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Bill Black: Which Aspect of the FDIC’s Litigation Failures is the Most Embarrassing and Damaging?

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By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with New Economic Perspectives

Dave here (always wanted to say that!): I know Yves wrote about this yesterday, but it’s always worth getting Bill Black’s reaction on these regulatory matters – not to mention to further illustrate and amplify the FDIC’s conduct.

On March 11, 2013 the Los Angeles Times published a revealing article by E. Scott Reckard entitled: “In major policy shift, scores of FDIC settlements go unannounced.”

The article’s summary statement captures the theme nicely. “Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.”

The article contains four key facts we did not know about the FDIC’s leadership and its litigation director. The only question is which of these three facts provides the most revealing insight into the disgrace that the FDIC has become. The first fact is that the banks and bank officers can now cut deals with the FDIC designed to keep their settlements secret. What that tells us is that the FDIC’s leaders are indifferent or clueless about deterrence and earning public respect for the integrity of the FDIC’s efforts to hold the officers who drove the crisis accountable.

The second key fact that we learned from the article is that the size of the settlements, for some of the most culpable fraudulent mortgage lenders, is so embarrassingly low that the FDIC’s litigators and investigators have proven to be an embarrassing failure. Consider these settlements:

“Many of the FDIC settlements reviewed by The Times are small, but others required larger payments from prominent lenders. Quicken Loans and GMAC’s Residential Capital unit, for example, separately agreed to pay $6.5 million and $7.5 million, respectively, over soured loans they had sold to IndyMac.”

Those settlements are likely to be at least an order of magnitude too small given the size of IndyMac, the terrible quality of its portfolio, the typical nature of reps and warranties provided by the sellers, the enormous incidence of false reps and warranties observed in similar cases, and the defendants’ ability to pay far larger damages.

Other settlements reveal that the FDIC is allowing even the controlling officers of the most notorious fraudulent lenders to walk away wealthy.

“At least 10 undisclosed settlements involved officers and directors accused of contributing to the collapse of their own banks. Those include 11 insiders at Downey Savings & Loan in Newport Beach who paid a total of about $32 million, most of it covered by corporate insurance policies. In the Downey case, the FDIC announced last year that four of the insiders had agreed to be banished from banking, including Maurice L. McAlister, Downey’s co-founder, who died Feb. 13.

But the announcement mentioned nothing about the payments or sanctions against the seven other former insiders. Out of the $32 million, McAlister was required to pay $1.93 million out of his own pocket, with the other insiders paying a combined $1.75 million. Insurers that provided coverage for civil wrongdoing by officers and directors paid the remaining $28.4 million.

The FDIC also has resolved certain claims involving IndyMac, including a $1.4-million settlement in May 2011 with the thrift’s former president, Richard Wohl.”

The McAlister and Wohl settlements are disgraces. The FDIC’s senior and legal leadership has proven itself unfit and should resign.

That disgrace provides the transition to the third aspect of the FDIC’s embarrassment revealed by the article.

“The FDIC also may have been emboldened by success in a rare case it took to trial, according to a recent report from consulting firm Cornerstone Research.

The trial led to a Dec. 7 federal jury verdict in Los Angeles ordering three former IndyMac executives to pay $168.8 million for what the FDIC said was reckless approval of 23 loans to developers and home builders who never repaid them. It was the highest award possible in the case.

Another FDIC lawsuit, seeking $600 million from former IndyMac Chairman and Chief Executive Michael Perry, was resolved for a fraction of the claim Dec. 14. Perry agreed to pay $1 million himself, allowed the FDIC to pursue an additional $11 million from insurers and agreed to be banned from the industry.

The news was first announced in emails sent to news organizations — not by the FDIC, but by Perry’s defense attorneys, who considered the outcome a victory.”

These four paragraphs display the relevant contrast. In the “rare” case the FDIC was willing to litigate they obtained a $168.8 million recovery. In the Perry case, the FDIC allowed one of the most culpable defendants in the entire crisis grow wealthy by making enormous numbers of fraudulent liar’s loans. The FDIC’s decision to accept the Perry settlement requires a descriptor that is worse than a “disgrace.” It is reprehensible. It is no wonder that Perry’s defense attorneys made public the settlement as a PR move because they were so delighted with the FDIC’s collapse. A collapse like this does not represent simply a litigation failure. It also constitutes a moral collapse by the FDIC’s leaders. They simply lack the integrity and courage to represent our Nation.

