"End of Wall Street Boom" - Must-read history

[seemslikeadream]

JPMorgan hit by U.S. bribery probe into Chinese hiring: report

Commuters are reflected in stone as they walk past the JP Morgan headquarters in New York, May 17, 2012. REUTERS/Eduardo Munoz

Sun Aug 18, 2013 7:38am EDT

(Reuters) - U.S. authorities have opened an investigation into whether JPMorgan Chase & Co (JPM.N) hired the children of powerful Chinese officials to help it win business in China, according to the New York Times.

Investment banks have a long history of employing the children of China's politically connected. While close ties to top government officials is a boon to any banking franchise across the world, it's especially beneficial in China, where relationships and personal connections play a critical role in business decisions.

The approval process for a stock offering in China, for example, is one area that has come under criticism inside and outside the country for being opaque and prone to cronyism.

For JPMorgan, the China hiring probe comes while the bank is under intense scrutiny following the $6 billion trading loss it suffered in the "London whale" derivatives scandal. Federal prosecutors on Wednesday brought criminal charges against two former JPMorgan traders - Javier Martin-Artajo and Julien Grout - accusing the pair of deliberately understating losses on the trades on the bank's books.

A report posted in the Times' online Saturday edition cited a confidential U.S. government document as its source for the story on the China hiring probe. The Times said the probe is a civil investigation by the Securities and Exchange Commission's anti-bribery unit.

The Times said JPMorgan hired Tang Xiaoning, the son of Tang Shuangning, a former Chinese banking regulator. Tang Xiaoning is now the chairman of the China Everbright Group, a state-controlled financial conglomerate.

After the son joined JPMorgan, the bank secured several important assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, the Times reported.

The Hong Kong office of JPMorgan also hired Zhang Xixi, the daughter of a now-disgraced Chinese railway official, and went on to help advise his company, which builds railways for the Chinese government, on its plans to become a public company, the Times said.

A spokesmen for the SEC could not be reached immediately by Reuters for comment. Zhang and Tang both have left JPMorgan, the newspaper said.

JPMorgan made reference in its 10-Q quarterly filing this month to the inquiry by the U.S. Securities and Exchange Commission.

"We publicly disclosed this matter in our 10-Q filing last week and are fully cooperating with regulators," Marie Cheung, a Hong Kong-based spokeswoman for the bank, said on Sunday.

The practice of hiring politically-connected bankers in China was widespread in the early to mid 2000's, when Wall Street firms engaged in so-called 'elephant hunting', a term used to describe the chasing of mandates to manage the multi-billion dollar stock offerings of the country's big state-owned enterprises.

One of the more well known China bankers from that era is Margaret Ren, the daughter-in-law of former Chinese Premier Zhao Ziyang, who has worked at several banks. Most major investment banks have employed a politically connected Chinese banker, whether a high level professional such as Ren or a college age associate, at some stage in the last decade.

Many senior investment bankers in China now feel that the heyday for such underwriting contracts has passed, with far fewer jumbo state-owned company listings happening. But banks and private equity firms alike still prize connections to top decision makers.

"It's been happening for the past 20 years," said Ronald Wan, Chair Professor of Renmin University of China and a former banker, referring to the hiring of politically connected Chinese bankers. The key to the JPMorgan probe, he said, was whether these hirings had any special bonus attached or any actual corruption that could be traced.

Wan added that such hiring happens all across the world, though in China, connections to the right people who know the system is especially useful.

Battushig Batbold, the son of Mongolia's Prime Minister, has been an employee of Morgan Stanley, the Wall Street Journal reported in 2011.

JPMorgan said in its filing that it had received "a request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the firm's employment of certain former employees in Hong Kong and its business relationships with certain clients."

The newspaper report stressed that the government document did not definitively link JPMorgan's hiring practices to its ability to win business.

It also said there had been no suggestion that the employees hired by the bank were unqualified and said JPMorgan, although under investigation, had not been accused of any wrongdoing.

(Reporting by Tom Brown, Ian Simpson, Lawrence White and Michael Flaherty; Editing by Bill Trott and Raju Gopalakrishnan)

[Aldebaran]

NEW YORK, Aug. 22, 2013 (GLOBE NEWSWIRE) -- NASDAQ OMX issued the following updated statement:

Earlier this afternoon, NASDAQ OMX became aware that price quotes were not being disseminated by the Securities Information Processor (SIP), which consolidates and disseminates all prices for the industry.

There was a connectivity issue between an exchange participant and the SIP, which led to degradation in the ability of the SIP to disseminate consolidated quotes and trades. The cause of the issue has been identified and addressed.

Responding to the SIP issue, in order to protect the integrity of the markets, NASDAQ OMX issued a regulatory halt for all trading in NASDAQ-listed securities. In the first 30 minutes, technical issues with the SIP were resolved. For the remaining period of time, NASDAQ OMX, other exchanges, regulators and market participants coordinated with each other to ensure an orderly re-opening of trading in NASDAQ-listed securities. Trading resumed and the balance of the trading day finished in normal course.

NASDAQ OMX will work with other exchanges that are members of the SIP to investigate the issues of today, and we will support any necessary steps to enhance the platform.

[JackRiddler]

Crisis of Humanity: Global Capitalism Breeds 21st Century Fascism
Monday, 26 August 2013 09:19 By William I Robinson, Truthout | News Analysis


http://truth-out.org/news/item/18280-gl ... f-humanity


In "Policing the Crisis," the classic 1978 study conducted by noted socialist and cultural theorist Stuart Hall and several colleagues, the authors show how the restructuring of capitalism as a response to the crisis of the 1970s - which was the last major crisis of world capitalism until the current one hit in 2008 - led in the United Kingdom and elsewhere to an "exceptional state," by which they meant a situation in which there was an ongoing breakdown of consensual mechanisms of social control and a growing authoritarianism. They wrote:

This is an extremely important moment: the point where, the repertoire of hegemony through consent having been exhausted, the drift towards the routine use of the more repressive features of the state comes more and more prominently into play. Here the pendulum within the exercise of hegemony tilts, decisively, from that where consent overrides coercion, to that condition in which coercion becomes, as it were, the natural and routine form in which consent is secured. This shift in the internal balance of hegemony - consent to coercion - is a response, within the state, to increasing polarization of class forces (real and imagined). It is exactly how a 'crisis of hegemony' expresses itself … the slow development of a state of legitimate coercion, the birth of a 'law and order' society … the whole tenor of social and political life has been transformed by [this moment]. A distinctively new ideological climate has been precipitated (Policing the Crisis, pp. 320-321).

This is an accurate description of the current state of affairs. We are witnessing transitions from social-welfare states to social-control states around the world. We are facing a global crisis that is unprecedented, given its magnitude, its global reach, the extent of ecological degradation and social deterioration, and the sheer scale of the means of violence. We truly face a crisis of humanity; we have entered a period of great upheavals, of momentous changes and uncertainties. This systemwide crisis is distinct from earlier such episodes of world crisis in the 1930s or the 1970s precisely because world capitalism is fundamentally different in the early 21st century.

Among the qualitative shifts that have taken place in the capitalist system in the face of globalization in recent decades, there are four I want to underscore. First is the rise of truly transnational capital and the integration of every country into a new globalized production and financial system. Second is the appearance of a new transnational capitalist class (TCC). This is a class group grounded in new global circuits of accumulation rather than the older national circuits. Third is the rise of what I term transnational state apparatuses. And fourth is the appearance of novel relations of inequality and domination in global society, including an increasing importance of transnational social and class inequalities relative to North-South inequalities.

The current crisis

At the same time, the current crisis shares several aspects with earlier structural crises of the 1970s and the 1930s, but also several features unique to present:

The system is fast reaching the ecological limits of its reproduction. We have already reached several of what environmental scientists refer to as "tipping points." This dimension cannot be underestimated.

The sheer magnitude of the means of violence and social control, as well as the magnitude of and the extent of control over the means of global communications and the production and circulation of symbols and images. In this regard, we are witness to frightening new systems of social control and repression that we need to analyze and to resist.

We are reaching limits to the extensive expansion of capitalism, in the sense that there are no longer any new territories of significance to be integrated into world capitalism. De-ruralization is now well-advanced, and the commodification of the countryside and of pre- and non-capitalist spaces has intensified - converted in hot-house fashion into spaces of capital so that intensive expansion is reaching depths never before seen.

The rise of a vast "surplus" population inhabiting a "planet of slums," alienated from the productive economy, thrown into the margins and subject to sophisticated systems of social control and to destruction, to a mortal cycle of dispossession, exploitation and exclusion.

The disjuncture between a globalizing economy and a nation-state-based system of political authority. Transnational state apparatuses are incipient. They have not been able to play the role of what scholars of the world capitalist system refer to as a "hegemon" or a leading nation-state with enough power and authority to organize and stabilize the system.

With this as context, let us review how the current crisis has developed. Emergent transnational capital underwent a major expansion in the 1980s and 1990s. This involved what we could call hyper-accumulation, achieved through a number of factors. These include the introduction of new technologies, above all through computerization, informatics and the internet. They also include neo-liberal policies that opened up the world to transnational capital, and new modalities of mobilizing and exploiting the global labor force, including a massive new round of "primitive accumulation" - the uprooting and displacement of hundreds of millions of people, especially in the Third World countryside, who have become internal and transnational migrants.

But by the late 1990s, stagnation in the global economy set in. The system was again facing renewed crisis. Sharp global social polarization and escalating inequalities worldwide fueled the chronic problem of "overaccumulation." Quite simply, global inequalities and the impoverishment of broad majorities mean that transnational capital cannot find productive outlets to unload the enormous amounts of surplus it has accumulated. By the start of the 21st century, the Transnational Capitalist Class turned to several mechanisms to sustain global accumulation (profit-making) in the face of stagnation and overaccumulation.

One of the mechanisms is what I term militarized accumulation. This involves making wars and undertaking interventions that unleash cycles of destruction and reconstruction, and generate enormous profits for an ever-expanding "military-prison-industrial-security-energy-financial complex." We are now living in a global war economy that goes well beyond such "hot wars" as in Iraq, Afghanistan or Syria. Another mechanism is the raiding and sacking of public budgets. The Transnational Capitalist Class uses its financial power to take control of state finances and impose further austerity on working majorities. The Transnational Capitalist Class employs its structural power (its control over the global economy) to accelerate the dismantling of what remains of the social wage and welfare states. And a third mechanism is frenzied worldwide financial speculation - turning the global economy into a giant casino. The TCC has unloaded trillions of dollars into speculation in housing and real estate markets, into food, energy and other global commodities markets, into bond markets worldwide (that is, into public budgets and state finances) and into every imaginable derivative.

The threat of "21st century fascism"

How have social and political forces worldwide responded to crisis? The crisis has resulted in a rapid political polarization in global society. Right- and left-wing forces are ascendant. Among others, I want to highlight three responses to the crisis that seem to be in dispute.

One is what we could call "reformism from above." This reformism is aimed at stabilizing the system, at saving the system from itself and from more radical responses from below. Nonetheless, in the years following the 2008 collapse of the global financial system, it seems these reformers are unable (or unwilling) to prevail over the power of transnational financial capital. A second response is popular, grass-roots and leftist resistance from below. As social and political conflict escalates around the world, there appears to be a mounting global revolt. While such resistance appears insurgent in the wake of 2008, it is spread very unevenly across countries and regions and faces many problems and challenges.

Yet another response is what I term 21st century fascism. The ultra-right is an insurgent force in many countries. In broad strokes, this project seeks to fuse reactionary political power with transnational capital and to organize a mass base among historically privileged sectors of the global working class – such as white workers in the North and middle layers in the South – that are now experiencing heightened insecurity and the specter of downward mobility. It involves militarism, extreme masculinization, homophobia, racism and a racist mobilization against scapegoats, which includes the search for scapegoats (such as immigrant workers and, in the West, Muslims). Twenty-first century fascism evokes mystifying ideologies, often involving race/culture supremacy and xenophobia, embracing an idealized and mythical past. Neo-fascist culture normalizes and glamorizes warfare and social violence, indeed, generates a fascination with domination that is even portrayed as heroic.

It is important to stress that the need for dominant groups around the world to secure widespread, organized mass social control of the world's surplus population and rebellious forces from below gives a powerful impulse to projects of 21st century fascism. Simply put, the immense structural inequalities of the global political economy cannot easily be contained through consensual mechanisms of social control, that is, through hegemonic domination. With this in mind, let us conclude with five points for ongoing debate with regard to policing global capitalism.

A global police state

First, policing global capitalism through new modalities of globalized social control and repression is absolutely not just a project of this 21st century fascism; in fact, it is advanced by liberal and reformist elites and states. It is a structural, system-maintenance imperative of global capitalism.

Second,in thinking about policing global capitalism, we should ask whom the system most needs to police. Here, I want to call attention to the rising tide of surplus labor. Instead of attempting to incorporate those marginalized, the system tries to isolate and neutralize their real or potential rebellion by criminalizing the poor and the dispossessed, with tendencies toward genocide in some cases. The mechanisms of coercive exclusion include mass incarceration and prison-industrial complexes; pervasive policing; repressive anti-immigrant legislation; manipulation of space in new ways so that both gated communities and ghettos are controlled by armies of private security guards and technologically advanced surveillance systems; ideological campaigns aimed at seduction; and passivity through petty consumption and fantasy.

New forms of social control and modalities of ideological domination blur boundaries, so that there may be a constitutional and normalized neo-fascism, with formal representative institutions, a constitution, political parties and elections, while the political system is tightly controlled by transnational capital and its representatives. Any dissent that threatens the system is neutralized if not liquidated.

Third, we must recognize that criminalization and militarized control of the structurally marginalized as mechanisms of pre-emptive containment is highly racialized. This brings us back to Stuart Hall and in colleagues. The authors of "Policing the Crisis" highlighted the highly racialized nature of policing and the criminalization of black and immigrant communities in the United Kingdom. They deconstructed the complex ideological process of fabricating the criminalization of the oppressed as a function of social control at moments of hegemonic crisis.

Here we see strong parallels between the incipient "exceptional state" in the 1970s and the current drift toward such states in the United States and elsewhere. The displacement of social anxieties to crime and racialized "criminalized" populations in the United States and elsewhere dates back to the 1970s crisis. In the United States, in the wake of the mass rebellions of the 1960s, dominant groups promoted systematic cultural and ideological "law and order" campaigns to legitimize the shift from a social welfare to a social control state and the rise of a prison-industrial complex.

