Think 13 BILLION dollars is a gigantic fine? Think again. It’s only money.
October 25, 2013
by Matt Taibbi
rollingstone.com via opednews
What Washington Mutual and Bear Stearns (Chase’s guilty acquisitions) were doing in the mortgage markets was little more than an elaborate take on a Madoff-style Ponzi scheme. Actually, most of the industry was guilty of the same thing, but in the cases of these two banks in particular the concrete evidence of fraud is extensive, and the comparison to a Madoff-style caper isn’t a fanciful metaphor but more like evidentiary fact.
Madoff’s operational fiction was his own personality. He used his charm and his lifestyle and his social status to con rich individuals into ponying up money into an essentially nonexistent investment scheme.
In the cases of both WaMu and especially Bear, the operating fictions were broad, carefully-crafted infrastructures of bogus guarantees, flatlined due diligence mechanisms, corrupted ratings agencies and other types of legal chicanery. These fake guarantees and assurances misled investors about they were buying. Most thought they were investing in home mortgages. What they were actually investing in was a flow of cash from new investors that banks like Bear and WaMu were pushing into a rapidly-overheating speculative bubble.
These banks created huge masses of mortgage securities they knew to be highly risky and/or fraudulent. At Bear, one deal manager jokingly nicknamed one pool of mortgages, SACO-2006-08, the “SACK OF SHIT” deal. In another case, Bear’s securitization company, EMC, obtained a pool of mortgages from a sketchy mortgage originator called AHM, and found out that as much as 60 percent of the batch was delinquent.
Yet they continued to buy these mortgages and throw them into the great hamburger-machine, turning them into securities that would in turn be bought by everyone from pension funds to Fannie and Freddie. And then they pushed sales even harder, relying upon the influx of new buyers of these securities to keep the value of the old securities stable.
This is exactly what Bernie Madoff did, it’s what Charles Ponzi did, and it’s what Allen Stanford did – using cash from new investors to pay off the old investors. The supermarket-bank version of this game was just more elaborate, involved more moving parts and threatened indescribably greater damage.”
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A few more notes on the deal. This latest settlement reportedly came about when CEO Jamie Dimon picked up the phone and called a high-ranking lieutenant of Attorney General Holder, who was about to hold a press conference announcing civil charges against the bank. The Justice Department meekly took the call, canceled the presser, and worked out this hideous deal, instead of doing the right thing and blowing off the self-important Wall Street hotshot long used to resolving meddlesome issues with the gift of his personal attention.
Only on Wall Street does the target of a massive federal investigation pick up the telephone and call up the prosecutor expecting to make the thing go away – and only in recent American history would such a tactic actually work.
Considering the scale of the offenses involved (one could make the argument that Bear Stearns and Washington Mutual by themselves did enough damage and cranked out enough toxic loans to cause the 2008 crash) the state could have taken the hardest of hard lines. Instead, they once again took a big fat check to walk away.