submitting false Libor rates and was not alone in doing so. Mr Geithner’s response was to in effect bury the tip. He sent a memo to the Bank of England suggesting some changes to the rate-setting process and then convened a meeting of regulators where he reportedly described only the risk but not the actual manipulation of the rate. He then put the government imprimatur on the rate via bailout programmes. His inaction helped permit a global crime to continue for another year.

When it was UBS’s turn to settle its Libor charges, even though a significant amount of the illegal activity took place at the parent company level, only a Japanese subsidiary was required to take a plea. Eric Holder, US attorney-general, demonstrated his embrace of the Geithner doctrine (a phrase coined by blogger Yves Smith) in explaining the UBS decision. He said that a more aggressive stance against the parent company could have a negative “impact on the stability of the financial markets around the world”.

This week we saw the latest instalment of the saga. In fining RBS £390m, the DoJ only indicted one of the bank’s Asian subsidiaries, avoiding the more damaging result that would have stemmed from charging the parent company.

Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail.

There are no meaningful consequences for this criminality. The fines with a promise not to do this again are just a game to allow the banks to continue the fraudulent conduct and find better ways to cover it up. Mr. Barofsky concludes that we must ditch the “Geithner Doctrine” to end “the game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.”

o reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all.

In an extended interview with “The Daily Show“ host Jon Stewart, Mr. Barofsky discussed the double standards of the TARP program and the alien culture of Washington DC and explains why the banks will never face true justice..

“Too big to fail” now according to the Justice Department, “too big to jail.” The PBS news series, Frontline “investigates why Wall Street’s leaders have escaped prosecution for any fraud related to the sale of bad mortgages” in its presentation of “The Untouchables.”

Phil Angelides was chairman of the Financial Crisis Inquiry Commission, which was created by Congress in 2009 to investigate the causes of the crisis. In its report, submitted in January 2011, the commission concluded that the crisis was avoidable, a result of excessive risk taking, failures of regulation and poorly prepared government leaders. This is the edited transcript of an interview conducted on Oct. 11, 2012.

Lanny Breuer serves as assistant attorney general for the Department of Justice’s Criminal Division. He told FRONTLINE that when fraud from the financial crisis has been detected, the Department of Justice has pursued charges. “But when we cannot prove beyond a reasonable doubt that there was criminal intent, then we have a constitutional duty not to bring those cases,” Breuer said. This is the edited transcript of an interview conducted on Nov. 30, 2012.

The Justice Department’s initial response to the financial crisis did not take long to materialize. In June 2008, three months before the Lehman Brothers collapse, the department brought its first criminal case, charging two former Bear Stearns executives with securities fraud for their alleged roles inflating the housing bubble.

A little more than a year later, a jury found the executives not guilty, dealing the DOJ an early setback. Since then, government investigations into the crisis have almost exclusively centered on civil charges, which requires prosecutors establish guilt beyond a preponderance of the evidence. The bar is higher in criminal cases, requiring they prove guilt beyond a reasonable doubt.

Here are 10 of the most prominent of those cases to date. In nearly all, the government won multi-million dollar settlements, but the companies and officials involved were not required to admit wrongdoing.

The federal rescue of Wall Street didn’t fix the economy – it created a permanent bailout state based on a Ponzi-like confidence scheme. And the worst may be yet to come

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you’d think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we’ve been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?

Wrong.

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

Up Date: After his appearance on “Frontline”, Yves Smith at naked capitalism delightedly announced the news that Lanny Breuer, former Covington & Burling partner and more recently head of the criminal division at the Department of Justice, had his resignation leaked today.

Never mind resign, why hasn’t Obama fired him?

Last summer it was revealed that one of the world’s largest banks based, HSBC, base in Britain, had been laundering billions of dollars for Mexican drug cartels and skirting US government bans against financial transactions with Iran and other countries that aid Al Qaeda and other terrorist groups. In a stunning move during a hearing before the  Senate Permanent Subcommittee on Investigations chief compliance officer, David Bagley, took the blame and resigned.

Last week the federal government and New York State announced a settlement with HSBC:

In a filing in Federal District Court in Brooklyn, federal prosecutors said the bank had agreed to enter into a deferred prosecution agreement and to forfeit $1.25 billion. The four-count criminal information filed in the court charged HSBC with failure to maintain an effective anti-money laundering program, to conduct due diligence on its foreign correspondent affiliates, and for violating sanctions and the Trading With the Enemy Act.

“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” Lanny A. Breuer, the head of the Justice Department’s criminal division, said in a statement. [..]

