Recently a federal judge implicitly suggested that it might be unethical to defend homeowners in foreclosure.  In response I articulated the reasons why the defense of homeowners in foreclosure is my profession’s highest calling at this moment because the battle is exposing far bigger problems than it would appear on the surface of a simple foreclosure case.  The economic, legal and societal mess that we’re all now in as a result of the collapsed real estate market began with the overheated subprime financing boom of the last decade.  Millions of Americans borrowed billions of dollars that they never had any hope of repaying.  Thousands of mortgage lending companies and hundreds of Wall Street brokerage operations skimmed hundreds of millions in profits off these loans once packaged while still thousands of their executives pocketed millions of dollars in profits and obscene bonuses once the deals were done.

Those that criticize the lowly American borrower may be correct to criticize…in some cases they borrowed more than they could afford to pay…but simply blaming the borrower misses the much bigger and far more significant picture.  In order to fully grasp the full depth and magnitude of the problems facing our country, you’ve got to extrapolate that criticism across that mortgage, banking and finance industries, then have plenty of blame left to heap on the regulatory bodies, government leaders and business mechanisms that should have been in place to keep all that spun wildly out of control in check. We all now know that they totally and completely failed all of us.

It is quite simply naïve and short sighted to blame too much of this crisis on the over-extended borrower.  The fact of the matter is you cannot blame the over-extended borrower without turning the burning glare of blame on the entire lending and finance industry, the heads of industry and regulatory agencies and authorities at the local, state, federal and international levels.  How in God’s name did all the bright people that should have known better allow this mess to occur?  It was either gross incompetence or unfettered greed and corruption or a caustic, toxic mixture of both.  Sure, blame the borrower that borrowed too much, but remember that on the other side of every loan was a sophisticated, well-financed, multi-billion dollar industry that signed those proceeds over to that largely uneducated and always far less sophisticated borrower.  So before you heap scorn on top of the down and out borrower, you better take a closer look at the Monster Behind the Loan.  For all the big shot institutional investors who are just now realizing that their Wall Street advisors were lying to them or committing fraud I ask,  “Where was you due diligence?” To the individual investor that is relying on the stream of income from these investments I ask, “Where was your due diligence?”  To all of you blaming the borrower I ask ,”Did it ever occur to anyone that the school teacher and cop family with combined income of $70,000/year could never afford to live in a home that cost $500,000?”

Hard Questions, Hard Looks and Hard Time….HARDLY.

The Crash that we’re all (sort of) suffering from now really began in 2008.  Remember those dark times?  Remember the crushing pain we all felt?  Remember the forced austerity, the individual and nationwide self examination the crash caused us?  Remember the investigations, the trials, the post mortem examinations?  Remember the sentencing and punishment phase for the Wall Street Wizards and the architects of America’s financial Armageddon?  Yeah, me either.  Our “leaders” huddled in secret rooms and devised the plan to paper over The Crash with billions of dollars in bailout cash that got mainlined to the criminal institutions that were guilty of the crimes that caused the collapse.

The bottom line is The Crash resulted in windfalls to the corporations and the corporate criminals that created The Crash and none suffered any consequence for their evil deeds.  Nothing, Nada, Zilch.  No prosecutions, no real investigations, no jail time at all.  Just billions of dollars of the looted treasure representing decades of middle American equity and production.  Forget for just a moment about punishment, there was never any real investigation or examination by regulatory or government officials so we could prevent something like this from occurring in the future.  The only credible scholarship on The Crash comes from reporting and books that are found in newsstands all across the country.  A careful review of this research and reporting reveals that the root cause was not a few outliers, this was two entire industries (Wall Street and the subprime mortgage industry) combined to create a newly-formed Frankenstein industry permeated by fraud, lies, deceit and massive, obscene profits.  No lessons were learned from the crash and no punishment was ever delivered.  Compounding the systemic problems that led to the crash, the “fix” that was ultimately presented was a lie. In the immediate aftermath of the crisis, Hank Paulson lied to Congress when he convinced them to pass the 2008 TARP bailout package, because the program as advertised had the Fed using the TARP funds to purchase the “toxic” assets that lie at the heart of the crash.  But in a classic bait and switch, Paulson (a classic Wall Street insider) changed the intent of the program prior to voting and instead determined that all our cash would be pumped to the institutions.  That’s right, they got pumped flush with billions of dollars in taxpayer money, while the “toxic” assets that caused the problems still remain right where they are today….soiling our economy and clogging our courtrooms. (Post Mortem Exam Here.) The unpunished resolution of the crisis ignored another fundamental law, the law that crimes will be punished because punishment serves as a deterrent to future criminal behavior.  And, (surprise surprise) the corrupt behavior continued.

