Bill Black on Financial Fraud Investigations

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We checked in with banking fraud expert Bill Black for his take on the ongoing investigation into the U.S. financial crisis. Today’s the deadline for the multistate foreclosure settlement between state attorneys general and the major banks. If the purported $25 billion deal goes through, it will provide some relief to those who have experienced foreclosure (or are in danger of it) and require banks to overhaul their foreclosure practices.

Theresa Riley: Last week there were many rumors about the types of fraud that will be covered in the multistate foreclosure settlement. Initially there were reports that it would be limited to robo-signing abuses — and then there were reports to the contrary. What is expected to be included in the settlement?

Photo by Robin Holland

William Black:  The newest (pro-release) rumors are that the current draft of the settlement includes some releases for mortgage origination fraud and secondary market fraud, but that those releases are limited. We are not told how limited.

Riley: If the deal goes through as reported, what could this mean for future criminal investigations and reforms?

Black:  The leaks about the proposed deal occurred in conjunction with President Obama’s State of the Union Address and a series of press releases and conferences by Attorney General Holder about a newly created “working group.” That working group is intended to investigate secondary market fraud. There is no comprehensive investigation of the over $1 trillion in mortgage origination fraud. There are no prosecutions of any of the elite bank officers who led, and became wealthy from, the epidemic of mortgage origination fraud. The State AGs do not have the resources to investigate even two of the largest fraudulent lenders.

The major development this past week is that New York Attorney General Schneiderman filed suit, alleging that the Mortgage Electronic Registration System (MERS) is aiding foreclosure fraud and ruining America’s public recordation system for real estate, which conservative economists praised as one of the key reasons America became so prosperous. MERS is enormous and it is fundamentally flawed and dangerous, so this could be a tremendously useful action.

Riley: Speaking of Schneiderman, what’s your view of President Obama’s SOTU announcement of a new Financial Crimes Unit (the Residential Mortgage-Backed Securities (RMBS) Working Group) co-chaired by him?

Black:  If Schneiderman had been named Attorney General of the United States, we would know that the administration really intended to hold accountable the frauds that drove the crisis. Instead, the top two Justice Department officials that are supposed to be prosecuting the elite frauds have consistently failed to even investigate the frauds, have denied the existence of material fraud, and came from the same law firm that represented many of the big, fraudulent banks and was critical to the creation of the notorious Mortgage Electronic Registration System (MERS) that contributed to the foreclosure fraud.

AG Schneiderman was appointed to the working group because he has broad credibility as a real prosecutor. His refusal to support the earlier drafts of the robo-signing deal (which was so bad that I described it as the formal surrender of the U.S. to crony capitalism) led the State AGs to kick him out of the settlement discussions.

Schneiderman is only one of the co-chairs of the new working group. The others are federal prosecutors or officials who were the strongest proponents of the cynical deal that would have de facto immunized the elite criminals from civil and even criminal sanctions. The working group is set up so that Schneiderman can give the group credibility while being marginalized. He can be outvoted in any matter in which he proposes vigorous prosecutions.

Riley: It sounds like you don’t think this new working group is going to get the job done. Last week, Schneiderman said that he thinks he has the resources (particularly the IRS and the Consumer Protection Unit) and the political will to pursue the investigation in a meaningful way. Why do you disagree?

Black: First, the “investigation” will not investigate what was by far the largest and most destructive fraud — control frauds — the origination of millions of fraudulent loans. Second, the working group’s resources to investigate secondary market fraud are ludicrously inadequate.

Let me provide specifics on scale.

The total staffing of the working group (once completed in several months) is 55. At peak, there were roughly 1000 investigators (and hundreds of prosecutors) assigned to the S&L prosecutions 20 years ago. The current crisis caused losses far exceeding the S&L debacle and involves frauds that are massively greater than the frauds that drove the S&L debacle.

But the issue of resources is not where the discussion needs to begin. The keys are information, expertise, understanding of control fraud, and prioritization of investigations and prosecutions. Absent criminal referrals from the financial regulators and whistleblowers, absent dozens of banking regulators being “detailed” to serve with the FBI as their internal experts, absent training of the investigators and prosecutors on how to detect and prosecute control frauds (the Justice Department uses the mortgage lending industry’s “definition” of mortgage fraud — and, surprise, it defines the lenders and their CEOs who made millions of fraudulent liar’s loans as the good guys/victims of mortgage fraud rather than the perpetrators), and absent the immediate reversal of the current system of making smaller mortgage frauds our top criminal justice priority — absent all of these things there can be episodic prosecutorial successes, but continued systemic failure is certain.

