Going After the Perpetrators of the Housing Bubble

from the American Prospect:



Going After the Perpetrators of the Housing Bubble
State attorneys general, like Massachusetts' Martha Coakley, are leading the charge to hold accountable the lenders behind the current economic crisis.

Tim Fernholz | May 20, 2009 | web only



Talk to almost anyone about the financial crisis -- or at least anyone who doesn't work in the financial sector -- and sooner or later you'll hear it: "How come nobody's in jail for this stuff yet?"

It's not an absurd question. Most people recall the criminal charges associated with the Enron and WorldCom frauds a decade ago. Already, investigators of our current crisis have been able to determine that fraud was rampant in the sub-prime mortgage bubble that catalyzed the current recession.

But we still haven't seen major charges of white-collar crime. This is in part because, at the federal level, resources for those kinds of criminal investigations were gutted during the Bush administration -- more focus was placed on national security, and budgets were cut at the Department of Housing and Urban Development. Though federal regulators often have close ties to industry, their jurisdiction prevents action by officials more likely to respond to consumers. But the main problem, as described by officials who are looking to change this, is that so much of what was done is legal that it's hard to pinpoint criminal intent.

"So many people were doing just what the industry allowed," Massachusetts Attorney General Martha Coakley told me. "When everybody is doing it on such a large scale, it becomes somewhat of a norm."

Coakley's work today, though, is anything but the norm – she's still finding ways to hold lenders accountable for predatory loans. Her office issued emergency regulations last year to prevent criminals from taking advantage of troubled borrowers with schemes that rob of them of their cash and their homes while offering to protect them from foreclosure. Her team has also investigated mortgage lenders, securing a $50 million settlement from Goldman Sachs to modify predatory loans owned by the bank, along with a $10 million payment to the commonwealth. Her team also secured an injunction to prevent Fremont Investment & Loan, a lender that offered predatory loans, from foreclosing on its customers. ...........(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=going_after_the_perpetrators_of_the_housing_bubble

Seriously, don't put juries on the spot for prison convictions for nice looking upstanding white collar people. Just fine the hell out of these people- to the tune of every dollar they have ever made. Hit them where it hurts- in their pocket. Take the condo in Aspen, the house in Greenwich, the loft in Manhattan, and the house in the Hamptons. Take it all. Tow away the Rolls, take the wife's jewelry, clean out the savings account here and abroad. Take their suits and ties- and cancel their credit cards. Give them a bus ticket to Akron.

"You know how you get back at rich people? Take away their money."

My mortgage broker had essentially confirmed what it said.

Sure, there was some fraud. But it wasn't Enron-style, a centralized conspiracy. It was more of the "many a little makes a mickle" kind of problem. Lots of small acts of fraud, with even more small acts of greed.

The NYT article had the writer admit to fraud. Him and his mortgage broker. I don't think you should try one without trying the other, to be honest, but I'm sure that's just me. Mostly he admitted to acts of greed, though, and that's what finally sunk him. The loans were so easy to get, the money so easily available, how could he *not* take the money? How could he turn down the loans? Nothing illegal, just foolish. Compound that 30 million times and you have the current crunch.

We got that from our realtor and mortgage broker. We can comfortably afford our mortgage; the broker said we'd have no trouble getting one twice the size he pre-approved us for (and we wound up needed only about 80% of that). He kept telling us that at every step until we finally had a contract on a house. The realtor was no different--aghast that we might even be *underbuying* instead of *overbuying*. She kept trying to get us to look at more expensive houses; we looked at some, said they were nice in nice neighborhoods, and pushed on to houses in the price range we'd set out at our first meeting.

Of course, the government helped. Take the about face from last fall to last winter. Last fall, "Banks, you're making too many high risk loans, tighten up requirements." Come winter, it's "Banks, you're not making enough high risk loans, loosen requirements." Why? Because suddenly certain strata of society had trouble getting loans. Primarily those with low credit ratings or few assets.

except in the minds of the hunters, and those who are found are generally innocent.

This time the prey is very real, and very guilty.


Tansy Gold

No, not scapegoats. A scapegoat is one who takes the blame for someone else's sins.

Look up the etymology of the word.


Better choice would be to call them what they are: criminals.

There must be some reason for that.

We had the Pugs pushing for bank deregulation and the Dems pushing for lowering of mortgage requirements. The compromise was they both got what they wanted. The result was disastrous. In the 1980's when I was in the real estate business, people had to meet very strict requirements to buy a home. They couldn't be in debt more than 35% of their gross income including PITI on their mortgage and any other long term debt. If a person was absolutely stellar they might be able to get a 90% mortgage, the norm was an 80%. The down payment had to be earned income, it couldn't be gifted or borrowed. The down payment had to be demonstrated to be earned or had to be in your bank account for a year prior to use as a down payment. Then suddenly these requirements went to the wayside. Suddenly people with no savings were able to buy real estate, get 100%+ financing, interest only for 5 years, with PITI payments equal to 50%+ of their annual income. What happened? Kids, newlyweds, with entry level jobs and no financial discipline were buying $500k new homes. The old system limited their ability to buy because they would have had to save 100k for the down...impossible, so they would scrimp and save $20k and buy a 100k starter home, keep it a few years, build some equity, then sell it and move up. This system kept the spectrum of homes reasonable. The only way to put the gene back in the bottle is to go back to similar regulations which will destroy the housing market for several years to come.