The third fact that emerges is that the FDIC’s real purpose in entering into these settlements crafted to try to keep the public from learning about them is not to secure a higher settlement but to protect the FDIC leadership from embarrassment for their failures of nerve, competence, and any understanding of the overriding need to ensure that no executive walks away making a profit from fraudulent lending.

The fourth fact that emerges is that the FDIC does not understand how a banking regulator and its litigators must deal with control fraud. It is fine for the FDIC to lose half its litigated cases against the senior officers who run control frauds where its wins lead to large awards that remove any gains the controlling officers received from the bank. What the “C-suite” defendants need to understand is the moral certainty that the FDIC will, as a matter of principle, never agree to a settlement that leaves a non-judgment proof controlling officer with wealth he gained by leading the bank to make fraudulent liar’s loans. When elite defendants engage in fraud the banking regulators’ paramount task is not to maximize the expected value of the recovery – it is to deter future frauds because control fraud causes catastrophic losses and drives our recurrent, intensifying financial crises. The defendants need to know that the FDIC will be remorseless in litigating against the senior officers running control frauds.

The actions of Perry’s lawyers in publicizing the FDIC settlement tells us what an embarrassing defeat they inflicted on the FDIC because it was unwilling or incapable of summoning the moral courage to litigate the case. Is there anyone left in the banking regulatory ranks with a fire in their belly? Is there no one who has had enough and will insist that the fraudulent controlling officers limp away bankrupt rather than strut away wealthy?

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34 comments

  1. Jessica

    A useful description of how poorly the FDIC is performing, but ” Is there anyone left in the banking regulatory ranks with a fire in their belly?” is a grievous misinterpretation. As Lambert would say, that is a feature not a bug.
    Crossing the line from acknowledging “doing badly” to seeing “doing badly on purpose” seems to be a difficult in this financial crisis as it was during the Vietnam War.

    1. Jessica

      Oops
      Crossing the line from acknowledging “doing badly” to seeing “doing badly on purpose” seems to be a difficult in this financial crisis as it was during the Vietnam War.
      –>
      Crossing the line from acknowledging “doing badly” to seeing “doing badly on purpose” seems to be as difficult in this financial crisis as it was during the Vietnam War.

  2. down2long

    In this daily deluge of dire developements in the bankster world – in which nothing gets done and only a few of us pay attention – I grow more and more concerned the 7 year cycle of systemic blowouts is once again upon us. The stock markets frothing, the insiders are selling like mad, everybody’s touting stocks and the stoopd “retail” sheeple are pouring back in.

    I know Sheila Bair said Timmy “Foamy” overruled her often and then held her hair back while she vomited in the toilet, but where is she in this?

    I know Bair was (MIA) when she “sold” Slimin’ Dimon WaMu and gave him $40 billion in free loans to liquidate as he pleased and pocket the money – without even bothering to transfer title. My loan – like many others- was still technically controlled by the FDIC(it hadn’t even ever been transferred to WaMu) while Slimin’ and his minnions relentlessly cashed them it out to cover his Whale losses.

    Disturbing fact – you can look up your adversary’s photos on “Linked In.” There they are, banal lifeless husks just sitting there, saying “ping me with job offers. I will do your bidding, no matter how horrible or illegal. No questions asked. Lool at ,y CV. It reads like a list of murderous Mafia families.” (Not to impugn the mafia which at least likes you if you keep paying, which I was.)

    My father, a midwesterner, and Molly Ivins have it right “It’s enough to gag a maggot.” Not that any self-respecting larvae would be cauught dead in this foul putrescence.

    And Sheila has some ‘splainin’ to do.

    1. Up the Ante

      Your anti-plug of “Sheila” has inspired me,

      On the Creation of Institutional Mini-Utopias by “She”

      “She too is expected to create a mini utopia on the set of her show. She is attacked for not hiring minorities, or not representing people without college educations. In one cranky piece in Slate, Amanda Hess complains: “so far Dunham hasn’t appeared to use her position to give a leg up to less-privileged voices.” To which one can only wonder, “Is she supposed to run a home for starving comedy writers of other races?”

      for further clarification,
      http://www.golemxiv.co.uk/2013/03/unpleasantness-in-belgium-silence-in-ireland/

    2. Nathanael

      “I grow more and more concerned the 7 year cycle of systemic blowouts is once again upon us”

      It’s so hard to predict timing. But I’ve been mostly selling into the market (with the exception of a few oddball smallcaps).

