Revisiting the Financial Crisis: Predatory Lending

According to a Wall Street Journal article, former Federal Reserve Governor Edward Gramlich proposed in 2000 to crack down on predatory lending in the subprime mortgage industry. Chairman Alan Greenspan shot down the proposal.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.

Predatory lending was very real. Washington Mutual Bank was bought by JP Morgan Chase. The United States District Court for the Central District of California ruled against JP Morgan Chase.

The first formal complaint was filed against Washington Mutual Bank on January 6, 2012 by the Kenneth Eade Law Firm. Washington Mutual was eventually purchased by JP Morgan Chase. The complaint alleges that Washington Mutual Bank issued both a traditional mortgage and a home equity line of credit in order to finance a customer's Southern California home purchase. In 2008 both loans fell into foreclosure, and the owner's request for a short sale was denied.

After JP Morgan Chase took ownership of Washington Mutual, the bank attempted to collect approximately $250,000 additional dollars from the home equity line of credit. The delinquency also negatively affected the customer's credit score. According to anti-delinquency statutes in California, a bank is prohibited from collecting on money mortgages after a foreclosure has occurred. The suit alleges that JP Morgan Chase is in violation of the federal Fair Credit Reporting Act as well as the California Consumer Legal Remedies Act.

JP Morgan Chase was trying to quickly collect cash from homeowners. In Florida, the defunct David J. Stern law firm attempted to foreclose on homeowners with forged documents.

JP Morgan Chase bought Washington Mutual so they could sell the bad mortgages as mortgage-back securities. The problem was JP Morgan Chase didn't tell investors that the mortgage-backed securities were toxic. JP Morgan Chase was forced to agree to a $13 billion settlement with the state of New York. $4 billion of the money went for relief to homeowners.

New York Attorney General Schneiderman had less than kind words for JP Morgan Chase.

“Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Attorney General Schneiderman, co-chair of the RMBS working group. “This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do. We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

Goldman Sachs bought derivatives that bet on the housing market crashing. Goldman Sachs sold to their investors bad mortgage-backed securities.

Sen. Carl Levin questioned CEO Lloyd Blankfein about about Goldman Sachs betting against investments they are selling.

Levin reads internal emails of Goldman Sachs sale force telling each other that Timberwolve was a "shitty deal" for their clients.

An internal email shows that Goldman Sachs knew they making money betting against their clients.

The predatory lending placed homeowners at risk. The mortgages were then bundled up into toxic mortgage-backed securities that hurt such investors as pension funds. Alan Green span did nothing about this when he had the chance in 2000.

Revisiting the Financial Crisis: Mortgage-Backed Securities

This is the start of a series of the financial crisis. The purpose of this series is to prove that there were several indications of an oncoming financial crisis that the federal government chose to ignore.

This Federal Reserve report published in June of 2008 indicates that the Fed realized that there was serious problems with subprime mortgages. In 2007, the S&P/Case-Shiller house price index released a report that indicated the largest drop in home prices since the Great Depression. Part of this was the market adjusting to the housing bubble. What goes up eventually comes down. Home prices went into free well into 2008. Below is a CNN graph of the S&P Case-Shiller National Home Price index numbers for the final quarter of 2008.

Bloomberg News reported on December 7, 2006 that Ownit Mortgage Solutions Inc. laid off 800 workers. The Los Angeles Times reported that Ownit could not meet its financial obligations. Ownit blamed Merrill Lynch & Co. for letting the company die. Former Ownit employee Kevin Panet told this to Bloomberg News about what management told him about Ownit's relationship with Merrill Lynch. The result was a disaster. Mortgages eventually depreciate in value. The housing bubble popped. Yet the major investment banks tried to keep riding the housing wave.

``There were meetings with top management late in the day on Monday saying, `Look, we're having some problems with our partners and brace yourselves,''' Panet said. ``It's a lousy market right now, and it's heading down not up.''

Here is how Ownit worked. Merrill Lynch & Co., JPMorgan Chase & Co., Credit Suisse First Boston were providing funding to Ownit to sell subprime mortgages to people with bad credit. These investment institutions would then buy the subprime mortgages and bundle them up into mortgage-backed securities. Merrill Lynch, and JPMorgan Chase bailed when the housing bubble popped. Ownit filed for Chapter 11 bankruptcy on December 28, 2006.

In 2004, Erick Bergquist reported half of its $4 billion worth of production to Merrill Lynch.