"Law and order" came to mean the reconstruction and reinforcing of racialized social hierarchies and hegemonic order in the wake of the 1960s rebellions. This coincided with global economic restructuring, neo-liberalism and capitalist globalization from the 1970s and on. Now, criminalization helps displace social anxieties resulting from the structurally violent disruption of stability, security and social organization generated by the current crisis. In her shocking expose, The New Jim Crow, legal scholar Michelle Alexander documents mass incarceration in United States as "a stunningly comprehensive and well-disguised system of racialized social control." Indeed, the racialized nature of the bogus "drug wars," of mass caging and the social death sentences this hands down is so blatant it shocks the senses. In analytical abstraction, mass incarceration takes the place of concentration camps. The system subjects a surplus and potentially rebellious population of millions to concentration, caging and state violence. The so-called (and declared) "war on drugs" and "war on terrorism," as well as the undeclared "war on gangs," "war on immigrants" and "war on poor youth," must be placed in this context.

Fourth, in his brilliant yet chilling study Cities under Siege: the New Military Urbanism, Stephen Graham shows how structures and processes of permanent militarized social control systems and warfare constitute a global project that by definition is transnational. It is important to note that every country has become enmeshed in policing the global crisis as the global economy becomes ever-more invested in warfare, social violence and state-organized coercion and repression.

Fifth and finally, militarization and organized violence become accumulation strategies independent of any political objectives and appear as structural features of the new global capitalism. Wars, mass incarceration systems, militarizing borders, detaining immigrants, developing global surveillance systems - so forth, and so on - are immensely profitable for the global corporate economy, for the transnational corporations, the transnational bankers, investors and speculators. They have a material stake in defending and expanding a global police state. Popular forces from below must be aware of what they are up against, and of the need for fundamental change in the power and property relations of global capitalism, if peace and justice are to be achieved.

The ideas in this essay are developed in more detail in William I. Robinson, Global Capitalism, Global Crisis, to be published in 2014 by Cambridge University Press. This article is based on a speech given at the Conference on Power in Justice in New York.
Copyright, Truthout. May not be reprinted without permission.
William I Robinson

William I. Robinson is professor of sociology, global and international studies, and Latin American studies at the University of California at Santa Barbara. Among his books are A Theory of Global Capitalism (2004) and Latin America and Global Capitalism (2008).

[justdrew]

"Kernel editor-in-chief and noted firebrand Milo Yiannopoulos swings away at Silicon Valley's current startup culture, noting that it's resulted in herds of wannabe founders and startup groupies who don't exactly have a track record of starting successful companies or even producing solid code. 'Though they produce little of value, they are the naive soft power behind aggressive capitalist machines in Silicon Valley: the trend-setting vanguard of the global Web and mobile industries,' he writes. 'We should be very wary indeed of these vacuous cheerleaders whose vague waffle about the transformational potential of photo-sharing apps is more sinister and Orwellian than anything dreamt up by a dictator.' How long can such a culture continue before it dries up, and the whole tech-investment cycle begins anew?"

heck, it's too good not to post the whole thing...

Who would be so deeply misled that they actually believe in the fawning ideology of the tech blogs and Wired magazine, that “geek” is the new cool? No one I know, for sure. The disconnect is even more acute when you examine it by gender: despite a decade of earnest pleading, girls remain stubbornly unconvinced of the virtues of a career scoffing Trail mix and writing code: surveys have suggested that the number of women going into tech is actually going down. And yet the “geek is cool” meme would appear to be in healthy condition, and growing.

Readily proliferating amidst the geek spectrum are what I call the Kling-ons: wannabe founders and start-up groupies—among them, I am sorry to say, many so-called journalists, whose views are so fawning, naive and inconsistent they would make even David Brooks wince. Kling-ons generally fly under the radar, immune to the ritual and very public humiliation lavished on the odious people they seek to emulate. That mockery, found on blogs like Gawker’s Valleywag, is the product of a depressing malaise affecting the general public as the gap between rich and poor widens. That widening gap, in turn, is a public relations catastrophe for Silicon Valley, whose business models depend on the trust and affection of a public that has little in common, economically, socially or culturally, with the ruling elites that dream up all these privacy-invading social networks.

Kling-ons are the proctors of progress, their domination of the media designed to convince us of the virtues of progress and the gospel of “disruption” through software. You see them at conferences: girls named Chelsea and Tiffany, alongside boys with monikers like Dean and Quentin, babbling about transformative innovation and “pivoting” despite having never done so much as register a company themselves. Though they produce little of value, they are the naive soft power behind aggressive capitalist machines in Silicon Valley: the trend-setting vanguard of the global Web and mobile industries. They are the public relations “gurus,” the management consultants, the “mentors” and the assorted other parasitical, retainer-based professionals who sponge off wealth-creators and corporations.

The cult of the Kling-on is especially pertinent this week because 50,000 of them are in the Nevada desert, shoveling drugs into their systems in a chaos of self-satisfied posturing known as “Burning Man”, an annual snoozefest that describes itself as “an experiment in community, art, radical self-expression, and radical self-reliance.” (None of these expressions really means anything, of course; they are just bywords for self-indulgence at another person’s expense.)

There are plenty of chief executives and wealth creators at Burning Man too, in love with their own micro-celebrity, hosting (that’s tech-speak for picking up the check) dire imitations of excess. I’ve seen more genuine decadence in unknown Berlin clubs than in that entire face-painted, drug-soaked annual festival of self, but to hear these “Burners” rabbit on, you’d think they’ve reinvented the profligacy of Nero’s last days. Yet somehow it’s become unacceptable to criticize this celebration of mutual congratulation.

At once the zenith of the cult of excessively educated bourgeois bohemians and nadir of a glossy new venture-capital-funded geek culture, Kling-ons prove not only that too much of a good thing (in this case, a liberal arts education) can be dangerous, but that the middle and upper classes have entirely lost touch with ordinary people. The Kling-ons’ expanding subculture of expensive plaid, expensive ironic spectacles and expensive foreign holidays is anathema to their customers, who can relate to the McDonald’s household budget but are blessedly ignorant of the Black Keys.

Perhaps it’s not surprising that there is a rift opening up between the moneyed information-rich classes and Joe Six-Pack: after all, the products built by the companies Kling-ons worship render the latter obsolescent. If the world really is turning to software, we should all be worried: the likely consequences aren’t just deindustrialization and the disfranchisement of the working classes but the disruption of the lower-middle as well: who will need—or want—the marketing, public relations and even the media industries when consumer choices are guided by crowdsourced fads on social recommendation platforms? (That’s what makes the spectacle of the Kling-on so unintentionally funny: the louder they squeal, the faster they hasten their own end.)

The replacement of people by things is a classic sign of addiction, yet it’s also the keystone of the social software revolution. We replace genuine human interaction with “connectivity”; productive work with “keeping up-to-date”; psychological insight with analytics; working-class jobs with globalization and platforms; the service industry with the faceless idiocy of the crowd-sourced masses. Why? Because the psychology of Kling-on overlords—the Zuckerbergs, the Masons, the Pincuses—is decadent, self-absorbed and fundamentally sociopathic. Genuine human interaction is being disrupted, replaced by falseness and air kisses.

Why do I hate Kling-ons? Because we know what will be left if their gods should win: a vast underclass of economically useless human beings robbed of all agency and dignity by lines of computer code. Because we know that when a Valley “CEO” speaks of liberating the population from work through technological efficiency, we’ve already read and seen where that leads: the crime, dependency and despair that set in when people are dis-incentivized from useful economic productiveness.

They are fake: their clothes are fake, the music they listen to is fake, their sneaker brands are fake. Many can neither code, nor sell, nor perform any of the functions they celebrate. They are themselves painfully parodic imitations of success: spoilt brats indulging themselves in soulless pleasures; friendships predicated on pragmatism instead of affection; inherited and pilfered wealth claiming to be a gritty new entrepreneurial elite. There’s so much money sloshing around you have to wonder how sustainable it all is. Sadly, with the venture capital industry becoming evermore dependent on public funds, there is no end in sight just yet.

Silicon Valley experiences painful and periodic catharses because, despite the wondrousness of its A/B testing and habit-forming products, its leaders have consistently failed to grasp some basic human truths. One, that we prefer our private sphere to stay private. Two, that we vote with our feet to abandon just as quickly as we do to subscribe. Three, that when all’s said and done, we’d prefer to supply cash up front and enter into an honest relationship with manufacturers and service providers, rather than be pushed digital drugs and pay for them later with privacy compromises. Four, that we have nothing in common with the self-regarding Californian startup culture that claims to be “changing the world” while delivering little besides personalized advertising delivery networks. And five, that we see behind the curtain and we know how shallow, disingenuous and exploitative this culture is.

We are long overdue another such reckoning. Technology companies have produced remarkably brilliant new opportunities and efficiencies, but they have also raised the specter of lives bled of purpose, of the inhumanity of the new social structures that are emerging. What do we do to keep everyone gainfully occupied when globalization and technological change render the bottom two thirds of society redundant? Enlarge the state and give them new non-jobs? Whack them on welfare? This isn’t an economic or technical problem: it’s a humanitarian one.

The artifice of start-up culture is a portent of what is to come. It represents the triumph of form over function; of dissemblance over directness; of the parasitical over the productive. Because they’re weak, because they’re pointless, because what they are and what they have is based on violations they do not regret and would repeat tomorrow, we should be very wary indeed of these vacuous cheerleaders whose vague waffle about the transformational potential of photo-sharing apps is more sinister and Orwellian than anything dreamt up by a dictator.

They like to whine about capitalism and excessive consumption, these people, forever trumpeting the virtues of the “sharing economy” (while skimming a neat profit off the top, of course) but is there anything more grotesquely hypocritical than the way these people actually behave themselves?

[Allegro]

Since the article from the Center for Public Integrity is so long, I’ve posted it in three sections. The original CPI article is the first in a series.

_________________
In the fall of 2008, the U.S. economy nearly collapsed thanks to an unprecedented wave of mortgage foreclosures. In “After the Meltdown — Where are they now?” the Center for Public Integrity revisits the subprime lenders, Wall Street banks and government regulators that were most responsible for the crash — and finds few if any have been held accountable.

Ex-Wall Street chieftains living large in post-meltdown world
After the Meltdown: Part one in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Alison Fitzgerald | Updated: 6:15 am, September 10, 2013

Editor’s note: Nearly five years ago, on Sept. 15, Lehman Brothers Holdings Inc. filed for Chapter 11, the largest bankruptcy in the nation’s history. The move set off a series of dramatic actions in Washington, D.C., and on Wall Street as bankers and regulators sought to avoid a shutdown of the global economy. To mark the anniversary, the Center for Public Integrity is publishing a three-part series on what has happened since the meltdown.

• Today, we focus on the Wall Street bankers who fed the subprime mortgage machine, without regard to risk.
• Tomorrow, in “Subprime lending execs back in business five years after crash,” we revisit key executives of the top 25 subprime lenders, companies whose loans nearly brought down the banking system.
• On Thursday, in “Ex-SEC chief now helps companies navigate post-meltdown reforms,” we examine the regulators who oversaw the collapse and look at what they are doing now.

Five years after the near-collapse of the nation’s financial system, the economy continues a slow recovery marred by high unemployment, hesitant consumers and sluggish business investment.

Many of the top Wall Street bankers who were largely responsible for the disaster — and whose companies either collapsed or accepted billions in government bailouts — are also unemployed. But since they walked away from the disaster with millions, they’re juggling their ample free time between mansions and golf, skiing and tennis.

Meantime, the major banks that survived the crisis, largely because they were saved with taxpayer money after being deemed “too big to fail,” are now bigger and more powerful than ever.

The Center for Public Integrity looked at what happened to five former Wall Street kingpins to see what they are up to these days. None are in jail, nor are any criminal charges expected to be filed.

Certainly none are hurting for money.

Take Richard Fuld. Five years after Lehman Brothers Holdings Inc., the 158-year-old company he ran, collapsed under the weight of bad investments and sent a tidal wave of panic through the global financial system, Fuld is living comfortably.

He has a mansion in Greenwich, Conn., a 40-plus-acre ranch in Sun Valley, Idaho, as well as a five-bedroom home in Jupiter Island, Fla. He no longer has a place in Manhattan, since he sold his Park Avenue apartment in 2009 for $25.87 million.

The other four bankers the Center caught up with — Jimmy Cayne (Bear Stearns), Stanley O’Neal (Merrill Lynch), Chuck Prince (Citigroup) and Ken Lewis (Bank of America) are also living in quiet luxury.

Meltdown primer

A quick crisis refresher: During the early years of the last decade, U.S. home values were soaring, fueled by ultra-low interest rates.

Wall Street investors, eager to get in on the party, developed an enormous appetite for bonds backed by the mortgages of everyday homeowners. Firms like Lehman would buy up thousands of mortgages, pool them together into a security, and sell the cash flow from the mortgage payments to investors, including pension funds and hedge funds.

The bonds were thought to be almost as safe as U.S. Treasuries, but they carried a higher interest rate.

The demand was so great that eventually mortgage lenders loosened their underwriting standards and made loans to people who couldn’t afford them, just to satisfy hungry investors.

< large graphic omitted >

When the housing market turned down in 2007 and homeowners began to default on their loans, the whole system began to crumble.

In March 2008, Bear Stearns almost collapsed and was sold. Six months later, Lehman failed, setting off a chain reaction that killed dozens more banks and mortgage lenders. Weeks later, Congress approved a $700 billion bailout of the financial system and soon nearly every major financial institution was on the dole.

The ensuing recession destroyed as much as $34 trillion in wealth and sent the unemployment rate soaring above 10 percent for the first time in 25 years.

“Every single one of these companies was insolvent,” said Neil Barofsky, the former special inspector general overseeing the bailout, which was called the Trouble Asset Relief Program.

“Clearly there was a large underpinning of fraud,” said Barofsky, a former federal prosecutor, who argues the government didn’t adequately pursue criminal charges against those who caused the crisis. “There was never really a comprehensive investigation. The Justice Department largely outsourced this to the Securities and Exchange Commission.”

Five years after the meltdown, the potential for a criminal prosecution of any of those involved in the events leading up to the collapse has faded as the statute of limitations for financial fraud ran out.

The five ultra-rich former Wall Street chieftains have simultaneously faded into luxurious obscurity while the survivors — Jamie Dimon of JPMorgan Chase & Co. and Lloyd Blankfein of Goldman Sachs — have only consolidated their power as they alternate between being seen as great villains or near statesmen depending on the changing fortunes of their companies.

Continued in the post, below.

[Allegro]

Since the article from the Center for Public Integrity is so long, I’ve posted it in three sections: the following is the second of three. The original CPI article is the first in a series.

_________________
Ex-Wall Street chieftains living large in post-meltdown world
After the Meltdown: Part one in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Alison Fitzgerald | Updated: 6:15 am, September 10, 2013

Fuld checks in

Five years after Lehman Brothers declared bankruptcy, Fuld is keeping a low profile. He’s not giving interviews or lectures, and he’s not done an apology tour.

At times he picks up the phone and calls up former Lehman co-workers — those whom he considers friends — to check in.

