It’s not often that the words “colossal” next to “failure” can be described as an understatement but I think the manner in which the Big Banks went wild during the residential real estate bubble, encouraging the underwriting of reckless bad mortgages, recording those overpriced mortgages improperly, bundling up these risky mortgages as collateralized debt obligations (CDO’s) and selling pieces of them as Triple A rated securities to investors who were lied to about their true value, and then using shady and illegal tactics to foreclose on many mortgages, good ones and bad — well “colossal failure” seems like a rather tame description to me:
Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices. […]
“It’s a colossal failure of basic banking,” said David Knutson, a credit analyst in Chicago with Legal & General Investment Management, a holder of bonds in some of the lenders involved. “It’s surprised everyone in terms of persistence and longevity and I think it will continue to surprise.”
I think “largest organized criminal conspiracy ever” is more in line with how the banks and their senior executives have behaved, don’t you? And ladies and gentlemen this should have surprised no one.
This is what happens to “basic banking” practices when you remove and/or weaken oversight of large financial institutions. The emotion of greed, not rational “free market” decision-making, gets the upper hand. I know. As a former lawyer and workout specialist during the Savings and Loan Crisis of the late 80’s and 90’s I saw what happened to those much smaller institutions once they were deregulated and allowed to lend to whomever and whatever enterprises they could find to take their money.
Those S&L bankers got greedy and went on a lending binge for commercial real estate projects that no one else would touch because they could! They even lent their borrowers the fees they charged, then booked those fees they paid themselves with their own money as profits. Bankers were encouraged to make any possible deal and handsomely rewarded when they did, and no questions were asked about the credit of the lenders, the shady appraisals that were used to justify the value of the properties or the non-recourse nature of so many loans (non-recourse means that the property was the only security for the mortgages issued to borrowers, who were usually real estate developers with a long track record of failure or brand new developers with no track record at all).
This created a big commercial real estate bubble that (surprise) collapsed when most of these developments failed. Sound familiar?
Let me tell you the secret about sound banking or basic banking principles — they go out the window the second someone in government isn’t looking over a banker’s shoulder insuring that the bankers don’t take excessive risks, don’t employ shoddy or compromised companies to assess the valuation of the “products” they are selling (see, e.g., the appraisers in the S&L crisis, and the compromised ratings agencies in the current crisis), and don’t lie to their shareholders and customers about what they have really done.
And now that the Banks have been bailed out by the Fed and the Treasury, now that their illegal and fraudulent activities have been exposed along every step of the process from generating the mortgages, selling them and now foreclosing on them, they have the gall to demand a sweetheart deal excusing them from all future liability for their crimes.
The banks are negotiating a settlement said to be worth as much as $25 billion with state attorneys general …
“The fear of the unknown is a lot worse than when you finally get a figure,” said Alex Lieblong of Key Colony Management LLC, which manages about $153 million, including shares in Bank of America and Wells Fargo. “If you could get it all into a box and say that this is the known figure, then that will be viewed as a positive.”
Spokesmen for all five of the lenders declined to comment.
The Mafia doesn’t comment about its activities either. And like Don Corleone in the Godfather, the Banksters have all the politicians in their pockets. I’ll bet so-called organized crime figures (a much smaller industry than our financial sector) would kill (literally) for the whitewashing of the crimes these Mega-Banks and Wall Street Fraudsters committed that our government seems determined to give them and which they are likely going to receive. the true victims of their ongoing crimes will never be made whole, but those hard-working Banksters will make out just fine, thank you very much.
“Colossal failure?” No this is simply bankers’ SOP (standard operating procedure) when no one is watching them to make certain they play by the rules. It doesn’t matter if they are big banks (present day) or small savings and loans (Regan era). Bankers think the same way and act the same way when the so-called “heavy hand” of “government interference” is lifted from their business. A financial bubble followed by a “startling” market collapse and financial crisis is the expected result of government deregulation. It’s not like we haven’t seen this same result time after time though out history. There was a reason the Banker so often played the role of villain in turn of the century silent movies. They were behaving then just as they are behaving now. When you get to play with other people’s money knowing that the worst consequence will be the government will come to your rescue with more money why wouldn’t you lie, cheat, steal, cover-up your con jobs, and gamble recklessly? And indeed, that is just what they do!
So, in conclusion, describing the damage the Big Banks caused to the global economy while enriching the bottom line of their senior executives as a “Colossal Failure” of “basic banking” simply doesn’t cut it with me. It’s a gross understatement of crimes that were perpetrated on all of us, and for which we are still paying the price while amoral Wall Street bakers celebrate with champagne and sneer at the Occupy Movement from the balconies of their marble edifices to greed and the principle of caveat emptor.
