We wish we could say the following story excerpted from The New York Times is news, or a discovery, or anything other than “Yes we know. And why aren’t these people in prison — general population prison?”

After three years of working to save homes from foreclosure, we are still reading drivel such as the following. Absolutely everything out of the former banker’s mouth has been covered in the news repeatedly during the past few years. The bankers are still smiling and still running free and, probably worse, the former banker in The New York Times’ story is smiling . . . why? Because he got off scott free even though he knew what he was doing was questionable.

A Banker Speaks, With Regret (Yet He’s Still Smiling!)

By NICHOLAS D. KRISTOF, November 30, 2011 (Op-Ed Columnist)

If you want to understand why the Occupy movement has found such traction, it helps to listen to a former banker like James Theckston. He fully acknowledges that he and other bankers are mostly responsible for the country’s housing mess.

As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.

“On the application, you don’t put down a job; you don’t show income; you don’t show assets,” he said. “But you still got a nod.”

Editor’s Note: Try for a loan modification on your mortgage and watch what happens. Real life example: Chase holds a client’s second. The house is upside down $400,000 and $600,000 is owed on the first. If the owner walks away, Chase gets nothing . . . except they have insurance. The client’s income has gone up in a puff of smoke, so there’s nothing they can go after. When the loan was given in 2006, it was on stated income (which was bizarre because the client had an excellent paying job; actual tax returns could have been used). At the time of the original loan (first and second), next to no documentation was given to anyone. Now that a loan modification on a $80k second is being requested, what do they want in return? Glad you asked. Here’s the list — and it all MUST be included in one package:

1. Request for Modification and Affidavit (RMA), fully completed, signed, and dated
2. Signed Dodd-Frank Certification Form
3. Completed 4506T or 4506T-EZ form, signed and dated within the past 90 days
4. Proof of additional income from non-borrower(s)
5. Completed 4506T or 4506T-EZ form for non-borrower, signed and dated within the last 90 days.
6. Completed Authorization to Obtain Consumer Credit Report form (enclosed), for non-borrower(s)
7. Two most recent pay stubs indicating year-to-date earnings
8. Most recent quarterly or year-to-date profit and loss statement (signed and dated), reflecting revenue and expenses, with company name and dates covered
9. Copy of IRS Schedule K-1 (Return of Partnership Income)
10. Most recent W-2
11. Verification of Employment letter on company letterhead, signed and dated, that includes year-to-date paid amount with a paid-through date
12. Benefit statement or letter from all providers of income from Social Security, including Social Security for the support of children, disability, survivor benefits, pension, or public assistance, which states the amount, frequency, and duration of the income, and proof of receipt of payment, such as two most recent bank statements showing deposit amounts
13. Proof of income from 401K distributions, dividends, interest, and/or annuities (copies of two check stubs, two bank statements, or copies of two actual checks, reflecting the income;
14. Legal documentation indicating amount, frequency, and duration of alimony and/or child support payments, if you wish to have this income considered as part of your modification request (this is not required), and proof of receipt of payment, such as two most recent bank statements showing deposit amounts
15. Proof of occupancy (recent utility bill in your name at property address)
16. Copy of recorded Quite Claim Deed or Warranty Deed transferring ownership
17. One of the following documents reflecting rental income: Copy of IRS Schedule E (Supplemental Income and Loss), current rental agreement(s), or handwritten lease agreement(s) or contract(s)
18. One of the following documents reflecting boarder income: Statement from the borrower claiming boarder income, letter from the boarder, copy of IRS Schedule E (Supplemental Income and Loss), current rental agreement(s), or handwritten lease agreements(s) or contract(s)
19. Two canceled (their misspelling) checks or two most recent bank statements reflecting rental and/or boarder income – please note that we are unable to accept hand-written receipts
20. Proof of Flood Insurance – current policy or declaration
21. Current Property Tax bill and proof of payment
22. Proof of payment of Homeowner/Property insurance, including declaration page showing amount due
23. Homeowner’s Association bill and proof of payment, as well as documentation o coverage and premium (master policy)
24. Copy of most recent first mortgage loan statement, showing the status
25. Copy of modification agreement for your first mortgage on the property
26. Written hardship letter, signed and dated
27. Divorce decree, separation agreement, or other legal written agreement that has been filed with the court pertaining to a divorce and/or separation
28. Copy of recorded Death Certificate
29. Cop of the executed Power of Attorney
30. Copies of most recent statement(s) supporting assets — all pages
31. Copies of two most recent bank statements, showing deposit amounts, or copies of two most recent alimony or child support checks
32. Copies of two most recent bank statements, showing deposit amounts (Please note that copies of bank statements must be actual copies from the bank; internet copies or transaction histories cannot be accepted. Include all pages of the statements, including any blank pages.)

Added to this irony is that most of this was sent to Chase more than a month ago through FedEx and by FAX. They have no record of receiving any of it. We were just told that to be sure they get the documents, the client should go to the nearest Chase Bank and ask them to FAX the documents . . . right . . . all 150 pages!

Back to the article

. . . “You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.

Editor’s note: The average person did NOT think they would "flip" their homes and make a profit — most people did not even know what "flipping" was; mortgage brokers and lenders, including mine, were TELLING people that they could wait a few years, sell, make a profit.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

One memory particularly troubles Theckston (which makes one wonder why he is smiling in The New York Times’ article). He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans . . . Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up . . . (Chase’s) spokesmen acknowledge that banks had made huge mistakes and noted that Chase no longer writes subprime or no-document mortgages. It also said that it has offered homeowners four times as many mortgage modifications as homes it has foreclosed on.

