Thursday, May 19, 2011

The Mother of All Nightmares

This is the last post, for a little while, I promise, ;) about the shenanigans of Wall Street finance but one most admit, the subject is truly fascinating considering just how Byzantine and corrupt this environment truly is. In  The Jig is Up... , post, a blurb about Eric Schneiderman's intent to bring to justice the largest mortgage lenders (BOA, Wells Fargo, etc., etc.) was quoted. Here, Matt Tiabbi details Schneiderman's approach, something akin to how skillfully Freddy Krueger of Nightmare on Elm Street fame, dispatches his victims, may be coming to Goldman, Morgan Stanley and BOA, among significant others, in America's morality play of 2011.

"This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons. For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era. Again, the business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.

The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers? Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were? And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans? In other words, did the banks finance the fraud in addition to brokering it?"

What comes to mind when writing about "high" finance is the fact the web enables one to actually see how the rich and the powerful have, in fact, gamed the system for eons. Prior to this tech, hearsay and articles written by courageous investigative reporters would bring these actions to light but now, the dirty laundry comes out in drips and drabs due to the ability for the entire world to search and locate juicy tidbits like the one Tiabbi has researched concerning one prosecutor who has the guts to go after the most venal of organizations who have, in fact, defrauded the entire world.

The Esteemed Freddy Kruger
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