Tag Archives: banksters

Meet Citi’s Ethical Underwriters That Tried to Save It and America: Sherry Hunt

By William K. Black
Quito: March 26, 2015

This is the fourth and final column in my series that began by focusing on Richard M. Bowen, III.  Bowen blew the whistle on Citi’s sale of scores of billions of dollars in toxic mortgages, primarily to Fannie and Freddie, through fraudulent reps and warranties.  After Bowen protested and blew the whistle within Citi to its senior management (including Robert Rubin) – Citi’s senior officers’ classic accounting control fraud strategy expanded both in terms of the volume of sales and the incidence of fraudulent reps and warranties – which rose to 80 percent.

I have explained how Bowen and his boss’ banking careers were destroyed by the retaliation of Citi’s senior managers and how the SEC, the Department of Justice (DOJ), and the Financial Crisis Inquiry Commission (FCIC) have followed the disgraceful policy of trying to keep Bowen’s detailed disclosures from becoming public and being used to bring Citi’s criminal controlling officers to justice.

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How FCIC Spurned Its One Chance at Greatness

By William K. Black
Quito: March 25, 2015

This is the third column in what I intended to be my three-part series about Citi’s most famous whistleblower, Richard M. Bowen, III.  In this column I discuss Bowen and Citi’s senior (but not controlling) officers’ presentations before the Financial Crisis Inquiry Commission (FCIC).  Upon further research I realize that a fourth column is required to bring in the related story of Bowen’s estimable colleague and fellow-whistleblower, Sherry Hunt.  Hunt’s story is not simply important and necessary to understand the scandals of the Department of Justice (DOJ) and the SEC and Citi’s top managers the FCIC’s spurning its one chance at greatness – it also deserving of a movie.  It’s too complex and rich to add it to this column.  Hunt also deserves full length treatment devoted to her attempted service to Citi, her service to the Nation, and to DOJ’s and the SEC’s failure to act against any of Citi’s fraudulent officers despite her offering them up tied with a bow.

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The DOJ and the SEC Spurn their Ace in the Hole: Richard Bowen

By William K. Black
Quito: March 24, 2015

In this second column about Richard M. Bowen, III, I discuss the failure of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to make use of his expertise and testimony.  Bowen was the Citi SVP who blew the whistle on Citi’s senior managers’ strategy of knowingly buying massive amounts of fraudulently originated loans sold to Citi through fraudulent reps and warranties and then reselling those toxic mortgages (primarily to Fannie and Freddie) through false reps and warranties.  My first column described that strategy and the failures of the Financial Crisis Inquiry Commission (FCIC) to understand how damning Bowen and Clayton’s testimony was.  Clayton was the dominant “due diligence” firm for secondary market mortgage sales and was designed to be an easy grader.  The two great epidemics of mortgage origination fraud (appraisal fraud and liar’s loans) were so endemic and so crude that even Clayton found a 46% incidence of false reps and warranties by the sellers to the secondary market who fraudulently originated the loans.  That incidence grew to 54% by the second quarter of 2007.

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The Lessons Richard Bowen’s FCIC Testimony Should Have Taught the Nation

By William K. Black
Quito: March 20, 2015

This is the first of three columns prompted by Richard Bowen’s interview this morning on Bloomberg.  Richard Bowen, a Citi SVP, blew the whistle within Citi on Citi’s massive fraudulent sales of fraudulently originated mortgages, primarily to Fannie and Freddie.  Even Attorney General Eric Holder now repeatedly labels these mortgages “toxic.”  Had Citi’s leadership been honest, Bowen’s warnings could have substantially reduced the three fraud epidemics driving the financial crisis and Bowen would be one of Citi’s most senior leaders.  No spoiler alert is required because even my readers who know anything about Bowen know how the story actually ended.  Citi’s senior managers did not ignore Bowen’s warnings – they actively made the frauds he documented worse and they destroyed Bowen’s distinguished career in banking.  Citi, Fannie and Freddie, and Treasury lost billions of dollars and Citi’s senior officers were made wealthy by the “sure thing” of the accounting control fraud “recipe.”

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Stanford Exposes Rodgin Cohen’s Myth of the Myth of Regulatory Capture

By William K. Black
Quito: March 19, 2015

Sometimes the fates conspire to bring together two stories that when considered together bring that lightbulb moment.  The first story, dated March 18, 2015, is from the Wall Street Journal.  It overwhelmingly conveys the opinion of Rodgin Cohen, the super-lawyer to the super-fraudulent bank CEOs.  He was a leader of the financial regulation wrecking crew that produced the criminogenic environments that drove our recurrent, intensifying financial crises.  As I will explain in a future column, Cohen basically has one speech, which he has repeated with minor variants for decades.  The latest Cohen variant claims that:

“[T]he regulatory environment today is the most tension-filled, confrontational and skeptical of any time in my professional career.