Editor’s Note: The key word here is "offered." See the list above; they have "offered" to consider a modification, but given their requirements, it will be a cold day in hell before they give the average person a modification. I propose that for modifications, they use the same type of documentation required for the original loan: stated income, and a one-page financial sheet, and my signature!

. . . 28 percent of all American mortgages are “underwater,” according to Zillow . . . and the figure is up from 23 percent a year ago . . . it’s difficult to nurture a broad recovery unless real estate and construction revive.

All this came into sharper focus this week as Bloomberg Markets magazine published an exposé based on lending records it pried out of the Federal Reserve in a lawsuit. It turns out that the Fed provided an astonishing sum to keep banks afloat — $7.8 trillion, equivalent to more than $25,000 per American.

The article estimated that banks earned up to $13 billion in profits by relending that money to businesses and consumers at higher rates.

The Federal Reserve action isn’t a scandal, and arguably it’s a triumph. The Fed did everything imaginable to avert a financial catastrophe — and succeeded. The money was repaid.

Yet what is scandalous is the basic unfairness of what has transpired. The federal government rescued highly paid bankers from their reckless decisions. It protected bank shareholders and creditors. But it mostly turned a cold shoulder to some of the most vulnerable and least sophisticated people in America.

Last year alone, banks seized more than one million homes.

Sure, some programs exist to help borrowers in trouble, but not nearly enough. We still haven’t taken such basic steps as allowing bankruptcy judges to modify the terms of a mortgage on a primary home . . . When the federal government goes all-out to rescue errant bankers, and stiffs homeowners, that’s not just bad economics. It’s also wrong.

The actions of the world’s top banks have

Turned the world upside down

Acts 17:6

Please include attorney Michael T. Pines in your list of questionable people; while he may not be involved in illegal sales yet, he has taken $5,000 from individuals who then lost their homes because he admittedly does NOT do his job; I’ve seen eMails wherein he said he “forgot” to file papers on time on one case.

In another, a man took out his retirement savings, paid $5,000 to Pines, who then apparently did NOTHING; the 78-year-old-man involved has just left his home of two decades and moved to another county with his cat.

Michael T. Pines advised a 74–year-old women to move back into her already-sold house. She did. Within hours, she was taken to jail in handcuffs which seriously bruised her arms. Michael T. Pines IS a white collar crook. He took $5,000 up front from dozens of families and did nothing! Also because of Michael Pines, one senior man recently left his home of 20+ years and, with his cat, moved to another county.

Pines and others of his ilk belong in jail.

Excerpts from International Living:

In short, the mother of all real estate and banking bubbles has imploded. The Irish government guaranteed the entire financial system’s liabilities. The extent of banking losses is breathtaking. Losses will be in the region of two to three years’ worth of the country’s total tax take.

Official statistics tell us that real estate prices have fallen by 40%. This is misleading. It hides the fact that there is no liquidity . . . no buyers whatsoever in many cases. To find a buyer you may have to drop prices by 70% or more. And if you do find a buyer, chances are the sale will fall through anyway. Financing is almost non-existent.

Let me give you an example of how bad things are. Earlier this year I met an old friend for lunch in a Dublin hotel. He just bought a new home in central Dublin. He paid $1 million. His neighbor paid $2.5 million for the same house a couple of years ago.

To clear unsold inventory of new apartments on the outer reaches of Dublin’s commuter belt, developers now need to cut prices to the $96,000 to $110,000 range. This is a fire sale. The list price on the same units would have been much higher—somewhere in the $274,000 to $356,000 range.

Before taking the plunge you need to understand the foundations that Ireland’s real estate market sits on.

In September 2008, fearing a run on the banks, the government guaranteed all deposits and liabilities of Irish banks. This put Irish taxpayers on the hook for every bad loan made and every bond issued.

After guaranteeing these loans, the government created a “bad bank” called NAMA (National Assets Management Agency). Years—maybe even decades—of inventory are now in NAMA’s hands. We have no idea what NAMA will do with it. Will NAMA offload at fire sale prices? Whatever it decides will have a dramatic impact on the market.

Foreclosures (or repossessions as they’re called in Ireland) are rare. The legal process for foreclosures is difficult. And the banks are worried about the bad publicity. But this situation may not last. This means that even more inventory could come on stream on top of excess supply. If it does, there will likely never be a level of demand that will meet current supply levels.

However, I have not been able to do the math — it makes my mind reel. So these wonderful gentlemen have done the math for us and even illustrated it in large letters and numbers.

It may be difficult to believe that America’s financiers are this crooked, but, as “they” say, it is what it is.

Liars Lovers And Heroes: What The New Brain Science Reveals About How We Become Who We Are

Introducing the new science of cultural biology born of advances in brain imaging computer modeling and genetics Drs. Quartz and Sejnowski demystify the dynamic engagement between brain and world that makes us something far beyond the sum of our parts. The authors show how our humanity unfolds in precise stages as brain and world engage on increasingly complex levels.

As they did with their last book, The Exception to Rulers, Amy Goodman and her brother David have once again provided “the other side of the story” on numerous topics. Their basic premise in Static: Government Liars, Media Cheerleaders, And The People Who Fight Back is that the mainstream media have failed miserably in their primary duty – to inform the public while serving as a check against government overreach.

