A Modern Pecora Commission ?
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My Sunday Washington Post Business Section column is out. This morning, we look at the newly impaneled Office of Mortgage Origination and Securitization Abuses.
Print version had the headline A Chance for a modern Pecora Commission to right Wall Street wrongs.
It’s fair to ask: Is this new task force a meaningless exercise? The article looks at the ways to tell if this office is for real. How the structural set up of the office will reveal if this is a whitewash; further, the areas that get investigated will also tell us if this a serious investigation.
Here’s an excerpt from the column:
“So, here we are, four years after the great financial collapse, three years after the recovery began and in the last year of Obama’s term — and the president has finally decided to investigate the role of fraud in the great global financial crisis. Hence, this new task force — the unit of Mortgage Origination and Securitization Abuses — begins behind the curve. The statute of limitations is, in many cases, close to elapsing.
Even so, do not dismiss the investigation out of hand because of the timing: History informs us that a serious investigation can begin four years after the fact. Recall that Ferdinand Pecora was the fourth chief counsel for the Senate committee that investigated the Wall Street crash of 1929 and subsequent Depression. He was appointed in 1932 and received broad investigatory powers in 1933. His report ran thousands of pages. Thanks in large part to Pecora’s findings, Congress passed the Glass-Steagall Banking Act, which separated commercial and investment banking; the Securities Act of 1933, which established penalties for filing false information about stock offerings; and the Securities Exchange Act, which created the Securities and Exchange Commission to regulate the stock exchanges. Nearly 50 years of financial stability followed.”
The dead tree version of the paper has a classic photo of Pecora:
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click for ginormous version of print edition
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Source:
A modern Pecora Commission could right Wall Street wrongs
Barry Ritholtz
Washington Post, January 29 2012
http://www.washingtonpost.com/business/a-modern-pecora-commission-to-right-wall-streets-wrongs/2012/01/22/gIQAJ3uoYQ_story.html
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January 29th, 2012 at 10:35 am
Update: I submitted the column Thursday — on Friday, we got 11 subpoenas for one of the issues I mentioned, forced place insurance:
Here is the run of subpoenas from American Banker
http://www.americanbanker.com/news/force-placed-in…
Subpoenas to Mortgage Servicers
Citimortgage, Inc.
Ocwen Financial Corporation
Greenpoint Mortgage Funding, Inc.
HSBC Mortgage Services Inc.
Saxon Mortgage Services, Inc.
Morgan Stanley Mortgage Capital Holdings LLC
Residential Capital LLC
Residential Funding Company, LLC
Nationstar Mortgage LLC
Aurora Loan Services LLC
PennyMac Corp.
Select Portfolio Servicing, Inc.
Green Tree Servicing LLC
Emigrant Mortgage Company, Inc.
PHH Mortgage Corporation
Dovenmuehle Mortgage, Inc.
American Home Mortgage Servicing, Inc.
SunTrust Bank
Subpoenas to Insurers
Allinco
Alpine Indemnity (PNC)
American Bankers Insurance Company of Florida
American Security Insurance Company
Assurant, Inc.
American Modern Home Insurance Company
American Modern Select Insurance Company
Banc One Insurance
Colonial American Casualty and Surety Company
Balboa Insurance Company
HSBC Insurance of Delaware
Meritplan Insurance Company
QBE Insurance Corporation
QBE Financial Institution Risk Services, Inc.
StarNet Insurance Company
WM Mortgage Reinsurance (JPMorgan Chase & Co. Captive Reinsurance)
Yosemite Insurance Co (Springleaf)
Zurich American Insurance Company
Subpoenas to Insurance Producers
AHMSI Insurance Agency Inc.
Banc of America Insurance Agency
BB&T Insurance Agency Services
Capital One Agency LLC
Chase Insurance Agency Inc.
Citi Assurance Agency
GMAC Agency Marketing
HSBC Insurance Agency Inc.
HSBC Insurance of Delaware
MetLife Auto & Home Insurance Agency Inc.
PNC Insurance Services LLC
Regions Insurance Agency
Southwest Business Corporation
Springleaf Financial Services of New York Inc.
SunTrust Insurance Services Inc.
Wells Fargo Insurance Agency
Wells Fargo Insurance Services of New York Inc.
Wells Fargo Insurance Services USA Inc.
Wells Fargo Special Risks Inc.
Wilshire National Insurance Agency
January 29th, 2012 at 10:41 am
Barry, why did you leave out the Massachusetts AG? I believe Martha Coakley is, to date, the only AG to have actually filed suit against the five largest banks for mortgage-related fraud.