  3. timotheus

    It does not strike me that these settlements reflect a failure of “nerve” on the part of the FDIC. “Nerve” is exactly what I would call it, as in, “You’ve got a lot of. . . ” Time to stop characterizing these people as weak or clueless (cf. Obama vis-a-vis the Republicans) when it is clear they have plenty of balls and are doing exactly what they want.

  4. jake chase

    This is exactly what the SEC has been doing for the best part of forty five years: sweetheart settlements with big time corporate crooks, trumpeted in the pandering media as ‘enforcement’. The true purpose of bank and securities regulation is not law enforcement but public relations. Propaganda has replaced law as a modus of government, and the corporate crooks know they can operate with impunity. What a surprise that the thefts get bigger and bigger.

    That Ken Lay must have been the most surprised guy in Texas when a jury convicted him. He was so surprised it was necessary to “die” and disappear. Who do you suppose he now is? Is it possible he was running one of those banks the FDIC settled with?

    1. wunsacon

      >> The true purpose of bank and securities regulation is not law enforcement but public relations.

      It is that way because voters vote in “pro business” candidates. (After all, who’s not “pro business”?)

    2. Tom Parsons

      I’m glad to see I’m not the only person whose opinion I respect who wonders this about Lay.

  5. John

    Its pretty easy for anyone to see why the spineless bastards at the FDIC won’t do anything about the fraud and corruption. Thats their next job promotion there. Why be pissing on the doorstep before you get in the door? You may not be welcomed. Its high time any regulaters are barred from ever entering into any business dealings with the industries they regulate. Or better yet its time that they have their hands cut off for theft. Now there’s a real deterrent. Unfortunately it being the only cure that would work, it surely wouldn’t be implemented.

    1. Ellis

      And if all those bankers were prosecuted like everyone seems to want, what would that really change? Would it stop future crises from happening anyway? Of course not. If it did, we wouldn’t be where we are today. The fact is that crises are a part of capitalism. The drive for private profit creates crises. If you don’t understand that, you are in complete denial.

      1. Alejandro

        The ones in denial are the ones that continue to refer to it as a “crises”, when all the evidence implies that it was a scam. The real crises were, and continue to be, with the people that lost their jobs, homes, health and hope. The despicable aberration and what gives “Capitalism” a bad rap is the desire to reap where you haven’t sown. What has always been known as theft is now referred to as privilege.

      2. John

        Ellis, Ask yourself what happens to someone without a lot of money if they steal or break laws? Does that change matters either? But then you probably dont give a crap do you? All I can think of your comment is what a pathetic ass you really are.

        1. Ellis

          I like to see rich people go to jail as much as the next person. But there’s much more to this crisis than just a bunch of dishonest bankers breaking the law. This crisis has been building since the 1970s, it’s global in scope and it also encompasses all the governments, as well. This suggests more than just criminal activity. It’s a systemic crisis that’s most likely much bigger than the Great Depression.

          1. Nathanael

            If you’ve studied the 1920s, the similarities to the 1920s are very close. The difference is, FDR actually cleaned up the mess of the 1920s.

            Instead, we have extend-and-pretend. We can expect one hell of a blowout, bigger than 1929. I’m not sure how to prepare for it, though I’ve been investing in hard goods which reduce my oil dependence.

            The wild card is that this financial collapse — which has precedents — is happening simultaneously with the climate disaster — where the last precedent is prior to humanity’s existence. That is the big one and I have no idea what will happen with that.

          2. Nathanael

            The reason people are focusing on the criminal activity is this. In the 1920s there was *also* lots and lots of criminal activity.

            *But the criminals did not control judges, bank regulators, Congress, the President, etc.* They got arrested and put in prison. (Often they got out again in a few years, but it kept the criminality *suppressed*.)

            This group of criminals have convinced the government to hand them billions of dollars. That makes this qualitatively different. Even Jay Gould, career criminal, never managed to get the government to simply hand him great wads of cash.

