Day 7 of the "Why Won't #Krugman Post On Bill Black?" Watch
Sometimes, there's still news in the Times. Gretchen Morgenstern reports:
AMID the legal battles between investors who lost money in mortgage securities and the investment banks that sold the stuff, one thing seems clear: the investment banks appear to be winning a good many of the early skirmishes.
But some cases are faring better for individual plaintiffs, with judges allowing them to proceed even as banks ask that they be dismissed. Still, these matters are hard to litigate because investors must persuade the judges overseeing them that their losses were not simply a result of a market crash. Investors must argue, convincingly, that the banks misrepresented the quality of the loans in the pools and made material misstatements about them in prospectuses provided to buyers.
Recent filings by two Federal Home Loan Banks — in San Francisco and Seattle — offer an intriguing way to clear this high hurdle. Lawyers representing the banks, which bought mortgage securities, combed through the loan pools looking for discrepancies between actual loan characteristics and how they were pitched to investors.
You may not be shocked to learn that the analysis found significant differences between what the Home Loan Banks were told about these securities and what they were sold.
The rate of discrepancies in these pools is surprising [to whom?]. The lawsuits contend that half the loans were inaccurately described in disclosure materials filed with the Securities and Exchange Commission.
Half? I'm shocked. [Shocked that figures for fraud are so low, that is. See Fitch's study in 2009: "[T]here was the appearance of fraud in nearly every file we examined."]
These findings are compelling because they involve some 525,000 mortgage loans in 156 pools sold by 10 investment banks from 2005 through 2007. And because the research was conducted using a valuation model devised by CoreLogic, an information analytics company that is a trusted source for mortgage loan data, the conclusions are even more credible.
IT is unclear, of course, how these court cases will turn out. But it certainly is true that the more investors dig, the more they learn how freewheeling the Wall Street mortgage machine was back in the day. Each bit of evidence clearly points to the same lesson: investors must have access to loan details, and the time to analyze them, before they are likely to want to invest in these kinds of securities again.
No, Gretchen. That's not "the lesson." The lesson is that financial sociopaths who profit from material misstatements should be prosecuted for fraud, and that includes the CEOS. Otherwise, they'll just commit the same crimes. Why wouldn't they?
Via Ian Welsh, who concludes:
There would have been no housing bubble without widespread fraud. None.
Virtually every major bank executive in the US should be indicted for fraud. The fact that there aren’t even serious investigations, let alone indictments, tells you everything you need to know. Everyone in the system knows it was all fraud, they knew it at the time, and that is exactly why there are no real investigations.
That's how it goes.
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Professor Krugman? Your thoughts on this matter? Is there no story here?
I mean, if the bankster CEOs who own Versailles and are running the country should be wearing orange jumpsuits and doing the perp walk, don't you think that your readers deserve to know?
NOTE For the great Bill Black on accounting control fraud, see his interview with Bill Moyers. He's making the case Krugman need to debunk, refute, or accept (and then take the appropriate action).
NOTE Yes, I know I have an exchange with Professor Krugman to answer on my desk already. For a timely response, write me a check. Kidding! Alternatively, consider this post a response.....