HSBC, based in Britain, has also agreed to pay the Office of the Comptroller of the Currency, one of the bank’s central regulators, an additional $500 million as part of a civil penalty. The Federal Reserve will be paid a $165 million civil penalty. [..]

HSBC also entered into a deferred prosecution agreement with the Manhattan district attorney’s office. As part of that agreement, HSBC admitted that it violated New York State law.

Just like the mortgage and banking fraud that was uncovered during the financial crisis, there will be no criminal charges. The fines that were levied are tantamount to about five weeks of income for the bank. Contributing editor for the Rolling Stone, Matt Taibbi points out the outrageous incongruity of this settlement:

If you’ve ever been arrested on a drug charge, if you’ve ever spent even a day in jail for having a stem of marijuana in your pocket or “drug paraphernalia” in your gym bag, Assistant Attorney General and longtime Bill Clinton pal Lanny Breuer has a message for you: Bite me. [..]

The banks’ laundering transactions were so brazen that the NSA probably could have spotted them from space. Breuer admitted that drug dealers would sometimes come to HSBC’s Mexican branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.”

This bears repeating: in order to more efficiently move as much illegal money as possible into the “legitimate” banking institution HSBC, drug dealers specifically designed boxes to fit through the bank’s teller windows. [..]

Though this was not stated explicitly, the government’s rationale in not pursuing criminal prosecutions against the bank was apparently rooted in concerns that putting executives from a “systemically important institution” in jail for drug laundering would threaten the stability of the financial system. The New York Times put it this way:

   Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. [..]

So there is absolutely no reason they couldn’t all face criminal penalties. That they are not being prosecuted is cowardice and pure corruption, nothing else. And by approving this settlement, Breuer removed the government’s moral authority to prosecute anyone for any other drug offense. Not that most people didn’t already know that the drug war is a joke, but this makes it official.

Apparently this settlement has garnered some bipartisan concerns from Senators Jeff Merkley (D-OR) and Charles Grassley. In separate statements released from their offices, they criticized the Justice Department for not sending a stronger message to the banking industry. Sen. Grassley said it best:

   The Department has not prosecuted a single employee of HSBC-no executives, no directors, no AML compliance staff members, no one. By allowing these individuals to walk away without any real punishment, the Department is declaring that crime actually does pay. Functionally, HSBC has quite literally purchased a get-out-of-jail-free card for its employees for the price of $1.92 billion dollars.

   There is no doubt that the Department has “missed a rare chance to send an unmistakable signal about the threat posed by financial institutions willing to assist drug lords and terror groups in moving their money.” One international banking expert went as far as to argue that, despite the “astonishing amount of criminal behavior” from HSBC employees, the DPA is no more than a “parking ticket.”

But, as David Dayen at FDL News notes there are crickets from certain key senators:

Matt Stoller makes a very good point here: where is Patrick Leahy on this? He has made no public statement on the HSBC case, despite being the co-author of the Fraud Enforcement and Recovery Act, which was supposed to deliver funds toward prosecuting fraudulent big bank activity (it never actually did). Grassley, a co-author, has spoken out. Why not Leahy?

Matt Taibbi sat down with Amy Goodman and Juan Gonzalez at Democracy Now to discuss the settlement:

Transcript can be read here

Now, not only are the banks “too big to fail“, they are “too big to jail.”

The the second half a web exclusive interview, Neil Barofsky, the former Special Inspector General for the U.S. Troubled Asset Relief Program (TARP), talks with Bill Moyers. They discuss, what Mr. Moyes described as the “incestuous orgy” that is going on between the banks and the federal government, the need to tackle banking reform and the real possibility of another financial collapse.

The first part of the interview is here

The transcript is here.

Surprise, surprise. As reported in the New York Times Dealbook, John Corzine, former New Jersey Senator, Governor and CEO of the now defunct MF Global, has been given a pass by Attorney General Eric “It’s too hard” Holder for defrauding investors of about $1 billion.

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

The hurdles to building a criminal case were always high with MF Global, which filed for bankruptcy in October after a huge bet on European debt unnerved the market. But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives. Just a few individuals – none of them top Wall Street players – have been prosecuted for the risky acts that led to recent failures and billions of dollars in losses. [..]

