Fraud – blatant and wholesale fraud – on the part of some of the world’s biggest banks has clearly been a major cause of the global financial crisis. Unfortunately, banking is so opaque and so difficult to understand that bad practice, even criminal practice, is invisible to the average citizen.
Now however, the (Republican) Attorney General of Florida has produced a slide presentation which details with admirable clarity some of what;s been going on in Florida (and in the rest of the USA). This is a must read even if (perhaps especially if) you do not see yourself as particularly financially literate.
There is no text to go with the slides but the message is pretty clear nevertheless. It starts with a brief history of mortgages in America then goes on to explain how they are bundled up and securitized – a complex process that involves assigning them from one owner to another through several hands until they finish up in a ‘trust’, bits of which can be sold off to investors in bite-sized pieces. (Re slide #7 and following it is helpful to know that in the USA a mortgage consists of two parts, a ‘note’ which is the IOU for the money advanced and the ‘mortgage’ that is the legal document securing the ‘note’ on the property.)
As the presentation wryly observes (illustrating the point with one of Escher’s wonderfully impossible staircase prints), “If the mortgage is not properly assigned … the result is chaos.”
And, by and large, mortgages were not properly assigned. The redoubtable Linda Green for instance “signed” hundred of thousands of assignments using multiple signatures while serving as an officer of dozens of banks and mortgage companies. And in each and every case she was signing that she had personal knowledge of the facts of the case.
At times it descends almost into farce. One assignment is to “Bogus assignee for intervening asmts” whose address is given as “XXXXXXXXXXXXX”. In other cases the assignors are, like Indymac and Lehman, defunct but still magically managing to work from beyond the grave, mortgages that were fully paid off have nevertheless been assigned and documents were notarised under authorities that did not exist.
Naturally, the banks are desperately trying to spin this as just a little paperwork difficulty… nothing to see here… please move on. Not so. It is unambiguously criminal. Playing fast and loose (not to mention using forged and backdated documents which is the clear implication of the abuses strikes at the very heart of a property-owning democracy and indeed there have been cases where homeowners have been foreclosed on who never had a mortgage in the first place. Also, although not covered in the Florida AG’s presentation, the whole of contract law is meaningless if it is permissible to retrospectively ‘create’ documents to support a desired outcome.
Fortunately, things aren’t so bad in the UK but there is no room for complacency. Some of our big banks have undoubtedly been very foolish but how far did they go into dodgier territory? My guess is quite a long way in some cases but we won’t know as long as the toothless and compromised FSA seeks mainly to cover up its own incompetence.
I am reminded that the Pecora Commission which did so much to expose banking malfeasance in the 1930s provided a powerful wave of support for FDR and the eventual implementation of the New Deal. We should take note.