Where Did All The Money Go?

The sub prime boom and the resulting catastrophic bust was a direct product of unregulated, unrestrained, uncontrolled greed.  The sub prime mortgage industry was predicated on one overarching, supreme motivating force…..MONEY, MONEY, MONEY.  From the originating mortgage broker straight up through the executive suites at all the sub prime lenders, paychecks and success were determined by the volume of loans closed….no matter the quality, no matter whether these loans would ever be repaid.  The union between the “close at all costs” culture of the sub prime industry and the unchecked, testosterone charged profit-driven culture of Wall Street was a marriage made in populist economic hell.  Think of the profits and bonuses that were thrown around in these industries….million dollar bonuses, multi-million dollar compensation packages.  How in God’s name did any of us, especially Those In Power, ever allow an economic system to grow so wildly out of control that a worker’s work was deemed worth of multi million dollar compensation..much less hundreds of workers spanning several industries?  The volume based bonus culture spawned swarms of financial leeches all pouncing on each residential loan, sucking percentages of the principle away to pay their supercharged salaries and bonuses.  Long before these loans were diced up and sold by the Wall Street vipers in the securitization shuffle, the cumulative value of these assets had already been whittled down.  With all this whittling, shaving and sucking, how can the mortgage backed securities (Nothing Backed Securities) that we see today be anything but a monstrous Ponzi scheme?

No One Knows Anything

The thing that I find so astonishing is just how little All The Bright People knew about what All The Other Bright People were doing.  Like most Americans, I suffered under the delusion that The Bright People knew what they were doing. Surely all the big shots in fancy suits at the United States Treasury, The Fed, The SEC, Merrill Lynch, Bear Stearns, The White House, Congress, AIG, etc., etc., etc., knew what they were doing and knew what the others were doing right?  WRONG.  After digesting all the journalism and books on The Crash, the thing I find most astonishing is that NO ONE KNEW ANYTHING.  Seriously…the complex financial instruments, the cross bets, the credit default swaps, the derivatives, the leveraging.  No one had any idea how interconnected all the bets (for and against) were.  No one had any idea how conflicted all the entities were.  No one had any idea how totally outgunned and unequipped all the regulatory agencies were….actually that can’t be true at all.  The Wall Street Wizards had to know just how completely out of touch Those We Placed In Power to supervise them were…and when the crash came Those We Placed In Power were just dumbstruck.  Go back and look at the Paulson interviews right after the crash.  Focus on his deer in the headlights, “golly gee we”re really in a pickle here”, confused look.  Bajillions of dollars was being sucked out of the American middle class and becoming ever more concentrated among criminal syndicates operating in New York city and no regulators or government officials stepped in to regulate or to at least question the business assumptions that were driving this machine that was flying so wildly out of control.

As an example, one of the key figures in the whole debacle that was The Crash was Joe Cassano, who became the Chief Operating Officer at AIG.  AIG’s nuclear meltdown was largely a byproduct of the credit default swap.  The credit default swap was hatched around 1997 and was called BISTRO.  BISTRO and its spawn are essentially bets against pools of loans defaulting.  These evil, toxic bets earned the Wall Street Wizards billions of dollars and AIG became one of the largest players in this toxic sandbox.  In retrospect a 5^th grader could have recognized that these bets were bad for all those making them and our leaders should have recognized that they were bad, bad news for the overall economy, but apparently all The Really Smart People were too busy spending their millions of dollars in bonuses to think through the risks they were all subjecting us to.  Cassano is quoted in an excellent book, “Too Big To Fail” as late as 2007 saying, “It is hard for us to even see a scenario that would see us losing $1 in any of these transaction.” So Cassano and AIG couldn’t foresee any problem with their entire business model, but in September 2008, you and I started pumping billions of dollars into AIG and the total taxpayer exposure exploded to $152 million.