Kevin White, a former managing director at Lehman, says he hears from Fuld about once a month. The former CEO asks about White’s family, checks on how business is at the hedge fund White founded after Lehman, offers to help, and perhaps introduce him to someone.

“Dick’s a family man and he’s someone who takes this whole Lehman bankruptcy very personally,” White says. He admits that some of his former colleagues hate Fuld and don’t understand why White stays in touch.

Fuld has been widely criticized, by former Lehman workers and in official investigations, for allowing the firm to drown itself in too much debt. When it went bankrupt, for every dollar of capital Lehman held, it was borrowing at least $30. Some reports say the rate was higher than 40 to 1.

That gave it no cushion to absorb losses when the market began to decline.

The myriad investigations into the causes of the crisis revealed that under Fuld’s watch, Lehman executives toyed with the company’s finances to make that leverage look better than it really was using what some Lehman employees called an “accounting gimmick” called Repo 105, according to the official bankruptcy report by Anton Valukas of the law firm Jenner & Block.

The tactic allowed the company to characterize a short-term loan as an asset sale and then use the money from that false sale to cut debt. By doing so, Lehman appeared to have less debt and more cash. Lehman used Repo 105 transactions to cut the debt on its books by as much as $50 billion just before it announced quarterly earnings, giving investors a false impression of the bank’s financial health.

In a legal filing in an investor lawsuit, Fuld and other Lehman executives said investors were informed that Lehman’s leverage was often higher than it was at the end of each quarter.

"Lehman specifically disclosed that its balance sheet ‘will fluctuate from time to time’ and could be and at times was larger than its balance sheet reported at quarter- or year-end,’ the filing said.

Fuld, in testimony before the Financial Crisis Inquiry Commission, blamed Lehman’s failure on the government’s decision not to give it a bailout.

“Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors,” he testified.

“There is sufficient evidence … that Fuld was at least grossly negligent,” Valukas wrote in his report.

Negligence isn’t necessarily a crime, however, so Fuld has faced no punishment for the wreckage caused by his company’s collapse, save perhaps banishment to irrelevance.

Last year a federal judge approved a $90 million settlement of a class action suit brought by Lehman investors against Fuld and several other company executives and directors. The judge, Lewis Kaplan, questioned whether the settlement, which will be paid entirely by Lehman’s insurers, was fair given that none of the individuals would pay out of pocket. He agreed to the deal, however, because litigation expenses for a trial were likely to deplete the funds available for compensating the investors.

Fuld quietly opened his own advisory firm called Matrix Advisors in a Third Avenue office building in Manhattan, across the street from the headquarters of Avon, the cosmetics company. He’s landed a few clients, according to news reports, SEC filings and court records. Matrix advised AT&T Inc. on its failed bid to purchase T-Mobile. And it has consulted with GlyEco, a company that recycles the chemical glycol, and Ecologic Transportation Corp., a company that rents out environmentally friendly cars.

He was recently spotted at Doubles, the private dining club in the Sherry-Netherland Hotel in Manhattan, according to a former Lehman employee.

Still, companies haven’t been eager to have their names associated with Fuld, so landing clients hasn’t been easy, according to two people familiar with the business.

Fuld, through his lawyer, declined several interview requests for this story. He wasn’t in his office when a reporter paid a visit in July. His assistant, through a security guard, declined to say where he was.

Even if business is slow, it may not matter much to Fuld. Unlike many of his former employees, and unlike the millions of people still out of work after the 2008 financial collapse, Fuld has money.

When Lehman Brothers filed for bankruptcy on Sept. 15, there was a sense that if Fuld had mismanaged Lehman to death, at least he had lost a load of cash in the process as the value of his company stock dropped to nothing.

And he did lose plenty.

Fuld’s 10.8 million shares of the company that may have once been worth more than $900 million, according to a study by Harvard University Professor Lucian Bebchuk, became worthless.

However, he wasn’t exactly on his way to the poor house. From 2000 through 2007, Fuld took home as much as $529 million from his Lehman job. That includes his salary and cash bonuses, as well as the Lehman shares granted him by the company that he sold before the bankruptcy in September 2008.

That total comes from an analysis by Oliver Budde, a former Lehman associate general counsel who left the firm in 2006 because, he says, Lehman was underreporting its executive compensation to shareholders.

That income allowed Fuld to buy some very high-end real estate.

In Greenwich, he has an $8 million, nine-bedroom home with a guest house. He and his wife, Kathleen, bought the house in 2004 after they sold their previous Greenwich home to Robert Steel, a Goldman Sachs executive who became undersecretary of the Treasury in 2006 under Henry Paulson. Steel then became CEO of Wachovia, which nearly collapsed 11 days after Lehman and was sold to Wells Fargo at the direction of federal regulators.

When he’s looking to get out of Greenwich, Fuld can head south to Jupiter Island, Fla., a ritzy barrier island that’s home to Tiger Woods and Greg Norman. He transferred ownership of the $10.6 million beachfront home, with a pool and tennis court, to his wife in November 2008, a common strategy for protecting assets from legal judgments.

He also spends a lot of time at his 40-plus-acre ranch in Ketchum, Idaho, in the center of the Sun Valley resort area. The spot offers “ultimate privacy,” according to Daryl Fauth, CEO of Blaine County Title in Ketchum.

The ranch is located just five minutes from downtown Ketchum, east of the Baldy Mountain ski resort and west of the Reinheimer Ranch, a 110-acre spread that’s owned by the Idaho Foundation for Parks and Lands and can’t be developed. The house is situated on a bend in a river that runs through the property.

Fuld even managed to make a killing in real estate during the depths of the collapse. A Park Avenue apartment that he and his wife bought in 2007 for $21 million was sold in 2009 for a $4.8 million gross profit.

What he hasn’t done is make any public statement or gesture or obvious effort to rehabilitate his image. He hasn’t made any public overtures to major charities.

He appears to have wound down his family foundation after Lehman went bankrupt, distributing the last $10,948 in 2009, according to tax filings. And last summer Fuld sued his estranged son-in-law seeking to recover money he had lent the younger man to buy a home with Fuld’s daughter.

Fuld was looking to be paid in cash and stock by those he advised, according to a person familiar with the company. That’s the type of agreement he struck with Ecologic, which paid him a $10,000-per-month retainer and granted him options to buy 2.29 million shares of its stock at 25 cents per share.

Jimmy’s playing bridge

While Fuld has tried to stay in the business, Jimmy Cayne of Bear Stearns has withdrawn completely.

Cayne, who lives in a $25 million apartment in New York’s Plaza Hotel, can be found almost every day in cyberspace hosting an online bridge game.

Last month in the Hyatt Regency hotel in Atlanta, Cayne sat for hours in a crowded ballroom with orange, brown and yellow swirled carpet competing for the coveted Spingold Cup.

Cayne sat in a crisply pressed shirt with his team — two Italians and two Israelis — chomping a cigar and talking in hushed tones over one of the dozens of folding tables. He likely pays his players more than $100,000 a year each to help him remain atop the world rankings, according to two people who have played in tournaments against him.

He’s ranked 22nd in the world, according to the American Contract Bridge League. Last month he lost in the round of 16 of the Spingold knockout match.

That he’s opted for bridge over finance is telling, as Cayne was much criticized for spending more time on golf and bridge than on dealing with the crises that were crushing his firm.

While at Bear, Cayne would leave every Thursday and take a helicopter to his New Jersey beach house for long weekends of golf at the Hollywood Golf Club. He’d emerge from the chopper behind sunglasses and chomping the trademark cigar, according to people who saw him there.

Cayne had survived the bankruptcy of two Bear Stearns hedge funds the summer before but succumbed to the inevitable when, in the fourth quarter of 2007, the company had to write down $1. 9 billion in bad home loan bets, leading to its first quarterly loss ever.

He retired as CEO in January 2008, two months before the firm collapsed under the weight of its subprime mortgage investments, but remained as board chairman. As the market became doubtful that the mortgage bonds on Bear’s books were worth what the company claimed, companies pulled their business, suddenly and en masse.

Bear Stearns was sold on March 16, 2008, in a late night deal to JPMorgan Chase & Co., which eventually paid $1.2 billion, about what it would have cost to buy the company’s Madison Avenue headquarters.

The company’s leverage ratio was 38 to 1 or higher, according to Phil Angelides, the chairman of the Financial Crisis Inquiry Commission. Cayne acknowledged in his testimony before the commission that it was too high.

“That was the business,” he said. “That was really industry practice.”

He told Angelides that he believed in Bear so strongly that he almost never sold its stock. “I rarely sold any of the firm’s stock except as needed to pay taxes,” he testified on May 5, 2010.

Like Fuld, Cayne lost about $900 million on paper when Bear’s stock plunged, but he took home plenty before the crash. He earned $87.5 million in cash bonuses from 2000 to 2007 and sold stock worth about $289.1 million in those years, according to Bebchuk’s study.

In addition to the Plaza Hotel condo, he and his wife have a second apartment on Park Avenue. They put that home on the market last month for $14.95 million. When they want to get out of the city, they can head to their $8.2 million mansion on the Jersey Shore, about a mile from the Hollywood Golf Club, or their $2.75 million condo at the Boca Beach Club in Boca Raton, Fla.

Cayne, like many of his fellow CEOs, has apparently worked to shield his assets from potential liability.

In November and December 2009, he transferred ownership of four pieces of real estate to four separate limited liability companies, called Legion Holdings I, II, III and IV, for a total of $21. Some of the LLCs share Cayne’s Plaza Hotel mailing address in public tax records.

“I take responsibility for what happened. I’m not going to walk away from the responsibility,” Cayne told the FCIC.

He hasn’t had to take any for the demise of Bear, however. He’s paid no judgments or settlements from any lawsuits, according to his lawyer, David Frankel.

Chuck Prince is helping his friends

While Fuld went down with his ship and Cayne remained until close to the end, two of their CEO brethren were pushed aside earlier — when the subprime collapse began taking its toll on profits — only to watch their companies falter from a distance.

Charles O. Prince III resigned as CEO of Citigroup on Nov. 5, 2007, when the company announced it had lost between $8 billion and $11 billion on subprime mortgage bets.

“Given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down,” he said in a statement. Prince walked away with a golden parachute worth about $33.6 million.

From 2000 through his resignation, Prince took home $65.2 million in cash salary and bonuses, according to an analysis by the Center. There are no SEC reports showing that he sold any shares from 2000 through 2008. It’s unclear whether he’s sold any since he resigned. Citigroup shares were priced at more than $300 the week Prince resigned and today hover at about $50 after a 1-for-10 reverse stock split.

His downfall came only months after he famously justified Citi’s continued involvement in subprime:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he told The Financial Times in July 2007.

Prince was succeeded by Vikram Pandit, a former hedge fund manager whose firm was acquired by Citi just months earlier for $800 million. While Pandit was trying to right the listing ship, the company continued to provide Prince with an office, an administrative assistant and a car and driver for up to five years, a package worth $1.5 million a year, according to SEC filings.

By the end of 2008, Citigroup had received $45 billion in bailout money from the U.S. Treasury and the Federal Reserve had guaranteed hundreds of millions of dollars of its debt.

Prince apologized for the disaster that the financial crisis caused in testimony to the FCIC in 2010. "I'm sorry the financial crisis has had such a devastating impact for our country," he testified. "I'm sorry about the millions of people, average Americans, who lost their homes. And I'm sorry that our management team, starting with me, like so many others, could not see the unprecedented market collapse that lay before us."

After Citigroup, Prince joined the global consulting firm Stonebridge International, which was founded by former National Security Advisor Sandy Berger. The company merged in 2009 with the Albright Group, founded by former Secretary of State Madeleine Albright to form Albright Stonebridge Group.

Prince described his move to Albright Stonebridge as “helping my friends with their activities,” in a 2009 interview. When pressed about what his exact job was he said, “I’m just a friend.”

He’s no longer listed as an executive on the company’s website and a spokeswoman for the company did not respond to an email and phone call seeking an update on his status.

He serves on the boards of directors of Xerox Corp. and Johnson & Johnson Inc. He’s represented by the Harry Walker Agency as a speaker for hire on topics including “Corporate Governance: A Five-Point Plan to the Best Business Practices,” and “Inside the Current Financial Crisis.”

Last year Prince, along with Citigroup and several members of the company’s pre-2008 board, settled a class action lawsuit for $590 million that accused them of misleading investors about the amount of subprime-related securities the company held on its books and underreporting losses related to those investments. Prince and the other defendants didn’t admit any wrongdoing in the settlement.

It’s unclear how often Prince went to the office held for him at Citi, but what is clear is that Prince had plenty of other places to spend his time.

He has a $3.6 million Nantucket getaway and a $2.7 million house in a Jack Nicklaus golf community in North Palm Beach, Fla., called Lost Tree Village.

Stan O’Neal goes to the Vineyard

Prince’s ouster from Citigroup was prefaced just days earlier by the departure of Stanley O’Neal from Merrill Lynch.

O’Neal had taken over Merrill when it was mostly a retail brokerage firm and turned it into a major manufacturer of collateralized debt obligations, a type of security, backed by home mortgages.

By 2006, it was the biggest underwriter of CDOs on Wall Street and a year later the company had $55 billion worth of subprime loans on its own books that no one wanted to buy.

As the losses mounted, O’Neal made overtures, first to Bank of America, then to Wachovia, about buying Merrill Lynch — without the approval of the board, according to a 2010 interview O’Neal gave to Fortune Magazine. When in October 2007 Merrill announced it was writing off $8 billion of its mortgage-backed securities, and then news broke that O’Neal was thinking of selling the firm, it was over. He was fired.

O’Neal floated out of Merrill comfortably, however, buoyed by a golden parachute worth $161.5 million. In the eight years leading up to his ouster, O’Neal earned $68.4 million in cash salary and bonuses, and he sold Merrill stock at a profit of at least $18.7 million, according to a Center review of annual reports and SEC filings.

He was succeeded by John Thain, a former CEO of the New York Stock Exchange, who convinced Bank of America to buy Merrill Lynch for $50 billion just as Lehman was imploding and taking much of the financial system with it.

(Thain himself was eventually fired after it became public that he spent more than $1 million renovating his Merrill office — including $87,700 for a pair of guest chairs — as the company was on the verge of bankruptcy.)

O’Neal, however, is flush. On top of his $161.5 million, he and his wife have a Park Avenue apartment. NBC anchor Tom Brokaw sold his apartment in the building for $10.75 million in 2011. O’Neal transferred full ownership to his wife in November 2008, a common strategy to protect the home from any legal judgments.

The couple also owns a $12.4 million vacation home in Martha’s Vineyard through an LLC called KZ Vineyard Land.

Today he sits on the board of Alcoa Inc., the world’s top producer of aluminum and is on the audit and corporate governance committees.

