by Gavin Kakol, GEI Associate
In today’s world, somebody is always liable. Or it seems as though that is what should be. However, even though the banking industry’s top executives had much to fear coming out of the housing bust, to date they’ve been able to rest easy: None has spent a night behind bars.
The Untouchables is a PBS Frontline documentary shown on 22 January 2013 which investigated why Wall Street’s leaders have escaped prosecution for any fraud related to the sale of bad mortgages. The title is the same as a TV series of 50 years ago that dramatized the efforts of Federal agents to deal with organized crime during the Great Depresssion.
Since 2008, nearly three-thousand loan originators have been arrested. But, despite paying penalties, banking executives have yet to be proven guilty beyond a reasonable doubt for fraud or malicious behavior and very few have even been charged.
The Untouchables takes a bottom-up approach to the banking industry, exposing the lack of credibility in the years preceding the recession.
According to Chief Criminal Justice Department official, Lenny Breuer:
Greed is not necessarily criminal…what makes a criminal case is that I can prove beyond a reasonable doubt every element of a crime.
Note: After this was written The Washington Post reported that Breuer is leaving the Justice Department. See GEI News for some additional detail.
From the very beginning of the financial crisis, Wall Street’s elite have been able to dodge penitentiary sentences because lack of evidence.
The Untouchables discloses numerous testimonials. It seems everyone knew toxic assets existed in excessive, perhaps hazardous levels, from the packed floors of due diligence underwriters to Citigroup’s (NYSE:C) chief underwriter, Richard Bowen.
Due diligence supervisor, Tom Leonard noted that defect rates were lowered to approve eighty-percent of non-qualifying loans applicants.
An eye opening quote from Leonard puts in perspective just how ridiculous approval became:
It wasn’t uncommon to have an underwriter on one side of the room start to laugh and say, you know: “Hey, get a load of this. Here’s a guy that’s moving from $500 a month in rent to a $650,000 house, and he’s an electrician, and his wife is a waitress…
Citigroup’s Bowen, recounted his frustration as his reports indicated ever increasing unqualified loans. In an email to chairman Robert Rubin Bowen wrote the following:
I have been agonizing for some time….since mid 2006 I have continually identified breakdown of internal controls.
Over the past five years, stories of the financial crisis has been told time and time again. However, The Untouchables shows the government’s ineffective, almost helpless attempt to deliver justice.
Independent director Nick Verbitsky says uncovering whistle blowers was easy. He noted:
It wouldn’t have taken a lot of effort on the part of a regulatory entity in Washington to have done this.
A quote from an interview with chief of the Criminal Justice investigation, Lanny Breuer:
I don’t accept for one moment that you all are finding whistle blowers that we’re not…what I do believe is that when we speak to the whistle blowers, we have to make a determination whether what they say is really a criminal case.
Related Articles:
1. A mortgage-backed security map:The fantastic fate of one man’s loan.
An interpretive look at a robosigner’s own position in a mortgage backed security. Daniel Edstrom, an auditor for DTC systems has created a detailed diagram of his own home mortgage and its complexities.
If someone steals a car, they can make much more money if they break the car up into pieces and sell the pieces individually. That’s exactly what happened here [to my mortgage].
2. Toxic Titles – Following a Loan into a Mortgage-Backed Security
A power-point presentation with detailed information relating to stalled foreclosures due to inadequate information.
3. The Alchemy of Securitization
The process of turning junk mortgages into AAA-rated securities is described.
4. Update: The Best Way to Rob a Bank is to Own One
A comprehensive review of the work of William K. Black documenting the control fraud that has corrupted the financial system over the past 20 years.
References:
- The Untouchables (Martin Smith, PBS)
- Too Big To Jail? The Top 10 Civil Cases Against the Banks (James Breslow, PBS, 22 January 2013)
- Lanny Breuer, Justice Department criminal division chief, is stepping down (Danielle Douglas, The Washington Post, 23 January 2013)
- Breuer Resigns! (GEI News, 24 January, 2013)