Individuals Causing the 2008 Housing Crisis Receive No More Than a Slap on the Wrist

Following the 2008 housing crisis, several of the banks involved paid large settlement fines. JPMorgan Chase was one of those banks. The Justice Department used evidence from an anonymous whistleblower in the prosecution, but until recently the whistleblower remained anonymous. Matt Taibbi recently released an article in Rolling Stone describing why the whistleblower, Alayne Fleischmann, has gone public with what she knows. Ironically, the Justice Department wasn’t committed to bringing “justice” to those individuals who contributed to the fall of the economy through fraudulent activities. In fact, Attorney General Eric Holder said the following:

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy, and I think that is a function of the fact that some of these institutions have become too large.”

What is the Justice Department doing if they aren’t bringing justice to those responsible for major crimes? When Fleischmann realized that much of what she reported to the SEC and the Justice Department was not being fully pursued, she decided she had to go public with what she knew.

Connections Between the Big Banks and Holder's Justice Department: No Wonder There Aren't Criminal Cases

Eric Holder (from The Guardian)

A story in The Guardian discusses connections that Eric Holder and Lanny Breuer have with a law firm, Covington & Burling, that represents several big banks. The Guardian article gets key information from an NPR story including this connection between Holder and Breuer and the big banks:

Fraud in the Detroit Bankruptcy and the Role of Investment Banks

I read an interesting analysis of what's happening in the Detroit Bankruptcy proceedings. In a nutshell, it appears to be another case where the investment banks were able to take out millions of dollars in fees as they structured deals that ended up crippling the economy. In this case, the deals may be considered fraudulent according to this analysis. This seems to be business as usual in the investment banking world for about two decades or more.

Enron and WorldCom were frauds that were fueled by investment bankers and ended up becoming the largest bankruptcies in history. The mortgage meltdown was also fueled by investment bankers and that led to even larger bankruptcies and the world economy being brought to its knees in what is now known as the Great Recession. Now, the largest municipal bankruptcy in history also appears to have been fueled by some cleaver investment bankers who undoubtedly made out like bandits as it appears that they structured deals that gave them huge fees.

Justice Department Admits They're Soft on Fraud

As I've said in several posts in the past, including this one, the Justice Department under this administration is very soft on prosecuting fraudsters. As a result, the key players who caused the mortgage meltdown have been essentially given a "get out of jail free" card. Interestingly, Eric Holder, head of the Justice Department has even admitted that they don't prosecute fraudsters. In Holder's view, doing so would hurt the economy! Amazing!! This definitely explains a lot... Here is a great write up of this absurd and twisted logic by Barry Ritholz...It's pretty short and well worth reading.

JOBS Act Leads to First Fraud Case

In March of this year we blogged about the, then proposed, JOBS Act and how this act would eliminate important disclosures meant to protect investors from fraud. The Act lowers the regulatory hurdles for companies who are defined as emerging growth companies. The NY Times reported this week that a company named Caribbean Pacific Marketing is the first company that got its start under the JOBS Act and is being prosecuted for fraud. Here are a few bytes from the NY Times:

More on Fraud and the US Department of Justice

In several recent posts, I've been critical of the US Department of Justice's extremely poor record of prosecuting Wall Street executives who were a big cause of our current economic crisis. The executives of numerous large financial institutions took home hundreds of millions in compensation while pushing their firms to commit illegal business practices. It's obvious that basic mortgage fraud was rampant in many organizations and yet virtually no one has gone to jail yet.

Surprisingly, the lack of vigilance by the current administration is so blatant that even the NY Times has published an editorial by one of its columnists that says the current Democratic administration panders to business more than past GOP administrations did! I'd like to see a study of how often the NY Times has compared a Democratic administration to a Republican one and found the scale tipped to the GOP side of things. It has to be rare.

I recommend reading the analysis that this editorial gives and see if you agree with the bottom line that this editorial makes:

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.

Wow--from the NY Times no less! Can Eric Holder and President Obama fall any further than that?!

Fraud and the Mortgage Meltdown

Charles Ferguson, the person who created the documentary on the mortgage meltdown "Inside Job," has written a book on the topic titled "Inside Job: The Financiers Who Pulled Off the Heist of the Century." I can only seem to find it on Amazon's UK website so I don't know if it will be available in the US. In any case, this article in the Guardian, written by Ferguson, has some interesting comments about the fact that the Obama administration and the US Justice Department is not prosecuting anyone. Ferguson also names several banks that he claims were complicit in the meltdown and committed various forms of fraud. He says that It's pretty disheartening to think this much corruption exists in the financial industry and the government isn't doing much to hold anyone accountable for it. Here are a few excerpts:

U.S. States with Highest Consumer Fraud

24/7 Wall Street published an analysis of consumer fraud that ranked the top ten states in terms of complaints to the Federal Trade Commission per 100,000 people. FTC complaints are put in two categories: identity theft complaints and other fraud complaints. Identity theft was the top category with debt collection fraud coming in second. Here are the top ten states as published by 24/7 Wall Street:

Free Markets, Families and Regulating Fraud

I’ve been reading several calls for prosecution of fraud on Wall Street lately. No, these aren’t coming from the Occupy Wall Street crowd. Instead, top economic and business commentators and scholars are noting the dearth of prosecution and the role this is playing in our economic challenges. This is a fascinating debate and I only have time to capture enough to spark your interest in hopes that you will check out some of the sources I post. For starters,

Deloitte and Taylor Bean: Real Money is on the Line

Another of the Big 4 is being sued regarding their audit of a firm that was allegedly committing serious fraud during the mortgage meltdown, Taylor Bean. Here is an excerpt from an article on Bloomberg which describes the lawsuit involving Deloitte:

First Major Criminal Conviction Related to the Mortgage Meltdown

Lee Farkas in front of his private jet in 2005

The Justice Department is celebrating this week after finally landing a major criminal conviction in the aftermath of the mortgage meltdown. The Justice Department was able to stick 14 counts of fraud and conspiracy on Lee Farkas in what is reported to be a $2.9 billion mortgage fraud scheme. Mr. Farkas operated a huge mortgage business, known as Taylor, Bean and Whitaker.

Taylor Bean apparently sold billions of dollars of mortgages to Fannie Mae and Freddie Mac and obtained loans from large U.S. and foreign banks that were collateralized with fictitious mortgages or mortgages already sold to others.

As is common with many fraudsters, Mr. Farkas had an appetite for material possessions that led him to spend at least $20 million of other peoples' money on things like fancy homes, classic cars and even a private jet (see the photo to the right). According to the NY Times,