'Reckless Endangerment': Book Examines Wall Street Fraud
While "Reckless Endangerment ..." may be late to the Wall-Street-meltdown book-derby, it promises to be one of the best. (link to pre-release on Amazon)
Excerpts in NYTimes and on Huffington Post preview:
“Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon,” by Gretchen Morgenson, a business reporter and columnist for The New York Times, and Joshua Rosner, a managing director at the independent research consultant Graham Fisher.
The book is to be published on Tuesday by Times Books.
Of all the partners in the homeownership push, no industry contributed more to the corruption of the lending process than Wall Street. If mortgage originators like NovaStar or Countrywide Financial were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies were the narcotics cops looking the other way, brokerage firms providing capital to the anything-goes lenders were the overseers of the cartel.
Just as drug lords know that their products pose hazards to their customers, the Wall Street firms packaging and selling mortgage pools to investors knew well before their customers did that the loans inside the securities had begun to go bad.
It was a colossal breakdown in the duty Wall Street owed to its investing customers.
... Unlike many other firms, Goldman Sachs went negative on the mortgage market in the fall of 2006, well before others in its industry. Using its own money, the firm began amassing major bets against the same dubious loans it was peddling to investors at that time. Goldman, therefore, profited immensely from the losses its clients absorbed, losses its own practices helped to create.
... Wall Street was supplying money to companies making increasingly poisonous loans to people with no ability to repay them. And the firms knew precisely what they were doing.
... The relationship forged by Wall Street's most prestigious firm, Goldman Sachs, with one of the nation's most wanton mortgage originators -- Fremont Investment & Loan -- is a case in point. Fremont, a company with a regulatory rap sheet and a history of aggressive lending, received $1 billion in financing from Goldman in 2005, fully one-third of the total it received from all of its Wall Street enablers.
... One of the worst concoctions ever designed and sold to investors was the GSAMP Trust 2006-s3 (the acronym stood for Goldman Sachs Alternative Mortgage Product). Issued by the firm in April 2006, the pool was swollen with Fremont loans -- 54 percent of the contents.
Within three months of the trust's issuance, more than 5 percent of the loans in the pool had become severely delinquent. Because borrowers had to have missed three consecutive payments before they were considered "severely delinquent," this meant that 5 percent of this pool's borrowers never made one payment. By August 2007, 16 months after it was issued, the pool had a 40 percent loss to liquidations. (read more on HuffPo)
And in the NYT, one of the worst creators of liar's loans and its connections is profiled, through the eyes of a would-be whistleblower that spent years trying to get regulators at the SEC to pay attention. Once again, the Obama44 administration refuses to prosecute Wall Street crimes:
NovaStar was also becoming a Wall Street darling, its shares trading at $30, up from $9.50 in late 2002. Typing NovaStar’s stock symbol into his Bloomberg machine, Mr. Cohodes did a double take. Thirty dollars? Must have used the wrong stock symbol, he thought.
He hadn’t. NovaStar was on a trajectory that would take the shares above $70. Thanks to aggressive management, unscrupulous brokers, inert regulators and a crowd of Wall Street stock promoters, NovaStar’s stock market value would soon reach $1.6 billion.
... So in February 2003, Mr. Cohodes started corresponding with the S.E.C. about NovaStar. He began “throwing things over the wall,” as he put it, to Amy Miller, a lawyer in the division of enforcement. By this time, loan production at NovaStar was clocking $600 million a month, up from $48 million a month five years earlier.... One tactic gave the company lots of leeway in how it valued the loans held on its books. Another allowed it to record immediately all the income that a loan would generate over its life, even if that was decades. This accounting method ignored the possibility that some of the company’s loans might default. NovaStar assumed that losses on all of its loans would be nonexistent. ...
... Promotional memos NovaStar sent to its 16,400 unsupervised mortgage brokers across the country told the tale of easy credit terms. “Did You Know NovaStar Offers to Completely Ignore Consumer Credit!” one screamed. “Ignore the Rules and Qualify More Borrowers with Our Credit Score Override Program!” boasted another.
... In October 2003, the state’s commissioner of banks filed a cease-and-desist order against NovaStar, concluding that the company engaged in “acts or practices which warrant the belief that the corporation is not operating honestly, fairly, soundly and efficiently in the public interest.” Nevada followed with its own order in early 2004.
... NovaStar’s branch system, HUD said, was designed to shift risk from the company to the federal government. {yet, the S.E.C. refused to act}
... a Lehman subsidiary, studied 16 NovaStar loans for quality-control purposes. What the analysis found: more than half of the loans — 56.25 percent, to be exact — raised red flags. “It is recommended that this broker be terminated,” the report concluded.
Among the problems turned up by the Aurora audit were misrepresentations of employment by the borrower, inflated property values, transactions among parties that were related but not disclosed, and unexplained payoffs to individuals when loans closed.
The details uncovered by Aurora were alarming. One NovaStar loan on a property in Ohio totaled $77,500 even though the average sales price for the neighborhood was $31,685, and the same house had been purchased two months earlier for $20,000.
... NovaStar’s shares collapsed, wiping out roughly $1 billion in market value from the peak of the stock price. Despite the implosion, between 2003 and 2008, Mr. Anderson and Mr. Hartman {JF: NovaStar executives) each made about $8 million in salary, bonuses and stock grants.
Neither man was ever sued by the S.E.C. or any other regulator. (read more at NYT)
How can employment be solved if this is happening?
Posted by: Samantha Lewis | December 20, 2011 at 10:34 PM