Ken Lewis moves to Florida

Kenneth Lewis survived the September 2008 bloodbath and even came out looking like a hero to some when he arranged Bank of America’s hasty purchase of Merrill Lynch — O’Neal’s former employer — for $50 billion on the same weekend that Lehman failed, possibly saving it from the same fate as Lehman.

It soon became clear that Merrill was no bargain. That, combined with Lewis’ ill-advised purchase of subprime giant Countrywide Financial just as the housing market went into free fall, led Bank of America to start hemorrhaging cash.

It eventually got $45 billion in bailout money from the federal government to stanch the bleeding.

Lewis knew of Merrill’s excess losses before shareholders approved the final deal, according to his 2009 testimony to then-New York Attorney General Andrew Cuomo. He said he kept the losses hidden under pressure from Treasury Secretary Henry Paulson who worried that, if the deal fell through, it would hurt the already wounded market and overall economy.

Bank of America last month was accused by the Justice Department in a civil lawsuit of understating the risks that the loans included in $850 million of mortgage-backed securities would default. The Justice Department said the company was so hungry for loans to securitize that it let its quality controls slide and didn’t adequately verify borrowers’ incomes or ability to repay. The suit did not name Lewis as a defendant.

The company already settled a civil fraud suit with the SEC for $150 million and another lawsuit brought by pension fund investors for $62.5 million.

Lewis retired in September 2009 with a going-away package worth $83 million, even though the company was largely dependent on the federal government for its survival. He had already banked at least $86.4 million from Bank of America stock sales between 2000 and 2008, according to SEC filings. He also brought in $52.4 million in salary and bonuses in that time.

He and his wife Donna sold their house in Charlotte, N.C., in January for $3.15 million and their mountainside mansion in Aspen for $13.5 million, $3.35 million less than what they paid for it in 2006.

They appear now to have only one home, a $4.1 million condo in a beachfront high-rise in Naples, Fla.

Continued in the post, below.

[Allegro]

Since the article from the Center for Public Integrity is so long, I’ve posted it in three sections: the following is the third of three. The original CPI article is the first in a series.

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Ex-Wall Street chieftains living large in post-meltdown world
After the Meltdown: Part one in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Alison Fitzgerald | Updated: 6:15 am, September 10, 2013

The winners

While Lewis and several of the CEOs that led their companies into the thicket of mortgage-backed securities have ended up rich but unemployed, two have seen their fortunes soar.

Jamie Dimon and Lloyd Blankfein, the leaders of JPMorgan Chase & Co. and Goldman Sachs Group Inc., today stand atop the global financial system, their banks bigger and more powerful than ever and their personal fortunes growing.

Blankfein was a magnet for scorn and envy before the crisis when Goldman awarded him a $68 million bonus in 2007, just as the economy was going bad. He then became the target for much of the public wrath that followed the collapse of the economy when he flippantly declared that Goldman was doing “God’s work” by lending money to businesses.

His reputation plummeted to its lowest point in 2010 after revelations that Goldman Sachs packaged and sold mortgage securities that appeared designed to fail, and then shorted the bonds, making a killing for the firm while customers lost money.

The company was sued by the SEC over one such deal, called Abacus, and Goldman settled the case for $550 million without admitting any wrongdoing.

While Blankfein was the villain, Dimon was treated as a rock-star statesman.

He was welcome at the White House and lauded as one of the only bankers who didn’t need a bailout — even though he took one, allegedly at the direction of Paulson.

Obama sang his praises in February 2009, just weeks after entering the Oval Office.

“There are a lot of banks that are actually pretty well managed, JPMorgan being a good example,” Obama said. “Jamie Dimon, the CEO there, I don’t think should be punished for doing a pretty good job managing an enormous portfolio.”

Dimon’s popularity in the White House began to fade because he was a vocal opponent of many of the financial reforms being advocated in response to the crisis. Then in 2012, JPMorgan announced it had lost billions because of bad bets by a rogue derivatives trader in London.

Dimon came under investigation for minimizing the issue to investors — he called the problem “a tempest in a teapot.” The company was sued by the SEC, and Dimon had to testify before Congress. Last spring he barely survived a shareholder vote that would have separated his two jobs, chairman of the board and chief executive.

Last month the company said it was under civil and criminal investigation by the Justice Department over its subprime mortgage-backed securities.

When he hit the nadir of his troubles, Dimon reportedly sought advice from Blankfein on how to weather the storm and maintain his and his company’s reputation.

Earlier this summer, Blankfein held forth before a roomful of journalists and lobbyists at Washington’s swank Mayflower Hotel where, like an elder statesman, he was asked about everything from immigration reform to his first job selling hot dogs at Yankee Stadium. BusinessWeek Magazine wrote a story about the fashion impact of his new beard.

Through the ups and downs, neither CEO has suffered financially.

Blankfein was paid $21 million last year and he was the highest-paid chief executive of the 20 biggest financial companies, according to Bloomberg. Dimon earned about half that, or $11.5 million, as a result of the derivatives loss that became known as the “London whale.” Blankfein owns about $256 million of Goldman shares, according to Forbes magazine.

Dimon bought a Park Avenue apartment in 2004 for $4.9 million and bought a second unit in the same building this year for $2 million. He also owns a $17 million estate in Mt. Kisko, N.Y. Blankfein’s Central Park West penthouse is valued at $26.5 million, according to New York property records. Late last year, he and his wife also bought a 7.5-acre estate in the Hamptons with a pool and tennis court for $32.5 million. Forbes estimates Dimon owns $223 million of JPMorgan stock.

While Dimon and Blankfein held on to their power, the banks they lead, and other U.S. megabanks, have grown larger and more powerful.

JPMorgan’s assets — one common measure of bank size — have grown to $2.44 trillion from $1.78 trillion shortly before Lehman failed in 2008. Bank of America’s assets have ballooned to $2.13 trillion from $1.72 trillion, while Wells Fargo more than doubled to $1.44 trillion from $609 billion five years ago. Goldman Sachs, which wasn’t on the list of top 50 bank holding companies in 2008 because it was a pure investment bank at the time, is now the nation’s fifth largest with $939 billion in assets.

Citigroup, beset by financial problems, is the only one of the top five banks whose balance sheet has shrunk in those years.

Total assets don’t even adequately measure the full size of these institutions because the measure does not take into account derivatives contracts or off-balance-sheet items that could still put the banks at risk. If those assets were counted, JPMorgan’s size would rise to $3.95 trillion, according to a worksheet prepared by FDIC Vice Chairman Thomas Hoenig.

’Bad guys everywhere’

Since that epic month in 2008 that began with the bankruptcy of Lehman early Monday, Sept. 15, and ended with the $80 billion bailout of insurance giant American International Group and the sales of Merrill Lynch to Bank of America, Wachovia to Wells Fargo and Washington Mutual to JPMorgan, thousands of hours and millions of pages have been filled trying to determine what happened.

The most comprehensive, the Financial Crisis Inquiry Report, said the financial collapse was avoidable.

“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble,” the report said.

That those “captains of finance” have suffered few consequences of that “big miss” is now part of the legacy of the crisis, and has cast a shadow over the U.S. justice system, which prosecutes small-time offenders but appears to turn away from what many see as crimes of the wealthy.

“This is the greatest white-collar fraud and most destructive white-collar fraud in history and we have found ourselves unable to prosecute any elite bankers,” said Bill Black, an economics and law professor at the University of Missouri and author of The Best Way to Rob a Bank is to Own One. “That’s outrageous.”

U.S. Attorney General Eric Holder appeared to confirm that view earlier this year when he said he’s hesitant to criminally prosecute big banks because he’s afraid of the damage such a move could do to the economy.

“When we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy … that is a function of the fact that some of these institutions have become too large,” he said during a Senate Judiciary Committee hearing in March.

Since that time, the Justice Department has walked back those statements and assured lawmakers and the public that they have aggressively investigated and pursued any criminal acts related to the financial crisis.

The hurdle, officials say, is that to prove a crime, they must prove intent. That means if the government wanted to bring charges against any of the CEOs of the companies that led the nation to financial disaster, prosecutors would have to prove to a jury beyond a reasonable doubt that these individuals intended to commit fraud.

“They tend to have to work in a much more black and white misconduct universe,” said Jordan Thomas, a former lawyer for the SEC who worked with Justice on many financial fraud cases. Proving criminal misconduct is such a high hurdle that the government has resorted mostly to civil charges, where the burden of proof is lower. That doesn’t mean, Thomas says, that nobody did anything wrong.

“The financial crisis had bad guys everywhere,” he said.

Ben Wieder contributed to this report.

[Allegro]

The following is the first of three sections from the original CPI article, which is part two in a series.

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Subprime lending execs back in business five years after crash
After the Meltdown: Part two in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Daniel Wagner | 6:00 am, September 11, 2013 Updated: 21 hours, 41 minutes ago

Editor’s note: Nearly five years ago, on Sept. 15, Lehman Brothers Holdings Inc. filed for Chapter 11, the largest bankruptcy in the nation’s history. The move set off a series of dramatic actions in Washington, D.C., and on Wall Street as bankers and regulators sought to avoid a shutdown of the global economy. To mark the anniversary, the Center for Public Integrity is publishing a three-part series on what has happened since the meltdown.

Andy Pollock rode the last subprime mortgage wave to the top then got out as the industry collapsed and took the U.S. economy with it. Today, he’s back in business.

Pollock was president and CEO of First Franklin, a subprime lender whose risky loans to vulnerable consumers hastened the downfall of Merrill Lynch after the Wall Street investment bank bought it in 2006 for $1.3 billion. He was still running First Franklin for Merrill in 2007 when he told Congress that the company had “a proven history as a responsible lender” employing “underwriting standards that assure the quality of the loans we originate.”

The next year, federal banking regulators said First Franklin was among the lenders with the highest foreclosure rates on subprime loans in hard-hit cities. Standard & Poor’s ranked some of its loans from 2006 and 2007 among the worst in the country. Lawsuits filed by AIG and others who bought the loans quoted former First Franklin underwriters saying that the company was “fudging the numbers” and calling its loan review practices “basically criminal,” with bonuses for people who closed loans that violated its already-loose lending standards.

Merrill closed First Franklin in 2008 after the subprime market imploded and demand for risky loans dried up. For Pollock and his contemporaries, who have survived decades of boom and bust in the mortgage trade, the recent near-toppling of the global economy was a cyclical, temporary downturn in a business that finally is beginning to rebound.

Five years after the financial crisis crested with the bankruptcy of Lehman Brothers Holdings Inc., top executives from the biggest subprime lenders are back in the game. Many are developing new loans that target borrowers with low credit scores and small down payments, pushing the limits of tighter lending standards that have prevailed since the crisis.

Some experts fear they won’t know where to stop.

The Center for Public Integrity in 2009 identified the top 25 lenders by subprime loan production from 2005 through 2007. Today, senior executives from all 25 of those companies or companies that they swallowed up before the crash are back in the mortgage business. Most of these newer “non-bank” lenders are making or collecting on loans that may be too risky to qualify for backing by the U.S. government. As the industry regains its footing, these specialty lenders represent a small but growing portion of the market.

The role of big subprime lenders in teeing up the financial crisis is well documented.

Lawsuits by federal regulators and shareholders have surfaced tales of predatory lending, abusive collection practices and document fraud. A commission charged by Congress to look at the roots of the crisis said lenders “made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities.”

Risky loans, a Senate investigation concluded, “were the fuel that ignited the financial crisis.”

As borrowers defaulted at increasing rates in 2006 and 2007, global financial markets tightened, then froze. The result was the worst economic crash since the Great Depression. Today, millions of Americans still face foreclosure. Yet few subprime executives have faced meaningful consequences.

“Old habits die hard, especially when there’s no incentive to do things differently,” says Rachel Steinmetz, a senior underwriter-turned-whistleblower who worked at subprime lender GreenPoint Mortgage, later bought by Capital One, until June 2006. “The same shenanigans are going on again because the same people are controlling the industry.”

To be sure, loans offered by their new companies face unprecedented scrutiny by regulators and investors. Many of the riskiest practices from the subprime era have been outlawed.

“We could never, ever go back to the kinds of products we were selling. They were disastrous,” says John Robbins, who founded three mortgage lenders — two before the crisis, and one in 2011, from which he recently stepped down. The new Holy Grail for some lenders, according to Robbins: a mortgage that complies with new rules yet “creates some opportunity to lower the bar a little bit and allow consumers the opportunity to buy homes [who] really deserve them.”

Robbins is one of several executives identified in the Center’s investigation who have gathered up their old teams and gotten back into the mortgage business. Others have tapped the same private investors who backed out-of-control lending in the previous decade.

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The lenders vary in how willing they are to accept lower down payments, weaker credit scores or other factors that can make a loan more risky.

New Penn Financial allows interest-only payments on some loans and lets some borrowers take on payments totaling up to 58 percent of their pre-tax income. (The maximum for prime loans is 43 percent.) PennyMac’s non-government loans make up a tiny portion of its total lending and have virtually the same underwriting standards as prime mortgages, but are bigger than government agencies would allow. And Rushmore Home Loans today so far offers only mortgages that could likely get a government guarantee, though a company website says it “intends to expand and enhance current product offering.”

The newer loan offerings remain fairly safe, but companies gradually are growing more flexible about what documentation they require and how big borrowers’ payments must be, says Guy Cecala, publisher of the trade magazine Inside Mortgage Finance. “You’re going to see a little more risk coming into the system” Cecala says, as lenders permit smaller down payments and finance more investment properties.

Riding out the storm

After First Franklin closed in 2008, Pollock remained in his five-bedroom, $2.4 million home in ritzy Monte Sereno, Calif. He led a consulting firm that became a temporary haven for at least 15 former First Franklin employees.

By 2013, Pollock was co-CEO of Rushmore Loan Management Services, a company that traditionally collected payments on loans and is now originating loans. The company offers adjustable rate mortgages and down payments as low as 5 percent. A company spokeswoman said Rushmore’s loans meet government standards and that some government programs allow low down payments to encourage homeownership.

Pollock is among at least 14 founders or CEOs of top subprime lenders whose post-crisis employers want to serve consumers who might not be able to qualify for bank loans.

Also on the list is Amy Brandt, who at age 31 became CEO of WMC Mortgage Corp., then owned by General Electric. Brandt’s properties include a $2 million, 13,600-square-foot mansion in a Dallas suburb that Forbes magazine once ranked as America’s most affluent, with a landscaped pool and waterfall and a wood-paneled home theater.

In July, she was named chief operating officer of Prospect Mortgage, backed by private equity firm Sterling Partners. The firm is run by a former executive of IndyMac and American Home Mortgage and chaired by a former CEO of the government-sponsored mortgage finance giant Fannie Mae. Prospect’s mortgage offerings include interest-only loans whose payments can increase sharply after a few years.

