Not to be outdone, FDIC joins the robo-signing club, too

It keeps getting better. From  Bloomberg, we have this tired-looking plaint

What were banking regulators doing while some of the biggest U.S. lenders routinely filed false foreclosure documents in local courthouses around the country?

…but, since that is Jonathan Weil speaking, there’s a twist:

In the case of IndyMac Federal Bank, it turns out the Federal Deposit Insurance Corp. was running the joint.

That’s right – while IndyMac was under FDIC “control”, bank officers were robo-signing affidavits:

The facts are there for anyone to see in the records of a circuit-court lawsuit against Israel and Neena Machado, a West Palm Beach, Florida, couple who last year beat back IndyMac’s attempts to foreclose on their home mortgage. They even won a judgment ordering IndyMac to pay $38,117 in legal fees.

IndyMac sued the Machados in November 2008, four months after the government closed its predecessor, Pasadena, California-based IndyMac Bank, which had $32 billion in assets when it was seized…

Among the sworn statements IndyMac filed with the court was a December 2008 affidavit by an IndyMac vice president, Erica Johnson-Seck, who said she had personal knowledge of the amount of money the Machados owed on the mortgage. That wasn’t true, she later testified in a deposition. To be fair, there’s every reason to believe the old IndyMac was engaged in this sort of conduct already, before it was shut down.

Do go and read the whole thing; it’s good for a hollow laugh or two, if your sense of humour runs that way.

It’s kind of obvious that this would have happened: fraud has been rampant, and FDIC has been stretched. But as an example of extreme regulatory capture it’s hard to improve on this. It horribly taints FDIC, and I should think it makes it even more difficult for the Government to intervene credibly in the foreclosure/title mess.

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  1. Conscience of a Conservative

    This is not surprising. Nobody was and many are still not questioning the legality of MERS.

    A great many interesting questions are now getting raised regarding MERS , transfer of proper title and foreclosure procedures but hindsight is 20/20 and MERS has now been around for some time.

  2. attempter

    Corporatism at its purest. Government thugs use taxpayer money to take over a criminal enterprise from the private thugs who were running it, but leave the same lower level thugs in place committing the same crimes.

    Bair has her defenders, but I wonder how they’ll spin this. “She’ll get tough now that she knows about it”?

    Obama’s own rhetoric has already demonstrated what would be the conflict of interest even if we could believe any of these “public servants” actually cared about the public at all. Once they get into the mortgage business with taxpayer money, the “interest of the shareholders”, i.e. the taxpayers, i.e. the public, requires them to engage in actions like assembly line foreclosures which are contrary to the public interest.

    For years detractors said the government shouldn’t be a glorified real estate agent. But most of us had no idea back then how insane this truly is.

    Proudhon had it pegged 170 years ago – Property is Theft. Everything which has happened with land since has only confirmed that.

    1. DownSouth

      “Government thugs….”

      Yep. That sums it up perfectly.

      The quicker people wake up to the fact that we live in what is rapidly approaching a police state the better.

      State and local governments, as well as the federal government, have been operating illegal seizure scams to steal people’s property for a long time, and the practice is escalating as the “government thugs” become more empowered and emboldened.

      The practice begins by victimizing the poor, such as these illegal seizures mills being operated by law enforcement and prosecutors in Texas, described here, here and here.

      The poor and the broke, after all, are the weakest and least able segment of the society to defend themselves in court, making them perfect victims for unscrupulous government (as well as corporate) thugs.

      But the federal government, not to be outdone, soon gets in on the action, and its victims tend to be a little higher up on the social scale, as was pointed out here
      on Naked Capitalism.

      And if you think the corporate thugs operate with impunity, it pales in comparison to the government thugs. That’s because the government thugs claim immunity, as this prosecutor argues in this article in Texas Lawyer:

      [L]aw enforcement and district attorneys usually assert immunity when they are sued, she [Ann Diamond, deputy chief in the civil division of the Tarrant County District Attorney’s Office] says. Law enforcement has qualified immunity from suits, which protects them as long as they are acting in good faith. But district attorneys have prosecutorial immunity from civil suits, which is absolute.

      “It’s a higher test for the prosecutor. Prosecutorial immunity is an absolute immunity like judicial immunity. And that’s because there’s a public interest in prosecutorial discretion,” Diamond says. “The more discretion the law puts on a public official, the more the law protects that official so that they will be able to do their job without fear. And that’s why judges and prosecutors and legislators are immune.”