Important stories are missed because the media has too often parroted the official government line; in other instances, stories are underreported or simply ignored.

Just what is an “associate discount program?”

Well, they basically are on-line retailer shops selling items such as books, shoes, luggage, cruises, vacations, etc., via the internet. They are in direct competition with local businesses and they — in this case Bank of America — gets a percentage of everything you buy from their “associate discount program.” Local retailers will lose business as a result of any purchases you make through Bank of America.

Whomever thought of this should be asked “What ARE you thinking?” Or, “Are you thinking?”

Banks are purportedly taking care of our money; they are not an affiliate marketing program/retail gateway for consumers. This program makes no sense from a banking institution — are you really that hungry/desperate? Oh, don’t answer that — we all are, I suppose.

Why is banking institution allowed to conduct business in such a manner. Affiliate marketing links are consumer gateway, NOT banking products. Again, this puts the bank in direct conflict with various local businesses that are their clients.

Wouldn’t it be more appropriate for today’s banks/lenders to run their business in more professional “bankerly” manners, as in paying attention to the millions of fraudulent real estate loans handed out in the past 4-6 years.

Due to poor lending practices by banks, by the time all is said and done, more than 60 million people will have been displaced in America — that is more forced movement than any time in the recorded history of the world from any source, including war, persecution, hurricanes, floods, fire and earthquakes.

PLEASE get back to what you are supposed to be doing, which is managing money, not selling retail products through affiliate marketing programs.

If this particular lender proceeds with this instead of managing its business, we need to complain to appropriate authorities, i.e. Federal Trade Commission, Office of the Comptroller of the Currency, Office of Thrift Supervision, etc.

I even like the particular bank “offering” this “service,” but this is way out of line and I was in court just yesterday with a woman trying to save her home from this very bank . . . the court ruled in the woman’s favor due to lack of responsiveness from this lender.

Rather than helping customers, they are setting up affiliate marketing programs to further make money from their clients and to compete with local retailers.

VERY IMPORTANT: The very second you start negotiating with your lender regarding a loan modification, get a large binder and put everything in it. You will need it. During the Home Modification workshop with Wells Fargo, they repeatedly said they did not have this or that document. I did AND I had the FAX confirmation that it was sent to them and received. I handed it to them and said, “please make a copy and bring this right back to me.” We did that four or five times. I’m sure they were looking for a reason to NOT modify.

On May 24, 2010, I met with Wells Fargo at a Home Modification workshop they held in Oakland, California. I had been trying to get a loan modification for 18 months. This started out in December 2008 as a projected six months of financial strife, after which time two retirement incomes would kick in and I could get back on track financially. My goal when I purchased my home in 2006 was to pay it off in five years because of the retirement incomes. It was all looking good until cancer (through which I worked), followed by a job layoff in 2008.

Wells Fargo helped stretch my potential six-months of strife into 20 months so far and I don’t see an end to it. (That image is of my 20 pound, 6 inch thick — and growing — binder.)

I came away from the modification workshop quite pleased and thinking I actually had a decent loan modification for five years — time to help me find the money to pay off this loan and get away from Wells Fargo for the rest of my life. And an opportunity to help others figure out their way through this financial maze.

Wells Fargo is either the most crooked corporation I’ve seen in more than 50 years of working in corporate America — including a stint in the corporate finance department at a major bank — or they are the most inept.

In either case, if they have your money, you should be worried. Wells Fargo is featured in various class actions across the nation and are an international financial collaborator with HSBC out of London, which is being investigated on three continents.

At that workshop, I signed an agreement with Wells Fargo, figured I bought a five-year “stay of execution,” and started to work on increasing my income with the prayer of being able to pay them off in the five year period. (The modification is actually for seven years, but it is not good in year six or seven.)

Today I received a statement dated July 5, 2010 (it is July 15 as I write this). It is 9:56 p.m. ’cause I just finished working from 8 a.m. this morning building Websites. (I am DETERMINED to pay off these bankers. There has to be a way.)

The agreement, which I have paid for two months, is roughly $2500/month (or $2,000 a month depending on which document I read); this statement is for $4,074.54 per month, and has tacked onto it $170.36 as late fees, two unapplied payments, the statement that $76,683.40 is due by August 1st.

I have the original agreement; it does NOT escalate to $4,074.54 per month in August of this year and $76,683.40 is NOT due on August 1st. This is insane, and it is NOT me that is insane.

Where is our government and/or our system of justice through this — either local judges or supervisors or governors or anyone? Have they all decided we are “wrong?” Are they married to lenders?

I can barely breathe. For the first time in my life I know what a “battered wife” must feel like. My back between my shoulders aches as though someone were pummeling me. I’m actually not a dramatic person, but I am a fighter. Put me in a corner and I will come out kicking. At this point, I don’t know who I am fighting. Wells Fargo agreed to a modification. This paperwork ignores that agreement. Who runs this company? Dumb question?

An aside. I heard someone at a meeting last week mention that Wells Fargo was going to institute drug testing to its employees — given his level, I assumed he meant middle-level executives. Turns out that 80% of them, per his information, tested positive for cocaine. Given that coke is the middle-level executive drug, and given how Wells Fargo is currently operating, I don’t doubt him.