            That makes this into a crisis of *governmental legitimacy* as well as an economic crisis. And that’s why people are so focused on the criminal aspect of it.

            If the government is generally considered legit, people will band together even in very tough economic circumstances — consider post-WWII England. If the government is NOT considered legit… anything could happen, including civil war.

    2. Aaron

      Richard Shelby to Neil Barofsky…

      “Mister Inspector General, you have a wonderful opportunity here. An opportunity not too many people get. The opportunity to make a difference. An opportunity to serve the American people in a true and meaningful way. And if you do this job the right way, you’ll never be able to get a job again. No one would hire you. And that would be a good thing.”

      Sad thing is, there seem to be a 100 moral midgets for every Neil Barofsky these days. That needs to change. When we desperately need leadership, we instead get self-serving, interest-peddling pimps willing to screw the populous for their big payout down the road. The revolving door clearly needs to be slammed shut. As we’ve seen from the latest SEC nomination, even a 10-year ban is woefully inadequate.

      1. jake chase

        Richard Shelby said this? Who’s been financing his campaign? How much has he socked away? I always thought of him as Leghorn Foghorn. Remember him?

  6. McWatt

    Yestereday I was scammed
    on the phone
    via the fax
    in the mail
    on line

    The people trying to
    steal from me
    Are my fellow citizens
    And Nigerians
    And the Chinee

    Today I am being scammed
    on the phone
    via the fax
    in the mail
    on line

    Where is my government?
    Trying to protect me?
    They’re too busy propping up you see
    Our banks who were previously
    Trying to scam me

    Tomorrow I will probably be scammed
    on the phone
    via the fax
    in the mail
    on line

    Where will this cycle of scamming poor me
    Lead in the end for our great country?
    You can let the world
    Treat your citizens as marks
    But beware of the scammed carrying pitchforks

  7. sierra7

    “Wall Street” is a comic/tragic Hall of Mirrors.
    Somehow society at large must (re)build a firewall to allow (not necessarliy “protect”) society in general to progressively move forward both economically and otherwise (healthcare, education, infrastructure, etc) and not be perpetually encumbered by those who intentionally exploit the worst facets of investments and consequently end up blowing up the whole system.
    Too much greed, envy, coveting (7 Deadly Sins) etc……
    We do know we can curb those weaknesses; we must have the societal/political (revolutionary) will to do so.
    We can’t have a Utopian society; we just need one that works for the general population of this beautiful Planet.

  8. briansays

    the moral is

    crime pays for bankers

    notice the wave of auto and home improvement loans being advertised?
    the next great wave of securitization

  9. rich

    Unpleasantness in Belgium, Silence in Ireland.

    You have to hand it to Sugarman. He has a knack for giving the authorities heartburn. I wrote an update about his case at the time of the Village Magazine piece which filled in a couple of interesting details.

    This time he happened to mention as an example of the total lack of financial regulatory oversight in Ireland during the bubble years the Belgian Bank KBC. As Sugarman said, just this month KBC Belgium had to give KBC Ireland another €100 million in order to bail it out. To illustrate how KBC had got itself into the state where it is still being bailed out by the Belgian tax payer via its parent company, he told how he himself had been given a mortgage by KBC in Ireland. As he said in the interview,

    “When I looked at the forms I had to fill in for KBC Ireland, it was a joke. I could have said I was Mickey Mouse and I work in La la land and I would still have a million euro to buy a house with maybe was woth 200 000 euro. Did anybody ask questions. No. The bank is growing. Where’s the problem.”

    Where indeed? What he didn’t say in the interview is that the bank did not actually bother to value the property he was buying before it gave him the mortgage. It looked at the house next door and guessed.

    So now given the continued bleeding and rotting going on inside KBC as well as the epic implosion of Dexia and the fact that, as in Ireland, no one has been held responsible, there are questions being asked in Belgium that powerful people don’t want asked.

    What Sugarman’s story reveals above all is how no one in power, whether that be financial, political or media power, wants any questions asked or truths exposed. Sugarman has been ignored by everyone in the Irish establishment: his bank, the banks regulator, all the Irish political parties, all the newspapers and I was there when he told his story to one of Ireland’s top TV journalists only to never hear from him again.

    http://www.golemxiv.co.uk/2013/03/unpleasantness-in-belgium-silence-in-ireland/

  10. Laughing_Fascist

    Superb post by Bill Black. While Bill’s relentless crticism of FDIC is warranted, nowhere did he mention the fact that White House orders are to leave the banks alone. The highest ranking member of the Obama team to voice the policy that I know of is AG Eric Holder.