Cohen says the strained relations between government regulators and bank officials stems from ‘the myth of regulatory capture.’

‘The consequences of such as approach are likely to be less effective examinations, not more,’ he said. ‘Unless we deal with the canard of regulatory capture, we will inevitably be placing pressure on examiners to disprove this charge.’”

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Why are Top Tier Audit Failures so Common?

By William K. Black
Quito: March 10, 2015

The Wall Street Journal recently provided one of those stories that are invaluable and frustrating.  In fairness, it was a brief blog entry entitled “Almost Half of Global Audits Have Problems” and was based on the release of a study by the International Forum of Independent Audit Regulators.  The blog also noted that the rate of deficient audits was nearly as high for top tier firms’ audits conducted in the U.S.

“The study follows one released late last year by the U.S. audit regulator, the Public Company Accounting Oversight Board, which found nearly 40% of studied 2013 audits performed by the four largest U.S. firms weren’t up to snuff.”

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McCloskey’s First “Cheer for Corruption” is also a Cheer for Fraud

By William K. Black
Quito: March 5, 2015

In my first column in this series I discussed the gaping contradiction in Deirdre McCloskey’s book review of two books on corruption. The title of her article captures the immorality of her proposed “sermons” on corruption: “Two Cheers for Corruption.” McCloskey urges us to embrace many forms of corruption because she asserts that they add to economic efficiency and justice.

“But corruption can be efficient and just, too. It can be good for efficiency if, say, bribes are paid to get around bad laws (such as most of the building codes in American cities) or to smooth the course of sales by U.S. businesses to the Egyptian military. And the turkey at Christmas supplied by Tammany Hall justly helped the poor—if they voted right.”

McCloskey’s first of three “cheers for corruption” is inherently a cheer not only for corruption, i.e., bribery and extortion, but also a cheer for four types of felonies by elite white-collar criminals. The first crime is deliberately violating the building safety codes. The second crime is covering up that underlying crime through corruption – the bribery and/or extortion of the building safety code inspectors.

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McCloskey’s Plea for an Unethical Ethical Response to Corporate Bribery

By William K. Black
Quito: March 4, 2015

Deirdre McCloskey has provided another proof of our family saying that it is impossible to compete with unintentional self-parody. She did so in the guise of a review in the Wall Street Journal of two books on corruption. McCloskey’s thesis is that only ethics, not institutions, matter when it comes to stopping corruption.

“All that works in the end is ethical change, urged from the mother’s knee, the pastor’s pulpit, the judge’s bench, the schoolmaster’s lectern. It is fruitless to propose ‘mechanisms’ or ‘institutions’ absent an ethical desire in enough of us to do good.

We need sermons, which is to say instruction from our mothers and movies and imams about How to Be Good. Sarah Chayes and Jay Cost provide ample texts for the sermons. Indignation on the ground, if pervasive, stops corruption. The books give us cause for indignation, surely. But the rest is up to us, or our mothers teaching us at their knees.”

McCloskey proposes that we create “pervasive” “indignation” demanding an end to “corruption.” She suggests that the key is the consistency of that ethical message to “do good.” We need “sermons” from clergy, mothers, teachers, judges (during sentencing), and the media and movies that reinforce the message that the public must achieve a “pervasive” loathing of corruption and a commitment to “stop” it.

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A Question to Our Bank CEOs Who Are Criminals: “Have You No Sense of Decency”?

By William K. Black
Quito: March 4, 2015

The FCPA Blog, an invaluable aid to anyone involved in the effort against corruption, has just run a story that epitomizes the neo-liberal approach to “liberty.” There is a massive movement, well-funded by political contributions, to privatize our prison systems. The private jailors overwhelmingly want to deal with the lowest risk jail populations – and then claim that they are “less expensive” than other prisons owned by the State.

The “Cash for Kids” Scheme

In Pennsylvania, in a fitting illustration of the dark side of von Hayek’s praise of “spontaneous order,” this privatization movement reached its neo-liberal peak when the owner of two privatized juvenile detention facilities bribed two Pennsylvania judges to send more kids to jail and maximize the owners’ profits. The huge size of the bribes demonstrates the scale of the miscarriage of justice and the enormous profits that injustice produced for the owner of the privatized juvenile detention facility. The FCPA Blog tells the sickening tale.

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Irish-Style Banking Inquiry into the 2008 Financial Crisis

NEP’s Bill Black on The Real News Network discussing his recent testimony in Ireland for a banking inquiry and the challenges the country faces in acknowledging its financial crisis. Video is below. For the transcript, click here.