Jim Konrath, the founder and former CEO of Accredited Home Lenders, which cratered so quickly when the housing bubble burst that a private-equity firm that had agreed to buy it tried to back out of the deal, is today chairman of LendSure Financial Services, a company that advertises “serving customers along the credit continuum, and doing so in a way that is both profitable and fair.”

The company’s founders “successfully emerged from the latest industry downturn — and navigated others before it,” LendSure assures visitors to its website.

In 2011, California state regulators accused Konrath and LendSure of collecting illegal upfront fees from people seeking loan modifications and failing to maintain required records. Konrath paid $1,500 and was required to take a class and pass a professional responsibility exam. David Hertzel, a lawyer for the company, said Konrath was not “actively involved” in the decision and was penalized because the company was operating under his broker’s license.

With LendSure based in San Diego, Konrath has been able to keep his secluded, 4,200-square-foot house in nearby Poway, as well as a ski chalet near Lake Tahoe.

And there’s Scott Van Dellen, former CEO of the homebuilder-lending division owned by IndyMac — a California bank whose collapse was the nation’s costliest. Last December, a jury agreed that he and two other former executives should pay $169 million to federal regulators, finding that they negligently approved risky loans to homebuilders. (IndyMac’s insurers may pay some or all of the judgment, which is subject to a possible appeal.)

Van Dellen’s new company, Yale Street Mortgage, is located in the same Pasadena ZIP code as IndyMac and provides loans to real estate investors who want to “buy, fix and flip” single-family homes and small apartment buildings.

Continued in the post, below.

[Allegro]

The following is the second of three sections from the original CPI article, which is part two in a series.

_________________
Subprime lending execs back in business five years after crash
After the Meltdown: Part two in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Daniel Wagner | 6:00 am, September 11, 2013 Updated: 21 hours, 41 minutes ago

Lender yes, bank no

Most of the bad loans that brought about the crash in 2008 were made by lenders that were not owned by banks. These companies cannot accept deposits — their loans are funded by investors, including private equity firms, hedge funds and investment banks. In the run-up to the crash, big Wall Street investment banks binged on subprime lenders, spending billions to buy them up and resell their loans just as the market turned.

Lehman Brothers, for example, bought BNC Mortgage in 2004 and financed subprime loans offered by other companies. Jim Harrington was a senior vice president with Lehman from 1999 through 2008 and is now a managing director for Resurgent Capital Services, which collects mortgage and other debts and specializes in “challenging loan portfolios.”

At Lehman, Harrington was charged with determining how much risk was posed by a lenders’ legal compliance and lending decisions. He says he was not a “key decision maker or a key source of setting credit policy” at Lehman, but more of “a spoke in the wheel.”

As the mortgage industry undergoes another wave of consolidation, non-bank lenders are again attractive targets for investors seeking to enter the mortgage business overnight. They also remain far less regulated than banks that take deposits. Banks tend to offer only the safest home loans — those that qualify automatically for government backing.

New regulations have made lending standards so tight, industry officials argue, that many Americans who should qualify for home loans are effectively shut out of the market.

“The American consumer is underserved at this point,” says Robbins, the three-time mortgage CEO. “How do we serve the low- to moderate-income community as an industry when you have these kinds of daunting regulations?”

Many of the most problematic loans from before the crisis have been banned, including “liar loans,” which didn’t require borrowers to prove their income; and balloon loans, which offer low payments for a number of years then sock borrowers with a giant, one-time payoff at the end.

Non-bank lenders now face on-site examinations by the Consumer Financial Protection Bureau and can be punished for making deceptive loans, or loans that borrowers clearly cannot repay. The CFPB found recently that many lenders lack basic systems to ensure that they comply with the law.

Still, lenders are finding other ways to offer loans to people who can only make a small down payment or who have lower credit scores than traditional banks will accept. Such loans, known in the post-meltdown era as “non-prime” or “below-prime,” go to borrowers who would not meet the standards of government-backed mortgage companies Fannie Mae and Freddie Mac.

Carrington Holding Co., for example, will lend to borrowers with credit scores as low as 580, so long as they can prove adequate income and savings. The average credit score for a prime mortgage borrower now tops 700. Christopher Whalen, executive vice president and managing director at Carrington, says borrowers with banged-up credit histories are safe bets if they can show they have the income and savings to afford payments.

So far, non-prime loans by non-bank lenders are only a sliver of the market — 5 percent, by some estimates. But the industry is mushrooming in size. The two fastest-growing lenders are not owned by banks.

To get a sense of the growth, one need only look at the volume of non-government-backed loans that are being pooled into mortgage bonds. Loans in these pools tend to be too risky to satisfy banks’ stringent lending requirements.

Companies are expected to issue more than $20 billion of the non-guaranteed bonds this year, up from $6 billion in 2012, according to an April report from Standard & Poor’s. By comparison, in 2005, just as home values began to dip and foreclosures to rise, companies bundled $1.19 trillion in mortgage-related investments that were not backed by the government.

In the industry’s mid-2000s heyday, bartenders could become loan officers and quickly draw six-figure salaries while loose lending standards allowed housecleaners and field laborers to buy $300,000 homes with loans whose teaser rates rocketed upward after a few years, forcing them into foreclosure.

Those days are gone. Marquee-name lenders like Countrywide, IndyMac and New Century have closed their doors. While the scenery may be different, the cast of characters hasn’t changed.

“Five years down the road and we’re back in the thick of it again. It’s a weird place to be,” says Cliff Rossi, who was a high-level risk management executive at Countrywide, Washington Mutual and Freddie Mac before the crisis.

Rossi got his start during the savings and loan debacle that felled 747 lenders in the 1980s and 1990s, he says, and left the industry during the 2008 crisis. He currently teaches finance at the University of Maryland’s Robert H. Smith School of Business.

“In that intervening 20 years we forgot what we learned in the 80s,” he says. “I fear right now, human nature being what it is, that downstream we could find ourselves in the same situation.”

Most of the 25 executives identified by the Center refused to be interviewed for this story.

At CS Financial, chief marketing officer Neal Mendelsohn referred questions about chief operating officer Paul Lyons to Ameriquest, where Lyons was director of whole loan sales until 2007, when the company stopped lending, according to his LinkedIn profile.

“There’s just the lingering stink of it that’s really kind of troubling,” Mendelsohn says of Lyons’ difficulty in shaking his past association with Ameriquest. The company’s practices were widely condemned before the crisis; in 2006, it agreed to pay $325 million to settle charges of widespread, fraudulent and misleading lending.

Van Dellen, the former IndyMac executive who is lending to flippers, hung up on a reporter and ignored an emailed interview request.

From Countrywide to Penny Mac

Mortgage companies don’t just make money by pocketing the interest people pay on their home loans. In fact, many resell most of the loans they originate to other investors. Much of the lenders’ income comes from fees charged for everything they do: originating loans, bundling them into bonds and collecting payments from borrowers. They don’t necessarily need the loans to be repaid to make money.

PennyMac, a fast-growing company founded by former Countrywide Home Loans CEO and IndyMac director Stanford Kurland, is a sprawling concern that earns fees by originating loans in call centers and online. It consists of two intertwined companies: a tax-free investment trust that holds mortgage investments and an investment advisor that manages the trust and other investment pools, among other activities.

PennyMac buys loans from pre-approved outside sales offices, bundles them and sells off the slices. The company manages other peoples’ mortgage investments, collects borrowers’ payments and forwards them to investors. It forecloses on properties and amasses portfolios of loans and mortgage-backed securities as investments.

By the second quarter of this year, it was among the fastest-growing lenders, extending $8.9 billion in loans, up from $3.5 billion in last year’s second quarter, the company says. Ninety-seven percent of the loans were purchased from outside lenders.

Most emerging non-bank lenders are smaller than their pre-crisis predecessors and specialize in a handful of these activities. That’s beginning to change as more of them follow PennyMac’s lead, expanding their offerings and cobbling together companies that can make money at every stage of the mortgage finance process. They accomplish this through aggressive acquisitions or by buying the assets of bankrupt companies.

Among PennyMac’s first big investments was a joint venture with the Federal Deposit Insurance Corp. to buy and service $558 million in loans from a failed bank. PennyMac paid roughly 29 cents on the dollar for the loans, and says the investment has performed well.

It’s not nearly as big as Kurland’s former company, Countrywide, which made $490 billion in loans in 2005. But Kurland and his team appear to have grand ambitions.

Countrywide made the most high-cost loans in the years before the crash and is among the lenders considered most responsible for fueling the mid-2000s housing boom. It was founded in 1968, and by 1992, became the biggest home lender in the country.

“After spending 27 years of my career at Countrywide and assisting in growing the company into a large, widely-known enterprise that was highly regarded and well respected by regulators, peers, consumers and other stakeholders, I faced the most difficult business and personal, decision of my career,” Kurland said in an emailed statement. “In 2006, as a result of irreconcilable differences with the company’s prevailing management, I was terminated from Countrywide without cause and left the company.”

PennyMac spokesmen declined to elaborate on his reasons for leaving.

After Kurland’s departure in late 2006, to boost production, Countrywide “eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud,” according to a civil complaint filed last year by the Justice Department against Bank of America, which purchased Countrywide in 2008.

Kurland and other Countrywide alumni formed the tax-free PennyMac investment trust in 2009 “specifically to address the opportunities created by” the real estate crash, according to public filings. The 14 members of its senior management team had spent a combined 250 years in the mortgage business, the filings say.

This year, the former Countrywide executives who manage the investment trust sold separate stock in their investment advisory and lending firm, PennyMac Financial Services, which earns millions of dollars in fees for managing the publicly traded, tax-free trust. PennyMac Financial Services also manages separate mortgage funds for big-money investors.

The company’s name is so similar to those of government-controlled mortgage giants Freddie Mac and Fannie Mae that regulators forced PennyMac to add a disclaimer to its offering documents for potential investors, stating that it is not a government enterprise. Regulators also questioned PennyMac’s assertion that its managers’ experience was purely a strength, and suggested that “the failures of Countrywide while under the management of these individuals” should be considered a risk factor.

PennyMac said in a separate written statement that the complexity of the mortgage business demands experienced and expert leaders. They said Kurland and his team “have demonstrated sensible leadership over decades in the mortgage industry” and noted that the venture is supported by major banks, government agencies, regulators and investors.

Kurland, who reportedly sold stock worth nearly $200 million before leaving Countrywide in 2006, last year earned about $6.1 million in total compensation from the two PennyMac companies. Some of the pay isn’t available to him until a few years after it is recorded. His stake is worth about $150 million, the company says.

Kurland still owns the $2 million, 9,000-square-foot house he bought in 1995 with a Countrywide loan. He’s also managed to keep a $4.9 million beachfront house in Malibu.

For many Countrywide borrowers, life has been considerably more difficult.

Fighting foreclosure

Brenda Fore, a former office supervisor who lives in rural West Virginia, has been on government disability benefits since a drunk driver struck and injured her in 1998. Her husband, George, has suffered from a traumatic brain injury since 2010, also caused by a drunk driver, while working at a trucking company.

The Fores are trying to stay in the home that they’ve lived in for 33 years, where they raised two children and several grandchildren. The home was sold in foreclosure when their loan payments nearly doubled.

Fore’s house had been paid off for years, but she decided in 2006, when rates were low, to take out another mortgage to help her daughter buy a mobile home. The trailer sits in Brenda’s yard because her daughter makes too little money working at a homeless shelter to afford a separate lot.

Fore, 60, refinanced, getting a loan from Countrywide that was based on an inflated appraisal, according to a lawsuit she filed in state court. The appraiser hired by Countrywide estimated the home’s value at $92,000, Fore says. An appraiser hired by her lawyer more recently said the house is worth about $61,000. Unlike fast-growth markets in the Sunbelt, home prices in West Virginia were relatively stable throughout the crisis.

Fore also got a second “piggyback” loan from Countrywide at a much higher rate.

Without the high appraisal value, her lawyer says, Fore could not have qualified for the second mortgage. She says she did not have a fair opportunity to look over the paperwork and identify any problems because Countrywide did not provide her with copies of the closing documents until 10 days after the close, according to a lawsuit filed in state court in 2011.

Fore’s monthly payment doubled in 2007 because of the Countrywide loan, she says, from roughly $400 per month to more than $800. By that time, Bank of America had bought Countrywide. Fore asked Bank of America to change the loan terms until her husband’s workers’ compensation settlement cleared. The bank told her to keep mailing her payments, but repeatedly mailed them back to her — and deemed her loan to be in default.

One Sunday, she says, she returned to her house to find a pamphlet stuck in the fence notifying her that the house would be put up for sale.

“I thought, ‘Oh, well, what are we going to do now?’ “ Fore says. “There wasn’t a whole lot we could do.”

Only after the family home was sold in foreclosure did the bank tell her that it had rejected her request for a loan modification.

Since then, Fore’s lawyer has offered to settle with the bank, seeking to have the foreclosure sale reversed so that she and George can remain in the house.

A Bank of America spokeswoman said the bank does not comment on open litigation. The company is negotiating a possible resolution that would keep the Fores in their home, the lawyer says.

Continued in the post, below.

[Allegro]

The following is the third of three sections from the original CPI article, which is part two in a series.

_________________
Subprime lending execs back in business five years after crash
After the Meltdown: Part two in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Daniel Wagner | 6:00 am, September 11, 2013 Updated: 21 hours, 41 minutes ago

Waiting for the recovery

The Fores are just one example of the wreckage caused by the subprime mania of the last decade. Millions of people across the country lost their homes and tens of millions more lost jobs and economic security.

Meanwhile, many subprime executives left their companies. Some saw where the industry was headed and quit. Others were ousted by their boards or investors. Many of them didn’t go far.

Bob Dubrish — a founder and CEO of Option One Mortgage, a top subprime lender owned by H&R Block that was shut down in 2007 — teamed up with a firm backed by Lewis Ranieri, who was instrumental in developing mortgage bonds, the type of investments that fueled the economy’s spin off the rails in 2008. In early 2012, Dubrish was put in charge of wholesale lending for Ranieri’s lender.

Ranieri, through his company Ranieri Partners, had helped launch the mortgage investment firm Shellpoint Partners LLC, known to investors in its mortgage bonds as ShellyMac. He then purchased New Penn Financial, a Pennsylvania lender. New Penn rose from the ashes of one of American International Group’s subprime subsidiaries. AIG is the global insurance giant that received the biggest single taxpayer bailout of any financial company.

Standard & Poor’s, the credit rating company, was not impressed with the company’s speedy expansion.

“We view New Penn’s aggressive growth targets for all of its production channels, coupled with the recent appointment of a head of correspondent lending as a potential weakness,” the company said in a report. The correspondent lending head, Lisa Schreiber, had run the wholesale division of American Home Mortgage, another of the top 25 subprime lenders from 2009.

