Wednesday, July 15, 2009

Is the Awarding of Bonuses to the Revealed Criminals at the "Gangster Mega-banks" Psychological Warfare (PsyOps)?

Because it surely seems like it to me (and a few others). Gretchen Morgenson speaks plainly in the pages of Sunday's New York Times, which interestingly enough did absolutely no investigative reporting along these lines when the glamour boys Robert Rubin and Alan Greenspan were spinning the golden finance lies leading us to this precipice. Did anyone mention the New York Times' two-tiered reporting system yet? Like when the Times' sultry Judy Miller was leading the country down the primrose path (at the behest of Dick Cheney's man Ahmed Chalabi) to the War On Iraq? Or do we just accept that sometimes the New York Times actually reports straight news? (Or am I making too many connections too quickly?)

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.” . . . IT is hard not to be dismayed by the fact that two years into our economic crisis so few perpetrators of financial misdeeds have been held accountable for their actions. That so many failed mortgage lenders do not appear to face any legal liability for the role they played in almost blowing up the economy really rankles. They have simply moved on to the next “opportunity.”

And what of the giant institutions that helped finance these monumentally toxic loans, or arranged the securitizations that bundled the loans and sold them to investors? So far, they have argued, fairly successfully, that they operated independently of the original lenders. Therefore, they are not responsible for any questionable loans that were made.

But this argument is growing tougher to defend. Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

. . . fighting a foreclosure on their home of 25 years that they say was a result of an abusive and predatory loan made by NovaStar Mortgage Inc. A lender that had been cited by the Department of Housing and Urban Development for improprieties, like widely hiring outside contractors as loan officers, NovaStar ran out of cash in 2007 and is no longer making loans.

Also named as a defendant in the case is the initial trustee of the securitization that contained the Jordans’ loan: JPMorgan Chase. In 2006, the bank transferred its trustee business to Bank of New York Mellon, which is also a defendant in the case. The Jordans are asking that all three defendants pay punitive damages.

“We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it,” said Sarah E. Bolling, a lawyer in the Home Defense Program at the Atlanta Legal Aid Society who represents the Jordans.

“The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”

IN their legal briefs, the trustees have made the traditional argument that their relationship with NovaStar was not a joint venture and that they are not responsible for any problems with the Jordans’ loan.

A JPMorgan spokesman declined to comment on the case but said that because the bank was no longer the trustee, it was not directly involved in the litigation. A spokesman for Bank of New York Mellon also declined to comment.

Doesn't seem like it could be much clearer, so where are these borrowers who "can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders?" I'm awaiting their entrance.

Mark Crispin Miller (my secret love) fills us in on whatever's missing from today's puzzle. (Emphasis marks added - Ed.)

A few short months ago Goldman Sachs was deemed too big to fail, and allowed to sink its fangs into the public vein. Not only did it receive direct assistance from lowly tax-payers like you and I, the gaggle of Goldman alumni that run the Treasury Department and implemented the Troubled Asset Relief Program funneled tens of billions to insurance giant AIG to assure that it could cover about 13 billion in Goldman’s losses. Goldman paid back the TARP loans — because caps on executive pay are a form of socialism, of course — but is still making hay on the public dime, specifically on the sale of $28 billion worth of subsidized debt courtesy of the FDIC.

But today, as the New York Times put it, “up and down Wall Street, analysts and traders are buzzing” about the fact that Goldman is reporting “blowout profits” to the tune of $3.4 billion in the 2nd quarter. In a masterful bit of understatement, the Washington Post notes that “the New York investment bank profited from turmoil in the financial markets, the absence of former rivals and the continued support of the federal government.”

It’s good for Goldman’s shareholders and great for its traders — according to the WaPo, “Goldman said it set aside $6.65 billion for employee compensation in the second quarter.” But for everyone else? Not so much.

And not only because of the costs borne by the public, not only for the moral hazard this kind of crony capitalism represents, not just for the unfairness inherent in the pervasive reverse socialism we’re seeing these days, but also because of the lessons that support has left unlearned. Protected from the fallout of their bad bets, Wall Street’s casinos are open for business again. Just this week, Bloomberg reported that Morgan Stanley was trotting out another “Collateralized Debt Obligation” backed by shaky loans that’s again getting a AAA rating (if you have no idea what that means, see my piece from last October titled, “How Wall Street’s Scam Artists Turned Home Mortgages Into Economic WMDs”).

Read more.

If you can stand it. Suzan

2 comments:

Dave Dubya said...

Ahh, yes.

As the late great George Carlin said, "You don't have rights, you have owners."

Suzan said...

Thanks, Dave,

I'm an admirer (of you both), and couldn't have said it better.

Love ya,

S