A Merrill spokesman confirmed that it had bought a stake in the wholesaler. "Merrill Lynch is active in the mortgage-backed securities market in many areas.

We are always looking to establish strategic relationships with quality firms," a Merrill spokesman said.

Merrill Lynch and other investment banks started losing billions in 2007. In good part to mortgage-backed securities. Merrill Lynch CEO E. Stanley O'Neal was forced to step down.

In pure destructive power, the subprime mess has become Wall Street's version of Hurricane Katrina. It has wreaked havoc on the nation's iconic brokerage firm, Merrill Lynch (Charts, Fortune 500), and biggest bank, Citigroup (Charts, Fortune 500), which have announced billions of dollars in losses and parted ways with their celebrated CEOs, E. Stanley O'Neal and Charles Prince. Banks, brokerages, and lenders have announced thousands of layoffs, and more are sure to come.

The blow to shareholder wealth is staggering. Since June 29, Citi's share price has dropped 35%, from $51 to $33, while Merrill's stock has slid from $84 to $54, a 36% swoon. In the same period, the dozen biggest Wall Street firms and the commercial banks with the largest investment arms - a list that includes Bank of America (Charts, Fortune 500), J.P. Morgan Chase (Charts, Fortune 500), and Credit Suisse (Charts) - have lost more than $240 billion in market value. Dozens of smaller companies in the mortgage business have suffered huge losses or folded completely.

To be continued.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2007 by Michael Robert Hussey

Alex Pareene's First and Last Appearance on CNBC

It is hard to believe that CNBC let Alex Pareene of Salon.com to come on. The result was Pareene hammered Jamie Dimon and JP Morgan.

Maria Bartiromo: Alex, to you first. Legal problems aside, JP Morgan remains one of the best, if not the best performing major bank in the world today. You believe the leader of that bank should step down?

Alex Pareene: I think that any time you’re looking at the greatest fine in the history of Wall Street regulation, it’s really worth asking should this guy stay in his job. In any other industry — I can’t think of another industry. If you managed a restaurant, and it got the biggest health department fine in the history of restaurants, no one would say “Yeah, but the restaurant’s making a lot of money. There’s only a little bit of poison in the food.”

Maria Bartiromo and Duff McDonald come to Dimon's rescue. McDonald goes as far as to say Dimon has a "great track record." Former IMF economist Simon Johnson would disagree. Johnson has called Dimon "the most dangerous man in America."

1. Big companies need big banks, operating across borders, with large balance sheets and the ability to execute a wide variety of transactions. This is simply not true – if we are discussing banking at the current and future proposed scale of JP Morgan Chase. We go through this in detail in 13 Bankers – in fact, refuting this point in detail, with all the evidence on the table, was a major motivation for writing the book. There is simply no evidence – and I mean absolutely none – that society gains from banks having a balance sheet larger than $100 billion. (JP Morgan Chase is roughly a $2 trillion bank, on its way to $3 trillion.)

2. The US banking system is not particularly concentrated relative to other OECD countries. This is true – although the degree of concentration in the US has increased dramatically over the past 15 years (again, details in 13 Bankers) and in key products, such as credit cards and mortgages, it is now high. But in any case, the comparison with other countries doesn’t help Mr. Dimon at all – because most other countries are struggling with the consequences of banks that became too large relative to their economies (e.g., in Europe; see Ireland as just one illustrative example).

3. Canada did fine during 2008-09 despite having a relatively concentrated financial system. Mr. Dimon would obviously like to move in the Canadian direction – and top people in the White House are also very much tempted. This is frightening. Not only does it represent a complete misunderstanding of the government guarantees behind banking in Canada (which we have clarified here recently), but this proposal – at its heart – would allow, in the US context, even more complete state capture than what we have observed under the stewardship of Hank Paulson and Tim Geithner. Place this question in the context of American history (as we do in Chapter 1 of 13 Bankers): If the US had just five banks left standing, would their political power and ideological sway be greater or less than it is today?

Shocking News: Jamie Dimon's Compensation Not On Line If Another Crash Happens

Last year, Rep. Barney Frank asked JPMorgan Chase CEO Jamie Dimon if his compensation would be on the line if his bank suffered huge financial loses. Dimon ran away from that question as fast as he could. Dimon told Frank that he has no control of how much his board pays him. Keep in mind, that Dimon handpicks his board and is one of the most power men of Wall Street. Nope, no control whatsoever.

