via Dylan Ratigan

I sat down yesterday with former New York Attorney General Eliot Spitzer to go over some of the ideas in my new book, Greedy Bastards. Believe it or not, there is a good kind of greed, when money is invested to create real wealth, long-term. But that is not what we are doing today.

Spitzer, who went after both mobsters like Tommy Gambino and Wall Street firms, said both sectors “squeeze money” out of a sector, and that there are more parallels there than we would find comfortable. “The mob was at its most powerful when it was a monopolist,” he said. “Each has figured out how to use leverage” and “how to eliminate competition”. The three letters we have to understand to get Wall Street, Spitzer said, are “OPM” – Other People’s Money.

We discussed how naked credit default swaps can be classified and regulated as online gaming, according to controversial figure Dick Grasso, who used to run the NYSE. Spitzer called the swaps market a “cesspool” which doesn’t do anything but let people “bet in a casino without any social utility.” Finally, we talked about how banking regulations are like the water coolant in a nuclear reactor for the fuel rods. Without them… meltdown!

Visit msnbc.com for breaking news, world news, and news about the economy

Reuters-

Almost 65 years ago, in 1947, the U.S. government sued 17 leading Wall Street investment banks, charging them with effectively colluding in violation of antitrust laws.

In its complaint — which was front-page news at the time – — the Justice Department alleged that these firms had created “an integrated, overall conspiracy and combination” starting in 1915 “and in continuous operation thereafter, by which” they developed a system “to eliminate competition and monopolize ‘the cream of the business’ of investment banking.”

The U.S. argued that the top Wall Street investment banks – - including Morgan Stanley (MS) (the lead defendant) and Goldman Sachs — had created a cartel by which, among other things, it set the prices charged for underwriting securities and for providing mergers-and-acquisitions advice, while boxing out weaker competitors from breaking into the top tier of the business and getting their fair share of the fees.

[REUTERS]

Supreme Court, New York County

Syncora Guarantee Inc., Plaintiff,

against

Countrywide Home Loans, Inc., COUNTRYWIDE SECURITIES CORP., COUNTRYWIDE FINANCIAL CORP., and BANK OF AMERICA CORPORATION, Defendants.

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SUPREME COURT OF THE STATE OF NEW YORK

MBIA Insurance Corporation,

v

Countrywide Home Loans, Inc., et al., 

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New Economic Prospectives-

The Wall Street Journal ran a story today (12/27/11) entitled “SEC Ups Its Game to Identify Rogue Firms.”

“Rogue” is an interesting word with a range of definitions. When it is used as an adjective its meaning is: “a playfully mischievous person; scamp.” The trivialization of the most destructive elite frauds is one of the most common forms of what criminologists call “neutralization” of the moral content of wrong doing. Neutralization increases crime.

The actual story makes it clear that the criminals that the SEC was identifying were not “rogues.” They were the CEOs of seemingly legitimate firms. The SEC is identifying “accounting control frauds” – the frauds that cause greater financial losses than all other forms of property crime combined. The SEC is not identifying a few rotten apples, but roughly 100 hedge funds likely to have engaged in accounting fraud. The WSJ describes the SEC’s identification system:

“The list is the low-tech product of a high-tech effort by the SEC to crack down on fraud at hedge funds and other investment firms. After the agency failed to detect the $17.3 billion Ponzi scheme by Bernard L. Madoff, who wowed investors with steady returns over several decades, SEC officials decided they needed a way to trawl through performance data and look for red flags that might signal a possible fraud.

In 2009, the SEC began developing a computer-powered system that now analyzes monthly returns from thousands of hedge funds. Officials won’t say exactly how it works or how much it cost to build, but the agency has announced four civil-fraud lawsuits filed as a result of what it calls the “aberrational performance initiative.”” The SEC should be applauded for finally understanding that “if it’s too good to be true; it probably isn’t true.” Our agency put a similar system in place in 1984 to identify the S&L accounting control frauds that were driving that crisis. A quarter-century later, the SEC began to follow our well-trodden trail – but only with regard to felons inhabiting the middle of the fraud food chain (hedge funds). 

