New 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?