I contacted Wells Fargo’s executive offices in Des Moines, Iowa. They had no answer as to why this continues, but said they will remedy it. Sure.

Following that conversation, I came home on Sunday, July 18th, 2010 to see a notice stuck in my front door . . . no name, no signature and no envelope. A good breeze would have blown it away . . . so much for “effort to make contact” and confidentiality.

That notice reads:

Please Call: Wells Fargo Home Mortgage
Contact: Loan Administration
At: 800 766 0987
Notice: Our Representatives called on you today while you were out. There is an important matter we would like to discuss with you. This inspection is not in any way an attempt to collect a debt.

I called on July 19, 2010 at 8:27 a.m.: Lolitha (EN5) in Wisconsin couldn’t help. She didn’t know why the notice was on the door. I called and left a voice mail for Teresa Warnock in the offices of the President of their mortgage in Des Moines, Iowa. Teresa called back and sounded as confused as am I. My “case” is being monitored by someone else in their offices as there is an “internal issue” they are trying to resolve.

And, no sooner do we hang up then I get yet another “Loan Modification Agreement” delivered via FedEx from Wells Fargo. This one seems to duplicate the one dated April 22, 2010 and it is, in fact, dated that same date. And it STILL is not per my understanding from the April meeting of a fully amortized PITI.

Dreaming Up America by Russell Banks

“A thoughtful and provocative meditation on our history, with a chilling look at what has happened to the American dream.” –Howard Zinn

Because my background is English literature and I worked for years in media and my operating word is “why,” I couldn’t help it. I looked up the word evil. Wikipedia has it as:

Evil is the intention of causing harm or destruction while threatening or deliberately violating morality. Largely due to the subjectivity of the word morality (which may refer to a society’s moral code, one’s own moral system, relative morality, absolute morality, etc.), there is no agreement about whether evil is a matter of social custom or universally correct principle that overrides custom. Evil, however, is most commonly used to refer to any intention that is socially perceived as the antithesis of a morally right or good intention.

Yes, this is subject to interpretation, and my interpretation — along with millions of Americans — is that these lenders may be evil. And while you are ruminating over whether or not they are evil, please know that they are absolutely inept; if you are not yet worried about who has your money and/or investments, you should be.

This is so sad. Many people, me included, worked 50-60 years for a gracious retirement. What am I doing? Fighting with an institution that I know beyond the shadow of a doubt is inept and crooked if you view their history — they cut a deal with Pancho Villa is the early 1900s — and that was documented by university libraries.

Does anyone have a clue as to what we do? We KNOW what is going on. How are these lenders stopped?

My notes keeping track of this fiasco started in December 2008; they are now 15 pages long.

I told them I am billing them for my time spent on trying to clear up this mess and the repeated FAXing of documents that they repeatedly lose. I now average $100/hour working from home. I have spent easily 2 hours per day keeping track of this. So: $100/hour x 2 hours per day x 5 days per week x 20 months = roughly $80,000 . . . not counting all the money wasted in FAXing documents to them repeatedly.

Sloppy Banking Practices

The image is of the binder I have been keeping since December 2008. Wells Fargo lost one of my payments in 2007; it took weeks to straighten that out. So it seemed prudent to begin keeping a file of all correspondence with that lender. The binder is now six inches thick and weighs 20 pounds. My conclusion is that Wells Fargo is either insanely incompentent or frightenly corrupt — it is definitely one or the other or both, but their actions have nothing to do with good business practices and/or ethics.

Yesterday, during a conversation with a worldly and knowledgable couple, who read the New York Times, Wall St. Journal, San Francisco Chronicle and the Marin Independent Journal, it was clear that they knew little of our national debacle (which has created an international debacle). Because newspapers cater to advertisers — even though they will swear they do NOT — the news you read is couched so as to not overly offend major advertisers and banks ARE major advertisers.

From Living Lies:

THE INCONVENIENT TRUTH: Profits piled up off-shore that are being repatriated on a gradual basis showing incredible gains at the Wall Street Banks that supposedly lost hundreds of billions of dollars. The truth is they never lost a dime. The truth is the loan was sold multiple times through multiple intermediaries each of whom in each “sale” were paid fees and profits vastly exceeding any prior compensation to those who arranged or made loans prior to securitization.

Second Hidden Yield Spread Premium: As I have pointed out before the hidden yield spread premium was jaw-dropping (when the loans were packaged by the aggregator and then sold to the Special Purpose Vehicle that issued and sold the mortgage-backed securities. This second YSP was sent off-shore to the Bahamas or the Caymans to Structured Investment Vehicles with their own trustees, who scattered the actual depository accounts all around the world. The beneficiaries were the 100 Club — the main players in the creation, promotions and protection of the scheme through government contacts, plausible deniability, and simple non-disclosure sometimes achieved through the sheer complexity of the arrangements.

The Penguin Guide To The United States Constitution: A Fully Annotated Declaration Of Independence U.S. Constitution And Amendments And Selections From The Federalist Papers If you are new to the fight to save your home, you are going to think some of us who have been in the midst of this for 2-3 years are nuts. We’re not. We are hard-working responsible citizens who are being trampled on by not only lenders, but sometimes by local officials, some of whom hold stock in the very banks we are up against. Inept Attorneys In an effort to get help, one of my early stops was to Legal Aid in San Rafael, Marin County, California. The director of that agency, Paul Cohen, has received large grants to help people. What did he do when I asked for help in saving my home? He handed me a one-page timeline indicating when I could expect to LOSE my home. He offered NO help. Were it up to Mr. Cohen, I, along with dozens of other people he turned away, would be living under a bridge in a tent with a feral cat or two. Mr. Cohen and his Legal Aid are a disservice to community. Were it up to me, he would be seeking new employment. My surname is Jewish, thus this is not from any type of prejudice; he is simply incompetent, he had my life in his hands, and he did NOTHING. I’m at an age where recovering from losing my home would be impossible.

