liars' loans fraud, deceiving Geithner and the stupid US-taxpayers

[Oliver]

Even if I didn't lose any money in the current crisis, the interview between Bill Moyers and William K. Black made me quite angry about the scope of WTF was - and according to him - STILL IS going on behind the scenes:

Excerpts:

WILLIAM K. BLACK: Liars' loans mean that we don't check. You tell us what your income is. You tell us what your job is. You tell us what your assets are, and we agree to believe you. We won't check on any of those things. And by the way, you get a better deal if you inflate your income and your job history and your assets.
BILL MOYERS: You think they really said that to borrowers?
WILLIAM K. BLACK: We know that they said that to borrowers. In fact, they were also called, in the trade, ninja loans.

BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?
WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise.

BILL MOYERS: Is there a law against liars' loans?
WILLIAM K. BLACK: Not directly, but there, of course, many laws against fraud, and liars' loans are fraudulent.
BILL MOYERS: Because...
WILLIAM K. BLACK: Because they're not going to be repaid and because they had false representations. They involve deceit, which is the essence of fraud.

BILL MOYERS: What did AIG contribute? What did they do wrong?
WILLIAM K. BLACK: *snip* And they got very, very rich. But, of course, then they had guaranteed this toxic waste. These liars' loans. Well, we've just gone through why those toxic waste, those liars' loans, are going to have enormous losses. And so, you have to pay the guarantee on those enormous losses. And you go bankrupt. Except that you don't in the modern world, because you've come to the United States, and the taxpayers play the fool. Under Secretary Geithner and under Secretary Paulson before him... we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank.

WILLIAM K. BLACK: Third, they [Obama administration] violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.
BILL MOYERS: So, Paulson could have done this? Geithner could do this?
WILLIAM K. BLACK: Not could. Was mandated--

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
WILLIAM K. BLACK: Absolutely...

Full Interview:
http://www.pbs.org/moyers/journal/04032009/watch.html

Full Transcript:
http://www.pbs.org/moyers/journal/04032009/transcript1.html

 

[Puppycow]

Boy, this is some pretty explosive stuff. He's doing his best to make us all take up pitchforks and torches. If anyone committed a real crime, they should be investigated and prosecuted. Is there actually probable cause to suspect criminal activity? (Aside from Madoff and Stanford and anyone else we know of already?)

I think what we need is new regulations, but getting the country whipped up into a rage is dangerous.

 

[mhaze]

Boy, this is some pretty explosive stuff. He's doing his best to make us all take up pitchforks and torches. If anyone committed a real crime, they should be investigated and prosecuted. Is there actually probable cause to suspect criminal activity? (Aside from Madoff and Stanford and anyone else we know of already?)

I think what we need is new regulations, but getting the country whipped up into a rage is dangerous.

You never need new regs when the issue is no enforcement of existing laws.

And the interview sounds like stuff we already knew - thousands could be indited - maybe way more - up high they didn 't want the rats being herded into cages.

 

[ServiceSoon]

Quote:
BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
WILLIAM K. BLACK:Absolutely...

Sounds like a conspiracy theory.

 

[Puppycow]

Sounds like a conspiracy theory.

You could say that. He's saying that the entire financial system was a ponzi scheme:

BILL MOYERS: You're describing what Bernie Madoff did to a limited number of people. But you're saying it's systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn't even get into the front ranks of a Ponzi scheme...

BILL MOYERS: But you're saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system...

BILL MOYERS: Our financial system...

WILLIAM K. BLACK: Became a Ponzi scheme.

Although, I do think that there should be more accountability for the ratings agencies. The fact is, they don't have any skin in the game. If their ratings are dead wrong, there are no consequences. At a minimum, they should lose all credibility. And I would like to hear the news report a bit more on this. Every story (well, most of the ones I've heard) that mentions "the ratings agencies" doesn't name specific ratings agencies or examples. "The ratings agencies" is a vague term. I want to know who specifically (companies and individuals) was responsible for giving AAA ratings to toxic assets.

 

[Puppycow]

See, this guy gets a very basic fact wrong:

BILL MOYERS: What did AIG contribute? What did they do wrong?

WILLIAM K. BLACK: They made bad loans.

No. AIG sold Credit Default Swaps. They did not make loans. Essentially, they sold a kind of insurance, which is different from a loan, because they recieve money up front and are liable to pay money later if the insured event happens instead of paying money up front and receiving repayments with interest later. So it's the opposite of a loan in a cash flow sense.

ETA: Selling CDSes wasn't the only thing AIG did.
This article tells more about everything they did

 

[dudalb]

Black sounds more then a little like he is trying to be inflammatory because the is what sells books.,,and he does have a book his is peddling at the moment.

 

[Childlike Empress]

Although, I do think that there should be more accountability for the ratings agencies. The fact is, they don't have any skin in the game. If their ratings are dead wrong, there are no consequences. At a minimum, they should lose all credibility. And I would like to hear the news report a bit more on this. Every story (well, most of the ones I've heard) that mentions "the ratings agencies" doesn't name specific ratings agencies or examples. "The ratings agencies" is a vague term. I want to know who specifically (companies and individuals) was responsible for giving AAA ratings to toxic assets.