We will know that there is a real commitment to prosecuting the elite frauds when the Justice Department takes these essential, foundational steps — and the Department quadruples the number of FBI agents assigned to investigate mortgage fraud.

Riley: What would you like to see happen?

Black:  We have descended too fully into the cesspool of crony capitalism when our most elite banks can commit what SEC investigations find to be fraud and still claim in filings to the SEC that they have “a strong record of compliance with securities laws” — and the SEC buys such a preposterous claim hook, line, sinker, rod, reel, and the canoe they paddled into the swamp.

Where are the “soft on crime” conservatives when you need them? This is the perfect story for Republicans to use in attacking President Obama’s policies. Why are they so silent?

I want the elite criminals who ran the control frauds to be prosecuted and imprisoned if found guilty. Under President Bush, the Justice Department’s prosecution of financial frauds was pathetic. Even though financial fraud reached unprecedented levels, the Bush administration prosecuted fewer than one-half as many financial frauds as during the S&L debacle. The bad news is that the Obama administration has proven even more disgraceful failures in holding elite criminals accountable than did the Bush administration. The Obama administration has convicted a few bankers from non-elite banks and it may eventually convict a token elite banker, but it will continue to fail systemically to hold elite bankers accountable for their frauds.


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  • Suse

    this is a pathetic state of affairs. I am sure the conservatives who have stated “let the housing market settle itself ”  (free market apostles) with no thought of the suffering of millions of middle class home owners will certainly not be heard from on this issue!  

  • leftofcenter

    I heard Black being interviewed on another show. And while the issue is important, the interview itself was one of the silliest things I’ve ever heard. Black was trying to explain about what should be done to prosecute these people. The more he explained the more he literally laughed and essentially said, can you believe how ______ incompetent these people are?

    This basically sums up the situation now. It’s no surprise that these “tough prosecutions” are now being announced roughly eight months before the election. Please don’t try to tell me it’s just a coincidence. For anyone who still believes that once Obama’s re-elected, watch out! Change is gonna come!

    No it won’t.

  • Roy

    Well said!

  • Suse

    There certainly will be NO change if we do not change the congress—it is so important that democrats, liberals, lefties or whatever you  want to call yourself do all they can to  help defeat those 18th century folks who are under the influence of Norquist,  other conservatives, and even some ‘blue dog’ dems. 
     So—what to do? Don’t vote for Obama because of disappointment in his first term–that’s a vote for his opposition!!  Romney? Gingrich? Santorum?—Can you imagine???A third party candidate ? another vote for the  conservative opposition. Ultimately do what you can and help progress happen!

  • Grady Lee Howard

    The fraud is ongoing. It’s as if the police see the getaway car from the big bank robbery and they decide to provide an escort to get them through traffic, provide them directions and free gas, then pay out taxpayers money indefinitely for a posh hideout. 

  • Edward Cate

    Maybe we sh0uld just try ” shame” if the government can’t do  anything about it. Post their pictures, the roles they played, and their current financial status. I know they don’t care behind their gated communities, but they, their families and relatives  still have to deal with 99%ers. Treat them with the disrespect they deserve. NO violence! NO insults. Just ignore them the same way they ignored everyone else. They’ll get the message.  They can’t buy respect from dis-interested folks. What else can we do?

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  • Paul Krueger

    Bill Black is an extremely knowledgable and truly eloquent speaker on this subject. For those interested in finding out more, you can read other articles he has written and  follow links to interviews he has given on (I have no affiliation with that site, but I’ve become a fan). Although it’s about 1.5 hours long, I especially liked this recent interview:

  • Anonymous

    $25 billion settlement? How many days of interest earned will that be to the institutions that blatently raped the American people through their criminal behavior? I always thought that criminal behavior was penalized with prison sentences….

    And ANYTHING involving Eric Holder is a laugh; he IS Wall Street!

  • Lee

    Most private money brokers, like myself (35 years), all saw this coming as far back as 2004.  We suffered a considerable loss of business because the banks were making loans we would not touch with a ten foot pole.  We all wondered who were the suckers that were buying these obviously toxic loans.  The banks acted as unethical brokers, originating crap, and misrepresenting it to their  “clients” (Fanny, Freddy and your pension plan) to whom they sold these “AAA rated” loans.  If I had don this to my private clients, I would be out of business and deservingly in jail, after paying restitution.  The hedge fund and pension managers who did not do their due diligence should also be held accountable for buying NINJA (no income, no job, no assets) loans.  