The SEC has, inevitably, discovered that accounting fraud is common among …

[NEW ECONOMIC PROSPECTIVES]

Expert fired for raising concerns about doomed lender, she says

On her first day at Countrywide Financial Corp., Cynder Niemela gave a talk to a gathering of her new colleagues. Every company, she said, has its own culture. Each is a tribe with its own rituals and myths.

Niemela, a management guru who’d worked for Boeing and other big employers, told the group of executives that research showed it took 16 months for a worker to become fully part of a corporate “tribe.” That time would allow her, she added, to offer a fresh perspective on how things were done at Countrywide.

[Iwatch]

Want to break the law over and over again and promise never to break that law you first broke?

Work for Wall Street!

Rolling Stone -

Had a quick piece of news I wanted to call attention to, in light of the recent developments at Zuccotti Park. For all of those who say the protesters have it wrong, and don’t really have a cause worth causing public unrest over, consider this story, sent to me by a friend on the Hill.

IN THE CIRCUIT COURT, FOURTH
JUDICIAL CIRCUIT, IN AND FOR
DUVAL COUNTY, FLORIDA

JIM FULLER, CLERK OF THE CIRCUIT
COURT, DUVAL COUNTY, FLORIDA,
in his official capacity and on behalf of
all those similarly situated,

Plaintiff,

vs.

MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC., a Delaware corporation; and
MERSCORP, INC., a Delaware Corporation

Defendants.

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This is major and pay close attention to the words below

Mortgage Servicing News-

The most recent lawsuit was filed by a county clerk in Florida, and seeks class action status to represent the state’s 67 counties. The complaint alleges the use of MERS does not comply with state property laws and has cost municipalities millions in unpaid recording fees.

Jim Fuller, the clerk of Duval County, filed suit against Merscorp Inc. and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc., on Oct. 31, claiming civil conspiracy, unjust enrichment, as well as fraudulent and negligent misrepresentation. The suit also seeks a hearing to determine the validity of tracking note transfers on the MERS System and a court injunction to prohibit the use of MERS in Florida.

“MERS has usurped the rights and privileges of the Florida Clerks of Court by establishing, maintaining and inducing lenders to use its private recording system, which unlawfully interferes and competes with the public recording system,” the suit, filed in state circuit court, reads.

[...]

“Both the note and mortgage are to be recorded. The principle issue we’re trying to get at is the punitive distinction of MERS being the mortgagee while the note is shifted from one to another up through the typical securitization process,” Volpe said in a phone interview. “The principle concern about the disconnect is that the public records are not complete insofar as the true beneficial owner of the mortgage is not reflected in the public records.”

[MORTGAGE SERVICING NEWS]

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A sweet piece from Fmr. U.S. Senator from Delaware Ted Kaufman-

Here’s the highlight of his HuffPo piece-

Biden, Schneiderman and a few other AGs see it differently. They have been insisting on further investigations before any settlement is reached. The charges in Biden’s suit against MERS include a series of allegations based on his investigations to date. Among them:

• Hiding the true mortgage owner and removing that information from the public land records.

• Creating a systemically important, yet inherently unreliable, database that created confusion and inappropriate assignments and foreclosures of mortgages.

 • Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose. (This is called “securities fail” and is the theory that allows put backs that crush the bank/originators.)

 • Initiating foreclosures in the name of MERS without authority to do so or without appropriate controls to ensure the actions were being carried out by the actual owner of the mortgage.

 • Allowing the entry and management of data by those MERS members who are identified as owners or servicers in the MERS System, instead of controlling entry and management itself.

 • Initiating foreclosure actions in which the real party in interest was hidden, thus preventing homeowners from ascertaining who owned their mortgage in order to challenge whether or not they had a right to foreclose and limiting their legal defenses.