January 29th, 2012 at 11:35 am
Oooh, you are right — dunno how that slipped by the editing
January 29th, 2012 at 12:41 pm
Nice it is all about th mandate and the talent
My read of hellhound od wall st
A wonderful f…ing miracle it all came together
Some old roosevelt reform republican lame duck senators it was still hoover then
Complete subpoena for anything related to securities issue
board minutes all accounts and books
memos
Pecora actually went up to NYC to pore over this for days
The FCIC was sadly th opposite
I talked to the staff director. It was supposed to be any crisis
But all the commission could agree on was housing had somthing to do w it
I ran my stuff by her ans she said yeah sounds pretty good
If yu put it in senate
senators willbloviate like thefcic and all the prepecora
You need aliteral cross examination
Just quibbles but if you say ok to be late pecora was
Not really the big to the downleg recession dowleg bottom was same time as pecora. I was surprised he was so early
If you say mers and docs should be the biggest part
I don’t object to nailing them
But this stuff was not even known at the downturn much less a key cause
We should fet it right but it won’t fix finance or make it less boom bust
I sent out my 16 reasons why mortgage papar in 2007
Now there’s 20 and I grant some big new ones
January 29th, 2012 at 12:43 pm
Barry, please keep pounding away on the 10 steps to prevent the next crisis, in your brilliant 9/16/11 blog post: GlassSteagall restoration, Commodities Futures Modernization Act repeal, rating agency charter revocations, etc.
January 29th, 2012 at 12:46 pm
16 reasons why mortgage paper is bad paper
Excuse my ancient crack berry
January 29th, 2012 at 1:00 pm
Let’s see some REAL results from names the public knows is heavily tied to politics w/money.
Where Goldman’s was one of Obama’s biggest contributors in 2008, it didn’t look good when Carl Levin read such damning text from internal Emails that all but boasted of fraud as if it were just another day and Goldman was ultimately fined the equivalence to two days trading profits.
Maybe people are stupid by and large, but to assume public stupidity as a business model will ultimately fail in Democracy, Abe Lincoln summed it well
“You can fool all the people some of the time and some of the people all the time but you cannot fool all the people all the time.”
January 29th, 2012 at 1:14 pm
“So, here we are, four years after the great financial collapse… in the last year of Obama’s term — and the president has finally decided to investigate the role of fraud in the great global financial crisis.”
What fool trusts the president? On 60 Minutes a month ago we heard “no laws were broken” from his very mouth as the reason why there have been to date neither investigations or prosecutions. So that being the case, what possible fraud could he be thinking about now? Or is fraud legal so no laws were broken? Or does he think we are so stupid and with such compromised attention spans that we’d never notice the discrepancy.
January 29th, 2012 at 1:41 pm
“A Modern Pecora Commission ?”
Great idea, but it will never make it through the Senate if there are more than 39 Republican and/or RightWing Democratic Senators.
January 29th, 2012 at 2:15 pm
There was one category of fraud you didn’t mention. Many of the mortgages carried private mortgage insurance. I was once told that to obtain that insurance the originator has to certify to the insurance company that their regular underwriting criteria were followed. Of course, that was a lie, and when the mortgages go bad the mortgage insurance companies are suing the originators for fraud and demanding they take back the mortgages. The private mortgage insurance companies can probably protect themselves, but if the fraud is that widespread it should be addressed on an industry-wide basis.
January 29th, 2012 at 3:02 pm
I saw Mr. Ritholtz should chair this commission. He’s got lawyer skillz and bitch slap skillz not to mention the wall st knowledge.
Ritholtz for Chair of the MOSA! Let’s start a campaign dammit.
January 29th, 2012 at 3:03 pm
uh… saw = say…(sorry for the typo BR)
January 29th, 2012 at 4:06 pm
Make that TEDDY roosevelt reformers even Bullmoose repubs appointing pecora w hoovers approval. An extinct species now
tho hoover tried for a year to make it shortselling only. But when he saw pecora results he called them banksters worse than al capone and had his. A. G indict charlie mitchell, National City CEO
But I agree barry as chief inquisitor a complete all securities where the sun don’t shine IBGYBG mandate
And 9 figure bonussed CEOs who’s companies promptly blew up in the dock as “witnesses”
That be awesome and legally possible aside from fifth amendment
January 29th, 2012 at 4:21 pm
Seems to me that if we ever really got serious about prosecutions, we have a lotta tools that the recently-dismantled Bill of Rights denied to Pecora … RICO, Patriot Act, … I favor waterboarding the senior perps until they confess …
Hey … we have the tools … We should use them on those who are actually destroying this nation …
January 29th, 2012 at 8:32 pm
Now that Holder is getting linked to MERS via his DC Law Firm, might this not just be political cover to get attention away from MERS and back onto Banks?
January 29th, 2012 at 9:35 pm
The banks would cheerfully throw their middle managers to the sharks for $25 billion. They’re not because that would send a bad message to future middle managers (when you commit crimes for us, don’t expect us to bail you out). The message the government is sending by letting the banks buy their way out of it is that future middle managers should do what they’re told and we won’t come after you personally. It’s not a good bargain.
