Tag Archives: fraud

UPDATE: Bank of America Fined Another $16 Billion for Fraud

Posted on August 7, 2014 by L. Randall Wray | 9 comments

Bank of America just agreed to pay another $16 Billion fine for one of its frauds—selling trashy securities to its investors. Another day, another fraud exposed. No surprises there. This is so routine it barely deserves a headline.

According to Bloomberg, that raises the total it has agreed to pay for its mortgage lending frauds to $70 billion. Most of this is related to its purchase of Countrywide, where Mairone oversaw much of the fraud. See here.

BofA rewarded Mairone for creating Countrywide’s “Hustle” fraud by hiring her. So far that woman’s criminal expertise contributed toward mounting costs to BofA of $70 billion. Quite an accomplishment!

Continue reading →

9 Comments

Posted in L. Randall Wray

Tagged accounting control fraud, banksters, fraud

Credit Suisse’s Guilty Plea: The WSJ Uses the Right Adjective to Modify the Wrong Noun

Posted on May 21, 2014 by William Black | 4 comments

By William K. Black

The Wall Street Journal has editorialized about Credit Suisse’s guilty plea in a piece entitled “If Credit Suisse really is a criminal, why protect it from regulators?” More precisely, and confusingly, the full title is:

“Holder Convicts Switzerland

If Credit Suisse really is a criminal, why protect it from regulators?”

The U.S. Saved Switzerland and Its Banks

I’ll begin by responding to the WSJ’s weird claims about Switzerland. Far from “convict[ing] Switzerland,” the U.S. Fed bailed out the Swiss Central Bank at the acute phase of the crisis (by making large unsecured loans to it in dollars) so that it in turn could provide dollars to its two massive, insolvent, and fraudulent banks (UBS and Credit Suisse). The Treasury, with the support of Secretaries Paulson and Geithner, used AIG to secretly bail out not only Goldman Sachs but also UBS (to the tune of $5 billion). The unconscionable deal was so toxic that the heads of each of the three U.S. financial regulatory agencies involved (Treasury, the Fed, and the NY Fed) deny that they had any involvement in the decision – it’s the Virgin Bailout.

Continue reading →

4 Comments

Posted in William K. Black

Tagged banksters, Credit Suisse, fraud

How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis

Posted on November 15, 2013 by Devin Smith | 6 comments

By William K. Black

Step one: Understand the three “control fraud” epidemics that drove the crisis.

Control fraud occurs when the person that controls a seemingly legitimate entity uses it as a “weapon to defraud.” In finance, accounting is the “weapon of choice.” Lenders engaged in accounting control fraud display the four “ingredients” of the fraud “recipe.”

Grow massively by
Making loans at a premium yield that are so bad that they will produce losses
Employing extreme leverage and
Providing only trivial allowances for loan and lease losses (ALLL)

The recipe produces three “sure things.” The lender will report record profits in the near term, the controlling officers will promptly be made wealthy through modern executive compensation, and the firm will suffer catastrophic losses. The recipe is also an ideal means to hyper-inflate a financial bubble in real estate, which can delay loss recognition for many years. Minor variants on this recipe drove the savings and loan debacle and the Enron-era frauds.

Continue reading →

6 Comments

Posted in William K. Black

Tagged banksters, Control Fraud, fraud

The Taylor Rule: Ignore Fraud Epidemics and Worship Markets

Posted on November 1, 2013 by Devin Smith | 5 comments

By William K. Black

I recently posted a detailed article in response to Raj Chetty’s lament that scientists make fun of economics’ pretense to science.

The thrust of my article was that the problem was not that economics was inherently incapable of becoming more scientific. The problem was that so many economists wear ideological blinders that recurrently cause them to perform a parody of the scientific method.

Chetty claimed that economists who are “testing precise hypotheses” in quantitative studies that exploit natural experiments are (finally, in 2013) “transforming economics into a field firmly grounded in fact.” Chetty’s metaphor is that economics is like epidemiology. (One assumes that his column is posted in the CDC’s common areas for the general amusement of epidemiologists.)