    So while regulators are failing miserably, we should always keep in mind that Obama is the source of the failure. He is completely captured/enamored/in love with Wall Street to the point where he has surrounded himself from the beginning of his presidency with advisers who are proponents of a financial system that succeeds by feeding at the federal trough while taking risks that would ultimately lead to insolvency (but for the federal trough). These advisers (enforcers is a better term) will slam any regulator that tries to undo the status quo. Its nothing new (see the Brooksley Born debacle).

    The FDIC is an indepent federally chartered corporation. It is not dependent on Congress for funding. It is one of the few regulators who could stab a bank (like Citi) through the heart with an enforcement order without fear of being immediately gutted by an amendment to a funding bill in Congress.

    But despite the financial separation from congressional funding, FDIC independence is a sham. Obama appointed all of the five members of the FDIC board (maybe one is leftover from Bush). One of them, Jeremiah Norton, was Executive Director at J.P. Morgan Securities LLC before being appointed in April 2012. http://www.fdic.gov/about/learn/board/norton/index.html

    Martin Gruenberg is the new FDIC Chairman. He was Senior Council at the Senate Banking Committee for years before his arrival at the FDIC board in 2005. Its difficult to know what his attitude is though the recent cover up of wretchedly pitiful settlements discovered by the LA Times does not bode well. According to Gruenberg’s self written bio on the FDIC website concerning his time in the Senate: “Major legislation in which Mr. Gruenberg played an active role during his service on the Committee includes the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA); the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA); the Gramm-Leach-Bliley Act; and the Sarbanes-Oxley Act of 2002.”

    Most people don’t know the Gramm-Leach-Bliley Act squeezed in between the other bills mentioned is the law that hollowed out Glass-Steagall. The mere fact that Gruenberg was committee council does not mean he is responsible for overturning Glass-Steagall. But the fact that he is thumping his chest about “actively” working on the game changing law that enabled banks to get into the securities game may be his way of signalling Wall Street that he understands their needs. Otherwise why would anyone include such a catastrophic legislative enactment in their public bio?

    Obama appoints; Obama decides; and Obama has sided with big banks, has no interest in helping Americans in their struggle against the kleptocracy, and any regulator who fails (from our perspective) to do their job is actually following orders from the Obama White House. All of Black’s invective should be leveled at Obama as well as the FDIC.

    1. Nathanael

      “So while regulators are failing miserably, we should always keep in mind that Obama is the source of the failure.”

      Yes. Though partisans need to remember that before Obama, Bush was the source of the failure. The two have had peas-in-a-pod identical policies.

    2. Ms G

      This is a fundamental point. I agree that Bill Black should make it explicit in his otherwise admirable coverage of the government-finance cartel.

    3. jake chase

      Yep. Government, like a fish, rots from the head. I have been saying for five years that if BHO were 100% white instead of 50% white we never would have heard of him. He wouldn’t have made the Harvard Law Review by writing an essay that was immediately destroyed. He wouldn’t have a wife that parleyed the look of a fashion model into a job as general counsel to a pharmaceutical company. He wouldn’t have become point man in the campaign by Chicago real estate tycoons to redevelop one side of town or the other (I forget which), and he sure as shit wouldn’t have been selected as celebrity speaker at the 04 Democratic Convention and given twenty minutes to blow smoke up the country’s ass.

      When are people going to wise up and realize that the color of a politician is irrelevant? All these guys see is green. BHO is what we get when we refuse to see this.

  11. steelhead23

    Fact is many people believe in and take comfort from fairy tales. “Housing prices never go down.” “Bankers carefully manage risk.” “The law applies equally to everyone.”

    Sorry folks, believing in fairy tales does not make them come true. If you wish the rule of law apply equally to everyone, then you will need to go out into the streets in your thousands and bang your pots and pans, stop traffic, and make a stink. Yes, you very likely would be harassed, perhaps even injured, or even killed. What are freedom, justice, and equality worth to you.