Over at FDL, here is masacchio‘s take on those damned “high hurdles” that the “jury” of Justice Department Wall St. cronies can’t seem to leap:

And by jury, I mean the candy ass prosecutors at the Department of Justice, who have made an in-house decision that it’s just too hard to indict anyone at MF Global, including friend of Barack Jon Corzine, for stealing billions of customer dollars. It’s just impossible that a friend of Eric Holder’s could be found to be criminally responsible for allowing a company to steal money from its customers to give to its bank, especially when the bank is the much-loved JPMorgan Chase. After all, the Department of Eric Holder is made up of peers of the MF Global crowd, so it’s just like a real trial.

These chicken-shits have been telling reporters from the beginning that there were really high hurdles to prosecution, as if this were some sort of Olympic event. They tell the reporters that “chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear”. The billions in losses were beyond human control, and nothing can be done, a phrasing which perfectly mirrors DOJ’s passivity in the face of one of the biggest heists in history.

It’s just too hard to investigate fraud. Investors are so screwed.

The fines that are being levied against banks and companies for investment fraud, fraudulent advertising, money laundering and the like are large but come nowhere near the cost to tax payers and investors. Since these fines are but a fraction of the profits that these criminals reap, the fines won’t deter them from repeating the offense. Nor does it help that as part of the settlement the company and its employees are let off the hook for criminal wrongdoing.

Glaxo Agrees to Pay $3 Billion in Fraud Settlement

In the largest settlement involving a pharmaceutical company, the British drugmaker GlaxoSmithKline agreed to plead guilty to criminal charges and pay $3 billion in fines for promoting its best-selling antidepressants for unapproved uses and failing to report safety data about a top diabetes drug, federal prosecutors announced Monday. The agreement also includes civil penalties for improper marketing of a half-dozen other drugs. [..]

Part of the civil settlement also includes claims that the company overcharged the government for drugs. Glaxo did not admit any wrongdoing in the civil settlement.

Despite the large amount, $3 billion represents only a portion of what Glaxo made on the drugs. Avandia, for example, racked up $10.4 billion in sales, Paxil brought in $11.6 billion, and Wellbutrin sales were $5.9 billion during the years covered by the settlement, according to IMS Health, a data group that consults for drugmakers.

In the New York Times article, Patrick Burns, spokesman for the whistle-blower advocacy group Taxpayers Against Fraud, stated, “So a $3 billion settlement for half a dozen drugs over 10 years can be rationalized as the cost of doing business.” Also, Eliot Spitzer, former New York State Attorney General who sued GlaxoSmithKline in 2004 over allegations about the drug Paxil, was quoted as saying that “What we’re learning is that money doesn’t deter corporate malfeasance, The only thing that will work in my view is C.E.O.’s and officials being forced to resign and individual culpability being enforced.”

In another case, Morgan Stanley, an international investment firm, has agreed to pay a fine of $4.8 million with no admission of wrongdoing for electricity price-fixing said to cost consumers $300 million. Justice department officials said that it sends a message to the banking industry. What message would that be?

The government said the arrangement allowed KeySpan to withhold substantial electricity generating capacity from the market, driving prices higher for consumers, and generated $21.6 million of net revenue for Morgan Stanley.

U.S. District Judge William Pauley in Manhattan said he shared the concerns of state officials and the AARP, a nonprofit serving people 50 and older, that any settlement should have reflected the harm to consumers and forced Morgan Stanley to give up the $21.6 million.

“Given the government’s stark allegations of manipulative conduct against Morgan Stanley, disgorgement of $4.8 million is a relatively mild sanction,” Pauley wrote. “There is a risk that a large financial services firm like Morgan Stanley could view such a modest penalty as merely a cost of doing business.

“But despite this court’s misgivings, the government’s decision to settle for less than full damages is entitled to judicial deference, particularly in view of the novelty of the government’s theory.”

The judge also rejected the AARP argument that the $4.8 million be returned to consumers, in part because sending it instead to the U.S. Treasury served the public interest.

So the consumers are left holding the bag, particularly the financially stressed elderly and poor, while the Morgan Stanley and Keyspan continue business as usual concocting new ways to break the law.

If whistleblowers can reveal it, why can’t the government prosecute it? The claim by the Obama administration that it’s too hard to find the evidence to pin on an individual just rings too hollow. It may be hard but it is possible with subpoenas and little more effort. It is well past time we held the criminals responsible for breaking the laws and stop prosecuting those who expose it.

Extractionism: taking money from others without creating anything of value; anything that produces economic growth or improves our lives.