Sen. Portman Protested at Townhall Meeting

I wrote earlier today that Congressional Republicans proposing cuts to Medicare and Medicaid is political suicide. Sen. Rob Portman experienced this first-hand at a townhall meeting. The protesters interrupted Portman's speech. I will give Portman credit for handling the protest with humor.

The townhall meeting was set-up by Fix The Debt. Fix the Debt was started by Fortune 500 CEOs pushing for entitlement cuts to pay for tax cuts. This wouldn't fix the debt. It would help the bottom line of Lloyd Blankfein, Goldman Sachs CEO, and Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co. Blankfein and Dimon fail to mention that the bailouts of their banks didn't help the debt.

Meet the Obama Financial Sector Donors

Obama supporters wonder why I am so skeptical about the President. The reason is that every domestic policy that President Obama has initiated has been to please lobbyists. Obama doesn't give a damn about progressive causes. A perfect example of how Obama places the needs of corporate donors above his constituents. A 2010 meeting with Sen. Bernie Sanders is proof that Obama values protecting corporate profits more than cunsumers.

Last summer, during a White House meeting with first-term Democrats, Sen. Bernie Sanders, an independent from Vermont, asked Obama whether he'd nominate Warren for the role.

Obama held up a half-full glass of water and told him: "That's the problem with you progressives. You see this as half-empty.

It turns out that Obama never nominated progressive darling Warren. It is hard to imagine a President whom received $1,013,091 from Goldman Sachs, $808,799 from JPMorgan Chase, and $736,771 from Citigroup would see eye to eye with Warren on financial policy. The last thing Obama wants to do his have Warren reform Wall Street.

Obama supporters will say look what the president has done for the gay community. In 2009, the Obama administration pressured Rep. Alcee Hastings to drop an amendment that would repeal "Don't Ask, Don't Tell. Democrats had super-majorities in both houses of Congress. Yet, Obama didn't want to touch DADT. The gay community started raising a record amount of money for Obama. The President had a sudden change in heart on DADT.

Obama proposed Medicare cuts that made even some Republicans flinch during the debt ceiling negotiations. Obama is as much a deficit peacock as the Republicans. Obama gave PhRMA lobbyist Billy Tauzin everything he wanted. Including Medicare being prohibited from negociating lower drug prices with pharmaceutical companies. Obama wasn't thinking about the deficit or controlling entitlement spending when he made that deal. It is no coincidence that drug companies donated big-time to Obama's 2008 campaign.

If you want to understand Obama, all you need to do is follow the money.

Jamie Dimon Made $21 Million Last Year

The Financial Times reports that American and European banking CEO pay went up by 36 percent in 2010. Jamie Dimon, JPMorgan Chase CEO, made $21 million in 2010.

JPMorgan Chase had to pay a $722 million fine to the SEC for attempting to brides for bonds scandal. JPMorgan Chase tried to bride politicians in Jefferson County, Alabama. JPMorgan Chase also hired inexperienced young people to deal with mortgages. The young workers were labeled the "Burger King kids."

And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids.” In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.

The law firm of David J. Stern filed false foreclosure claims. The actual David J. Stern is under investigation and is a rather mysterious man.

Ask yourself if Jamie Dimon skills as a CEO is worthy of $21 million.

Mike Haridopolos Web Site

Progress Florida and Florida Watch Action have released the new web site DirtyHari.org. The site is dedicate to documenting to ethical lapses in Sen. Mike Haridopolos' career. The web site points the way to this fun nugget.

Haridopolos' latest scandal involves the Florida Senate President hiring THGC Consulting LLC to advise him on how to cut costs in the Florida pension system. Charles LeCroy is the man behind THGC Consulting. Lecroy previously worked for JPMorgan Chase & Co. LeCroy was investigated by the Securities and Exchange Commission a brides for bonds scandal.

Federal investigators said that in taped conversations, LeCroy and (Douglas) MacFaddin showed they knew the payments they were making were "sham transactions" designed to win county business, referring to them as "payoffs," "giving free money" and "the price of doing business."

LeCroy and MacFadden sold junk bonds to Jefferson County, Alabama in a deal to refinance the county's sewer system. Jefferson County losses were in the hundreds of millions of dollars. LeCroy is the guy Haridopolos hired to save the Florida government money. It would be funny if it wasn't so sad.

