So it seems only right that when financial fraud is being examined, Goldman Sachs stands out front and center.
It is not surprising that mortgage fraud began before 2000 and that it began with pressure put on appraisers of the value of real estate. The fraud snowballed upward from there into securitization and beyond. William K. Black reminds us often that the FBI warned about mortgage fraud but because of political and judicial inaction, nothing was done to stop it.
L. Randall Wray describes the ever-spiraling mortgage fraud from its beginnings to its culmination in the 2008 financial meltdown. And Goldman Sachs was there every step of the way.
The Financial Crisis and Shrek's Onion of Fraud
I’ve been arguing since early on in the crisis that the entire real estate food chain is like Shrek’s onion—as you peel back every layer you find fraud. From the appraiser to the broker, from the lender to the securitizer, from the recording of the mortgage sales to the securitization’s trustees, from the accounting firms that signed off on everything to the ratings agencies that rated everything AAA, from the investment banks that created CDOs to the hedge fund managers who bet against the synthetics Goldman sold to its own customers, and from the bank lawyers to the judges that help banks steal homes. The whole damned onion is fraud.
And most of it, today, is to cover up the chain of fraud that dates back to the early 2000s. It has been all fraud, all the time, since 2000.
As is widely noted, the FBI warned of an epidemic of fraud in 2004. The Fed’s FOMC discussed rising fraud even before that. While anecdotal evidence, alone, should not be enough to convince one, there is certainly plenty of it. Today I want to talk briefly about a couple more examples of the fraud that led up to the crisis.
Back in the year 2000, property appraisers began to complain that mortgage lenders were forcing them to over-value property. They actually put together a petition in 2000 and began to circulate it. They continued to add names until 2009! Here were their main complaints:
We, the undersigned, represent a large number of licensed and certified real estate appraisers in the United States, who seek your assistance in solving a problem facing us on a daily basis. Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value.
This pressure comes in many forms and includes the following:
They collected 11,000 signatures! I don’t know how many appraisers there are in the country, but this had to be a big chunk—11,000 warnings of massive, pervasive, fraud. And that was the very first step of the food chain, the first layer of Shrek’s onion.
- the withholding of business if we refuse to inflate values,
- the withholding of business if we refuse to guarantee a predetermined value,
- the withholding of business if we refuse to ignore deficiencies in the property,
- refusing to pay for an appraisal that does not give them what they want,
- black listing honest appraisers in order to use “rubber stamp” appraisers, etc.
You can see the petition and signatures here: http://www.appraiserspetition.com/. The petition was widely circulated—I saw it well before the crisis hit. It was addressed to the Federal Financial Institutions Examination Council, and I am sure many in Congress and at the Fed saw it. They ignored it.Read the whole article here