lol @ cult classic!
Here's an interesting article on the systemic fraud at the heart of the mortgage crisis:
by Lars Schall
When it comes to White-Collar Crime and Control Fraud, the Roosevelt Institute Braintruster William K. Black is surely the leading expert to ask. In an exclusive interview in two parts, he answers questions related to major causes for the financial / economic crisis, the SEC charges against Goldman Sachs and the importance of drug money for the survival of the international banking system in our times.
William K. Black developed the concept of “Control Fraud” and focuses in his research on the factors of “criminogenic environments” that produce epidemics this dangerous phenomenon.
Who better to ask on matters of economic warfare?
And fraud?
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[the following are some excerpts from the article...]
Accounting abuses also provided the ultimate perverse incentive: it paid to seek out bad loans because only those who had no intention of repaying would be willing to offer the high loan fees and interest required for the best looting. It was rational for operators to drive their institutions ever deeper into insolvency as they looted them (1994: 10-11).
A lender optimizes accounting control fraud through a four-part recipe. Top economists, criminologists, and the savings and loan (S&L) regulators agreed that this recipe is a “sure thing” - producing guaranteed, record (fictional) near-term profits and catastrophic losses in the longer-term. Akerlof & Romer (1993) termed the strategy: Looting: Bankruptcy for Profit. The firm fails, but the officers become wealthy through:
-Extremely rapid growth
-Lending at high (nominal) yield to borrowers that will frequently be unable to repay
-Extreme leverage
-Providing grossly inadequate reserves against the losses inherent in making bad loans.
Nonprime mortgage lenders followed the same recipe. Growth was extreme. Loan standards collapsed. Leverage was exceptional. Unregulated nonprime lenders had no meaningful capital rules.
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Could the crisis that we’re going through by now, have been prevented?
Yes, it could have been prevented. Indeed, in many ways this was an easier crisis to contain successfully than many prior financial crises. The United States had extensive experience with nonprime mortgage lending - and it always ended badly. This is the third nonprime failure in twenty years. Nonprime lending, on its face, is inherently imprudent.
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The claim that no one could have foreseen the crisis is false. Unlike the S&L debacle, the FBI was far ahead of the regulators in recognizing that there was an “epidemic” of mortgage fraud and that it could cause a financial crisis. The FBI warned in September 2004 (CNN) that the “epidemic” of mortgage fraud would cause a “crisis” if it were not contained.
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The FBI suffered from a horrific systems capacity problem. It did not have the agents or expertise to deal with the concurrent control fraud epidemics it faced this decade.
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The most crippling limitation on the regulators’, FBI’s, and DOJ’s efforts to contain the epidemic of mortgage fraud and the financial crisis was not understanding of the cause of the epidemic and why it would cause a catastrophic financial crisis. The mortgage banking industry controlled the framing of the issue of mortgage fraud. That industry represents the lenders that caused the epidemic of mortgage fraud. The industry’s trade association is the Mortgage Bankers Association (MBA). The MBA followed the obvious strategy of portraying its members as the victims of mortgage fraud. What it never discussed was that the officers that controlled its members were the primary beneficiaries of mortgage fraud. It is the trade association of the “perps.” The MBA claimed that all mortgage fraud was divided into two categories - neither of which included accounting control fraud. The FBI, driven by acute systems incapacity, formed a “partnership” with the MBA and adopted the MBA’s (facially absurd) two-part classification of mortgage fraud (FBI 2007). The result is that there has not been a single arrest, indictment, or conviction of a senior official of a nonprime lender for accounting fraud. ... (See article for more)
