Posts filed under “Legal”

Ponzi Schemes

Bernard Madoff lost less money than AIG and he throws way better parties.


Category: Humor, Legal, Markets, Video

The Madoff Whistleblower

Fascinating piece you may have overlooked this week in the Boston Globe on Harry Markopolos, the author of the detailed November 2005 memo to the SEC, identifying 29 red flags about Madoff and concluding he was a fraud. Excerpt: “A month ago, Harry Markopolos was an accountant unknown outside Boston’s financial community. Now the slight,…Read More

Category: Investing, Legal, Regulation

Posting Bail in Korea is a Bitch

> Thank you for all the kind words and well wishes after my ordeal in Korea: South Korea said on Thursday it had arrested an elusive blogger accused of undermining the country’s financial markets with his doom-mongering, ending a case that has illustrated government unease with the growing influence of online ­gossip in the world’s…Read More

Category: Legal, Weblogs

How Long til Madoff Losses Are Recovered ?

Earlier today, we looked at the NYT interactive graphic that calculates how long it will take to return to breakeven for typical portfolio losses. But what if you were one of 8000 Madoff investors, and your portfolio is now worth zero? For starters, you should get $500k from SIPIC. Then, there is the $830 million…Read More

Category: Investing, Legal, Markets, Regulation

Former NAR Economist David Lereah is a Jackass

Alternative Title: David Lereah: Even More Full of Shit Than Previously Believed > Of all the various parties who contributed to the boom and bust in housing and credit, none have escaped more unscathed than the National Association of Realtors, and their former Baghdad-Bob-in-Chief, David Lereah. The NAR turned a blind eye to fraud amongst…Read More

Category: Contrary Indicators, Legal, Real Estate, Really, really bad calls

Inside Look: Madoff Mayhem

Analysis and Discussion with University of Rochester President Joel Seligman, Also an SEC Historian

January 03, 2009

Featuring Interview with Former SEC Official Jacob Frenkel

January 02, 2009

Category: Legal, Regulation, Video

How to Repair a Broken Financial World

Here is another excerpt — part II — of the all consuming OpEd of the Sunday New York Times by Michael Lewis and David Einhorn: Excerpt: When Bear Stearns failed, the government induced JPMorgan Chase to buy it by offering a knockdown price and guaranteeing Bear Stearns’s shakiest assets. Bear Stearns bondholders were made whole…Read More

Category: Bailouts, Credit, Derivatives, Legal, Markets, Really, really bad calls, Regulation

The End of the Financial World As We Know It (and I feel fine)

The entire OpEd section of the Sunday New York Times has been taken over by an article jointly written by Michael Lewis and David Einhorn, titled The End of the Financial World As We Know It. Its this morning’s must read piece . . . Excerpt: “OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required…Read More

Category: Bailouts, Credit, Derivatives, Legal, Really, really bad calls, Regulation

Here Come the Cram Downs!

Nice column to end the year on via WSJ: Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount. Excerpt: “The banking industry hoped the mortgage “cram-down” measure died when Congress removed it from the $700 billion bailout bill that passed in October. But it has been gathering momentum in Democrat-controlled Washington, as evidence emerges that current voluntary foreclosure-prevention…Read More

Category: Credit, Legal, Real Estate

“If you were dead, they would still give you a loan”

“It was the Wild West. If you were alive, they would give you a loan. Actually, I think if you were dead, they would still give you a loan.”

-Steven M. Knobel, a founder of appraisal firm Mitchell, Maxwell & Jackson


Interesting article in the Sunday NYTimes about WaMu, the company that could not say no. The Times missed a golden opportunity to proclaim a major bank a “slut” – any opportunity one gets to do so should be taken without hesitation.

And just how slutty were WaMu’s loans? By the first half of this year, the value of its bad lending had reached $11.5 billion. Here’s why:

WaMu pressed sales agents to pump out loans while disregarding borrowers’ incomes and assets, according to former employees. The bank set up what insiders described as a system of dubious legality that enabled real estate agents to collect fees of more than $10,000 for bringing in borrowers, sometimes making the agents more beholden to WaMu than they were to their clients.

WaMu gave mortgage brokers handsome commissions for selling the riskiest loans, which carried higher fees, bolstering profits and ultimately the compensation of the bank’s executives. WaMu pressured appraisers to provide inflated property values that made loans appear less risky, enabling Wall Street to bundle them more easily for sale to investors.

Why the disregard for traditional lending standards, the risky mortgages, the lending to unqualified people? Was it the CRA or Fannie/Freddie? To the contrary, it was a relentless drive for sales volume and market share. Loan officers were givens 100s of new loans per day, ensuring  review and oversight were minimal. Investigating into loan apps was actively discouraged.

I know from personal experience that WaMu was amongst a group of predatory lenders and mortgage felons who actively misrepresented loans. I have disagreed with those who called the no doc loans predatory borrowing. It was the banks that actively misrepresented the loan products to borrowers; It was the banks that had the fiduciary obligation to their depositors and investors not to engage in reckless lending.

My wife has a WaMu account, and we got a sales pitch on mortgages from them in 2004, and again when we sold one house and bought another in 2006. I am pretty savvy about mortgages, and I was aghast about their Option ARM and their Neg Am sales pitch. I spoke with several WaMu salespeople — in person in a NYC branch, and over the phone — and they tried to make the teaser rate sound like this was a non-resetting, permanent payment. If you pressed them about the reset, they would eventually fess up. If you asked them about Neg Am, they never explained the total amount owed went up every month you underpaid principle. But if you were naive about finance or didn’t understand how these loans worked, they steamrolled right over you.

Here’s the ugliness:

The ARM Loan Niche:  WaMu’s retail mortgage office in Downey, Calif., specialized in selling option ARMs to Latino customers who spoke little [or no] English and depended on advice from real estate brokers, according to a former sales agent who requested anonymity because he was still in the mortgage business.

According to that agent, WaMu turned real estate agents into a pipeline for loan applications by enabling them to collect “referral fees” for clients who became WaMu borrowers.

Buyers were typically oblivious to agents’ fees, the agent said, and agents rarely explained the loan terms. “Their Realtor was their trusted friend,” the agent said. “The Realtors would sell them on a minimum payment, and that was an outright lie.”

This is predatory lending. The FBI, which has already arrested over 1000 people, should be hunting for all of these dirtbags, clawback any and all commissions from them — then toss them in jail.

And again, what some have termed “predatory borrowing” was in the real world, simply fraud perpetrated by bank employees and mortgage brokers: “[Managers] in the Irvine, Calif, office coached brokers to leave parts of applications blank to avoid prompting verification if the borrower’s job or income was sketchy.”

I’ve mentioned this many times before: Many of the people who have 2/28 ARMs had no idea they had a mortgage that was going to reset. I’ve spoken to many people who had no idea, and remain convinced its a paper work error. From what I personally saw from the sales staff at WaMu, this was not an accident.

Excerpt after the jump . . .

Read More

Category: Bailouts, Corporate Management, Credit, Legal, Real Estate