Those should have been the first four words of Attorney General Eric Holder at the press conference announcing the settlement with Citicorp.
This article is the first in a series of pieces discussing the critical omissions in Holder’s statement at that press conference. These omissions explain why elite banksters now routinely control our largest banks and use their power to become wealthy through leading fraud epidemics, with impunity from the law, that cause the our financial crises.
Richard M. Bowen, III
Richard M. Bowen, III was Citi’s top underwriter for purchased mortgage product. Tellingly, Citi did not use its own experts to underwrite loans prior to purchasing the loans. Bowen’s staff was only allowed to underwrite a sample of the loans after they were purchased. He found that Citi was purchasing loans – for the purpose of selling them overwhelmingly to Fannie and Freddie – that were poor credit quality and lacked essential documentation. He also discovered that Citi was making false “reps and warranties” about these vital loan characteristics in order to deceive Fannie and Freddie.
I explain these deficiencies and their implications in a future installment. For present purposes it is sufficient to know only a few key things. Here is what Bowen found and what he did in response:
- Most of the mortgages Citi was purchasing to sell to Fannie and Freddie were poor quality or missing documentation essential to determining its quality – which made Citi’s “reps and warranties” to Fannie and Freddie fraudulent
- He alerted everyone in the Citi leadership to the problems he found
- After he made these warnings the percentage of deficient loans and false reps and warranties rose from 60 to 80 percent
- Instead of promoting and praising Bowen for his prescient warnings Citi retaliated against Bowen by demoted him and removing his staff (which had been 220 strong)
DOJ Based its Case Against Citi on Bowen’s Findings and Actions and Citi’s Response
Here is what DOJ released as the introductory summary of its “Statement of Facts” at the Citi press conference. (The document is a disgrace crafted to minimize the ability of the public to understand the massive frauds at Citi frauds and the culpability of its senior leaders for those frauds.)
STATEMENT OF FACTS
“In 2006 and 2007, Citigroup Inc., through certain of its affiliates (“Citigroup”), securitized thousands of residential mortgage loans and sold the resulting residential mortgage backed securities (“RMBS”) for tens of billions of dollars to investors, including federally insured financial institutions. Prior to securitization, Citigroup conducted due diligence on loans (including credit, compliance, and valuation due diligence). In securitizing and issuing the RMBS, Citigroup provided representations in offering documents about the characteristics of the underlying loans. As described below, in the due diligence process, Citigroup received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations provided to investors about the pools of loans to be securitized.”
As the reader can see, DOJ’s case tracked exactly Bowen’s disclosures. Bowen handed DOJ its case against Citi’s senior officers on a platinum platter in his April 7, 2010 testimony before the Financial Crisis Inquiry Commission (FCIC).
DOJ waited over four years, confirmed that Bowen was correct and emphasized the “strength” of the evidence of culpability, and failed to prosecute anyone (even the bank) for these “egregious” frauds that Holder says contributed “mightily” to the crisis.
Bowen demonstrated competence, integrity, loyalty to the protecting the shareholders, and courage. He put all the key Citi officials on notice – often in writing – of the massive crimes being committed by Citi’s officers. The fact that they were put on notice by Bowen, the fact that the response to the warnings was to substantially increase the frequency of those crimes, and the fact that Citi’s senior leaders retaliated against Bowen rather than praising him constitute the ideal fact pattern for a criminal case against Citi’s leadership. Citi was allowed to present five witnesses to FCIC that could have attempted to counter Bowen’s testimony, his findings, his warnings, and Citi’s response to those warnings. None of them even attempted to rebut Bowen.
What Would a Real Attorney General Have Said about Bowen at the Press Conference?
The press conference about the Citi settlement would have been a priceless opportunity for a real head of a real “Justice” Department. Given the destruction of the criminal referral process at the federal banking regulatory agencies the only means DOJ has of making criminal cases against banks and their officers is whistleblowers like Bowen. Any competent AG interested in prosecuting the senior officers that led the three fraud epidemics that drove the financial crisis and the Great Recession would have taken the opportunity of the press conference to praise Bowen, thank him for service to the Nation, emphasize the outrageous retaliation by Citi against him, and call on others to come forward with information about crimes committed by other senior bank officers.