Dubrish, a former college football player, lives in the same $1.5 million home in Villa Park, Calif. (town nickname: “The Hidden Jewel”), he bought in 2000.

His boss at New Penn is CEO Jerry Schiano, who founded Wilmington Finance before the crisis. Schiano ran Wilmington until 2007, despite selling it to AIG subsidiary American General Finance for $121 million in 2003. In 2010, Wilmington and another of AIG’s companies paid $6.1 million to settle charges by the Justice Department that it illegally overcharged black borrowers during Schiano’s tenure, between 2003 and 2006. The companies denied wrongdoing.

Getting back on the horse

Another industry veteran looking to return is Thomas Marano, who led the mortgage finance division at Bear Stearns and was on the board of its subsidiary, EMC Mortgage. He then took over the mortgage subsidiary of GMAC, another top subprime lender. Lawsuits filed by federal regulators allege that Marano’s unit was so hungry for new loans to securitize that they weakened their standards and slipped bad loans into pools of mortgages that were resold to investors.

Asked recently about his plans, Marano said he’s toying with the idea of launching or buying a non-bank mortgage company.

“I’ve been modeling the numbers on … those opportunities and I’m intrigued with that possibility,” he told The Wall Street Journal. The mortgage business “is a pretty hot space right now so I’m really looking at those two options, really doing it on my own or doing it with someone who’s got more of the infrastructure established.”

There are numerous reasons for Marano and his compatriots to launch mortgage companies right now.

Interest rates, while ticking up a bit lately, are still near all-time lows, fueling a boom in refinancing. The government wants to dial back its role in housing finance and encourage private investment.

Separately, a recent Inernal Revenue Service ruling makes it easier for some big, consolidated mortgage companies to avoid paying most taxes. The IRS decides what investments can be held by Real Estate Investment Trusts, companies that buy real estate investments, sell shares to investors and enjoy tax advantages. This summer, the IRS said that REITs can avoid paying taxes on certain income from collecting mortgage payments. Mortgage servicing income is a crucial revenue stream for many lenders, particularly as rates rise and the refinancing boom slows.

PennyMac is the most prominent REIT among the new, non-bank lenders but many key pre-crisis companies were also set up this way: IndyMac was originally formed as a REIT to invest in Countrywide’s loans. American Home Mortgage was a giant REIT with taxable subsidiaries to carry out its lending.

Those companies succumbed quickly because they were highly leveraged — meaning they relied on lots of borrowed money but had relatively little cash in reserve. Concerned that the strategy could harm regular investors, the Securities and Exchange Commission proposed tightening regulation of REITs in 2011, a move that would have limited their ability to use leverage. The industry balked, and the commission has so far failed to act.

REITs and other non-bank lenders are regulated more loosely than banks, according to Kenneth Kohler, an attorney with Morrison & Foerster, who wrote about them in a 2011 client bulletin.

Regulation in all corners has increased, but “there is no question that the burden of the new requirements is substantially higher on banks,” Kohler wrote.

Banks are overseen by at least two regulators — one responsible for their financial strength, the other for their business involving consumers. Non-bank mortgage lenders, by contrast, are overseen at the federal level mainly by the Consumer Financial Protection Bureau, which can only consider potential violations of consumer protection laws.

In March of 2007, Robbins, then chairman of the Mortgage Bankers Association, warned during a congressional hearing that banning risky mortgages would kill the dream of homeownership for millions of Americans.

“Assertions that delinquency rates are at crisis levels and a greater percentage of borrowers are losing their homes are not supported by the data,” he said.

Lenders were “responding to consumer demand for product diversity, particularly in high-cost markets,” he said, by offering loans whose total balance could actually increase over time because borrowers were permitted to choose how much they paid.

Before the crisis, Robbins had founded two companies, which were sold for a total of $431 million. Mortgage losses tied to the second company, American Mortgage Network, helped sink Wachovia as the financial crisis peaked in October 2008. The bank was sold under regulators’ orders to Wells Fargo. Less than two weeks later, Wells received $25 billion of taxpayer bailout money.

Today, Robbins says he sought to warn his colleagues that lending without proper documentation would have “dire consequences.” He wanted in 2007 to draw a line between irresponsible lending and new kinds of loans that properly account for risk, he said in a recent interview. After Wachovia bought American Mortgage Network in 2005, Robbins says, he “really had no control or say” over what loans it offered.

“You want new products, you want innovation and you don’t want to stifle it — as long as you realize there has to be a solid foundation to underwrite the loan,” he says.

Until this summer, Robbins was CEO of Bexil American Mortgage, a company he founded in 2011 that employs executives from Robbins’ two previous subprime ventures. Bexil is offering adjustable rate mortgages and allowing down payments as low as 3 percent.

Robbins remains committed to the mortgage industry.

“I love this business, helping to provide the American dream to our customers and getting paid well to do it,” he told Mortgage Banking magazine last year. He said he wanted back in at the bottom of the market — what he called “the fun and exciting time in our business.”

Bexil, which he launched with a private investor in 2011, was a chance to start fresh. It lacks the massive legal liabilities that continue to mire what’s left of the old subprime lenders.

The ‘toxic business model’

Dan Alpert, managing partner with the investment bank Westwood Capital LLC, says there is a reason why the same players keep getting back in the game: There was no meaningful effort by the government to identify bad actors and hold them accountable.

“Had there been prosecutions,” Alpert says, companies wouldn’t touch anyone deemed responsible “with a 10-foot pole. The only thing people are concerned about is the loss of their freedom. They can lose all their money and make more money, but they take it quite seriously when jail is staring at them,” he says.

Whalen of Carrington Holding Co., says many of these arguments are misguided. Carrington began a decade ago as a small hedge fund and now has 3,000 employees who manage investments, lend and service home loans and manage and sell real estate. He warns against painting mortgage industry professionals too broadly.

“Are they really in a legal sense bad people, or did they just mess up? Were they just trying to do deals?” he asks. He cautions against focusing too much blame on individuals like Carrington chief operating officer Dave Gordon, who ran capital markets and servicing for Fremont Investment & Loan until 2007.

Blaming only mortgage lenders ignores the roles of overeager or disingenuous borrowers, Wall Street traders with voracious appetites for mortgage investments and even the Federal Reserve, whose easy money policies in the early 2000s encouraged lending and sent global investors on a quest for higher-yielding investments, Whalen says.

“I’m not absolving everybody from responsibility for doing stupid things, but you can’t paint everyone in this industry as though they were just doing this on their own,” he says, because mortgage lenders “don’t operate in a vacuum.” He says the U.S. economy slowed sharply after the terrorist attacks in 2001 and policymakers decided to help inflate the economy by boosting the housing sector.

He says new rules and fearful investors make it difficult to imagine offering irresponsible loans.

“That old kind of subprime lending is gone,” Whalen says. “We have prime and slightly-less-than prime. That’s it.”

“That won’t last,” says Susan Wachter, a real estate finance professor at the Wharton School.

The companies rely mainly on fees from originating and servicing loans, an income stream that grows only if lending increases, Wachter says. To boost lending, she says, companies eventually will have to “undercut competitors by getting people into those loans on whatever terms possible.”

“That toxic business model is still out there,” she says, and it’s being exploited by the same people who “were feeding toxic mortgages into the system” during what she calls “the 2007 frenzy.”

The conclusion seems obvious to Brenda Fore, who is fighting to take back the house where she spent her adult life.

“If it’s being built by the fellows who screwed it up last time, you’re going to have the same result,” she says. “The system was dysfunctional before, so its offspring are going to be dysfunctional as well.”

[Allegro]

The following is the first of three sections from the original CPI article, which is part three in a series.

_________________
Ex-SEC chief now helps companies navigate post-meltdown reforms
After the Meltdown: Part three in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Lauren Kyger, Alison Fitzgerald, John Dunbar | 6:00 am, September 12, 2013 Updated: 2:21 pm, September 12, 2013

Editor’s note: Nearly five years ago, on Sept. 15, Lehman Brothers Holdings Inc. filed for Chapter 11, the largest bankruptcy in the nation’s history. The move set off a series of dramatic actions in Washington, D.C., and on Wall Street as bankers and regulators sought to avoid a shutdown of the global economy. To mark the anniversary, the Center for Public Integrity is publishing a three-part series on what has happened since the meltdown.

On March 11, 2008, Christopher Cox, former chairman of the Securities and Exchange Commission, said he was comfortable with the amount of capital that Bear Stearns and the other publicly traded Wall Street investment banks had on hand.

Days later, Bear was gone, becoming the first investment bank to disappear in 2008 under the watch of Cox’s SEC. By the end of the year, all five banks supervised by the SEC were either bankrupt, bought or converted to bank holding companies.

Under Cox’s leadership from 2005 to 2009, the SEC was widely criticized for falling asleep on the job during the events leading up to the financial meltdown. SEC defenders say the agency was understaffed, underfunded and simply didn’t have the authority to be an effective watchdog.

Cox is one of the slew of regulators and overseers who became household names during the financial crisis of 2008 — a cast of characters whose jobs were to protect consumers, monitor banks and financial firms, rescue the ailing industry and punish wrongdoing in the years that followed.

Cox took his Washington expertise to the private sector, helping banks and other companies navigate the new regulatory landscape that the crisis spawned. Other former top regulators — like Hank Paulson, Timothy Geithner and Sheila Bair — have written books based on their experience and joined the lecture circuit. John Reich has retired since his agency, the Office of Thrift Supervision, was eliminated. Federal Reserve Chairman Ben Bernanke is the only top regulator still on the job, though he is expected to be gone soon.

SEC chief, friend of business

Cox is now president of Bingham Consulting, LLC, a firm that, among other things, defends businesses from the Consumer Finance Protection Bureau and “consumer protection matters,” according to its website.

The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 as a response to the financial crisis and tasked with protecting consumers from potentially harmful financial products and services.

Bingham Consulting’s experience includes “representing non-bank financial institutions in some of the first investigations and inquiries initiated by the CFPB.”

The consulting firm has advised big names including Verizon, American Airlines, Intel, Toyota, Deutsche Bank, and others. Cox says he’s worked on Internet tax issues, real estate leasing and helped clients in multi-state attorneys general matters.

Looking back, Cox now says the capital standards that gave him comfort before the crisis fell short. “In hindsight, every federal and state regulator could have done more, because existing capital standards proved inadequate,” he said in an email.

The SEC succeeded, however, in its oversight of broker-dealers and securities markets before and during the meltdown, he said, pointing out that U.S. stock exchanges remained open and working throughout the crisis.

While chairman in 2006 and 2007, the agency adopted policies that ultimately “delayed cases and produced fewer and smaller corporate penalties,” according to a 2009 investigation by the Government Accountability Office.

These new policies required the enforcement side to establish nine factors to consider before recommending a company pay a penalty for a violation and they also required that enforcers get the commission’s approval for a range of penalties before beginning settlement talks with a company.

Some SEC attorneys saw the Commission as “less as an ally in bringing enforcement actions and more of a barrier,” according to the report. From fiscal 2005 to 2008, total annual penalties fell 84 percent from $1.59 billion in 2005 to $256 million in 2008.

Cox disputes those findings.

“During my tenure at the SEC, we imposed unprecedented penalties in enforcement actions,’’ he said. The agency in 2006 fined AIG $800 million, the largest penalty in SEC history.

Cox, an appointee of President George W. Bush, left the SEC when President Barack Obama took office in early 2009.

He moved back to Orange County where he bought a $5.3 million home in 2011, according to public records, and settled into a comfortable life in the private sector.

Paid speeches, book deals and think tanks

Treasury Secretary Henry “Hank” Paulson was the face and voice of the financial crisis of 2008, appearing on television almost daily advocating for the authority to bail out U.S. banks while at the same time trying to calm the public and the markets to prevent the situation from getting worse.

Today, Paulson, whose previous career as chairman of Goldman Sachs made him a very wealthy man, has kept a lower profile, having left banking behind.

His focus is on the Paulson Institute at the University of Chicago, a think tank he founded in 2011 that focuses on U.S.-China relations and specifically environmental protection and economic growth. He’s writing a book about U.S.-China relations to be published later this year by Business Plus.

Meantime, the Bobolink foundation, Paulson’s $90 million family fund devoted to environmental causes, donated $3.7 million last year to environmental groups including The Nature Conservancy and the American Bird Conservancy.

Paulson became the locus of the meltdown story early on the morning of Saturday, Sept. 20, 2008, when he delivered to Congress a three-page request for $700 billion to help rescue ailing financial institutions. The succinct piece of legislation — which led to the creation of the Troubled Asset Relief Program — demanded there be no oversight or second-guessing of his plans.

His every move and mood were filmed and broadcast and then archived on YouTube: Paulson forcefully advocating the bailout plan on CBS’ Face the Nation; appearing near panic when it first failed in a House vote a week later; continuing to push for the bailout in meetings on Capitol Hill; and finally, calling the CEOs of the nine biggest financial services firms to the Treasury building and forcing them to accept billions in government capital injections.

Weeks after the bailout passed, President Barack Obama moved into the White House and former New York Federal Reserve Bank President Timothy Geithner assumed Paulson’s job.

The discussion in Washington turned from bailout to reform, and Paulson remained engaged. Even before the crisis, he had been speaking publicly about financial regulation, both at Treasury and when he was CEO of Goldman Sachs.

In 2004, while Paulson was CEO, Goldman Sachs wrote to the SEC to argue in favor of loosening the constraints on how much investment banks could leverage their capital. The rule change was a key to why so many investment banks failed, or nearly did, in 2008.

When Paulson was appointed Treasury secretary in 2006, New York financiers went into a mild panic because their city was beaten out by London and Hong Kong in the race for initial public stock offerings. Industry leaders, politicians and Paulson pointed their fingers at excessive regulations.

Paulson assembled a team of industry leaders and academics in early 2007 to come up with a plan to stanch the loss of investment banking business overseas. New York Mayor Michael Bloomberg and Sen. Charles Schumer, D-N.Y., commissioned their own study and called for reform. The U.S., according to some critics, was in a deregulatory race to the bottom against China, Dubai and London.

The race was over in March 2008 when Bear Stearns, the fifth-largest investment bank in the U.S., nearly collapsed and was sold to JPMorgan Chase & Co. with the help of the Federal Reserve.

After leaving Treasury, Paulson advocated for a regulator that would have broad oversight of the entire financial system so they could spot risks no matter where they appeared. He also called for a regulator to have the authority to take over and wind down any financial firm, regardless of size.

“Had the government had such authority in early 2008, three of the important events that rattled markets — Bear Stearns, Lehman Brothers and AIG — could have been handled very differently, with far less impact on the stability of our financial system and our economy,” he said in testimony to the House Committee on Oversight and Government Reform in 2009.