JPMorgan paid the Securities and Exchange Commission a $722 million fine last year. Not only did LeCroy fail to save the Jefferson County government money, he lost his own company nearly three quarters of a billion dollars. What a fiscal conservative.

Why Obama Doesn't Care About Foreclosure Crisis

Remember this campaign promise by Barack Obama?

"I will change our bankruptcy laws to make it easier for families to stay in their homes," Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.

Can anyone name a financial law Obama signed that protected homeowners from banks? Didn't think so. Obama mentioned the the foreclosure crisis zero times in the State of the Union speech.

JPMorgan Chase & Company was a company that hired inexperienced people to deal with mortgages. These so-called mortgage experts were known as the "Burger King kids."

The issue gained new urgency on Wednesday, when all 50 state attorneys general announced that they would investigate foreclosure practices. That news came on the same day that JPMorgan Chase acknowledged that it had not used the nation’s largest electronic mortgage tracking system, MERS, in foreclosures, since 2008.

That system has been faulted for losing documents and other sloppy practices.

Obama recently hired JPMorgan Chase & Co, Midwest chairman, William Daley to be the new White House Chief of Staff. Does anyone believe Obama intends to reform the mortgage system by hiring an executive from a highly incompetent mortgage company? News flash: Obama doesn't care if you lose your house. Obama talked about mortgage reform on the campaign trail as a cynical ploy to garner votes. Hiring Daley is Obama giving the finger to the homeowners of America.

TARP Money Being Repayed

Derek Thompson is correct. President Obama should get credit for the TARP gamble.

Half a year ago, our financial system was in catastrophe, and the debate was over how much money it would take to bail them out, or even take them over. Today, the biggest banks are -- or at least appear to be -- on stable footing, and the debate is over how much TARP money they will be allowed to give back. To be clear, this is a statement of confidence from the banks, not evidence that they will be OK in four or six months. But it is still a remarkable turn of events, one we can credit to the Obama administration's overall strategy of ... what again?

The New York Times reports Morgan Stanley, Northern Trust, JPMorgan Chase, Goldman Sachs, American Express, Bank of New York Mellon, the BB&T Corporation, Capital One Financial, State Street Corporation and US Bancorp will start repaying TARP funds. Obama said the taxpayer "actually turned a profit."

“I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds,” Mr. Obama said. “It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.”

The conservative stimulus plan: Rush Limbaugh and Hugh Hewitt are calling on Americans to boycott General Motors. Limbaugh's and Hewitt's plan is to bankrupt an American company, put American workers out of jobs and have the taxpayers lose money for attempting to bail GM out. Limbaugh and Hewitt showed they don't care about fiscal discipline kick-starting the economy. They just want to see Obama fail.

PR Outsourcing Nightmare

The Department of Children and Families awarded JPMorgan Chase & Co. the contract to manage the Electronic Benefit Transfer. The EBT is responsible for food stamps. Florida food stamp recipients having problems were directed to a call center in India. Because we all know there is nothing unemployed people enjoy more than speaking to someone that has outsourced their job. Thankfully, no politician civil would make political hay out of this. Unfortunately, Ronda Storms was never known for her tact.

"We should not have any jobs going outside of the country. We have enough people here in our country, we need to take care of our own who need to work," said Storms.

Storms is like clockwork. She never fails to use an issue for political opportunism.

The Credit Lending Crisis

This is a good indication of how serious the credit lending crisis is.

AMERICA's four biggest banks have announced they have each borrowed $US500 million ($613 million) from the Federal Reserve, taking an unusual step to ease the credit squeeze that has been rattling the financial system for weeks.

The banks - Citigroup, Bank of America, JPMorganChase and Wachovia - said on Wednesday that they had tapped the so-called discount window of the Federal Reserve Bank of New York, five days after the central bank lowered the rate and loosened its collateral requirements in an effort to inject more money into the credit markets.

The Federal Reserve cut the interest rate, it charge to banks, from 6.25 to 5.75. The banks helped created this problem by spending $300 billion in online advertising to sell mortgages. They sold mortgages to many people whom shouldn't have been approved. Noble Prize-winning economist Edmund Phelp commented on the lack of oversight.

"It seems to me that markets were not equipped with the adequate new instruments, the necessary institutions to administer these new credit markets."

What made matters worse is the housing market bubble finally popped. The top 5 U.S. homebuilders lost $1.85 billion in the third quarter.

In other news: President Bush said the economy is "strong."