Here you go: http://oversight.house.gov/story.asp?ID=2250

 

[Gord_in_Toronto]

Here you go: http://oversight.house.gov/story.asp?ID=2250

Thanks for the link. I went there and read a couple of the "Documents and Links", including this one: Confidential Presentation to Moody's Board of Directors, October 2007
it is a good analysis of the dilemma that a capitalist (in a non-pejorative sense) organization in a free market faces -- how do you provide a professional level of service when the marketplace is price driven? I suggest that the answer is industry regulation; either by the industry itself or government imposed.

As Juvenal asked, "Quis custodiet ipsos custodes?"

YMMV.

 

[ServiceSoon]

As Juvenal asked, "Quis custodiet ipsos custodes?"

Equals "Who will watch the watchers?"

 

[Gord_in_Toronto]

Equals "Who will watch the watchers?"

I'm just trying to push the Education part of this forum. A little Latin never hurts anyone.

 

[Puppycow]

Equals "Who will watch the watchers?"

Close. "Who will guard the guards?"

 

[hamelekim]

You never need new regs when the issue is no enforcement of existing laws.

And the interview sounds like stuff we already knew - thousands could be indited - maybe way more - up high they didn 't want the rats being herded into cages.

That will only happen when entire thing collapses and people get the pitchforks out. If that doesn't happen they will get slaps on the wrist and nothing more.

Politicians and these bankers are tied at the hips. The politicians let them do whatever they wanted as long as they got their election money.

By the end of this we could very well see large civil disorder with riots in the streets.

 

[Oliver]

The really intriguing part of all of that is that they, the "banksters" involved, get away with it and the taxpayers, including those in Germany, are making up for the deliberately created rip-off. How in the world is this possible in a society of justice and why doesn't the media report about it the way it does hype the Madoff ponzi scheme?

And more importantly: What about the accusation that Guidner is violating the "Prompt Corrective Action Law" requiring him to let the broken institutions fail?

Doesn't that mean that Timothy Franz Geithner can be forced to follow that law due to a trial?

 

[Oliver]

See, this guy gets a very basic fact wrong:

No. AIG sold Credit Default Swaps. They did not make loans. Essentially, they sold a kind of insurance, which is different from a loan, because they recieve money up front and are liable to pay money later if the insured event happens instead of paying money up front and receiving repayments with interest later. So it's the opposite of a loan in a cash flow sense.

ETA: Selling CDSes wasn't the only thing AIG did.
This article tells more about everything they did

To be accurate, Black said this about AIG making "loans", bolding mine:

"They made bad loans - their type of loans was to sell a gurantee."

 

[Oliver]

Boy, this is some pretty explosive stuff. He's doing his best to make us all take up pitchforks and torches. If anyone committed a real crime, they should be investigated and prosecuted. Is there actually probable cause to suspect criminal activity? (Aside from Madoff and Stanford and anyone else we know of already?)

According to the interview, the FBI already knew about the fraud and in fact, named it that way in 2004.

WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle.

CNN and others even noted it:

CNN.com - FBI warns of mortgage fraud 'epidemic' - Sep 17, 2004

I think what we need is new regulations, but getting the country whipped up into a rage is dangerous.

Of course there have to be regulations in place, but why should the people knowing all of it get away with a bag of money while we, the tax payers, pay for the damage they deliberately made?

Are you saying that publically pointing out child molesters before and after they served their sentence is just fine - but doing the same to fraudsters would be dangerous?

 

[Puppycow]

Of course there have to be regulations in place, but why should the people knowing all of it get away with a bag of money while we, the tax payers, pay for the damage they deliberately made?

No they should not get away with it. In every case where there is probably cause to suspect someone of a crime, they should be investigated and prosecuted. But there is a legal standard that has to be met. We can't just have an angry mob with pitchforks go out and lynch them.

Are you saying that publically pointing out child molesters before and after they served their sentence is just fine - but doing the same to fraudsters would be dangerous?

I didn't say anything about child molesters and in fact I think they should be treated like other criminals.

 

[Foolmewunz]

Boy, this is some pretty explosive stuff. He's doing his best to make us all take up pitchforks and torches. If anyone committed a real crime, they should be investigated and prosecuted. Is there actually probable cause to suspect criminal activity? (Aside from Madoff and Stanford and anyone else we know of already?)

I think what we need is new regulations, but getting the country whipped up into a rage is dangerous.

Why not? Get out the rage whip, .... please!!!

We don't need new regulations. We needed enforcement of the old regulations. We need enforcement of the old regulations NOW, under the new enlightened watch of Barack and the new old school tie network.

Why not get the country whipped up? Doesn't anyone think it's about time? I've been watching partisan politicians sling crap at each other over whether the Republicans or the Democrats did it, and THEY BOTH DID IT. They are both doing it again as I type this paragraph.

 

[Oliver]

Although, I do think that there should be more accountability for the ratings agencies. The fact is, they don't have any skin in the game. If their ratings are dead wrong, there are no consequences. At a minimum, they should lose all credibility. And I would like to hear the news report a bit more on this. Every story (well, most of the ones I've heard) that mentions "the ratings agencies" doesn't name specific ratings agencies or examples. "The ratings agencies" is a vague term. I want to know who specifically (companies and individuals) was responsible for giving AAA ratings to toxic assets.

Correct me if I'm wrong, but didn't the rating agencies give an AAA rating because of the profits they imagined for themselves being able to understand what was going on?

 

[Oliver]

Correct me if I'm wrong, but didn't the rating agencies give an AAA rating because of the profits they imagined for themselves being able to understand what was going on?

Now that, of course, is a suspicion. But to say the rating agencies had no Idea of what was going on before they rated it AAA is just stupid to assume, is it not?