  12. Ernie

    Of course, all this discussion misses one of the most egregious breaches of the public’s trust perpetrated by the FDIC. The sale of Washington Mutual Banks assets worth $308Billion to JP Morgan Chase & Co. for $1.88Billion, or, in other words, for 6/10th’s of one cent for each dollar of value of those assets. What a deal! How come JPMC got such a deal right after being bailed out to the tune of Billions of taxpayer dollars? Why didn’t the FDIC spread the wealth around a little and offer every mortgagor who owed WaMu money the opportunity to purchase their own loans back for the same amount it was willing to sell each of those WaMu loans to JPMC for?

    Recap: On September 25, 2008, Washington Mutual Bank (WaMu) was closed and its assets, with an agreed value of $308Billion, sold to JP Morgan Chase and Co, Inc. (JPMC) by the Federal Deposit Insurance Corporation (FDIC) for $1.88Billion, which is to say the assets were sold to JPMC for 6/10’s of one cent on each dollar of value. This is an astounding discount, essentially a gift from the United States to JPMC.

    Other than the simple reporting of the figures I have laid out in the above paragraph, there has been no public inquiry and discussion of such a astounding give-away of private property by the government to another private entity. There should have been such inquiry and discussion, probably with public exposure of governmental, individuals’ and corporate misbehavior, along with serious sanctions for such behavior, long ago. Of course, there has been none. I am requesting that you initiate such inquiry and discussion as soon as possible. It is important to our democracy to learn why a federal agency determined that it was more important to give a windfall to a gargantuan corporation than to disperse it among a large number of individual citizens.

    I have requested Senator Patrick Leahy to conduct an inquiry and discussion because, as I have learned by proceeding with my own lawsuit against JPMC (originally against WaMu, and until recently including the FDIC) it is utterly inequitable that JPMC, which cannot show ownership of the loans originally serviced by WaMu because of the mess the banks have made of mortgage records, is able to charge borrowers the full amount of the loans for the principle they borrowed, despite the fact that JPMC paid less than a pittance for the loans. JPMC stands to make a profit on just the principal of those assets on the order of 167 times what JPMC paid for the assets, or approximately 16,700%!

    The inquiry and discussion of this breach of public trust must include investigation of the effects of the lack of recordation of the various parties’ interests the borrowers’ real property, and into which parties’ if any, actually have interests in the borrowers’ real property. It is important to remember that recording mortgage documents in their proper public registry is an important action. For instance here in Vermont recording interests in real estate, including mortgages, is required not only by statute and title standards, but also by the Vermont Constitution.

    It is likely that an inquiry would show that the processes used by WaMu, the FDIC, and JPMC have permanently damaged borrowers’ chains of title, causing the borrowers to be unable to recognize the value of their homes. Because of lack of clear title, borrowers whose loans were subjected to the improper procedures of these banks now cannot sell their homes or refinance them. This also introduces a problem in implementation of the Home Affordable Mortgage Program or any other form of assistance, public or private.

    There is much talk today about creating jobs, or getting more money into the hands of the people. On top of it all, there are many who are agitating to create ways to avoid being taxed. A means to resolve those conflicting demands would be to demand JPMC to discharge all the WaMu loans it purchased on September 25, 2008, upon receipt of payment from each borrower of the amount equal to the borrower’s pro-rated portion of the total WaMu assets multiplied by the fractional cent price JPMC paid for the total assets divided by the value of the assets as agreed upon in the Purchase and Assumption Agreement of September 25, 2008 between JPMC and the FDIC. The amounts that the borrowers would pay to JPMC would be on the order of a few thousand dollars at most, amounts that virtually anyone could obtain in order to have their mortgage discharged and own their home free and clear. This would release significant moneys into the hands of the people, which would not be paid into old debt, but rather into new products and services for a relatively long period of time, without any money being taken from the federal budget, without increasing taxes, and without any sort of taking of property from JPMC, since JPMC would be repaid the same (infinitesimal) amount that they paid to FDIC to acquire the WaMu loans. The influx of money that would have otherwise gone to mortgage payments could go to any number of spending opportunities that would most likely lead to job-creation necessary to meet pent-up and new demand for goods and services.

    The honorable Senator’s office responded to my request to investigate into this matter by telling me that the Senator would look into the matter when a large number of people wrote to him requesting such an inquiry.