January 29th, 2012 at 11:19 pm
A Modern Pecora Commission under Barack W. Obama? Clearly it’s election season – yet you are still swallowing this hook, line, and sinker?
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BR: Read the article — its 10 bullet points (3 structural, 7 substantive) that will allow us to tell if this is nonsense or not.
January 30th, 2012 at 6:01 am
THE cause of the crisis is debt money. The consequences of debt money are 1) A bankster class with unlimited power and money, 2) A corrupt political system bought with bankster created money, 3) A general lowering of moral standards across the population as more and more corruption seeps into all areas of life, 4) A widening gap between rich and middle class, a disappearing middle class and a lack of trust in economic and political institutions, 5) A fracturing of REAL national pride replaced with a jingoistic, delusional belief characterized by “fuck ya, america!!!” 6) etc, (A book idea here BR).
Not all problems would be solved with the repeal of debt money, but most would. However, I do believe we get the government we deserve so …maybe we’re just not there yet… perhaps we’re really not ready to be trusted to govern ourselves… perhaps the capital machine is the best we can hope for until evolutionary advancement endows us with the moral capacity to govern ourselves. It is said that even the savage cares for his children, while the civilized man cares for his grand children. By that standard, we’re still savages.
January 30th, 2012 at 6:12 am
and, what do I see after writing the above,
http://www.zerohedge.com/news/guest-post-banker-tax
He’s almost there, but, ending the Fed, WITHOUT ending debt money puts us in a world of hurt. Where do you go in a debt money system if there is no central bank to create money? In a word, you got Europe.
That ain’t gonna solve no problem.
Only interest-free money, SPENT into the economy by a RESPONSIBLE government can solve our problems.
January 30th, 2012 at 8:05 am
On the issue of “Origination Fraud” and the question of who in their right mind would originate a NINA or stated income loan, I doubt that this would ever be confirmed as fraud. First of all, both the lender and the borrower were fully aware of what was going on. If the lender doctored up the application (inflated the actually stated income without the borrower’s knowledge) or the borrower exaggerated their income, then that’s a different matter.
In lending their are two broad approaches: lend on cash flow (or income for consumers) or lend on collateral. The latter is a rather discredited approach that is fading away. However, stated income, I believe, began in response to the nearly universal situation where self-employed or business owners understate income on their tax returns. The thought was that if you start out well collateralized (say 25% downpayment) and since housing values were going to rise in perepetuity (right), it was a loan which could be repaid – from payments or, worse come to worse, from liquidation. Obviously, this brand of underwriting simply proved to be seriously misguided. A bad mistake but not fraudulent. (BTW: The bank for which I worked never could justify doing NINA loans.)
The point I am making is that maintaining that all stated income, on their face, are fraudulent, is incorrect. To be fraudulent in this respect requires an additional ingredient – a misstatement of fact by either the borrower or originator or collusion between the two. Of course, there was plenty of that. Where a pattern of this fraudulent behaviour exists it should be prosecuted.
January 30th, 2012 at 10:29 am
What Janchup said: How come the President claimed that “banks did nothing illegal” and then, as the election season get hotter, we get a Financial Fraud Task Force announced in the SOTU, no less?
By the way, WTF does that mean anyway? Don’t we already have law enforcement divisions dedicated to economic/financial crimes? Aren’t there several federal agencies responsible to supervise the financial industry? Is the President trying to tell us that said agencies suck to no end and cannot be trusted?
Show us some true political will Mr. President and we may, just may, decide that, this time, you’re serious.
January 30th, 2012 at 10:43 am
Jim67545 wrote:
You owe to yourself to listen this mind-blowing interview with Prof. Bill Black. In it, he explains in plain English how it is that NINA and NINJA are fraudulent by definition. Moreover, the mortgage industry was told as early as 2004, that they had a huge fraud problem due to origination.
You can easily guess what was their reaction.
January 30th, 2012 at 3:14 pm
Francois:
Listened to Black’s interview. Nothing about it blew my mind (I’d have added more.)
My point was that stated income loans are not, in and of themselves, fraudulent. That is why I said that simply originating a stated income loan is not fraud. To be fraudulent a misstatement of fact is necessary.
I think if I were to pose this to Black he would say, “Well, it’s true that a stated income loan is not necessarily fraudulent if everyone involved in it is honest and the income stated (or other information) is true. However, a study revealed that 90% of all stated income, NINA, NINJA loans WERE fraudulent. So it is a distinction without a real difference.”
January 30th, 2012 at 8:50 pm
I hope this new group recommends taking us back to 1998: separate depository banking from investment banking, return investment banks and exchanges to partnerships, regulate the derivatives\insurance business, use good old fashioned lending\borrowing standards, and reduce the leverage. Unlike 1998, make sure the Federal Reserve is looking our for consumers.