Nobody wants to acknowledge this fact because it would be admission that the con game is still on and that government is still part of it. They took many trillions of dollars to “bail out” banks that had arranged the bad loans but never underwrote them.

The repercussions of what lenders have done during the past decade is playing out across the nation. People who worked hard to grow and provide for their families are sinking.

Suing Wells Fargo

From the New York Times:

. . . The mayor and former bank loan officers point a finger of blame at large national banks — in particular, Wells Fargo. During the last decade, they say, these banks singled out blacks in Memphis to sell them risky high-cost mortgages and consumer loans.

(Editor’s Note: I don’t think the banks were as picky as stories would have it. It seems to me that people of ALL races have been hurt and wrote about this as Equal Opportunity Prejudice!.) The group I work with — Families Fighting Forelosure is pretty well balanced between Black, Hispanic and White and everywhere from around 30 years of age to 73 years of age. There does not seem to be a common denominator except that, perhaps, we trusted our lenders and did not read every single word of those loan documents. I was just told that I have an interest-only loan. In my opinion, negative-am loans and/or interest-only loans are insane. How does one ever own one’s home. I would not have agreed to an interest-only loan . . . thus my reason for having a forensic audit undertaken.

The City of Memphis and Shelby County sued Wells Fargo late last year, asserting that the bank’s foreclosure rate in predominantly black neighborhoods was nearly seven times that of the foreclosure rate in predominantly white neighborhoods. Other banks, including Citibank and Countrywide, foreclosed in more equal measure.

In a recent regulatory filing, Wells Fargo hinted that its legal troubles could multiply. “Certain government entities are conducting investigations into the mortgage lending practices of various Wells Fargo affiliated entities, including whether borrowers were steered to more costly mortgage products,” the bank stated.

Wells Fargo officials are not backing down in the face of the legal attacks. They say the bank made more prime loans and has foreclosed on fewer homes than most banks, and that the worst offenders — those banks that handed out bushels of no-money-down, negative-amortization loans — have gone out of business.

Now we know the truth. The financial meltdown wasn’t a mistake. It was a con.

(Editor’s Note: Really? You FINALLY caught on! Where you been?)

Hiding behind the complexities of our financial system, banks and other institutions are being accused of fraud and deception, with Goldman Sachs just the latest in the spotlight. This has become the most pressing election issue of all.

The global financial crisis, it is now clear, was caused not just by the bankers’ colossal mismanagement. No, it was due also to the new financial complexity offering up the opportunity for widespread, systemic fraud. Friday’s announcement that the world’s most famous investment bank, Goldman Sachs, is to face civil charges for fraud brought by the American regulator is but the latest of a series of investigations that have been launched, arrests made and charges made against financial institutions around the world.

Big Finance in the 21st century turns out to have been Big Fraud. Yet Britain, centre of the world financial system, has not yet levelled charges against any bank; all that we’ve seen is the allegation of a high-level insider dealing ring which, embarrassingly, involves a banker advising the government.

We have to live with the fiction that our banks and bankers are whiter than white, and any attempt to investigate them and their institutions will lead to a mass exodus to the mountains of Switzerland. The politicians of the Labour and Tory party alike are Bambis amid the wolves.

Just consider the roll call beyond Goldman Sachs. In Ireland Sean FitzPatrick, the ex-chair of the Anglo Irish bank was arrested last month and questioned over alleged fraud. In Iceland last week a dossier assembled by its parliament on the Icelandic banks huge lenders in Britain was handed to its public prosecution service.

A court-appointed examiner found that collapsed investment bank Lehman knowingly manipulated its balance sheet to make it look stronger than it was accounts originally audited by the British firm Ernst and Young and given the legal green light by the British firm Linklaters.

In Switzerland UBS has been defending itself from the US’s Internal Revenue Service for allegedly running 17,000 offshore accounts to evade tax. Be sure there are more revelations to come except in saintly Britain.

Beneath the complexity, the charges are all rooted in the same phenomenon deception.

Somebody, somewhere, was knowingly fooled by banks and bankers sometimes governments over tax, sometimes regulators and investors over the probity of balance sheets and profits and sometimes, as the Securities and Exchange Commission (SEC) says in Goldman’s case, by creating a scheme to enrich one favoured investor at the expense of others including, via RBS, the British taxpayer. Along the way there is a long list of so-called “entrepreneurs” and “innovators” who were offered loans that should never have been made. Lloyd Blankfein, Goldman’s CEO, remarked only semi-ironically that his bank was doing God’s work. He must wake up every day bitterly regretting the words ever emerged from his mouth.

For the Goldmans case is in some ways the most damaging.

