JAISAL NOOR: Welcome to The Real News Network.
I'm Jaisal Noor in Baltimore.
And welcome to this latest edition of The
Black Financial and Fraud Report.
On Tuesday, the Department of Justice announced
that it's suing Bank of America for mortgage-backed
securities fraud conducted in 2008.
In a public statement, U.S. attorney Anne
M. Thompson said, "Bank of America's reckless
and fraudulent origination and securitization
practices in the lead-up to the financial
crisis caused significant losses to investors."
Now joining us to talk more about this is
Bill Black.
He's associate professor of economics and
law at the University of Missouri-Kansas City.
He's a white-collar criminologist and a former
financial regulator, author of The Best Way
to Rob a Bank Is to Own One.
And he's a regular contributor to The Real
News.
Thank you so much for joining us, Bill.
BILL BLACK: Thank you.
NOOR: So, Bill, can you summarize this latest
news and give us your reaction to it?
BLACK: Yes.
So this, first, is a civil suit, not a criminal
prosecution.
And even in a civil suit, the Department of
Justice has refused to sue any of the senior
officers who, according to this complaint,
became wealthy through leading this massive
fraud by Bank of America.
The fraud allegation are that Bank of America,
very late in the game, as you are emphasizing--so
these were put together, these mortgage-backed
securities, very late in 2007--now, that's
a year after the housing bubble has already
begun to collapse--and actually being sold,
these securities, in 2008 to two particular
entities.
And those are Wachovia, a very large bank
that also failed and had to be acquired, and
the Federal Home Loan Bank of San Francisco,
which is a quasi-governmental entity.
And in terms of full disclosure, I used to
be the senior vice president and general counsel
of the Federal Home Loan Bank of San Francisco,
but a long time ago, so none of this, you
know, involves me even remotely directly.
The allegation of the nature of the fraud
is that Bank of America knew that it was selling
product that was often fraudulent and was--mortgage
product that was often fraudulent and was,
in any event, of very poor quality, and that
it lied in its representations to Wachovia
and the Federal Home Loan Bank of San Francisco
in order to induce them and others to purchase
the alleged best portion of this mortgage-backed
security.
These portions are something that in the trade
we call tranches.
And this was the AAA tranche, in other words,
the highest credit rating you can get that
is supposedly reserved for the absolute bestest
stuff with very low risk and such.
And instead, the loans blew up at a rate where
they caused very substantial losses and suffered
a huge rating downgrade.
And there are some more interesting allegations
along the way, interesting because I think
the Department of Justice doesn't explain
how--understand how embarrassing they are
to the Department of Justice.
So one of the allegations, for example, says
that Bank of America, after it realized that
one of its loan officers was working with
a borrower to commit a fraud, fired the loan
officer, made a criminal referral to the Department
of Justice.
That loan officer, former loan officer, is
under indictment (in other words, he's going
to be criminally prosecuted), and that they
still--they being Bank of America--still sold
that loan under representations and warranties
that it was a great loan, even though they
knew it was in fact a product of multiple
frauds.
And, of course, the loan blew up and caused
substantial losses.
Now, of course, the question that everyone
in the world except the Justice Department
would ask is the complaint goes on to say
that Bank of America employees came under
intense pressure from senior officials at
the Bank of America to deliberately make bad
loans and to approve bad loans made by loan
brokers, that they were specifically instructed
that their job was not to find fraud, that
their bonus packages depended on approving
really crappy loans.
And they got extra big bonuses if they exceeded
their quotas.
And the only way to do that was to approve
all kinds of terrible loans.
So how come the Department of Justice is prosecuting
the littlest people in the involved, the minnows,
the loan officers who are making maybe $45,000
a year, for fraudulent loans where the Justice
Department is stressing that the loans only
occur because senior management was pressuring
the employees to make those loans.
And then turns around and it makes criminal
referrals on them when they approve them.
And they still--the senior officials the Department
of Justice still get complete immunity from
the criminal laws and, as I said, don't even
get sued civilly by the Department of Justice
to recover the bonuses that they got for forcing
the little folks to make the bad loans and
in some cases actually prosecuting the little
folks for doing exactly what Bank of America
wanted them to do.
NOOR: So, Bill, also on Tuesday, four former
directors of failed Premier Bank were arraigned
on criminal charges of defrauding the government
of $70 million while participating in the
TARP bank bailout.
Following last week's jury conviction of Fabrice
Tourreii, a young mid-level Goldman Sachs
trader, Dennis Kelleher of Better Markets
was quoted in The New Republic as saying the
SEC must stop chasing minnows while letting
the big whales of Wall Street go free.
Your response.
BLACK: Yeah.
They're probably actually mostly chasing the
bacteria that live in the minnows.
So Fab wasn't even really mid-level in any
serious sense within Goldman Sachs.
And note that he was specifically charged
with aiding and abetting Goldman Sachs fraud.
So why isn't Goldman Sachs being sued--I'm
sorry, prosecuted criminally for its fraud,
just like the current complaint, which, by
the way, is the second civil complaint filed
by the Justice Department alleging that the
Bank of America's senior officials committed
fraud?
So these are multiple-time losers, and that
both complaints show that they committed these
frauds over a very long time period.
And apparently they are too big to prosecute.
The fact that that other prosecution occurred
because of alleged crime against TARP is also
significant, 'cause that is the only folks
allegedly even remotely involved in the crisis--and
as you say, they're pretty small-time--who
are being prosecuted.
There was also an earlier case against Taylor,
Bean, a mortgage bank, and that occurred only
because the special inspector general of TARP,
Neil Barofsky, forced, virtually, the Justice
Department to prosecute.
In other words, the criminal referrals that
get action have come from this tiny little
entity called SIGTARP, special inspector general
for the TARP program, because criminal referrals
have ceased virtually entirely from the Federal
Banking Agency.
And the administration--and this means both
administrations, Obama and Bush--have refused
to do even the most basic thing if you are
serious about prosecuting, which is to require
the banking regulatory agencies to renew their
former practice of making criminal referrals
against these elite frauds.
Again, our agency made over 30,000 criminal
referrals in the savings and loan crisis.
In the current era, the largest banking regulatory
agencies made zero criminal referrals.
It is a scandal of epic proportions.
NOOR: And finally, Bill, all this news comes
on the heels of Michael Bresnick's resignation
as head of President Obama's financial fraud
task force.
He'll be joining a private boutique lobbying
firm.
Now, do you interpret his departure as a signal
of mission accomplished by the Obama administration,
or a civil servant frustrated by the lack
of prosecution at the Department of Justice?
What do you make of this?
BLACK: It's the mission accomplished in the
same sense as when President Bush appeared
on the aircraft carrier and declared victory
before, you know, Iraq further went into the
hellhole.
Of course, this task force was announced with
big publicity just before the election season,
because the Obama administration had received,
rightfully, so much criticism for its refusal
to prosecute any of the major players.
And now, a year later, it has prosecuted zero
of the--in fact, it's prosecuted no one.
So it's been a complete failure.
It has only brought civil actions and only
brought civil actions against companies for--in
essence to try to get fines.
It refuses to hold any of the senior bankers
who grew wealthy through these frauds and
drove this economic crisis accountable criminally
for their actions.
Indeed, it refuses to even hold them individually
responsible civilly.
So they're allowed to keep the wealth they
got for destroying the global economy.
Again, if you wrote it up in a novel, people
would say, you know, that's not realistic.
Surely the government would prosecute some
of them.
Well, no, the answer is, at this date, zero.
NOOR: Bill black, thank you so much for joining
us.
BLACK: Thank you.
NOOR: Thank you for joining us on The Real
News Network.