In his interview with the Financial Crisis Inquiry Commission, he recommended the creation of what became the Consumer Financial Protection Bureau, making it clear that the worldwide financial crisis led to a shift in the former secretary’s views on regulation. Paulson declined to be interviewed for this story. In a newly published prologue to his book about the crisis, however, he defended the bank bailouts as “absolutely necessary” even though he found them “deeply distasteful.”

“Think of all the suffering and stagnation the U.S. experienced that came even after we stabilized the financial system,’’ he writes. “ I can only imagine what might have happened had we not acted so decisively.”

Continued in the post, below.

[Allegro]

The following is the second of three sections from the original CPI article, which is part three in a series.

_________________
Ex-SEC chief now helps companies navigate post-meltdown reforms
After the Meltdown: Part three in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Lauren Kyger, Alison Fitzgerald, John Dunbar | 6:00 am, September 12, 2013 Updated: 2:21 pm, September 12, 2013

Timothy Geithner

While America’s largest financial institutions were on the brink of falling like dominos, Timothy Geithner emerged from the shadows of the Federal Reserve Bank of New York to become one of the most influential regulators in power during the financial crisis.

Since leaving the Treasury Department in January 2013, he is, not surprisingly, writing a book and cashing in on his government exposure on the lecture circuit.

In the midst of the crisis, Geithner was often seen alongside Bernanke and Paulson and became a familiar face as a key decision maker. He had a direct hand in selling Bear Stearns to JPMorgan, letting Lehman Brothers go bankrupt and later bailing out insurance giant AIG.

In speeches and testimonies during and following the crisis, Geithner said the government’s primary concern was providing relief for Main Street, not Wall Street.

However, the dozens of books, reports and investigations into the crisis have painted a picture of Geithner as more concerned with the needs of big banks than consumers.

On Sept. 15, 2008, the same day Lehman Brothers filed for bankruptcy, AIG was on the brink of collapse after insuring billions of dollars-worth of credit default swaps to companies across the globe. The swaps were like insurance against investment losses. The Federal Reserve and Treasury Department feared that letting AIG fail “would have posed unacceptable risks for the global financial system and for our economy,” said Bernanke in testimony to Congress.

That day Geithner reached out to big banks in an effort to convince them to provide the failing insurance giant with private financing. One look at AIG’s books and the banks balked, saying the company’s liquidity needs were greater than its assets.

The music stopped and Geithner was left holding “a bag of sh*t,” as he called it himself on a phone call with AIG’s stunned regulator — John Reich of the OTS — according to Reich’s testimony to Congress.

Geithner took matters into his own hands and the New York Federal Reserve Bank pumped $85 billion into AIG, a move that skirted the edges of the law, according to a report by the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky.

AIG’s counterparties — those that were owed — including Goldman Sachs, Deutsche Bank, and Merrill Lynch, were paid face value for their credit default swaps that otherwise would have been worthless in what many investors called a backdoor bailout of the investment firms. Eventually the government invested $182.3 billion in AIG, according to the Treasury.

Sheila Bair, who was chairwoman of the Federal Deposit Insurance Corp. during the crisis and who battled Geithner regularly, called him “bailouter in chief” in her book “Bull by the Horns.” Geithner declined a request to be interviewed for this story through his spokeswoman.

Geithner was tapped by Obama to take over the Treasury from Hank Paulson in 2009.

Since his return to private life, Geithner joined the Council on Foreign Relations as a distinguished fellow but has yet to publish anything, according to the CFR website.

He signed a deal in March with The Crown Publishing Group to write a “behind-the-scenes account of the American response to the global financial crisis,” according to a press release. Geithner tapped Time Magazine’s senior national correspondent, Michael Grunwald, to help him write the book.

Geithner has also hit the speaking circuit, becoming an exclusive speaker for the Harry Walker Agency, which also represents former President Bill Clinton. Geithner banked $400,000 for three talks this summer, according to a report in the Financial Times. He made $200,000 speaking at a Deutsche Bank conference, and $100,000 each at the annual meetings of private equity firms Blackstone Group and Warburg Pincus. That’s more than double his annual salary of $199,700 as Treasury Secretary.

Geithner’s spokeswoman declined to comment on specific speaking engagements or fees.

Sheila Bair

Bair, former chairwoman of the Federal Deposit Insurance Corp. which pays off depositors if their bank fails, became the folk hero of the financial crisis because she appeared to be the only top regulator in Washington advocating for borrowers and small banks.

A plain-spoken Kansan who got her start in politics working for former Republican Sen. Bob Dole, also of Kansas, Bair emerged from the crisis beloved by many on Capitol Hill but with few friends among those she dealt with every day. Bair advocated for simple solutions to the problems that the captains of finance suggested were unbearably complex.

Since she left the FDIC, she has, of course, written a book: “Bull by the Horns.” In it, she has no shortage of advice and criticism for almost everyone.

“I did take people to task, but only when I thought there was a good reason for it,” she said in an interview at Fortune Magazine’s Most Powerful Women Summit in October 2012. “There were fundamental policy disagreements that I think people should understand, because they’re really still at the heart of the approach we’re using now to try to reform the system.”

Today Bair works from an office in the sparkling white headquarters of the Pew Charitable Trusts in Washington, D.C., where she leads an organization called The Systemic Risk Council. The group of former regulators, bankers and academics is calling for stringent financial regulations, including higher bank capital requirements.

For Bair, the problems in the U.S. banking system come down to one thing: capital.

She had been warning against the movement in the middle of the decade to relax capital and leverage rules wherever she could find a podium. As early as 2006, Bair was arguing against international banking reforms — known as Basel II — which would have allowed banks to cut their capital and increase borrowing.

When the banking crisis hit, Bair was thrust into the middle early with the failure of IndyMac.

The Bair-led FDIC took over the bank, made depositors whole and then took an unorthodox approach to IndyMac’s troubled mortgage portfolio, halting foreclosures and trying to renegotiate the terms of the loans so that people could keep their homes.

Under her program, known as “mod-in-a-box,” the FDIC would first cut the interest rates, then extend the loan term to as long as 40 years, and then defer part of the principal in an effort to ensure borrowers’ payments didn’t exceed 38 percent of income.

When the crisis exploded in September and began toppling ever-bigger banks, Bair insisted on having a seat at the negotiating table with Paulson, Geithner and the Wall Street titans where she looked after depositors while the captains of finance worried about their creditors and shareholders.\

She cast herself as the outsider — outside of Wall Street and outside of the boys’ club — and in doing so became the hero of those who saw the Treasury and the Federal Reserve as looking out for their banker buddies while Sheila was looking out for them.

The FDIC resolved 375 failed banks from the beginning of 2008 through Bair’s departure in July 2011, costing the deposit insurance fund an estimated $78.2 billion, according to FDIC data.

“The regulators have too much of a tendency to view their jobs as making the banks profitable, as opposed to protecting the public,” she said.

John Reich and the ‘watchdog with no bite’

The SEC was criticized for its performance during the crisis but the Office of Thrift Supervision was euthanized.

OTS, under its leader John Reich, was chief regulator of Washington Mutual, which became the largest bank failure in U.S. history.

“OTS was supposed to serve as our first line of defense against unsafe and unsound banking practices,” said Sen. Carl Levin, D-Mich., at a 2010 congressional hearing investigating the causes of the financial crisis. “But OTS was a feeble regulator. Instead of policing the economic assault, OTS was more of a spectator on the sidelines, a watchdog with no bite.”

Twenty seven banks with $385 billion in accumulated assets failed under OTS supervision between 2008 and 2011. The agency had jurisdiction over IndyMac, which failed in the summer of 2008, and Countrywide Financial, the mortgage lending giant whose losses almost sank Bank of America, which bought it in 2008.

Its performance was so bad, it was abolished as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Reich had a long record of advocating deregulation before he was tapped to lead the bank regulator. As vice chairman of the FDIC he advocated for the Economic Growth and Regulatory Paperwork Reduction Act, which eliminated “outdated or unnecessary regulations that impose costly, time-consuming burdens on the banking industry,” according to a 2003 FDIC annual report.

In the report, Reich appears in a photo, pictured at right, with then-OTS director James Gilleran and three bank lobbyists using pruning shears and a chainsaw to symbolically cut through a stack of regulatory paperwork draped in red tape. Reich was later handed Gilleran’s job as director of the OTS by President George W. Bush in 2005.

Reich retired in 2009 after 49 years in the banking industry. He did not respond to requests to be interviewed for this story.

One of his top deputies was Darrel Dochow, the OTS West Region Director who had direct authority over Washington Mutual, Countrywide and IndyMac.

Decades earlier he was a senior regulator at the now-defunct Federal Home Loan Bank Board, the primary regulator of thrifts during the savings & loan crisis, when 747 thrifts failed from 1989 to 1995 at an estimated cost of $87.5 billion.

As the head of supervision and regulation of the FHLBB in 1989, Dochow was the regulator of Lincoln Savings and Loan when it failed, the most expensive of the S&L crisis.

“Dochow was the most infamous professional regulator in America,” said William Black, who was Director of Litigation at the Federal Home Loan Bank Board and testified to Congress about Dochow during the S&L Crisis.

As federal regulators were preparing a file against Lincoln’s CEO, Charles Keating Jr., Dochow ordered his staff “to cease all examinations of Lincoln Savings, all supervisory acts with regards to Lincoln Savings and the formal enforcement investigation that was ongoing,” according to Black, who wrote a book about the S&L crisis that detailed Dochow’s interactions with Keating. Black is now a law and economics professor at the University of Missouri in Kansas City.

The move delayed the failure of Lincoln and prosecution of Keating, who was later convicted of fraud and spent four and a half years in prison.

The FHLBB was renamed the Office of Thrift Supervision and Dochow was demoted, according to Black and media reports. He worked his way back up the OTS ladder over the next18 years until he was named head of the West Region in 2007.

His return to the top was short lived.

In July 2008, IndyMac failed under OTS supervision, costing the government $8.9 billion after panicked depositors caused a run on the bank. Treasury Department inspector general Eric Thorson found that Dochow had allowed IndyMac to “improperly” backdate a capital contribution of $18 million by six weeks so that it would meet minimum capital requirements in the spring of 2008.

“During our inquiry, we also discovered that OTS had allowed other thrifts to record capital contributions in an earlier period than received,” Thorson said in a December 2008 letter to Sen. Charles Grassley, R-Iowa.

Then in September 2008 WaMu, with more than $300 billion in assets, $188 billion in deposits and 43,000 employees, failed.

Sheila Bair, then Chairwoman of the FDIC and Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said the OTS actively tried to block them from their oversight duties in the months leading up to the IndyMac and WaMu failures.

“Bank supervision is a hard job and hindsight is a good teacher,” Dochow said in a 2010 testimony before Congress, “There are things that I wish I could change. I am deeply saddened when an institution fails because of the impact felt by all customers, communities, employees, and other stakeholders including taxpayers. Over my years in public service, I worked very hard to do the very best job possible in accordance with agency policies and practices.”

He could not be reached for comment for this story.

A report by the Senate Permanent Subcommittee on Investigations said the OTS repeatedly failed to restrain WaMu’s high-risk lending practices and origination of poor quality home loans. “Over a five year period from 2004 to 2008, OTS identified over 500 serious deficiencies at WaMu, yet failed to take action to force the bank to improve its lending operations,” the report stated.

Thorson said Dochow approved a board resolution in 2008 “that did not require WaMu to correct its deficiencies” although his OTS colleagues raised concern that the resolution should not be passed.

Dochow was placed on administrative leave during the Treasury Department’s investigations and later retired.

Continued in the post, below.

[Allegro]

The following is the third of three sections from the original CPI article, which is part three in a series.

_________________
Ex-SEC chief now helps companies navigate post-meltdown reforms
After the Meltdown: Part three in our series looking at the impact of the financial crisis of 2008
Center for Public Integrity, Lauren Kyger, Alison Fitzgerald, John Dunbar | 6:00 am, September 12, 2013 Updated: 2:21 pm, September 12, 2013

Alan Greenspan

Alan Greenspan was no longer chairman of the Federal Reserve when the meltdown hit, but his monetary policies have been blamed for contributing to the collapse.

The bespectacled, smirking Greenspan weathered his first storm — the 1987 “Black Friday” market crash — and continued to lead the U.S. through subsequent drops in the market over his 18-year tenure as Fed Chairman. As he steered the economy around the dot com bubble and through the terrorist attacks of 2001, he picked up nicknames like “the oracle” and “the maestro.”

But the biggest drop in history was around the corner.

On the morning of Sept. 29, 2008, the House of Representatives struck down a $700 billion bailout plan proposed by the Bush Administration following a month marked with the bankruptcy of Lehman, the failure of Washington Mutual, and the bailout of AIG among other catastrophic events. The Dow Jones industrial average plunged 778 points and $1.2 trillion vanished from the market that day.

Greenspan, who had left the Federal Reserve in 2006, suddenly found himself defending his policies rather than being praised for them — a dramatic role reversal for the man who was awarded the “Presidential Medal of Freedom” in 2005, the nation’s highest civilian honor. Bush called him, “one of the most admired and influential economists in our nation’s history,” in a speech honoring the winners of the award that year.

Greenspan’s ideology called for as little government regulation in the free markets as possible — including exotic investments like derivatives and credit default swaps. His policy of extended periods with low interest rates is largely credited with helping to inflate the housing bubble whose explosion triggered the crisis.

He believed market participants would discipline themselves and each other to ensure their investments were safe and their reputations remained intact.

“More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe,” said the Financial Inquiry Commission Report in 2011.

He was the only individual regulator blamed in the report.

Greenspan testified in front of Congress in 2008 admitting his ideology contained a “flaw” and that he was “shocked” when he realized it.

In his post-Fed years Greenspan has been busy on the speaker circuit, writing books and consulting.

In 2007 he published his memoir, “The Age of Turbulence: Adventures in a New World,” which debuted at the top of the New York Times best seller list.

He’s represented by the Washington Speakers Bureau, which specializes in booking high level speakers including Madeleine Albright, Tony Blair, George W. Bush, Sarah Palin and Rudy Giuliani. Greenspan was reportedly paid $250,000 to speak at a Lehman Brothers event for 15 executives in 2006.

He also became an adviser to Paulson & Co, the hedge fund firm run by John Paulson, and formed Greenspan Associates, LLC, a private advising company that is headquartered in Washington, D.C.

Greenspan declined to be interviewed for this story at the request of the publishers of his next book.

Ben Bernanke, ready to ride off into the sunset

No regulator’s career was more defined by the financial crisis than current chairman of the Federal Reserve, Ben Bernanke.