    1. jake chase

      You are absolutely right about the title problem. I would not touch a house that was encumbered by a mortgage that had been securitized. How do I know who to pay to get a valid release? People think they are protected by title insurance, but the title insurance industry didn’t have any capital twenty years ago and probably has less now. It is the worst regulated business in the entire economy.

      If I owned a house subject to a securitized mortgage I would bring an action to remove the cloud it represents on my title. Let the bastards prove who owns it, in a State Court. Have you thought about this?

      1. down2long

        Thanks Ernie. As noted above, foreclosed on my current an and paid up WaMu loan when it expired, explaing to me that an extension was out of the question due to my “bad history” with the bank, which included rolling $100K in lost rents and legal fees WaMu/Chase incurred when they put a receiver on the property. Complained to the OCC, That was a Joke. Got a call from VP’s secretary saying that Chase was sending me another app for extenstion. Then, two days later, with two extra payments in “Suspense” I call it the “Doesn’t Count Account” – including that months – they immediately filed an NOD and got a receiver put in place.

        The story goes on, but I did screw them pretty bad on the bldgs. value, but hey, as you said, when you got no skin in the game, it’s all profit. They did lose a lot of rents, had a BIG legal bill. and had to transfer that $100K back onto their balance sheet.

        Best of luck to you. Someone really does need to pull a Sarajevo 1914 on Slimin’ Dimon. I would dance on his grave, as would many others.

    2. Laughing_Fascist

      Earnie:

      Senator Leahy should have forwarded your inquiry to the FDIC for a response. I would be very interested to see FDICs response. Though it will be beauracratic speak, there may be something of substance. You can write directly to FDIC demanding to know its justification. No doubt they have received thousands of inquiries from borrowers as well as shareholders who were wiped out and have a standard letter to respond. And then there is the inevitable litigation that would have followed.

      Its hard to believe that JP Morgan Chase received $300 billion plus in assets but only assumed minimal liabilities from WaMu. The wiped out shareholders and unsecured debt holders would have taken notice.

      There is an OTS fact sheet from Sep 25, 2008 that lays out WaMu’s position:

      Total assets as of June 30, 2008: $307.02 billion

      Total deposits: $188.3 billion
      Brokered deposits: $34.04 billion
      Total borrowings: $82.9 billion primarily comprising Federal Home Loan Bank advances of $58.4 billion and $7.8 billion of subordinated debt
      Loans held: $118.9 billion in single-family loans held for investment – this includes $52.9 billion in payment option ARMs and $16.05 billion in subprime mortgage loans
      Home Equity Lines of Credit (HELOCs): $53.4 billion
      Credit Card Receivables: $10.6 billion

      http://files.ots.treas.gov/730021.pdf

      The fact sheet does not say how much of the assets were mortgage loans nor does it indicate how much of the liabilities were assumed by JPMC though we know that JPMC assumed the deposits (that would be $188 billion in liabilities assumed). If JPMC also assumed the liabilities to to the Fed Home Loan Bank then the windfall to JPMC is not as much as you may have thought. Do you have a source that lays out the numbers?

      On your question of borrowers buying/paying off their own loans at a discount, are you serious? The FDIC will never allow borrowers to do that. Administration of such a buyout program would be far too complex. And with that excuse, FDIC justifies transferring the insolvent bank’s loans enmasse to a single buyer. In this case JPMC got the whole block. And depending on the amount of WaMu liabilities assumed, possibly an unjustified windfall. It pays to be big and have connections. One of the five FDIC boardmembers was a JP Morgan guy before being appointed to the board by Obama which gives a clue as to how it works.

      The government never provides windfalls to individual borrowers.

      1. Laughing_Fascist

        The gov does however appoint representatives from the “borrower” class of American citizens to many of the federal government’s boards and commissions. This is required by federal law to ensure that the government represents ALL of the citizenry.

        Not. Just needed a laugh.

  13. Rick Ensminger

    Since three members of the five member Board of Governors of the FDIC, are appointed by the President, (including the Chairman of the Board,) with consent of the Senate, why is Obama not answerable for the FDIC’s gross incompetence and failure to impose badly needed punishment against flagrant and arrogant criminals? I would think he appointed governors who reflected his views on the banking and financial world.

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