This is an eye-opener: The creation of Toxic Assets (CDOs and CDS’s)

[slamlander]

This guy actually traced the roots of the loan fraud CDOs back to early 1990’s, at least. The GW Bush administration was warned about this by the FBI fraud division. Bush’s Attorney General, in 2008, refused to prosecute.

We are doing everything possible to make the next crisis come more quickly and make it kick us in the teeth far harder – William Black.

William Black on the Mortgage Crisis/Fraud.

Fraud is no reason to regulate – Alan Greenspan

Eh?

The real engine of destruction was Liar’s Loans. – William Black

 

A few bullets;

• Glass-Stiegel was intended to prevent fraud (During Clinton Administration and encouraged by Greenspan).

Liar’s Loans¹ begin in 1990-91, in California

Commodities Futures Modernization Act of 2000 (Targeting Derivatives market fraud) was quashed by Greenspan

FBI Fraud Division warned, in Sept 2004, that there was an epidemic of Mortgage Fraud and predicted that it could lead to a financial crisis. (Open “testifoney”² , US Congress, House of Representatives)³

MARI, in 2006, reports on Alt-A loans; incidence of fraud in Alt-A loans (Liar’s Loans) is 90%

Bush’s Attorney General, in 2008, actively quashed investigations into Mortgage Fraud.

10 trillion dollar loss of wealth in US alone and cost almost 20 million full-time jobs losses.

Role of fraud in this latest crisis was far greater than that of the S&L Crisis⁴ of the late 80’s-early 90’s.

Recipe of Control Fraud for a lending CEO:

1. Grow like crazy
2. Make really bad loans but at a premium yield
3. Have extreme leverage
4. Have no to minimal loss reserves against the default losses

The whole point is that the CEO, for a short time, makes the company look outstanding while garnering huge incentive bonuses. When the organization goes bust, as it must eventually, they walk away from the wreckage with millions (20-50 million dollars) . This is before Securitization (CDOs and CDSs, aka Toxic Assets). Securitization lets this scheme continue and spreads the losses around. That same CEO now can make up to 150 million dollars.

I got the original embed from Gonzalo Lira’s blog.

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1. A term already used for Alt-A loans by industry insiders. [↩]
2. Direct quote from William Black, I assume that he means it as a derogative that presupposes that all testimony is foney. [↩]
3. There were no actions taken by Congress or any regulatory body to follow up on the FBI report. [↩]
4. S&L Crisis lost 150 billion dollars. [↩]

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