The Icelandic banks, Anglo Irish bank and Lehman were all involved in opaque deals and rank bad lending decisions but Goldman allegedly went one step further, according to the SEC actively creating a financial instrument that transferred wealth to one favoured client from others less favoured. If the Securities and Exchange Commission’s case is proved and it is aggressively rebutted by Goldman the charge is that Goldman’s vice-president Fabrice Tourre created a dud financial instrument packed with valueless sub- prime mortgages at the instruction of hedge fund client Paulson, sold it to investors knowing it was valueless, and then allowed Paulson to profit from the dud financial instrument. Goldman says the buyers were “among the most sophisticated mortgage investors” in the world. But this is a used car salesman flogging a broken car he’s got from some wide-boy pal to some driver who can’t get access to the log-book. Except it was lionised as financial innovation.

The investors who bought the collateralised debt obligation (CDO) were not complete innocents. They had asked for the bond to be validated by an independent expert into residential mortgage-backed securities a company called ACA management. ACA gave the bond the thumbs-up on the understanding from Fabrice Tourre that the hedge fund Paulson were investing in it. But the SEC says Tourre misled them, a pivotal claim that Goldman denies. The reality was that Paulson was frantically buying credit default swaps in the CDO that would go up in price the more valueless it became a trade that would make more than $1 billion. Worse, Paulson had identified some of the dud sub-prime mortgages that he wanted Tourre to put into the CDO. If the SEC case is true, this was a scam nothing more, nothing less.

Tourre could see what was coming. In one email in January 2007 he wrote: “More and more leverage in the system. The whole building is about to collapse anytime now only potential survivor, the fabulous Fab[rice Tourre] . . . standing in the middle of all these complex highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities”. Fabulous Fab, like his boss, will not be feeling very fab today.

(Editor’s Note: I can’t wait to see THAT movie!)

The cases not only have a lot in common using financial complexity allegedly to deceive and then using so-called independent experts to validate the deception (lawyers, accountants, credit rating agencies, “portfolio selection agents,” etc., etc.) but they also show how interconnected the financial system is. In Iceland Citigroup and Deutsche Bank covered the margin calls of distressed Icelandic business borrowers, deepening the crisis. Lehman uses the lightly regulated London markets and two independent British experts to validate that their “Repo 105s” were “genuine” trades and not their own in-house liability. The American authorities pursued a Swiss bank over aiding and abetting US nationals to evade tax.

Bankers will complain these cases all involve one or two misguided individuals, but that most banking is above board and was just the victim of irrational exuberance, misguided belief in free market economics and faulty risk management techniques. Obviously that is true but, sadly, there is much more to the crisis. Andrew Haldane, executive director of the Bank of England, highlights the remarkable reduction in the risk weighting of bank assets between 1997 and 2007.

Put simply, Europe’s and the US’s large banks exploited the weak international agreement on bank capital requirements in the so-called Basel agreement in 2004 to reclassify the risk of their loans and trading instruments. They did not just reduce the risk by 5 or 10%.

Breathtakingly, they claimed their new risk management techniques were so wonderful that the riskiness of their assets was up to half of what it had been despite property and share prices cresting to new all-time highs.

Brutally, the banks knowingly gamed the system to grow their balance sheets ever faster and with even less capital underpinning them in the full knowledge that everything rested on the bogus claim that their lending was now much less risky. That was not all they were doing. As Michael Lewis describes in The Big Short, credit default swaps had been deliberately created as an asset class by the big investment banks to allow hedge funds to speculate against collateralised debt obligations.

The banks were gaming the regulators and investors alike and they knew full well what they were doing. Simon Johnson’s 13 Bankers shows how the major American banks deployed vast political lobbying power and money to create the relaxed regulatory environment in which all this could take place. In Britain no money changed hands. Gordon Brown offered light-touch regulation for free egged on by the Tories, who wanted to go further.

This was the context in which Goldman’s Fabulous Fab created the disputed CDOs, Sean FitzPatrick allegedly moved loans between banks and Lehman created its Repo 105s along with the entire “debt mule” structure revealed this weekend of inter-related companies to shuffle debt around its empire. London and New York had become the centre of an international financial system in which the purpose of banking became making money from money and where the complexity of the “innovations” allowed extensive fraud and deception.

Now it has all collapsed, to be bailed out by western taxpayers.

The banks are resisting reform and want to cling on to the business practices and business model that has so appallingly failed.

The politicians tread carefully, only proposing what the bankers say is congruent with their definition of what banking should be. Labour and Tories alike are united in opposing improved EU regulation of hedge funds, buying the propaganda those operations had nothing to do with the crisis. Perhaps Paulson’s trades at Goldman, and the hedge funds’ appetite for speculating in credit default swaps, may disabuse them.

It is time to reframe the question. Banks and financial institutions should do what economy and society want them to do: support enterprise, direct credit to where it is needed and be part of the system that generates investment and innovation.

Andrew Haldane and the governor of the Bank of England are right. We need to break up our banks, limit their capacity to speculate and bring them back to earth.

Britain should also launch an official investigation into what went wrong–and hand the findings to the Serious Fraud Office. This needs to become this election campaign’s number one issue not one which either a compromised Labour party or a temporising Conservative party will relish. The Lib Dems, the fiercest critics of the banks, have begun to get very lucky.

Crisis timetable

(Editor’s Note: This is a bizarre timetable given that banks have been conducting business outside of any ethics for decades. A recently uncovered story indicates that Wells Fargo cut a deal with Pancho Villa, one of America’s famous outlaws, in the early 1900s.)