MSNBC talk show host, Dylan Ratigan has a new book, Greedy Bastards, coming out in January and has been promoting the premise of the book, how the banks have shaken down taxpayers, in a series of on-line pod casts. He recently interviewed Yves Smith, author of ECONned and proprietress of naked capitalism, gave Dylan an education of how the banks have been extracting capital for themselves and why investors are afraid to take them to court for fear the government will retaliate.

Under an extractionist system, we find lose value at a faster rate over time, while we need to be creating it.  Instead of giving people incentives to make good deals where both sides can benefit, extractionist systems rewards those who take and take some more, and give nothing in return.  Sadly, extractionism has crept its way into every aspect of our economy – it’s everywhere, from trade to taxes to banking.

Let’s take a look at banking as an example.  As Yves Smith explains, financial firms do provide valuable services to our economy, like establishing stable and reliable methods of payment for goods and services, and selling bonds and stocks to help raise new money to fund big projects. There are more than that, of course, but those are two basic examples of valuable services that our banking and financial sector provides.

Now, let’s look at how they can also be extractive – almost always going back  the lack of transparency in the financial markets.

Yves identifies two main extractive techniques of our financial industry.  The first is charging too much for goods or services. “Even fairly sophisticated customers can’t know what the prices are of many of the products, so it’s difficult for them to do side-to-side comparisons,” says Yves.

The second method is producing products that are so complicated – like in the swaps market – that clients can’t see hidden risk in them.  “This has unfortunately become extremely common now that we have a lot more use of derivatives. Many of the formulas that are used they are disclosed by they are extremely complicated, and then on top of that, the risk models that are commonly used for evaluating the risk actually understate the risk,” says Yves.

(emphasis mine)

In the interview Yves makes suggestions how this can be fixed:

1. A small tax on all financial transactions.

2. Give financial institutions a bigger financial responsibility when they knowingly recommending bad products or dubious strategies.

3. We need increased political pressure for an effective and robust Securities and Exchange Commission.

4. More inspection of what the banks are doing in their over-the-counter businesses.

The full interview transcript is here.

Yes, we do need a Constitutional amendment to get money out of politics so this can be stopped.

h/t Yves Smith @ naked capitalism

Poor Goldman Sachs. According to Megan McArdle, one of the Atlantic Monthly’s Wall St apologists, argued on CNN’s Your Money in a debate with Rolling Stone’s Matt Taibbi that the laws were too confusing and it would be too hard to figure out ig they did anything wrong. While conversely,  she insinuates that those who the toxic assets were sold to should have known what they were buying. Let’s blame the victims.  Megan even admits that she hasn’t read all the documents while Taibbi has. How does Megan have any credibility on this is beyond comprehension. Here are some of the “high” points from the transcript of the video:

MCARDLE: What we have to do is disclose. It’s perfectly legal for a dealership to sell me a car I’m not going to like or that’s too expensive for me. It’s not legal for them to sell me a car that’s not what they represented it as.

And we set certain legal minimum standards and that’s what happened here. At least, John Losera and all the devils who are here argues that he actually has gone through these documents and says that a lot of these things were disclosed. That in fact Goldman laid out in very lengthy detail all of the ways in which this could go wrong. I haven’t read the disclosure documents personally.

TAIBBI: I have.

MCARDLE: There are two competing versions of the story.

VELSHI: Matt, you’ve read them?

TAIBBI: Well, I’ve read all the documents in this report and I’ve also talked to some of the principals in this entire story. I definitely know some of the client that is Goldman was talking about were completely blindsided by the fact that, for instance.

They were buying assets out of Goldman’s own book when they were told that Goldman was buying these assets off the street. They definitely did not make key disclosures that they were legally obligated to make.

The People vs. Goldman Sachs

By Matt Taibbi

A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges

They weren’t murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn’t leave much doubt: Goldman Sachs should stand trial.

What’s so hard to fathom, Megan? They committed fraud and then lied about the fraud. Lloyd Blenkenfein isn’t too big for a cell next to Bernie Madoff. The Justice Department and Eric Holder needs to get its act together.

So yesterday I highlighted Black and Wray’s counter response to Bank of America and today Part 2 is available, but before I get to that I’d like to provide some context.

You’ll remember that PIMCO, Blackrock, Freddie Mac, and The Federal Reserve Bank of New York had requested that Bank of America repurchase some $47 Billion Mortgage Backed Securities that violated the performance and disclosure provisions of the contracts they were sold under.  You might also recognize these names as financial players every bit as big and powerful as Bank of America itself.

Well, yesterday BoA rejected that request.  As Atrios says- It’s On.

