Abigail Field dispels the fog of the blame game. I am excerpting one of her newest articles. She always nails it. Please go read the Full article here on her blog Reality Check, truly excellent work, as always:
Somehow the banking industry has convinced much of the public and most of our political leaders that our housing and foreclosure crisis is the fault of irresponsible borrowers despite the overwhelming evidence that greedy bankers are to blame. Since good policy can’t happen unless people escape the bankers’ web of misinformation and spin, I thought it would be appropriate to synthesize what we’ve learned about the greed-driven decisions of bankers and Wall Street traders and what they reveal about how we got where we are now.
Chasing Illegal Profits in the Mortgage World: MERS
Whether from hubris, incompetence or both, the creation and widespread use of MERS maximized corporate profits and executives’ personal wealth at the expense of the rest of us. MERS has damaged our records of who owns which parcel of America, and the millions of dollars lost by counties across the country has resulted in less services and higher taxes.
Chasing Illegal Profits in the Mortgage World: Robosigning
By fragmenting a very important legal process–the transfer of ownership of land or other rights in it–into discrete, meaningless steps that low skill workers could mechanically complete, over and over, banks saved tons of money but made a mockery of Due Process, the rules of evidence, and the entire concept that they had to follow the same laws everyone else did.
I mean, imagine if borrowers committed wholesale document fraud, filing false affidavits, forged documents and other worthless bits of paper with our courts. People would go to jail. I mean, robosigning notaries were forced to plead The Fifth, but I’ve heard nothing about investigating the executives that demanded the notaries’ practices. Indeed, the top bankers act as if their document fraud was meaningless.
The idea that our biggest, most powerful corporations don’t have to play by the same rules as everyone else is incredibly dangerous.
Chasing Illegal Profits in the Mortgage World: Foreclosure Mills
Beyond MERS and robosigning, the mortgage industry saved itself tons of money by deploying fleets of foreclosure attorneys via the “network attorney” business model. Most lawyers wouldn’t recognize the activities these firms consider the practice of law. The clients respected these attorneys so little that they had intermediaries communicate with them purely by computer message–virtually no direct client-attorney contact–and graded them on speed, on quantity over quality. Mass foreclosure counsel were treated, essentially, as high level robosigners.
Fraudulent Lending to Feed the Securitization Machine
So MERS, robosigning and ‘network attorneys’ are the mortgage industry’s early and major contribution to our present mortgage and foreclosure crisis. Another key contribution of the mortgage industry was knowingly making lousy loans.
People, fed the bankers’ spin, envision greedy borrowers deceiving innocent loan officers into making loans that couldn’t be repaid. But that’s just not true. Beyond the fact that loan underwriting should prevent all but the most sophisticated fraudulent borrowers from fooling lenders–and surely competent underwriting is a basic duty banks owe their shareholders–evidence is mounting of decisions to systematically to make bad loans.
Wall Street’s Crucial Role
Securitization Fail: The Mother of All Wall Street Greed Driven Screw Ups
How blinded by greed and careless did Wall Street get? So careless it ignored virtually every key provision of its securitization contracts. Seriously. As the Ambac suit (and many others) detail, the loans in the securities weren’t close to the promised quality. But other provisions that governed the most critical feature of securitizations, namely, actually giving the trust ownership of the loans, and thus investors the right to collect payments from the loans, appear to have been violated either routinely, or, at least often enough to cause massive problems.
Cooking the Books Still?
In a must-listen podcast, Martin Andelman interviews Talcott Franklin, the lawyer for a majority of securitization investors. Among many other topics, Tal discusses how mortgage servicers aren’t always recognizing the losses the securities are incurring, which means that the owners of the riskier slices of the securities are getting paid money that should be saved to pay the top, AAA-rated tier. As a result, Tal says, the AAA investors–main street, via pension funds and life insurance policies–are going to take much bigger losses than they should. And it means that the servicers–who often own these riskier slices–are making their balance sheets look better than they are.
Gambling with Other People’s Money
An even more important economy-wrecker, beyond executive compensation-driven stuffing of securities full of crappy loans and failing to even do that properly, are the bets Wall Street traders made on those securities. Those bets were particularly damaging because of “leverage.” Leverage meaning money borrowed from other people to increase the size of the bets, magnifying both wins and losses. A Wall Street trader’s use of “leverage” is functionally the same as a casino gambler maxing out his credit card cash advances to make his “sure thing” pay off big.