    And please don’t ask me to cry for the poor landscaper who bought a $800,000 home with no money down.  The only thing he put into “his home” was the curtains.  He lied, the broker lied, the Wall Street banker lied, and the end investor stuck his head in the sand.  And now, honest people with small mortgages and apartment dwellers are stuck with bailing them all out.  In the end we will have affordable workers who will be competing for jobs with the Chinese.  Yes, Thomas Freidman, the world will be “flat”, but not the way you thought it would be.

  • Bart

    So TBTF is superseded by TBTP – Too Big To Prosecute.  Just sad.

  • Jmaiv 1954

         These people have no shame so that will not work.  This is  why  the South spends so little on education so the people are to stupid to realize they are being cheated. They just sit and listen to what the plantation owners tell them, usually from the pulpit of a church, and continue to vote Republican and and allowing themselves to be cheated. I only hope that President Obama will quit trying to compromise with the Republicans and fullfill the hope he gave to those of us in the South for a better and more equal country where the middle class and the poor have the same voice that the rich have with congress.

  • Aengus

    A new voting law needs to be implemented;  If less than, say 83%, of the population votes, then the election is not valid. Perhaps the message that the group of candidates is not worth voting for might make for better vetting.

  • Suse

    Jmaiv is right–education (or the lack of it) is a contributor to this problem of misunderstanding the economic stakes. I am a retired Phd. Psychologist with limited economics study, but very grateful for my high school economics instruction which  ALL were required to take–it allowed me to know where to go to look up and study in order to gain understanding of the current situation. It was based on the depression and its causes–now no longer part of current high school ed. With few alive who remember those black days–we stumbled around and allowed some to lead  us into this mess! 
    Paul  Krueger’s  link below to Black’s full interview is excellent–listen to it–twice if necessary! Educate yourself and understand. Then try to make informed economic and political decisions and not vote against your own interests in this next election.

  • Brux

    Bill Black is one of the few tell it like it is experts in his field who is not varnishing or sugar coating the truth who you can hardly have on or check in with too often …. I’d like to see more of him and less of Republicans with books to sell that they want to sell to Democrats by criticizing their own.  Also … I think it is rather important at this point to hear from some “radicals” so the country can begin to at least imagine what thinking outside the box might be like.

    There are so many problems converging all at the same time that no one is willing to start to deal with I am just afraid there is no solution but to try to recover after whatever huge debacle we all will have to face happens.  I think a lot of older people around my age are just hoping that when the “stuff” hits the fan it will be after we are dead … the problem is that people have never been good or shown an understanding of the exponential function and as things accelerate and work on each other the crisis just comes that much faster and closer.

  • Dan O’Neill

    The real power  to investigate the massive banking frauds lies in the Congress, which has become the minion of the lobby bosses, who order the reduction of the size of government and the amount of regulation and the executive branch that is supposed to investigate and enact the means to protect the country from the robber-banks. See how the democracy has been manipulated by the  propaganda machine that surrounds Congress and the cowardly members. There has to be government, representing the people, not the corporations or special interests. we form the government every election We do so by casting a vote.  And it is in the best interests of this country that the votes are given to everyone to cast, after an issue has been  drawn with all sides fairly represented and an honest opportunity is given to reach a decision in each case.   Is that how we choose our Congress now?

  • BK

    Bill Black’s clear understanding of these issues is to the
    banking cartel, like holy water is to vampires.
    Another giant in this arena was Wright Patman.
    He was a Congressman for 47 years, and for 20 of
    those years introduced legislation that would have
    repealed the Federal Reserve Act.
    He was also marginalized .
    Now we live in a world that thinks it’s perfectly
    natural for our federal government to borrow
    the use of it’s own money at interest!
    C’mon America, WAKE UP!!!

  • Josechevyvega

    This is so true. How can we expect Obama to prosecute the very same people who put him in power by financing his campaign?

  • Anonymous

    Reading the viatical rates of payment lately should be enough to show how well crime pays, and how looking the other way can help to fuel criminal markets where theft is the norm, and murder aids thefts.

  • James Tennier

    Think I’ll vote for the Green Party candidates. Boy that’ll send Obama and Robme a message…