More Evidence Emerging of the Big Banks Role in Mortgage Meltdown

0New Orleans      If there is anyone over the age of 10 years old that has any doubt that the pure and simple, unchecked greed of banks caused the mortgage meltdown triggering the Great Recession, please read, and listen carefully.   Information now coming out on the dealings between Morgan Stanley, the Wall Street behemoth that acted as the primary financier, facilitator, and purchaser of tranches from high-flyer New Century whose fall in 2007 signaled that the party was over make it crystal clear that they funded the mess until it broke the economy and almost bankrupted them as well.  Follow the big money and the trail becomes impossible to miss.

Reports are emerging from of all places an ACLU lawsuit, representing some buyers who lost their homes,  of emails and other information that has come from the discovery process.  Morgan Stanley tried to squash the suit, but a federal judge has now ruled that there is more than enough to push the matter forward.  The Justice Department and local prosecutors are also smelling blood in the water and predicting that Morgan Stanley will settle for a pretty penny before summer gets too hot.

Once again resources and their availability from Morgan Stanley seem to have been irresistible to New Century.  I’m in danger of starting to develop a global theory of how money and resources more than any other factor moves – or halts — not only too much of the work of social change but virtually all of what we see in not only this mess, but also tech, research, medicine, and a lot of other fields, so that’s a warning of things to come.

In this case,  Morgan Stanley was the biggest buyer of New Century subprime loans from 2004 to 2007, about $42 billion worth, and insisted that they wanted packages that were heavily weighted towards adjustable rate, ARM loans, or what the New Century CEO and co-founder once referred to in a negotiating session with ACORN and his own personal situation as “drinking his own Kool-Aid.”  Oh, and make sure they have pre-payment penalties as well, ok?  Risk and compliance factors low on the Morgan Stanley totem pole, in other words, not at the trading desks where sales are sex and everything else is road kill,  and were consistently ignored, even when the big bosses knew better.

According to a report in the New York Times

another lower-ranking due diligence officer, Bernard Zahn, who wrote detailed emails to both Ms. [Pamela] Barrow [a top diligence officer] and Mr. [Steven] Shapiro [head of the trading desk] explaining, in increasingly urgent terms, problems with the loans they had bought.  “It isn’t ‘just a couple of typos or ‘mistakes’ as it was suggested, the more we dig, the more we find.”  Ms. Barrow congratulated Mr. Zahn: “good find on the fraud :).” But rather than pursuing his findings, she immediately went on: “Unfortunately, I don’t think we will be able to utilize you or any other third party individual in the valuation department any longer.”

Hard to miss that message.   You can ask, just don’t tell.

Barrow in another exchange was pretty clear about what they thought of the quality of their borrowers as well, when she…

wrote to a colleague in 2006 sarcastically describing the “first payment defaulting straw buyin’ house-swappin first time wanna be home buyers.” “We should call all their mommas,” Ms. Barrow added in the email. “Betcha that would get some of them good old boys to pay that house bill.”

Well, yeah, and if loan affordability had ever been a criteria rather than bonuses and greed on Wall Street, millions might not have suffered. How do you explain all of that and what you did to your mommas and papas, Morgan Stanley big whoops?


Federal Reserve Blasts Wells Fargo with Largest Ever Fine

Maude Hurde leadin an action against Wells Fargo years ago

Maude Hurde leadin an action against Wells Fargo years ago

New Orleans I may still be under a gag order on ACORN’s final settlement with Wells Fargo, but who knows at this point and who would care now.  Wells Fargo was always about hard ball and hard bargaining, but when we moved after than in 2004 after settling first with Ameriquest and then Household Finance on predatory lending practices, they were the next obvious target.  We had them to rights, rather to wrongs, but rather than accept the Ameriquest and Household terms for settlements they stonewalled.  The ACORN National Convention in Los Angeles that year made Wells Fargo its central target as 1500 people passed the Disney Concert Hall and then swarmed outside their building, handing the executives a copy of the suit our lawyers filed that day.

We settled eventually on the best terms we could get.  They implemented best practices and supposedly made other modifications.  The suit had been narrowed from the national scale of Household down to just California plaintiffs.

I read with some bittersweet pleasure at justice delayed being still better than justice denied that the Federal Reserve had settled with Wells Fargo this week for $85 million to compensate between 3700 and 10000 victims of virtually the same predatory practices that ACORN had exposed.

The Fed hit them for abuses that continued after our settlement from 2004 to 2008.  Much of it sounded the same though.  Documents had been faked with false income numbers.  Borrowers had been steered into unaffordable loans.   The CEO now, John Stumpt,  released a statement swearing it was a “small group” of employees who made this giant mess, and furthermore they had already paid off 600 customers.  Hmmm?  If that’s supposed to be an apology, then in typical Wells Fargo fashion, it sure doesn’t sound like one to me.

The Federal Reserve slept through the subprime crisis, and this latest fine, even though the largest, does not prove differently.

Judging from the tearless, limp finger pointing by Stumpt at others, it is clear that even as they pay the fine, nothing is changing in the sanctimonious and callow corporate culture at Wells Fargo.

If you want a safe bet, make one that they will continue to do the same thing over and over again, until caught and forced into a situation where they really have to change, rather than copping a plea where they admit nothing and deny everything as always.