The Sacramento Bee is a paper with a fine pedigree that just wrote a powerful editorial entitled: “Wall Street needs to be schooled in the rule of law.”
“When the president feels the need to call out his own people for not moving fast enough on new rules for Wall Street, you know that things have really bogged down.
That’s what Barack Obama did Monday, urging top financial regulators to get going on enforcing the Dodd-Frank law, passed by Congress three years ago but still adamantly opposed by big banks.
Wall Street’s freewheeling ways and outright fraud worsened the worst financial crisis this nation has faced since the Great Depression. Nearly five years later, many large financial institutions are making big profits again, but relatively few wrongdoers have seen the inside of a prison cell.
Precious little has truly changed.
Who gets the short end of the foot-dragging? The vast majority of Americans, of course, those who aren’t favored clients of Wall Street firms. You can bet we’re the ones who will be left holding the bag if there’s another crash because proper safeguards aren’t in place.”
The SacBee has all of this dead on. But Sacramento, California is one of the epicenters of the twin epidemics of mortgage origination fraud (appraisal and endemically fraudulent “liar’s” loans). Those originators then fraudulently sold their all-to-often fraudulent loans through fraudulent “reps and warranties” to Wall Street firms. (The Wall Street firms then fraudulently sold mortgage derivatives to the public – for which their senior officers should be prosecuted.)
The fraudulent loan originators in Eastern California, however, were overwhelmingly West Coast lenders and loan brokers, e.g., Countrywide, Washington Mutual (WaMu), and IndyMac. Those three lenders, and many mortgage bankers, collectively made over a million fraudulent loans. Their controlling officers were made immensely wealthy by those fraudulent loans and appraisals. None of the controlling officers of the elite West Coast lenders has been prosecuted.
One of the principal reasons that the elite bank fraudsters can now become wealthy through fraud with de facto immunity from prosecution is the bizarre cult that has arisen that claims that this is the first Virgin banking crisis in world history. The cult claims that “accounting control fraud” (the leading cause of the second phase of the S&L debacle and the Enron-era crisis) miraculously ceased to exist during this crisis. This dogma is particularly bizarre because the lenders that made the endemically fraudulent loans and extorted appraisal fraud by blacklisting honest appraisers followed the same fraud “recipe” as the accounting control frauds followed in prior epidemics of accounting control fraud. The Virgin Crisis Cult also claims that it was the evil, working class home buyers who used brilliant financial stratagems to defraud the poor, honest, but financially illiterate senior bankers making $2.5 million annually (because of their financial expertise and brilliance). I have just explained how Obama’s FBI and Department of Justice (DOJ) came to proclaim this Tea Party creed that blames the crisis on rapacious working class minorities ravaging virginal banks with the encouragement of the evil federal government.
(This is the sequel to Birth of a Nation, with the valiant Tea Party cast as the “valiant” KKK.)
Among the most important officials who has adopted this preposterous view of the crisis is based in Sacramento. The SacBee should write a follow-up editorial addressing the U.S. Attorney for the Eastern District of California.
“Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.
I have written directly to Mr. Wagner without receiving a response and have written many times about the fact that he has confused his pronouns: “they” refers to the CEO and “themselves” refers to the bank. They are not the same entity. The CEO loots the bank (as criminologists, financial regulators, and Nobel Laureates in Economics have been explaining for 20 years). “Looting: The Economic Underworld of Bankruptcy for Profit” (1993), George Akerlof and Paul Romer.
I understand that it is embarrassing to admit error, particularly one like this that is so fundamental and has proven so harmful. When the top prosecutor believes that the form of fraud that drives our recurrent, intensifying financial crises cannot exist it means that the existing perpetrators can exploit fraud’s “sure thing” to get wealthy with de facto immunity from prosecution. Because the “recipe” for accounting control fraud by a lender requires the lender to make huge numbers of fraudulent loans that will have a far higher default rate (and then sell the fraudulent loans to the secondary market through fraudulent “reps and warranties”) combining a “sure thing” of getting wealthy by following the recipe and immunity from prosecution means that we are creating powerful incentives for future epidemics of accounting control fraud and financial crises. The SacBee has “thought globally.” It should now “act locally” and push relentlessly to get Wagner to admit his mistake and prosecute the elites who led the control frauds and were made wealthy by their frauds.