• September 2007: Funding problems at Northern Rock triggers the first run on a British bank. It is nationalised in February 2008.
• April 2008: Bear Stern faces bankruptcy after a run on the company wipes out cash reserves in less than two days. Backed by the Federal Reserve, JPMorgan buys up shares at far below market value.
• September 2008: Lehman Brothers files for bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.
• December 2008: Bernard Madoff arrested for operating the largest Ponzi scheme in history.
• January 2009: The Bank of England launches £200bn quantitative easing.
• March 2010: Former chairman of Anglo Irish bank Sean Fitzpatrick is arrested in Dublin after failing to disclose details of loans worth millions from the bank.
• April 2010: Northern Rock former directors, David Baker and Richard Barclay, are fined £504,000 and £140,000 for deliberately misleading analysts prior to nationalisation.
• April 2010: The US Securities and Exchange Commission accuses Goldman Sachs of “defrauding investors by misstating and omitting key facts”.

The Securities and Exchange Commission (SEC) has filed a civil complaint against Goldman Sachs alleging that the financial giant worked with one of its key clients to create collateralized debt obligations (CDOs) consisting of subprime mortgage-backed securities. Goldman Sachs then sold the CDOs to investors knowing that the client was betting heavily against the very same product.

The SEC’s complaint says that Goldman Sachs vice-president Fabrice Tourre, who was personally charged in the complaint, put the plan into operation in 2007, bragging in an email to a friend that he was “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” Fabrice Tourre has since been promoted to executive director of Goldman Sachs International in London. Mr. Tourre also has a profile on LinkedIn.

John Paulson, the hedge fund manager of Paulson & Co. was involved in choosing which securities would be part of the portfolio, according to the SEC’s complaint, but neither he nor Paulson & Co. have been charged with any crime. The SEC also alleged that Paulson took a short position against its ABACUS 2007-AC1 CDO in a bet that its value would fall spectacularly. Here is Paulson & Co.’s response to the SEC’s civil complaint.

More than $1 billion was lost by ABN Amro and IKB Deutsche Industriebank AG, two of the European banks that bought these toxic securities. According to the report in Yahoo News, John Paulson’s hedge fund ended up with the profits from those two banks’ losses.

Informed readers know that Goldman Sachs, which earned a staggering $4.79 billion in 4th quarter 2009, was one of the top recipients of corporate welfare at the largesse of taxpayers through the generosity of the Bush and Obama administrations. Rolling Stone writer Matt Taibbi, in his 2009 expose of Goldman Sachs, refers to the firm as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

And derivatives expert and Huffington Post blogger Janet Tavakoli, who also is the founder of Tavakoli Structured Finance, accuses Goldman Sachs of “malicious mischief” and of creating “bad securities”. Further, “the SEC itself has shirked its responsibilities in these matters for years” she said, adding that the SEC’s “hands have been forced by public voices” rather than its regulatory mandate to protect investors.

Read more on Yahoo and MSN. You can also read the SEC’s complaint against Goldman Sachs here.

This article was also published in Examiner.com by Monique Bryher.

By Greg Gordon
McClatchy Newspapers

WASHINGTON — Goldman Sachs, whose tactics exiting the collapsing subprime mortgage market have been under government scrutiny for months, now faces federal fraud charges that it duped investors into losing $1 billion on a rigged offshore deal pegged to dicey home loans.

The suit, brought Friday by the Securities and Exchange Commission, accuses Goldman and one of its vice presidents, 31-year-old Fabrice Tourre, of allowing a Wall Street hedge fund to secretly select many of the securities in the deal.

The hedge fund, Paulson & Co., then bet that those subprime mortgage securities would fail. When they did, Paulson made a $1 billion profit and investors lost more than $1 billion, nearly all their money, the complaint charges.

In an e-mail to a friend in January 2007, the complaint says, Tourre remarked that, “The whole building is about to collapse anytime now” — an apparent allusion to a plunge in the housing market that would depress the value of the mortgage securities.

The case suggests that a reinvigorated SEC, after a long lull, is pressing to hold Wall Street accountable for its role in the worst financial crisis since the Great Depression. People familiar with the SEC investigation of Goldman said it could expand, and a special Senate investigations panel is preparing to hold a hearing that will put Goldman under yet another magnifying glass.

SEC Fraud

Elizabeth Nowicki, a former SEC attorney who’s a visiting law professor at Boston University, called the SEC’s fraud suit “a political case as much as it is a case that they needed to bring to stop this sort of favoritism.”

“The SEC wanted to convey the message that no, they’re not sitting back on their heels,” she said. “This is going after Goldman Sachs. You can’t really go after anybody bigger than that . . . . The SEC has the stomach to follow this out, absolutely, and they’ve got a bigger incentive now that they are clearly perceived as shamed and disempowered.”

It’s still unclear whether Goldman also could face legal exposure for failing to disclose to investors in 2006 and 2007 that it had secretly bet that the housing market would collapse when it sold off more than $40 billion in securities backed by subprime mortgages. McClatchy Newspapers described those dealings in a series of articles in November and December 2009, including Goldman’s role in betting on a housing downtown in at least a dozen offshore deals that it marketed.

The company, in a terse statement, denounced the charges as “completely unfounded in law and fact,” and vowed to “vigorously contest them and defend the firm and its reputation.”