 Again, stay tuned. Together, Judge Rakoff and Attorney General Biden are finally demanding much of the information we need to truly reform Wall Street.

by azipaybarah

Mayor Michael Bloomberg blames congress and defends banks, over the mortgage crisis, during a November 1, 2011 breakfast in midtown.

But Who Created The Fraud? Who got paid to let Wall Street do what they so desired?

by Tracy Weber and Charles Ornstein
ProPublica, Nov. 1, 2011, 5:51 p.m.

Federal prosecutors sued Allied Home Mortgage Capital Corp. and two top executives Tuesday, accusing them of running a massive fraud scheme that cost the government at least $834 million in insurance claims on defaulted home loans.

Houston-based Allied and its founder and chief executive, Jim Hodge, were the subject of July 2010 stories by ProPublica [1], which detailed a trail of alleged misconduct, lawsuits and government sanctions spanning at least 18 states [2] and seven years. Borrowers recounted how they had been lied to by Allied employees, who in some cases had siphoned the loan proceeds for personal gain. Some borrowers lost their homes.

Despite years of warnings, the federal government had not 2014 until this week 2014 impaired the company’s ability to issue new mortgages.

The suit [3], filed Tuesday in U.S. District Court in Manhattan, seeks triple damages and civil penalties, which could total $2.5 billion. Simultaneously, the U.S. Department of Housing and Urban Development suspended the company and Hodge from issuing loans [4] backed by the Federal Housing Administration. The company was also barred from issuing mortgage-backed securities through the Government National Mortgage Association (Ginnie Mae).

Allied has billed itself as the nation’s largest, privately held mortgage broker, with some 200 branches. (At one point, the company operated more than 600.) The sprawling network made Hodge a rich man [5] with properties in three states and St. Croix in the U.S. Virgin Islands and two airplanes to get to them.

Allied and Hodge played the “lending industry equivalent of heads-I-win and tails-you-lose,” U.S. Attorney Preet Bharara said at a news conference Tuesday. “The losers here were American taxpayers and the thousands of families who faced foreclosure because they could not ultimately fulfill their obligations on mortgages that were doomed to fail.”

The government’s complaint alleges that between 2001 and 2010, Allied originated 112,324 home mortgages backed by the FHA, which typically go to moderate- and low-income borrowers. Of those, nearly 32 percent 2014 35,801 2014 defaulted, resulting in more than $834 million in insurance claims paid by HUD.

In 2006 and 2007, the company’s default rate was a “staggering” 55 percent, the complaint said.

In addition, another 2,509 mortgages are currently in default, which could result in another $363 million in insurance claims paid by HUD.

Borrowers told ProPublica last year that company employees falsified records to bolster their credit worthiness and lured them into unaffordable deals by lying about the terms.

The government’s complaint says: “Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance.”

Tuesday’s action against Allied follows criticism that the government has been slow to act on rampant fraud and abuse in the mortgage market. In the case of Allied, the government had reams of evidence of possible misconduct. Among ProPublica’s findings last year:

• Allied had the highest serious delinquency rate [6] among the top 20 FHA loan originators from June 2008 through May 2010.
• Nine states had sanctioned the firm from 2009 to mid-2010 for such violations as using unlicensed brokers and misleading a borrower.
• Federal agencies had cited or settled with Allied or an affiliate at least six times since 2003 for overcharging clients, underpaying workers or other offenses.
• At least five lenders had sued, claiming Allied tricked them into funding loans for unqualified buyers by falsifying documents and submitting grossly inflated appraisals, among other allegations.

Allied spokesman Joe James said the company was aware of the government lawsuit but had not received a copy of it and could not comment.

Hodge did not return a phone call and email message seeking comment. But last year, he told ProPublica that the problems experienced at some of Allied’s branches should not tarnish his firm’s overall record. “If you look at the volume that we did or do,” he said, “it’s not significant.”

In an interview Tuesday, Helen Kanovsky, HUD’s general counsel, defended the time it took her department to take action.