Even after the collapse, Cassano was kept on a $1 million/month consulting contract.  But it gets worse.   The week following the September bailout, AIG employees and distributors participated in a California retreat which cost $444,000 and featured spa treatments, banquets, and golf outings.  It was reported that the trip was a reward for top-performing life-insurance agents planned before the bailout.  Less than 24 hours after the news of the party was first reported by the media, it was reported that the Federal Reserve had agreed to give AIG an additional loan of up to $37.8 billion. AP reported on October 17 that AIG executives spent $86,000 on a previously scheduled English hunting trip. News of the lavish spending came just days after AIG received an additional $37.8 billion loan from the Federal Reserve, on top of a previous $85 billion emergency loan granted the month before. Regarding the hunting trip, the company responded, “We regret that this event was not canceled.”  An October 30, 2008 article from CNBC reported that AIG had already drawn upon $90 billion of the $123 billion allocated for loans.  On November 10, 2008, just a few days before renegotiating another bailout with the US Government for $40 billion, ABC News reported that AIG spent $343,000 on a trip to a lavish resort in Phoenix, Arizona.  Just think about all of that, you and I pumped billions of dollars into this failed and probably criminal enterprise and what was the punishment for the players?  They were sentenced to spa treatments in California and hunting trips in England.

The banks, the lenders, the brokers, the appraisers, the attorneys, the analysists. They all shoved billions of dollars in their pockets during the run up to the crash of 2008.  Then in the aftermath of the crash, they figured out a way to continue shoving money into their pockets….this time taxpayer funded bailout money.  They were sloppy, reckless, conniving criminals that sucked the economic lifeblood out of the middle class then when they were caught they were rewarded with first dibs on the money earned by the children and grandchildren of the middle class.  What could possibly be more criminal or devastating?

The HAMP Booddoggle- Bailout The Criminals Version 2.0.

As if the 2008 billion dollar boon doggle bailout was not enough, the Wall Street Wizards teamed up with their friends in Washington, DC and arranged to transfer as much as $50 billion dollars in additional money to the criminal mortgage companies through the HAMP program.  Now, theoretically at least not all $50 billion dollars went out the door, but according to the government’s own numbers as of September 2008, less than 500,000 Americans got permanent modifications through the program and the net “benefit” was a median monthly payment reduction of less than $500.  While real numbers are hard to come by and any numbers published by any of the lenders, servicers or our elected officials are suspect, one thing is beyond dispute…..the HAMP program has been an abject failure for the American consumer, but another windfall for the lenders and servicers.  While Americans struggle to make their monthly mortgage obligations and while the lenders and servicers rush feverishly to them onto the streete, they’re busy sucking down billions of taxpayer dollars….helping themselves to the lavish buffet of tax breaks and direct cash infusions that fatten their bottom lines….benefits paid to them courtesy of the American taxpayer they’re trying to throw into the street.

They’re not playing by the new rules established by HAMP and other government programs that are express conditions of receipt of the taxpayer funding and they’re not playing by the long established rules of the state courts they must slither through on their way to snatch a home back through foreclosure.  And that’s what really, really bothers me about the whole mad rush through foreclosure.  Many of the phantom entities that are foreclosing have dubious, questionable or non-existent legal standing to bring the claims they’re bringing so they’ve got to fabricate the evidence they need to pursue their questionable claims.  That’s bad enough, but what makes matters far worse is they’re using taxpayer dollars to fund their fabrication and to fuel the evil machine that grinds forward, leaving a path of fraud and destruction in its wake.  If the entities had been left to dangle in the wind and survive by their own devices and if they played by the rules I’d have far more sympathy for them, but the fact of the matter is the long and continuing pattern of lies, deceit and outright fraud that is being perpetrated upon the American people by the biggest institutions in this country is unprecedented.  Even more disturbing is the fact that they could not continue the perpetuation of this fraud and crimes without the participation of our own court systems and government.

The end is nowhere in sight.  The crimes, the cover up, the lies, deceit and fraud continue unabated.  The real question is when will the American people finally stand up and make it clear to the world that they’ve had enough.  Until then, the crimes continue.

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