Crony Capitalism, American Style

The kicker was that they were referring to India (the headline actually had “India”, not “This Nation”)– not the king of crony capitalism, the USA. So far as corruption at the top goes, India is a piker. You cannot read a newspaper or serious blog without finding yet another example of US crony capitalism, aided and abetted by Washington. As we approach the first anniversary of the Occupy Wall Street movement’s origins, Washington remains steadfast in its refusal to do anything about Wall Street’s crimes. It’s a poster child for crony capitalism.

Oh, sure, the Obama Administration has slapped the hands of the crooks a few times, by imposing inconsequential fines. Much ado was made of nothing last year when Washington forced state Attorney’s General to go along the $25 billion settlement that amounted to little more than a public relations move (here’s a sure bet: much of the pittance will not even be collected). As “the London Whale” proved, any good trader at the biggest banks can lose more money in a few hours than Washington will demand in fines for fraud that screwed the globe out of trillions of dollars of wealth and tens of millions of jobs.

It’s as if we fined a bank robber ten bucks for stealing a thousand, then sent him on his merry way to hold up more banks.

Our nation’s top cops freely admit that they have no interest in prosecuting criminal behavior perpetrated by our elite 1% at the top of our crony capitalism pyramid. As reported at Naked Capitalism, Lanny Breuer, head of the DOJ’s Criminal Division, practically brags about the absence of criminal convictions for all the fraud perpetrated over the past decade. (http://www.nakedcapitalism.com/2012/09/marcy-wheeler-lanny-breuer-admits-that-economists-have-convinced-him-not-to-indict-corporations.html#k255I1voxczPUuYl.99) He freely admits that when his department suspects a big bank of fraud, he calls in the bank’s team to provide a flashy presentation showing why it should not be investigated. The banksters make the argument that actually prosecuting fraudsters would be bad for crony capitalism, which of course scares the bejeebers out of Washington. So Breuer’s office then makes nice with the banksters, and they all go back to doing what they’ve been doing—moving all wealth to the cronies in the top 1%.

The Wall Street bank’s business model is fraud. In many of my blogs I’ve been focusing on US real estate because a) homes are where most of the wealth of the bottom 99% of the population is held; b) the real estate mess is like Shrek’s onion, with layer upon layer of fraud; c) the bursting of the real estate bubble is what set off the Global Financial Crisis; and d) real estate fraud is the main tool used by the 1% to move all wealth to the top.

Each day we get more evidence to support what many of us have been saying for the past couple of years. You all already understand that mortgage brokers and property appraisers were in cahoots—overvaluing property to justify out-sized mortgages. You know that brokers pushed “don’t ask, don’t tell” “Liar’s loans” to put borrowers into loans they could not afford, and that they doctored loan documents after borrowers had signed them to cover up the lender’s fraud. And you know that the Wall Street banks created MERS to evade proper recording of property records, effectively wiping out half a millennium of record keeping so that no one any longer knows who owns what. (Oh, and that would mean the titles are a mess: https://cloudedtitles.com/news/) That makes it easier for our modern feudal lords running hedge funds to just take what they want.

The trashy mortgages were then bought and sold multiple times before supposedly being securitized by trusts created by Wall Street banks, with the securities then sold to investors, including your pension fund. We know that the mortgages supposedly securitized did not meet the “reps and warranties”, in other words, they were too trashy. And we know that in their rush to earn fees, the banks lost or destroyed all the necessary documents—hence the robo-signing frauds as they tried to manufacture fake docs to use in foreclosures. (http://www.cbsatlanta.com/story/19465592/homeowners-advocates-want-bank-reps-jailed-for-foreclosure-fraud#.UEfj-E80Pow.facebook) Occasionally the banks put the same mortgage into many securities—perhaps this was intentional fraud, or it might have been mostly due to sloppiness. In a foreclosure, ideally the pension fund loses everything, the Wall Street banks suck all the money out of the mortgage through its servicing arm, and a hedge fund ends up with the real property for cents on the dollar.

But we always suspected that, in fact, in many cases mortgages were never bundled into the securities. So it is not just a problem with the quality of the mortgages backing the securities. And it is not just a problem with the fact that the trustees lied about what was behind the securities. And it is not just a problem of splitting off the notes from the deeds. There is accumulating evidence that the only thing backing securities is an empty “paper bag”: mortgages were never actually securitized. The securities your pension fund might be holding were never worth a dime because they securitized air. (See http://livinglies.wordpress.com/2012/09/10/empty-paper-bags-loans-never-entered-pools/)

And many of these securitizations were supposed to be REMICs, which offer tax advantages but only if done properly. Guess what. One of the rules is that the mortgages must be put in the REMIC almost immediately. That rule was probably rarely followed; and of course if the mortgages were never put there at all, REMIC rules were certainly violated so the investors owe huge backtaxes. Wall Street’s response is to make a new “Wall Street Rule”: hey we all did it, and if the IRS pursues taxes and if we are pursued for fraud, then the whole system blows up. (see here: http://newsandinsight.thomsonreuters.com/Legal/Insight/2012/09_-_September/Wall_Street_Rules_Applied_to_REMIC_Classification/) This is precisely the kind of line Breuer finds irresistibly logical, so you can bet his office won’t be going after the securitizers.

What to do? Well, to rescue the banks one more time, Chairman Bernanke is sending the Fed out to buy…you guessed it, mortgage “backed” securities! Forty billion a month for the unforeseeable future! Get the securitized bags of air safely out of the banks and into the Fed. Bury the paper trail of fraud deep in the opaque Fed where it can never be uncovered! Because, as you must know, it takes an act of Congress to get information out of the Fed. (Literally. The Fed refused to provide any information on its $29 trillion dollar bailout until Senator Sanders and Congressman Grayson led the fight, aided by Bloomberg’s FOIA suit.)

Ah, what a wonderful country. For capitalism’s cronies.

Happy Birthday, OWS.

Also, Read: Here’s the Most Shocking Statement in the Mother Jones Video