On Oct. 24 2005, the bald-headed, grey-bearded academic stood to the left of Bush in the Oval Office as he was officially nominated to succeed Greenspan as Federal Reserve chairman. Neither Bush nor Greenspan nor Bernanke knew at that moment that the appointment would eventually mean guiding the nation though the worst financial crisis since the Great Depression. Bernanke’s background as a scholar of the event prepared him for the task.

Bernanke took over the Fed in February 2006. By April of that year the housing bubble had peaked and the nation was knee-deep in subprime mortgages.

As the housing market deteriorated, Bernanke maintained the Fed had the subprime problem under control. He testified in front of Congress as late as March 2007 saying, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

They weren’t and as the financial system spiraled out of control. Bernanke worked closely with Paulson to convince Congress to approve the $700 billion bank bailout.

Throughout 2008, as the financial system spiraled out of control and the economy tumbled, Bernanke knocked interest rates to zero. He then took hold of Section 13(3) of the Federal Reserve Act that grants the Fed Board broad emergency powers, and used those powers in ways they’d never been used before.

He opened Fed lending to non-banks, he offered financing at discounts to companies such as General Motors Corp., he began having the Fed buy assets in an array of categories and taking collateral for loans that was not highly rated.

Five years after the collapse of Lehman Brothers, Bernanke is just beginning to talk about reducing the Fed’s purchase of assets, suggesting he believes the economy may be able to grow on its own, without Fed support.

Bernanke’s extraordinary actions were foreshadowed by his own words four years earlier. As a Fed governor he wrote a groundbreaking research paper called “Monetary Policy Alternatives at the Zero Bound,” which contemplated what options were available to monetary policy makers who were trying to jump start economic activity when interest rates were already at zero.

“We also find evidence supporting the view that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset,” the paper read.

Obama has suggested he’ll replace Bernanke at the helm of the central bank when his current term expires in January. The remarks have set off a loud public debate about who will be named his successor with former Treasury Secretary Lawrence Summers and Fed Vice Chair Janet Yellen among the front runners.

As for Bernanke’s future, no word of a new book deal — at least not yet.

[seemslikeadream]

Larry Summers withdraws name from Fed consideration

By Zachary A. Goldfarb, Sunday, September 15, 3:36 PM E-mail the writer

Former White House economic adviser and Treasury secretary Lawrence H. Summers has withdrawn his name as a candidate for Federal Reserve chairman, a person familiar with the matter said Sunday.
What now for the Fed chairmanship?

Neil Irwin 4:06 PM ET

Here are the president’s options now that Larry Summers has withdrawn from consideration for the Fed chair job.

Summers withdraws name from Fed consideration

Zachary A. Goldfarb 3:36 PM ET

The former Obama adviser had faced an uproar of Democratic opposition.

Amrita Jayakumar 2:38 PM ET

This week, the Federal Reserve holds a policy meeting that economy-watchers should pay attention to.
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More business news

President Obama had been strongly considering naming Summers to the post after their long experience fighting the financial crisis and recession. The decision may mean that another top candidate, current Federal Reserve vice chairman Janet Yellen, will get the job, or another candidate.

In a letter dated Sunday to the president, Summers wrote that he was withdrawing his name.

“It has been a privilege to work with you since the beginning of your Administration as you led the nation through a severe recession into a sustained economic recovery,” he wrote. “This is a complex moment in our national life. I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing economic recovery.”

(READ: The letter Summers sent to President Obama)

Summers faced an uproar of Democratic opposition over the past few weeks as his name circulated as Obama’s top pick, including multiple prominent defections in the past few days. Obama defended Summers against critique but said he was considering a range of candidates and would decide this fall.

Obama has also suggested that former Federal Reserve vice chairman Donald Kohn would be a candidate.

[JackRiddler]

Forbes Op/Ed: "It's Time For The 99% To Give Back To The 1%"
rigorousintuition.ca/board2/viewtopic.php?f=8&t=37195

Amazing Taibbi smack-down / cross-post

@mtaibbi: New post on that hilarious Forbes columnist who said Lloyd Blankfein deserves more "moral praise" than Mother Teresa http://rol.st/18GJuLO

http://cannonfire.blogspot.com/2013/09/ ... ernet.html

http://www.democraticunderground.com/10023691777

http://www.rollingstone.com/politics/bl ... a-20130920

I got a lot of letters from folks this week about an online column for Forbes written by a self-proclaimed Ayn Rand devotee named Harry Binswanger (if that's a nom de plume, it's not bad, although I might have gone for "Harry Kingbanger" or "Harry Wandwanker"). The piece had the entertainingly provocative title, "Give Back? Yes, It's Time for the 99% to Give Back to the 1%" and contained a number of innovatively slavish proposals to aid the beleaguered and misunderstood rich, including a not-kidding-at-all plan to exempt anyone who makes over a million dollars from income taxes.

This article is so ridiculous that normally it would be beneath commentary, but there's a passage in there I just couldn't let go:

Imagine the effect on our culture, particularly on the young, if the kind of fame and adulation bathing Lady Gaga attached to the more notable achievements of say, Warren Buffett. Or if the moral praise showered on Mother Teresa went to someone like Lloyd Blankfein, who, in guiding Goldman Sachs toward billions in profits, has done infinitely more for mankind. (Since profit is the market value of the product minus the market value of factors used, profit represents the value created.)

Instead, we live in a culture where Goldman Sachs is smeared as "a great vampire squid wrapped around the face of humanity. . ."

What a world we live in, where Mother Teresa wins more moral praise than Lloyd Blankfein! Who can bear living in a society where such a thing is possible? Quel horreur!

It reads like an Onion piece, just hilarious stuff. I mean, Jesus, even Lloyd Blankfein himself didn't go so far as to take the "God's work" thing 100% seriously, and here's this jackass saying, without irony, that the Goldman CEO literally out-God-slaps Mother Teresa.

The thing is, for all its excesses, Mr. Catyanker's piece does reflect an attitude you see pretty often among Rand devotees and Road To Serfdom acolytes. Five whole years have passed since the crash, and there are still huge pockets of these Fountainhead junkies who genuinely believe that the Blankfeins of the world are reviled because they're bankers and they're rich, and not because they're the heads of unprosecutable organized crime syndicates who make their money through mass fraud, manipulation and the shameless burgling of public treasure. In this case you have a guy who writes for Forbes, a business publication,and apparently he isn't acquainted even casually with any of the roughly 10,000 corruption cases involving Blankfein's bank.

That's hard to pull off. There are Japanese soldiers still holed up in Pacific atolls, waiting for the final surrender order, who've probably heard more about things like the Abacus case than Mr. Binswanger apparently has. In the comments section, someone cheekily asked Binswanger to enlighten them as to how Goldman makes its money. This is what he had to say in response:

On how Goldman Sachs makes money, I repeat what I said in the post: they invest – i.e., channel savings to their most productive uses. If they make a profit it means they bet right: they funded value-creating enterprises; if they make a loss it means they bet wrong: the venture they funded used up more in value than was produced.

Binswanger clearly knows nothing at all about Goldman other than that it's nominally a bank, and his answer is just a parade of Randian clichés here about how successful banks make money. Asked the same question twenty years ago about a different bank, his answer would have been exactly the same. This would be like someone asking me about A-Rod's steroid use and me answering with a bunch of Bernard Malamud quotes about the sacred art of hitting.

Just for yuks, let's fill Binswanger in on some of the ways Goldman has made its money over the years. This is just the stuff they've been caught for, by the way.

• Way back in 1999, several eras of corruption ago, Goldman serially engaged in manipulation of the IPO markets, including illegal tactics like "spinning" and "laddering," where insiders and top bank clients would be allowed to buy shares in new companies at severely discounted prices, sometimes in return for investment banking business or for promises that those insiders would jump back into the bidding later to jack up the price artificially. In a famous case involving eToys, Goldman paid a $7.5 million settlement for allowing insiders to buy shares at $20, far below the $75 shares the company traded on opening day. The secret discounts might have cost the company hundreds of millions of dollars. The firm went bankrupt in short order, by the way.

• In the infamous "Abacus" case, Goldman teamed up with a hedge-fund billionaire named John Paulson to create a born-to-lose portfolio of mortgage derviatives, which were then marketed by Goldman to a pair of sucker European banks, IKB and ABN-Amro. When the instruments crashed, Paulson made bank on bets he made against his own loser portfolio. Goldman's peculiar role was in "renting the platform," i.e. allowing IKB and ABN-Amro to think that neutral Goldman, not a hedge funder like Paulson massively betting against the product, had created the portfolio. Goldman only made $15 million in the deal that ended up causing over a billion in losses, meaning this wasn't even just about money – they were just trying to curry favor with a hedge fund client out to screw a bunch of Euros. They were fined $550 million.

• In the even more absurd Hudson deal, Goldman unloaded a billion-plus sized chunk of toxic mortgage-backed crap on Morgan Stanley during a time when Lloyd "Mother Teresa" Blankfein was telling his minions to unload as much of the firm's 'cats and dogs' as possible, ie. its soon-to-explode subprime holdings. In its marketing materials, Goldman represented to Morgan Stanley that its interests were aligned with Morgan, because Goldman owned a $6 million slice of the Hudson deal. It didn't disclose that it had a $2 billion bet against it. Morgan Stanley, which was subsequently bailed out by taxpayers like Harry Binswanger, lost $960 million.

• Goldman bought a series of aluminum warehouses and has apparently been serially delaying the delivery of aluminum in order to artificially inflate the price. Even Binswanger might have heard of this one. The CFTC sent a wave of subpoenas on this score just last month.

• Goldman paid a fine to the SEC in 2010 after it was caught breaking rules governing short-selling on at least 385 occasions – it is currently embroiled in numerous lawsuits that similarly allege that Goldman has engaged in widespread "naked" short selling, a kind of stock counterfeiting that artificially depresses the prices of companies by flooding the market with phantom shares.

• Earlier this year, Goldman and Chase agreed to pay a combined $557 million to settle government claims that the banks and/or their mortgage servicing arms engaged in wholesale abuses in the real estate markets, including (but not limited to) robosigning, the practice of mass-producing fictitious, perjured affidavits for the courts for the purposes of foreclosing on homeowners.

• A VP in Goldman's Boston office was nabbed making improper contributions to the former state Treasurer in Massachusetts, during a time when Goldman was underwriting $9 billion in state bonds. Goldman paid a $14.4 million fine in the pay-for-play scandal.

• In what one former SEC official described to me as "an open-and-shut case of anticompetitive behavior," Goldman took a $3 million payment from J.P. Morgan Chase to bow out of the bidding for a toxic interest rate swap deal Chase wanted to stick to the citizens of Jefferson County, Alabama. Goldman got the payment, a Chase banker joked, "for taking no risk." Chase ended up funneling money to the County Commissioner, who signed off on a deadly deal that put the citizens of the Birmingham, Alabama area into billions of debt (and ultimately bankruptcy), in what is still considered the largest regional financial disaster in American history.

• In 2009, a Goldman programmer named Sergey Aleynikov left his office in possession of a code that contained Goldman's high-frequency trading algorithms. Goldman promptly called the FBI – which up until that point had done exactly zero to prevent crime on Wall Street – to help Mother Teresa's bank recapture its valuable trading code. In court, a federal prosecutor admitted that the code Aleynikov had in his possession could, "in the wrong hands," be used to manipulate markets. Aleynikov just pulled an eight-year sentence. Goldman, incidentally, has gone entire quarters without posting a single day of trading loss – in Q1 2010, the bank made at least $25 million every single day, somehow never once betting wrong in 63 trading days. Imagine that! What foresight! What skill! One can see how Mr. Binswanger could believe that the bank's CEO should be exempt from income taxes.

I could go on – Goldman has been wrapped up in virtually every kind of scandal known to investment banking (and even more that they invented) and was recently at the center of a mysterious and near-catastrophic computer-trading disaster that could have caused massive social damage (more on that in a column coming soon).

The bank is also a truly courageous pioneer in the area of securing completely underserved public bailouts, including the collection of nearly $17 billion in public money for speculative trades with bailed-out AIG and the outrageous receipt of a Commercial Bank Holding Company charter in late September of 2008, allowing it to borrow billions in lifesaving money from the Federal Reserve discount window at a time when Goldman execs were already selling their beach houses for cash in anticipation of the firm's collapse. Surely even Mr. Binswanger is able to see that Goldman is not, in fact, a commercial bank, and that giving it a commercial bank hat to wear while standing on line to the Fed's discount window is pure welfare, as inappropriate as LeBron James collecting a federal disability check.

If he can't see that, he might perhaps at least see the rank absurdity of then-Treasurer Henry Paulson – a former Goldman CEO – instituting a ban on short-selling of financial stocks at the behest of Goldman and other banks in that same late 2008 period, a 100% anticapitalist, government interventionist maneuver that served no social purpose other than to protect the share prices of undeserving banks like Goldman from investors who quite sensibly wanted to wager on the dying companies' downfalls.

Harry Binswanger is a nut on a lot of issues, the kind of guy who thinks that people who bust their asses all day cleaning Haz-Mat sites or changing diapers or fighting fires are parasites, and that the only "producers" who genuinely earn their compensation are people who come up with entrepreneurial ideas – like for instance renting the Goldman name to a hedge-fund pirate so that a pair of European banks won't know they're buying a product designed to implode. This is the kind of activity that earns you a spot on Rand's famed "pyramid of ability."

There are a lot of people who believe in this worldview, and I'm not going to bother debating it here – if you can read an Ayn Rand book and not see through it as the comically pretentious horseshit that it is, nothing I or anyone else says is likely to change your mind.

However, it is worth pointing out that people like Binswanger are so stupid that they can't even see that the best argument against a company like Goldman is a libertarian argument, that Ayn Rand herself would denounce the company if she were alive and able to pull her head out of one of her thousand-line paragraphs long enough to pay attention. Goldman is a company that in a pure free capitalist system would definitely have been bust in 2008 had it not leeched parasitically off the taxpayer – through the AIG bailout, through its totally improper Fed loans, through the life-saving short ban, and most importantly, through the impression all of these moves left across the markets that the firm was state-supported and would never be allowed to go under.

So even forgetting the fact that this company on a good day makes its money rigging metals prices, stage-managing IPOs to help insiders, falsifying documents, selling phony mortgages to institutional investors while betting against their own product and engaging in highly dubious high-speed proprietary trading programs that mysteriously allow the firm to pick winners every single time (Harry, they're using cheat-algorithms to trade split-seconds ahead of the market, not "digging" legitimately as "knowledge-seekers" for inside information, which I know you think should be legal) – even all that wasn't enough, and Goldman still would have gone out of business, had all of us parasites not been pressed into service to rescue the company with our tax dollars.

It's hilarious that these Rand-worshipping cultist types are still blind to this basic fact a half a decade later. And my God, Mother Teresa? Would she have been a more "valuable" person if she'd managed an Applebee's? What the hell is wrong with you people?