The Scandal That Won't Go Away

Despite the efforts of our public officials and bankers to ignore it, downplay it, paper it over or make it disappear, the fraud surrounding the mortgages at the heart of the financial collapse is the scandal that won’t go away.

Two big stories breaking over the past week showed what strong legs the scandal has. First, Huffington Post reported on a series of confidential audits that showed five of the country’s largest mortgage companies defrauded taxpayers in their handling of foreclosures on homes purchased with government-backed loans.

Then the New York Times and others trumpeted an investigation of the mortgage securitization process by New York’s new state attorney general, Eric Schneiderman. This investigation won strong praise from two of the toughest watchdogs on the financial beat, Matt Taibbi at Rolling Stone and Robert Scheer at Truthdig, who portrayed Schneiderman as a hared-charging prosecutor who unlike the feds and other state attorney generals, is not intimidated by Wall Street.

But Reuters financial blogger Felix Salmon argued that confidential audits, which were turned over to the Justice Department were a much bigger story than Schneiderman’s investigation.

Until Schneiderman’s investigation bear some fruit, I think history suggests we should be skeptical of officials who claim they are going to get tough on the banks and protect consumers.

Salmon pinpoints the real significance of the Schneiderman investigation – the continuing cracks in the state attorney general’s 50-state coalition that was negotiating with the banks to settle claims of mortgage fraud. Some Republicans had already criticized the state attorney generals for being too tough on the banks, referring to a proposed settlement as a shakedown. Other critics have raised questions about whether the attorney generals are being too soft, having sat down to negotiate without having done robust investigations first to gather ammunition.

Whatever the outcome of these on-going investigations’s, the week’s news guarantees one thing – the mortgage fraud scandal, and its offspring the foreclosure scandal, are not going away any time soon.

 

 

 

 

 

 

F**king Grandmothers, Widows and Orphans

“They’re fucking taking all the money back from you guys? All the money you guys stole from those poor grandmothers in California?”

"Yeah, Grandma Millie man. But she’s the one who couldn’t figure out how to fucking vote on the butterfly ballot."[Laughing from both sides]

"Yeah, now she wants her fucking money back for all the power you've charged right up, jammed right up her ass for fucking $250 a megawatt hour."

– Transcript of two Enron traders discussing the blackouts in California caused by the company’s manipulation of electricity prices in 2000.

“I’ve managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport….”

– Email from Fabrice Tourre, Goldman Sachs trader, joking about derivatives he was selling that later proved worthless.

I have a job I really love – fighting injustice – so I always thought that being a Wall Street trader was just about as boring and inconsequential a job as you could think of. I mean, how enjoyable could it be to sit in front of a computer all day, doing nothing but moving an artificial construct around – “a ‘thing,’ which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price'" as the Goldman dealer described the derivatives he was peddling.

But it seems these guys were able to have a few laughs after all. Turns out the money ain’t bad either.

It would all be very amusing if their antics – “God’s work,” as Goldman’s CEO Lloyd Blankfein described it not long ago – hadn’t cost the country trillions of dollars, and many Americans their jobs, homes and pensions.

Not so funny.

Something is seriously wrong when the pursuit of wealth unabashedly becomes the preeminent aspiration of a culture. And when those who succeed in obtaining vast riches and privilege have nothing but disdain for the rest of the nation, and aren’t a bit embarrassed to say so.

The financial collapse was not an isolated, once in a century deviation. During the 1990’s, Enron and other energy companies, California’s public utilities and the Chamber of Commerce got together and, with the aid of a few million dollars in campaign contributions, got the California Legislature to deregulate electricity rates. Wall Street loved the idea. As soon as the law took effect, in late 2000, the traders jumped in and engineered phony shortages that ultimately cost California taxpayers $70 billion. We’ll be paying off the debt from that debacle for another twenty years.

With hindsight, it is clear that the California energy crisis was merely a forerunner of the current financial collapse. And I’ve noted the disturbing similarities between how Governor Gray Davis and President Obama responded to an emergency not of their own making. As I pointed out in “The Smartest Guys in the Room,” an action movie figure is the Governor of California today as a result.

Two crises in the same decade. Both the product of avarice. How could we let that happen?

9/11 had something to do with it. For most of the years that followed, the American people were told that our greatest enemy lived in a cave half way around the world. That was wrong, as it was eighty years ago, when in the midst of the Great Depression President Franklin Roosevelt told Americans, “our enemies of today are the forces of privilege and greed within our own borders.”

We now know that the enemies of American consumers and taxpayers were sitting in front of multiple computer screens by day, living in palaces and yachts and on their own private islands. Their weapons were pieces of paper that were backed by other pieces of paper that were backed by packages of mortgages, student loans and credit card debt, the complexity and value of which no one understood.

The people who were supposed to defend us against financial mayhem were overtly or covertly working for our enemies. They betrayed us, as we have painfully documented, and whether it was a few million to California lawmakers or $5 billion over ten years to Washington, it all came down to money.

The Republicans rail against the Democrats. The Tea Partiers rail against both. But where's the debate over the culture of greed that is eroding our values, not to mention our strength as a nation? When will our universities and religious institutions weigh in? When the Times of London asked Goldman’s Blankfein if it were “possible to make too much money,” he replied: ““Is it possible to have too much ambition? Is it possible to be too successful?” My answer to those questions is “yes.” What's your answer?

Administration still won't rein in lavish pay schemes

Imagine if you could report the value of your work on your tax return, rather than your actual income. At the end of the year, you’d issue yourself a W2 or a 1099 based on a comparison of how other people who did the same kind of work valued their efforts. The lower the worth you put on your work, the lower your taxes. Let’s just say the IRS wouldn’t be too happy with a system that encouraged low-balling.

Wall Street bankers were able to arrange an equally self-serving compensation system for themselves - and they got away with it.