Of course, any real AG would have arranged such a press conference in February 2009, accompanied by the head of every federal banking regulatory agency, and President Obama. (In fairness to Obama, it was the Bush administration that should have taken these actions no later than 2006.) The press conference would have announced four things.
- The immediate reestablishment of the criminal referral coordinators at the federal banking regulatory agencies and making such referrals and aiding the investigation and prosecution of the elite bankers that led the fraud epidemics a top agency priority
- The creation of a task force of the financial regulators, State AGs, and FBI and DOJ to prosecute financial frauds – not simply mortgage backed securities (MBS) frauds (which is what Holder finally did as an emergency political move just before the elections) and the direction of the President and the AG to make the prosecution of the elite banksters a top national priority
- The creation of a national center to encourage whistleblowers and to get their information routed promptly to the appropriate regulatory and law enforcement agencies
- A personal plea by President Obama for whistleblowers to come forward to the Center with information on the banksters’ crimes
Of course, six years later, none of these things have happened. Economists believe in “revealed preferences” (their version of “actions speak louder than words.” Inaction speaks even louder. No AG or President who intends to enforce the rule of law is so incompetent that they would fail
DOJ Implied it Did it all on its Own
Holder’s press release contains this misleading quotation attributed to U.S. Attorney of the Eastern District of New York Loretta Lynch that purports to explain how DOJ made it case against Citi.
“After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due Diligence providers and their employees, and after collecting nearly 25 million documents relating to every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone….”
The press release does not mention Bowen, which is sadly ironic since it charges Citi with “misleading” the public.
Conclusion
DOJ treated the many Clayton (the largest external underwriter) whistleblowers that helped make possible its civil case against Citi and the Bank of America whistleblower that made possible DOJ’s only successful contested civil case against a senior bank officer in the same disgraceful manner as it treated Bowen. I ask our readers to join me in thanking Bowen and other whistleblowers for their service to the Nation.
Your light never dims, and thank goodness for that fact because we would never learn about this crime at any other place. Thanks.
This is an excellent, easy to understand explanation of what happened in the “housing bubble.” It shows, too, how criminal bankers hide successfully behind the “corporate veil”, committing heinous financial crimes that hurt the entire country and are shielded by helpful, “look the other way” politicos and even the attorney general of the USA. We owe thanks to Dr. Black and the courageous whistle blowers he has identified. And it is time for all of us to let the banksters know that we know and we will not accept it any more.
Well said, Charles. If anyone is interested, Mr. Bowen’s Twitter handle is @richardmbowen.
You keep us in the BLACK, Mr. Black. Thanks to you we get “the rest of the story”, or better yet, the real story!
Thank you for all of your efforts to educate.
Thanks to Richard Bowen and all whistleblowers for their courage and integrity.
Professor Black, I hope your President Warren’s choice for AG.
Correction Tyler: ” Professor Black, I hope [you are] President Warren’s choice for AG.
WOW-
“Professor Black, I hope your President Warren’s choice for AG.”
Thanks for the great suggestion that we thank Richard M. Bowen, III for his service to our nation.
According to this NYT article,
http://www.nytimes.com/2013/09/22/opinion/sunday/was-this-whistle-blower-muzzled.html?pagewanted=all&_r=0
Bowen’s attorney is– or was– Steve Kardell, web site at:
http://www.cdklawyers.com/skardell.html
Address on the web site is:
1201 Elm Street Suite 5200 Dallas, Texas 75270 – 2142
Since it seems unlikely that Bowen knows about or reads this web site, perhaps we can send Richard M. Bowen III our thank you notes for his service to our country, care of his attorney Steve Kardell, at the above address.
I think people are missing an important point here. All the buyers for those bad morgages were government entity (I live in canada and 1/4 of our province (state) pension fund collapsed in the crisis it would have been worse without the fed bailout ). Freddy and fanny were government back entity too. The bankers did what the market ( pension funds worlwide)asked them (sell aaa morgages). What I am trying to say is that the state wanted all that to happen to keep the pension illusion and now they devaluating the money instead of facing reality. The end result will be exacly the same , babyboomers (majority of the population being in a democratic system it’s easy to understand why any elected leaders would prefer devaluating the currency instead of touching the pension)pension will end up being nothing. I’ve been following professor black for 6 years now and I appreciate it’s work but people should look at the facts the soaring inflation for the last 60 years is directly connected to the welfare states under all it’s form and pension fund are a huge part of it. Excuse my poor english I come frome the french part of Canada.
