The momentum building against the continued cover-up of widespread foreclosure fraud by the big banks and their associated agents is a wonder to behold. The progressive blogosphere is afire with posts about the frauds and calls for justice. Just today, Yves Smith at Naked Capitalism had three recent items on the subject. Professor L. Randall Wray offered a great post at Credit Writedowns. FDL has offered numerous posts on the subject over a period of months and has a page of links to these articles. Coverage at HuffPo has been fulsome, including a recent post by R. J. Eskow that offers a “home loan moral hazard scorcecard”.
Now, partly in reply to discussions at FDL, the most comprehensive and important piece I’ve seen yet was written by Professors William K. Black and L. Randall Wray and posted at HuffPo. It is a two-part piece. I’ll comment on Part 1 here, and Part 2 in a future post. The series “Foreclose the Foreclosure Frauds,” is a call for justice, an outline of steps for getting it, and (in Part 2) a consideration of objections to their prescriptions. Here are some quotes from Part 1, and comments on each.
First, it is time to stop the foreclosures until the banks and servicers adopt corrective steps, certified as adequate by FDIC, that will prevent all future foreclosure fraud. They must also adopt plans to remedy the injuries their foreclosure frauds have already caused, and assist the FBI, Department of Justice, and legal ethics officials investigations of their officers’ and attorneys’ frauds and ethical violations.
Second, it is time to place the financial institutions that committed widespread fraud in receivership. We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud. We should prioritize the receiverships to deal with the worst known “control frauds” among the “systemically dangerous institutions” (SDIs). The SDIs’ frauds and fraudulent leaders endanger the global economy.
Bill Black and Randy Wray are calling for comprehensive fix of the 12 most systemically dangerous institutions beginning with the largest, Bank of America. After outlining the extent of the fraud perpetrated by Countrywide now a Bank of America subsidiary, and pointing out BoA’s responsibility for and continued cover-up of the frauds, they say:
Bank of America chose to purchase Countrywide at a point when it – and its senior leaders — were infamous. Bank of America made some of these Countrwide leaders its senior leaders. Yet, Bank of America is not treated as a criminal entity. Obama, Holder, Donovan, and Barr cannot even bring themselves to use the “f” word – fraud. They substitute euphemisms designed to trivialize elite criminality. The administration officials do not call for Bank of America to be the subject of a criminal investigation. They do not demand that Fannie, Freddie, Ambac, the FHFA, and Pimco file criminal referrals about Countrywide’s frauds. They do not demand that Fannie, Freddie, and the Fed refuse to purchase or take as collateral any mortgage instrument from Bank of America. No one at the Harvard club in New York moves to kick Bank of America’s officers out of their club! The financial media treats Bank of America as if it were a legitimate bank rather than a “vector” spreading the mortgage fraud epidemic throughout much of the Western world.
For the sake of our (and the global) economy, our democracy, and our souls this willingness to allow elite control frauds to loot with impunity must end immediately. The control frauds must be taken down and their officers removed promptly. Receivership is the way to begin to reclaim our souls, our economy, and our democracy and Bank of America has the track record that makes it a good place to start. It is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable.
It is not fashionable in recent US Administrations to talk about our souls, or to call for justice. But nevertheless, no society, and especially not American society can continue to deny the imperative for achieving a modicum of justice. In the past that has led to civil war and in the future it can have similarly dire consequences. The United States is now subordinating justice to pragmatism, in international relations, issues of torture and accountability, issues of illegal spying by the Government and corporations on Americans, issues of Gay civil rights, issues of immigration, issues of economic policy where the interests of Wall Street are put before Main Street, issues of health insurance, where the needs of insurance companies are placed ahead of the need for health care of many millions of out citizens, and in the area of foreclosures where the Administration is doing all it can to avoid enforcing the law against those complicit in widespread fraud. This general subordination of the need for justice to other lesser needs is fomenting anger, cynicism, and frustration everywhere.
Democratic politicians profess to be puzzled about why people don’t recognize all the current Democratic Congress has done for them. But, if, in fact, they are puzzled, and not just lying about it, then this only reflects on how out of touch they are.
There is not one big issue area in which Congress has acted in the past two years where their legislative outcomes have been fair to the middle class and to working people generally. And that’s why people are so unhappy. Not because they’re stupid. Not because they’re ignorant. And not because their understanding of Washington is deficient.
It is just true that Administration and Democratic efforts in bailing out the banks, passing the stimulus bill, passing the credit card reform bill, passing its health care reform and its finreg bills, and continuing unemployment insurance for the long-term unemployed, have all ended in unjust legislative outcomes. People know that. They can sense and see the basic unfairness of the system and its bias toward those who are wealthy and powerful at the expense of other Americans.
Now comes the foreclosure frauds into public consciousness, and instead of enforcing the law and pursuing justice, the Administration is proving once again that it doesn’t give a damn about what is right and what is just – only what is best from its highly questionable pragmatic point of view. One aspect of that is whether taking the big banks into receivership can be done. Bill and Randy say:
Appointing a receiver for an SDI will be a major undertaking for the FDIC, but it is also well within its capabilities. Contrary to the scare mongering about “nationalizing” banks, receivers are used to returning failed banks to private ownership. Receiverships are managed by experienced bankers with records of competence and integrity rather than the dread “bureaucrats.” We appointed roughly a thousand receivers during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush.
Here is how it works. A receiver is appointed on Friday. The bank opens for business as normal (from the bank’s customers’ perspective) on Monday. The checks clear, the ATMs work, and the branches all open. The receiver’s managers direct the business operations, find the true facts about the bank’s operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted.
The receiver is also a well proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations.
If anybody knows whether taking banks into receivership is practical and feasible, it is Bill Black. His efforts in resolving the Savings and Loans problems of the 1980s have made him one of the most knowledgeable people about the practical details about taking banks into receivership and working through their problems. More on what the banksters did that makes receivership necessary:
This nation’s most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth – and working class families’ savings – at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.
Nothing short of removing all senior officers that directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed “fraud in the inducement”—only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done—so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.
We simply cannot tolerate fraud of this magnitude in the FIRE sector. If we let this go, if we do not produce justice quickly and definitively, no one will ever trust that sector again. The fear, anger, hatred, and feelings of illegitimacy that are resulting from the Administration’s refusal to handle the widespread fraud will consume the American political system and threaten to bring the whole system down.
Lincoln told us that “A House Divided Cannot Stand.” There cannot be two laws in this country. One for the banksters, the fraudsters, and the Wall Street big shots, and one for the rest of us. There must be only one law. Only Justice! It is long past time for this Administration to seek it. If it doesn’t, it will be violating its oath of office, and providing grounds for impeachment.
In a future post, I’ll comment on Bill Black and Randy Wray’s discussion of objections to their proposal.
(Cross-posted at FireDogLake and Correntewire.com).