Causes of the 2008 Crisis

A resource to deal with the underlying causes of the 2008 collapse.

• Issue #1 Fraudulent Loans - The banks fraudulently loaned money to parties they knew could not repay. (Sub-prime crisis) 
• Not verifying income, FICO scores and payment history. (No legislation passed caused the banks to do this, specifically the Community Reinvestment Act (CRA) of 1977)
• Standard & Poors, Moody's, and Fitch Rating rated much of the junk paper as AAA.
• Corrupt appraisers - Always come in at exactly the purchase price. They asked Congress to do something.
• The banks  recklessly loaned money to parties they knew could not repay.
• Citifinancial knew that 80% of its loan origination did not meet quality guidelines
• They have now admitted they did this.
• Bad loan "products"
• “No Money Down” Mortgages (0% down payments) Countrywide CEO Angelo Mozlilo
• "No doc" loans
• "Teaser Rate" loans (2/28)
• Interest only loans
• Neg Am loans
  
• "Piggy back" loans -Lent 1st mortgage and HELOCs for the down payment.
• Mortgage equity withdrawals(HELOC)

• 50% of sub-prime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations.
• Gaming their own systems  
• The shift in Loan to value (LTV) from 80% to 120%
• Issue #2 Fraudulent Title Transfers (MERS)- They committed fraud against the deed recording agencies by knowingly transferring deeds against many state law in a complex shell game called MERS. This was to avoid paying taxes on these transfers which would have sucked out the profits on the transactions.(These are the supposed "clerical errors")
• One county in Texas had virtually all titles that had the following - Wholesale document fabrication and slander of title, imposing potential double liability on the property owners and issuance of fatally flawed deeds.
• The institutions committed loan title fraud to hide this fact by shredding documents to keep things easy and clear.
• Robosigned documents prosecuted for forgery.
• Prosecutions for forgery in Jefferson City, Mo. (606 count indictment)
• Prosecution for forgery in Nevada. (136 count indictment)
• Issue #3 Fraudulent Securities - They then split the mortgages into tranches and then fraudulently sold these investment instruments to individuals and companies that used these in part for leverage to the tune of quadrillions of dollars.
• The sellers of the securities lied repeatedly.
• Bear Sterns - Ralph Cioffi and Matthew Tannin (2942331Q)
• Countrywide - MBIA Inc claimed it has new evidence of "widespread mortgage-origination fraud" at Bank of America Corp's Countrywide unit
• BoA charging service fees on non-existent mortgages.
• Dark Pools of liquidity
• PFGBest (Peregrine Financial Group Inc.)
• Founder admits to fraud
• Their auditor is one person, a sole proprietor, who operates out of a small suburban house.
• JPM lost $5 billion
• The CIO office may have falsified marks to try to hide the losses, a criminal offense
• CEO Jamie Dimon ignored the issue 
• LIBOR and EURIBOR scandal
• Mutual and pension funds invested in these assets believing they were solvent.
• Pension funds chasing yields 
• Also making bad payments by borrowing from the fund they are repaying.

"It appears as though many loans and other mortgage-related assets have been double and even triple-pledged to various constituencies."
- Bank of America, U.S. Bankruptcy Court, Jacksonville, CASE NO. 3:09-bk-07047-JAF

Wachovia -

The SEC’s order found that Wachovia Capital Markets violated the securities laws in two respects. First, Wachovia Capital Markets charged undisclosed excessive markups in the sale of certain preferred shares or equity of a CDO called Grand Avenue II to the Zuni Indian Tribe and an individual investor. As detailed in the order, Wachovia Capital Markets marked down $5.5 million of equity to 52.7 cents on the dollar after the deal closed and it was unable to find a buyer. Months later, the Zuni Indian Tribe and the individual investor paid 90 and 95 cents on the dollar. Unbeknownst to them, these prices were over 70 percent higher than the price at which the equity had been marked for accounting purposes.

Wachovia Capital Markets misrepresented to investors in a CDO called Longshore 3 that it acquired assets from affiliates “on an arm’s-length basis” and “at fair market prices” when, in fact, 40 residential mortgage-backed securities were transferred from an affiliate at above-market prices. Wachovia Capital Markets transferred these assets at stale prices in order to avoid losses on its own books. 

JP Morgan Chase & Co.

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say.

"We did not verify a single one" of the affidavits attesting to the amounts Chase was seeking to collect, says Howard Hardin, who oversaw a team handling tens of thousands of Chase debt files in San Antonio. "We were told [by superiors] 'We're in a hurry. Go ahead and sign them.'"

WaMu

It’s no wonder that the Wall Street MBS scheme collapsed. Last night, together with Lisa Epstein, we ran a random audit on WaMu Mortgage Pass-Through Certificates, Mortgage Loan Trusts. One loan was found in 6 different trusts, another loan was found in FIVE trusts’ original SEC loan level data, 39 were listed in 3 trusts, and 503 were listed in two separate trusts.

The winner so far is a NEW YORK condo, loan number WaMu loan # 714934858, appeared in 6 DIFFERENT trusts from May through November 2006…

Bank of America Corp.

• Issue #4 Moral Hazard and Intimidation- The banks went before the Congress screaming that "The sky is falling!" and demanded the taxpayers "bail them out" via TARP. These institutions would not exist otherwise. 
• These jerks even threatened that tanks would roll down the streets if they are not rescued from their own myopic stupidity.
• The very next day, Treasury Secretary Paulson stated that he would not use these funds for that purpose. In short, he lied.
• These people are refusing to tell us where the money we are spending is going. 
• Issue #5 Foreknowledge
• The Government (FBI) knew about these abuses years ahead of time. 
• The Federal Reserve BNY dropped its guard for JPM
• The Bush administration sued individual states to prevent them from stopping from suing Countrywide claiming exclusive Federal jurisdiction.
• Tim Geithner issues a LIBORgate memo which includes a call to "eliminate incentive to misreport" by banks.
• So did Fannie Mae, in 2003. 
• Insider trading by Rajat Gupta 
• MF GLobal - For the CFTC, there were explicit warnings of believed funny business sent to the SEC and buried.
• Geithner admits to using artificially manipulated LIBOR rates to bail out insolvent banks.
• Issue # 6 - Money Laundering
• HSBC in New York - Evidence exists of an international money-laundering scheme involving hundreds of billions of dollars by the global banking giant for Mexican drug gangs.
• Issue #7 Mortgage Defaults - Individuals did not pay their mortgages in a housing price inflated environment driven in part by the fraud and further bankrupted by a Depression created by the banks?

Bankers that call for the big banks to be disbanded -

• Former Citi CEO Sandy Weill
• Former Citi CEO John Reed
• Former Citi chairman Richard Parsons
• Former Merrill Lynch chairman and CEO David Komansky
• Former Morgan Stanley CEO Philip Purcell
• Former managing director of Goldman Sachs – and head of the international analytics group at Bear Stearns in London- Nomi Prins
• Numerous other bankers within the mega-banks (see this, for example)
• Former Natwest and Schroders investment banker, Philip Augar
• The President of the Independent Community Bankers of America, Camden Fine

2000 Commodities Futures Modernization Act
1%, ZIRP - Federal Reserve (FOMC) , they set the table.
Mortgage Backed Securities (MBS)
Fannie Mae (FNM)


http://market-ticker.org/akcs-www?singlepost=2138266
http://www.market-ticker.org/akcs-www?post=207842

Note: This is a resource and will be updated as needed.