Bill Black has captured much of what has happened at Citi. But, as noted in the NYT article referenced by Jill, the coverups extend far beyond Citigroup.
I pray that our country can learn some lessons from this.
Richard Bowen
richardmbowen.com
Richard Bowen, wow, here you are at this web site! Thanks very much for your service to our country. We are extremely fortunate to have whistleblowers like you.
Now it’s up to all of us to figure out how to get our economy back together and make our financial institutions more safe and less criminal.
Thank you for your courage and service to our country and the world. If I had my way, there would be another holiday added to the calendar, in your honor.
Most have not worked in any organization at your level of responsibility! Few have any idea the kinds of people that manage to work their way up the food chain! You are rare as you sounded the alarm! What is not rare was the response of those above you and the fact that you got fired for doing your job and telling the truth! That truth did not square with the interests of Citi, the public be damned!
The sad truth is, the cost of financial corruption has been shifted to the consumer and government appears to be totally impotent to enact meaningful change!
Thank you Mr. Bowen.
It’ll be even harder to prosecute them the next time around. It’s all smoke and mirrors now.
Go bless you, Mr. Bowen! Your story reminds me of the old expression, “No good deed goes unpunished.” I guess at least you have here earned the recognition of another man with great integrity : Professor Black. . . But the burning question is – knowing what happened, would you do it all again?
«Now it’s up to all of us to figure out how to get our economy back together and make our financial institutions more safe and less criminal.»
You seem to be giving for granted that «all of us» share that goal.
Most Real Americans instead think that fraud does not affect them negatively, their attitude to financial crime is that they want a cut of it, and that if making the financial system safer means less tax-free capital gains and low-interest rate HELOCs for property speculators then it is something real bad.
Most Real Americans, especially middle class ones, are not people of principle or at least enlightened self-interest like William Black and the few other jimini crickets. If the economy goes down the drain but they got theirs, that’s the American Dream, squared: to be rich while everybody else is poor; and for Real Americans, winners do whatever it takes.
William Black’s notable victories during the monstrous S&L frauds were rather the exception than the rule, when for a lucky period some jimini crickets managed were in the right place at the right time, and the Real Americans like Keating were unable to deal with them.
If you want «all of us to figure out» where their true interests lie, find arguments that sound persuasive to Real Americans that blowup prone finance and financial crime affect them badly and reduce their winnings. Then they will start writing to their representatives and donating to candidates to support honesty and safety in finance, which they currently are indifferent to, or hate.
I wish we would stop calling these criminals “elite.” Find another word to describe them that is not complimentary. The word “elite” indicates an exalted position and while they may see themselves as superior they are common criminals.
«Instead of promoting and praising Bowen for his prescient warnings Citi retaliated against Bowen by demoted him and removing his staff (which had been 220 strong)»
So let’s look at the big fraudsters who helped millions or dozens of millions of small fraudsters to pursue their dream of screwing someone else: they got away with massive bonuses and not even a slap on the wrist.
The jimini cricket who wanted to ruin the dream of so many people to MAKE MONEY FAST with massive or smaller frauds got the hammer thrown at him and his job and career were smashed, and I guess that many fewer people voted and donated to politicians with the message to protect him, instead of the message to bail out with trillions of free public money a lot of fraudsters and their bonus pools.
An object lesson: fraud is *very popular* in the USA, lots of people vote and donate following the dream of getting a cut of some scam, and jimini crickets get a lot of hate and trouble for not minding their business. I will not repeat here the usual quotes from de Tocqueville, Galbraith, Gingrich, Norquist.
But the usual request: that if you really want for the vast majority of Real Americans who practice and admire fraud (on taxes, on mortgages, on expenses, on billing, …) to change their opinion, you don’t need to constantly tell them that there are many unpunished fraudsters and it is a scandal…
They know that very well, each of them knows they have done their little or not so little frauds, and knows a lot of cunning winners who have done frauds and got away with it.
You need to find persuasive arguments that fraud is not in their best interest, that being a fraudster is not something to admire because winners do whatever it takes.