The Wall Street Journal is deeply upset that almost none of the banks and none of the banksters that became wealthy by leading the three epidemics of mortgage fraud that drove the financial crisis are being subjected even to prosecution-lite cases. The WSJ wants us all to know that “almost none” and “prosecution-lite” are both excessive. The WSJ rant demands that we bestow the thanks of a grateful nation to the banks and banksters that committed the frauds. This financial crisis is the first Virgin Crisis – conceived without sin in the C-Suites. This second column in my series on the WSJ rant responds to the WSJ’s claim that mortgage frauds that are “only” $9 billion in magnitude do not warrant even civil sanctions.
I explained in the first column in this series the WSJ’s illiterate literary allusion in the title of the rant: “Banking in a Time of Cholera.” I noted there that the rant instantly mixed its movie metaphors by saying that the United States is actually not acting successfully to prevent the recurrence of a cholera epidemic that killed over 100,000 people (as in the novel “Love in the time of Cholera).” The anonymous WSJ author abandoned that metaphor in the second sentence of the column when it dawned on him/her that using an homage to a book in which the government saves the lives of over 100,000 people by “interfering” with the “free markets” was a flawed strategy. (The author repeats the title at the end of the WSJ article, but without any reasoning.) Note that the Colombian city, under the guidance of an elite scientist who was (correctly) worried about the environment, made improvements that not only prevented a cholera epidemic but also greatly improved the quality of the water (and the beer), the sewage system (reducing a host of other waterborne pathogens, and (the gods forfend!), the market – as in the physical central market of the city and all the goods sold there. It also made the bay much less polluted. Each of those changes also was off the charts in benefit-cost terms.
I have this delightful image in my mind of the WSJ author, who must not have read Gabo’s novel, suddenly being informed of these messy plot details and reacting by channeling his inner submarine captain and screaming at the end of his/her first sentence: “DIVE, DIVE – EMERGENCY CRASH DIVE. EVASIVE MANEUVERS. RIG FOR DEPTH CHARGES. ALL AHEAD FLANK. RIGHT FULL RUDDER!”
The author’s emergency crash dive promptly ran aground in the second sentence premised on the substitute literary metaphor premised on another literary “classic,” King Kong. This metaphor is far more satisfying, but only by playing fast and loose with the movie(s). The U.S. government is now not the actual government, which would be the “natives” leaders. Instead, the author claims that the “giant beast” is the U.S. government. Why – because the WSJ despises the U.S. government. The natural metaphor, however, is that King Kong represents Bank of America’s (BoA) in all its “too big to fail” and “too big to jail” glory. The author’s hilarious conceit, however, is that BoA shareholders represents the virgin girls that the “natives” periodically sacrifice to be devoured by the murderous U.S. government in order to prevent Obama from murdering the entire tribe, which would apparently represent the entire finance industry and its shareholders. Why does Obama want to devour the entire finance industry and its shareholders? The author inadvertently answered that question: “For all we can tell the [author] made it up.”
Let’s back up to consider the metaphor to epidemics of cholera. There was a financial crisis and it was caused by three epidemics of accounting control fraud led by the CEOs of hundreds of financial institutions, including BoA, Countrywide, and Merrill Lynch according to the (not remotely vigorous) investigations of several governmental agencies and departments. That financial crisis caused the Great Recession and imposed an estimated $21 trillion loss in GDP and 10 million American jobs. Both figures are larger for Europe. For this, not one CEO or CFO of an elite – or non-elite – investment, commercial, or mortgage bank has been prosecuted for leading the frauds that drove the crisis. DOJ’s .000 prosecutorial batting average includes the senior executives of BoA, Merrill Lynch, and Countrywide – three massive fraud vectors.
The WSJ Refers to “$9 billion” as “Only”
The three banks that the WSJ laments are settling certain fraud claims with the Department of Justice (DOJ) were vectors that spread those fraud epidemics. Countrywide and Merrill Lynch are notorious as two of the largest vectors that spread that epidemic through the financial system and caused the financial crisis. Thebest that the WSJ rant can do to attempt to defend BoA is to complain that it fraudulently sold “only some $9 billion” in toxic mortgage securities through false “reps and warranties.” Back up and consider that sentence. The defense is that it was “only” a $9 billion fraud over the course of several years. People who steal $50 sweaters can go to prison (for a third offense) for over 20 years. BoA agrees to a statement of facts admitting that its senior officers committed roughly 35,000 felonies over the course of several years.
Remember that this case was handled by the RMBS task force, which typically ignores mortgage origination felonies by the banks. The only reason that BoA would have made fraudulent reps and warranties about the nature of the mortgage securities it was selling was because the loans were fraudulently originated. The two massive loan origination fraud epidemics – liar’s loans and appraisal fraud – were led by the lenders, but the RMBS.Working Group consistently turns a blind eye to these fraud epidemics and focuses solely on the third epidemic of fraudulent reps and warranties in secondary market sales.
The WSJ Ignores BoA’s Factual Admissions
BoA did not simply settle a case while contesting the facts. Its settlement with DOJ contains Recital I:
“Bank of America acknowledges the facts set out in the Statement of Facts set forth in Annex 1, attached hereto and hereby incorporated.”
As I and several other critics have noted the “statement of facts” that DOJ and the various elite bank defendants agree to are designed to be impossible for the average reader to understand and devoid of any compelling details or explanations that would enrage the reader. But the statements of facts contain admissions that the mortgage and MBS sellers (in this case, BoA, Merrill Lynch, and Countrywide) made false “reps and warranties” in their secondary market sales. That constitutes fraud, which is a crime as well as a tort that supports punitive damages.
DOJ is one of many parties that have sued BoA, Merrill Lynch, and Countrywide for their fraudulent RMBS sales. These other complaints frequently provide the results of investigations confirming each of the defendants’ extensive frauds in RMBS sales. The WSJ simply labels a normal action – bringing a lawsuit against a fraudulent seller as an act of “extortion” equivalent to a “giant beast” devouring sacrificial virgins. This parade of delusional insults is so weirdly over the top that it is self-refuting.
In the third installment in this series I focus on the WSJ’s claim that only “the left” believes that the banksters become wealthy by leading the three mortgage fraud epidemics that blew up the global financial system should be prosecuted for their crimes. In the fourth column I explore why “the right” is so eager to spread the myth that this is the first Virgin Crisis conceived without sin in the C-Suites and blame everyone except the elite banksters. I inquire when and how it became a “conservative” ethic to shill for elite frauds? In the concluding installment I respond to the WSJ’s myth that banksters are innocent victims of a rapacious DOJ that is hell bent on prosecuting the banksters, but supposedly can never find evidence of their frauds.