But you shouldn’t think that Bank of America is the only one with these problems.  Although it is the biggest, JPMorgan Chase & Co, Wells Fargo & Co, Citigroup Inc, US Bancorp and PNC Financial Services Group have $43 Billion or more in exposure to the same types of losses.

While some of Black and Wray’s Part 2 touches on that exposure, what it’s mostly about is the story of Bank of America’s purchase of Countrywide Financial.

An interesting factoid about BoA’s purchase of Countrywide (from the Jonathan Weil, Bloomberg article cited yesterday)-

Here’s how Bank of America allocated the purchase price for that deal. First, it determined that the fair value of the liabilities at Countrywide exceeded the mortgage lender’s assets by $200 million. Then it recorded $4.4 billion of goodwill, a ledger entry representing the difference between Countrywide’s net asset value and the purchase price.

That’s right. Countrywide’s goodwill supposedly was worth more than Countrywide itself. In other words, Bank of America paid $4.2 billion for the company, even though it thought the value there was less than zero.

Since completing that acquisition, Bank of America has dropped the Countrywide brand. The company’s home-loan division has reported $13.5 billion of pretax losses. Yet Bank of America still hasn’t written off any of its Countrywide goodwill.

What genius!  Surely these Masters of the Universe are worth every penny they’re paid, but, it being a free market capitalist system and all, I can’t help myself from pointing out that I personally am willing to lose $17.7 Billion for a much more reasonable rate of compensation.  Since they’re great believers in the efficiency of markets I expect an offer any time.

Let’s Set the Record Straight on Bank of America, Part 2: Eliminating Foreclosure Fraud

William K. Black and L. Randall Wray, The Huffington Post

Posted: November 5, 2010 01:23 PM

Bank of America did not purchase Countrywide for the good of the public. It purchased a notorious lender to feed the ego of their CEO, who wanted to run the biggest bank in America rather than the best bank in America. They certainly knew at the time of the purchase that is was buying an institution whose business model was based on fraud, and it had to have known that a substantial portion of Countrywide’s assets were toxic and fraudulent (since Bank of America’s own balance sheet contained similar assets and it could reasonably expect that Countrywide’s own standards were even worse). The response does not contest the depth of the bank’s insolvency problems should it be required to recognize its liability for losses caused by its frauds.

…

Bank of America’s response to our articles ignores its foreclosure fraud, which we detailed in our articles. News reports claim that the bank sent a 60 person “due diligence” team into Countrywide for at least four weeks. The Countrywide sales staff were notorious, having prompted multiple fraud investigations by the SEC and various State attorneys general. The SEC fraud complaint against Countrywide emphasized the games it played with the computer system. Countrywide had a terrible reputation for its nonprime lending. Nonprime loans were already collapsing at the time of the due diligence, the FBI had warned about the epidemic of mortgage fraud, and the lending profession’s anti-fraud firm had warned that liar’s loans were endemically fraudulent. Is it really possible that Bank of America’s due diligence team missed all of this and that the CEO thought even months later that the Countrywide lending personnel and Countrywide’s computer systems were exceptionally desirable assets?

…

As we explained, fraud begets fraud. Bank of America created over $4 billion in “goodwill” and placed it on its books as an asset when it paid money to acquire Countrywide at a time when it was deeply insolvent on a market value basis. Instead of acquiring an asset, they got thousands of fraudulent employees and officers, a failed computer system and catastrophic losses. So, we have a question for Bank of America, its auditors, and the SEC: why haven’t you written off that entire goodwill account?

And why aren’t people in jail or bankrupted by shareholder and bondholder lawsuits (yet)?

Obama’s Problem Simply Defined: It Was the Banks

James K. Galbraith, The Huffington Post

Posted: November 5, 2010 04:16 PM

(O)ne cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

…

With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed — until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. And anyway, who could qualify? Businesses mostly had no investment plans. And homeowners were, to an increasing degree, upside-down on their mortgages and therefore unqualified to refinance.

…

To counter calls for more action, Team Obama produced sunny forecasts. Their program was right-sized, because anyway unemployment would peak at 8 percent in 2009. So Larry Summers said. In making that forecast, the Obama White House took responsibility for the entire excess of joblessness above eight percent. They made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage.

Remember “Recovery Summer(s)“?  Nothing has changed.  And until people go to jail for their fraud and the “To Big To Fail” Banks are placed into FDIC Receivership, their incompetent management tossed out on their asses, and broken up, nothing will.

Barack Hussein Obama and the Democratic Party have no one to blame but themselves.