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Underscoring Goldman’s stature as the world’s most prestigious investment bank, the enforcement action triggered a 126-point drop in the Dow Jones index on Wall Street. Shares of Goldman led the way, plummeting nearly 13 percent.

Goldman and Losses?

After the market closed, Goldman issued a second statement, saying that it lost $90 million on the transaction and that all of the involved parties were “sophisticated” investors that were well aware of the risks.

Goldman said the largest investor, ACA Capital Management, selected the securities “after a series discussions, including with Paulson & Co.” Goldman called the exchange “entirely typical.”

Sylvain Raynes, a New York expert in structured securities of the type described in the SEC charges, said the stakes are huge for Goldman.

“To lose its reputation,” he said, “Goldman does not need to be found guilty many times. They only need one instance.”

Besides naming the company as a defendant, the civil complaint accuses Tourre of concealing Paulson’s role from investors in a synthetic securities deal known as ABACUS, 2007-AC1 — one in which investors didn’t actually buy any securities.

Instead, they effectively bet that a specified bundle of home loans to marginally qualified borrowers would perform well, while Paulson took “short” positions, meaning it bet that those bonds would founder.

Paulson profited grandly from the nation’s economic collapse, taking in a total of $3.7 billion from its bets. The SEC complaint says the firm paid Goldman $15 million to assemble the deal, which Tourre was principally responsible for structuring.

The marketing materials for the investment, known as a collateralized debt obligation, told investors that ACA Management LLC, an independent third party, selected the mortgage-backed securities. The Paulson firm wasn’t mentioned.

Goldman’s Deception

“The product was new and complex, but the deception and conflicts are old and simple,” SEC enforcement chief Robert Khuzami said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”

The deal, one of about two dozen similar bundles in the ABACUS series, closed on April 26, 2007. Within six months, 83 percent of the mortgage-backed securities in the bundle had been downgraded and 27 percent were placed on negative watch by Wall Street ratings agencies, the complaint says.

By the following Jan. 29, it says, 99 percent of the portfolio had been downgraded, costing investors more than $1 billion.

Khuzami said that the Paulson firm, which isn’t affiliated with former Treasury Secretary Henry Paulson, wasn’t charged because it didn’t mislead investors.

However, the complaint charges that Goldman and Tourre “knew that it would be difficult, if not impossible,” to find investors for a synthetic CDO if they disclosed that a short player, such as Paulson, had a significant role in selecting the securities. Thus, they sought a third party for that role and approached ACA, calling it “important that we can use ACA’s branding” in an internal e-mail.

The complaint quoted Tourre, then 28, as saying in a Jan. 27, 2007 e-mail to a friend that was written in French and English: “More and more leverage in the system, The whole building is about to collapse anytime now . . . . Only potential survivor, the fabulous Fab(rice Tourre) . . . standing in the middle of all of these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities (sic)!!!”

A Feb. 11, 2007 e-mail to Tourre from the unidentified head of Goldman’s structured product correlation trading desk said, “the cdo biz is dead we don’t have a lot of time left,” according to the complaint.

Paulson said in a statement that, while it bought credit protection from Goldman via the ABACUS deals, “We were not involved in the marketing of any ABACUS products.”

It said that ACA “had sole authority over the selection” of all securities in the deal, noting that two Wall Street ratings agencies — Moody’s Investors Service and Standard & Poor’s — gave them Triple A grades, the highest investment rating.

Both Moody’s and S&P have suffered tremendous damage to their reputations as a result of issuing favorable ratings to pools of U.S. mortgages that turned out to be junk.

The SEC said the only other investor in the ABACUS deal, IKB, a commercial bank in Dusseldorf, Germany, lost nearly all of the $150 million it invested. Goldman said the largest investor, ACA Capital Management, put up $951 million. ACA lost nearly all the money.

Friday’s charges were the first to be filed by the SEC’s Structured and New Products Unit, formed to pursue abuses in highly sophisticated deals.

Many of these deals are sliced according to risk, with investors who take the greatest risk receiving the highest yield. In deals that were partially or entirely synthetic, Goldman or some of its clients would profit if the securities soured.

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Gary Kopff, an expert in mortgage securities who’s studied Goldman’s role in betting against investors in deals it marketed though the Cayman Islands, said that, “They manifest, in my opinion, the same misconduct that the SEC asserts occurred in the ABACUS deal.”

Goldman created a structured product correlation trading desk in late 2004 or early 2005. A memo describing the ABACUS 2007-AC1 transaction to the company’s Mortgage Capital Committee on March 12, 2007, said that the “ability to structure and execute complicated transactions to meet multiple clients’ needs and objectives is key for our franchise,” the SEC complaint says.

Executing the deal “and others like it helps position Goldman to compete more aggressively in the growing market for synthetics written on structured products,” the e-mail said.

According to the complaint, Paulson came to believe that the underlying securities in the ABACUS 2007-AC1 deal “would become worthless.”

In late 2006 and early 2007, it charges, Paulson identified more than 100 mortgage bonds that it expected to collapse, favoring those backed by loans to borrowers with low credit scores, adjustable rate mortgages and located in overheated real estate markets such as Arizona, California, Florida and Nevada.

In early January, Tourre forwarded a list of 123 mortgage-backed bonds under the heading “Paulson Portfolio,” leading to negotiations among Paulson, Goldman and ACA over the final portfolio, which included a sizable number of those selected by Paulson.

Read more: Read More . . .