Continue reading →

5 Comments

Posted in William K. Black

Tagged fraud, John Taylor, markets, raj chetty

JPMorgan: Fish Rot from the Head

Posted on October 23, 2013 by Devin Smith | 4 comments

By William K. Black

The New York Times’ spin of the tentative settlement of JPMorgan’s latest myriad felonies begins early and runs throughout the article. JPMorgan and Attorney General Eric Holder have reached a common meme on their settlement: the Department of Justice (DOJ) and Holder are stalwarts who have demonstrated their toughness and JPMorgan is a model corporate citizen. The inconvenient facts that the senior officers of JPMorgan, Bear Stearns (Bear), and Washington Mutual’s (WaMu) grew wealthy through the frauds that drove the financial crisis and that JPMorgan’s senior officers will not be prosecuted and will not even have to repay the proceeds of their crimes never appear in the article.

A word of caution is in order: I am discussing an article that is the product of leaks from DOJ and JPMorgan’s press flacks about a tentative deal, so reality is certain to differ from the spin. This article is a longer discussion of the settlement than my October 22, 2013 CNN op ed.

Continue reading →

4 Comments

Posted in William K. Black

Tagged Bear Stearns, fraud, J.P. Morgan, Jamey Dimon, WaMu

“Pervasive” Fraud by our “Most Reputable” Banks

Posted on February 28, 2013 by Devin Smith | 8 comments

By William K. Black

A recent study confirmed that control fraud was endemic among our most elite financial institutions. Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market. Tomasz Piskorski, Amit Seru & James Witkin (February 2013) (“PSW 2013”).

The key conclusion of the study is that control fraud was “pervasive” (PSW 2013: 31).

“[A]lthough there is substantial heterogeneity across underwriters, a significant degree of misrepresentation exists across all underwriters, which includes the most reputable financial institutions” (PSW 2013: 29).

Continue reading →

8 Comments

Posted in William K. Black

Tagged Control Fraud, Financial crisis, fraud, liars loans, MMT, Modern Monetary Theory, pervasive fraud

Why are there no famous financial whistleblowers in this crisis?

Posted on October 31, 2012 by Devin Smith | 6 comments

By William K. Black

This column discusses one of the more subtle issues raised by the Department of Justice’s (DOJ’s) civil fraud action against Bank of America (B of A). The issue was so subtle that of the three articles about the lawsuit that I choose to review the night after the suit was filed, only the NYT article mentioned one of the most important aspects of the suit – the key role that the whistleblower played in making the action possible. The AP and the WSJ articles ignored the fact.

Continue reading →

6 Comments

Posted in William K. Black

Tagged BofA, Financial crisis, fraud, whistleblowers

How “Brazen” does a Bankster’s Fraud have to be before he’s Prosecuted?

Posted on October 30, 2012 by Devin Smith | 5 comments

By William K. Black

I’ll get the obvious out of the way first and then turn in future columns to the aspects of the Department of Justice’s (DOJ) civil suit against Bank of America (B of A)/Countrywide that are vital to understand but are more subtle. The obvious issue arises from the facts that the DOJ alleges that its investigation has found. The complaint and the DOJ press release state that elite financial criminals committed tens of thousands of “brazen” frauds targeting U.S. government funds. Continue reading →

5 Comments

Posted in William K. Black

Tagged banksters, BofA, fraud, prosecutions

Krugman Now Sees the Perversity of Economics’ “Culture of Fraud”

Posted on August 11, 2012 by Stephanie Kelton | 5 comments

By William K. Black

Paul Krugman has written an article entitled “Culture of Fraud” about the Romney economics team.

Continue reading →

5 Comments

Posted in William K. Black

Tagged accounting control fraud, bank fraud, fraud, Greg Mankiw, ideology

Who is Steven Krystofiak

Posted on July 16, 2012 by Mitch Green | 3 comments

By William K. Black

“My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending.” That is how Krystofiak began his written statement to the Federal Reserve concerning mortgage fraud. It is a follow-up to his oral testimony at a Federal Reserve hearing on June 16, 2006 at the FRB San Francisco entitled: “Responsible Lending and Informed Consumer Choice, Public Hearing on the Home Equity Lending Market.” Continue reading →