“We had tried sanctions before,” she said. “We had assessed civil monetary penalties, and that had not worked.

“The extraordinary remedy that we have 2014 to be able to terminate somebody’s FHA capacity [and] basically put them out of business 2014 requires a very high level of evidence and a high level of proof.”

The government’s 41-page lawsuit details an alleged scheme by Allied to deceive HUD about its employees and the risks associated with its loans. For years, it operated a network of “shadow” branches that were not approved by HUD and falsely certified that they met legal requirements.

Allied also disguised the high default rates of some branches, the complaint alleges, by tinkering with their addresses to apply for new HUD identification codes for the same offices. When HUD updated its system to prevent such manipulation, Allied simply moved all of its branches to a sister company and obtained new IDs, “thus again achieving a clean slate on its default rates,” the suit said. The sister firm, Allied Home Mortgage Corp., is also named as a defendant.

Hodge created a “culture of corruption,” the suit said. He “intimidated employees by spontaneous terminations and aggressive email monitoring, and silenced former employees by actual and threatened litigation against them.”

In one case, Hodge instructed his chief information officer to capture the password for the personal email account of Jeanne Stell, the company’s executive vice president and compliance officer. Then he installed an electronic listening device under the information officer’s desk, the complaint alleges.

Allied also was employing felons, including a state manager who had been sentenced to 60 months in prison for distributing methamphetamine, as well as a branch manager running the office under a false name, the suit said.

The government joined a whistleblower lawsuit filed by a former Allied branch manager in Massachusetts, Peter Belli. In addition to Allied and Hodge, the suit also names Stell as a defendant.

Belli had filed other suits against Hodge and Allied. He said Tuesday that, while his legal pursuit of his former employer has been long and hard, “I never really ever felt like quitting because I was married to the cause.”

Allied is also facing at least one federal criminal investigation into its now-shuttered Hammond, La., branch. In multiple lawsuits, borrowers allege that the office deceived them from 2005 through 2007 by misrepresenting loan terms, falsifying records, failing to pay off prior mortgages and diverting hundreds of thousands of dollars.

At his news conference, Bharara said Tuesday’s filing was a civil matter and that the investigation into Allied is continuing. “We will go wherever the facts lead us.”

Washington, DC—Ranking Member Elijah E. Cummings issued the following statement on a new GAO report issued regarding AIG. The report found inconsistent accounts of attempts by the Federal Reserve Bank of New York to negotiate with AIG’s counterparties to lower U.S. taxpayer exposure.

“GAO’s report cries out for the full and immediate implementation of the Dodd-Frank Act. As distasteful as the AIG bailout was, the systemic risk posed by AIG to the domestic and international economies was real, and cannot be overstated. This report reinforces the need to implement provisions in Dodd-Frank that will prohibit the use of tax-payer dollars to artificially prop up or benefit one firm, and ensure that massive, nonbank companies cannot engage in financial transactions that put our nation’s economy at risk again.”

Cummings was one of the Members of Congress who asked GAO to examine the decision to provide AIG with taxpayer funds. The report echoes the findings of investigations conducted, at Cummings’s request, by the House Oversight and Government Reform Committee and the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) which found clear shortfalls in the Federal Reserve Bank of New York’s negotiations with AIG counterparties regarding the payments they would receive for credit default swap contracts they held.

Highlights of the GAO report include the following:

•        “The possibility of AIG’s failure drove Federal Reserve aid after private financing failed.”
•        “[Federal Reserve Bank of New York’s] Maiden Lane III design likely required greater borrowing, and accounts of attempts to gain concessions from AIG counterparties are inconsistent.”

•        “The Federal Reserve’s actions were generally consistent with existing laws and policies, but they raised a number of questions.”
•        “Initial Federal Reserve lending terms were designed to be more onerous than private sector financing.”
•        “The AIG crisis offers lessons that could improve ongoing regulation and responses to future crises.”

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