      1. DownSouth

        And notice on the comment thread to the linked NC post above that our resident corporate shill, Neil D, is running interference for BP. Here’s one of his profound insights:

        BP, like it or not, is providing the fuel we need to run our economy. We routinely give companies breaks when they provide a “critical” product or service.

        1. Skippy

          I have noticed the increase from the days of old (year or more) of professional shrills inserting them selves here and there. Some to make a buck or dissipate energy (time spent engaging / debunking them).

          Um neil, kfritz, others…always coming back for more after having their arguments laid out like a corpse upon the coroner’s table, still peddling the same common man cannibalistic approach ie: our masters are good, its just some of us commoners…are bad apples, get the bad apples and our masters will reward us again!

          Skippy…tire you out tactics.

        2. attempter

          I forgot all about his BP shilling. And here I was trying to reason with him on the debtor-bashing. Oh well, hopefully some readers got something out of it.

          1. Neil D

            You guys are so much fun to play with. Good Friday afternoon!

            I don’t suppose you would consider that the theme of my “shrilling” is that we all share responsibility for our lot in life. When good things happen, they generally happen because a society is healthy and working together toward a common goal. When bad things happen, it might be because of a few bad apples or it might be because society has itself become weak and corrupt. Name calling and banker bashing aside, that’s the real point of all my “shrilling”. It’s an apparently vain attempt to get folks to think about how their actions affect others. That applies to the lenders and the borrowers.

            Yes – I have used inflammatory rhetoric to make this point. Much of that is a response to what is, in my opinion, some over the top rhetoric from others.

            The BP case is another example. To read some of the comments, the world was about to end. And yet, what are we to make of US demand for oil far in excess of any other country?

            The two issues are related. Unrestrained consumption blew up a housing crisis and led us to drill in places we had no business drilling.

            Cue the Neil D bashing.

            BTW – thanks for mining the intertubes for my comments elsewhere. I am tempted to compare DS, skippy et al. to Madame Defarge spending her days knitting her register of names marked for extermination by the revolution!

          2. Jason Rines

            No worries Neil D. Those databases by the common folk aren’t your real concern. How long have you been involved in politics or studied command economies? The shills are always used for Bantha Fodder to protect the higher ups. The croc has an unhealthy appetite.

            The lot of them always wind up in the same place as the common man but far fewer friends. Hero to goat kinda thing.

      2. attempter

        Fair is foul and foul is fair.

        I love the way the system criminal says a prosecutor involves a “higher test”. In any human society that would mean the prosecutor, as well as any judge, cop, etc., would be held to a much higher standard of conduct, legality, transparency, and accountability than a normal member of the public.

        But in this illegitimate anti-human kleptocracy it means the exact opposite – the citizen must meet a “higher test” to attain access to the law at all, let alone challenge one of these formalized gutter thugs.

    2. DownSouth

      attempter said: “Once they get into the mortgage business with taxpayer money, the ‘interest of the shareholders’, i.e. the taxpayers, i.e. the public, requires them to engage in actions like assembly line foreclosures which are contrary to the public interest.”

      Another astute observation. The goverment thugs, just like the corporate thugs, justify their illegal activities by asserting they are “doing God’s work.”

    3. DownSouth

      And this also highlights why state capitalism (or fascism, where the corporations own the government) and state socialism (or communism, where the government owns the corporation) are so dangerous.

      1. Chris

        True communism is a classless, stateless society. Just because The Soviets and the Capitalists called it communism doesn’t mean it wasn’t. Communism is the end state, the ultimate goal.

    4. Paul Tioxon

      Yves, I would suggest finding someone who is not a Wall St banker/adviser/attorney/quant etc, to given a sharper political analysis to what seems to be little more than shrieking a lot more than need be done. You view Indy Mac as taken over by the FDIC, is guilty of running an illegal operation, on its watch, though stressed and spread thin by the crisis and presumably the decimation caused by defunding what regulation was left after deregulation itself. That this fact makes the government less pure than Caesar’s wife, causing needless damage to whatever good works it has in earnest tried to carry out.

      Let me be clear, the government does go after corrupt organizations under the RICO act, it dismantles them. It targets them for criminal investigation and prosecution knowing full well the nature of the criminal activity they are looking to find, if not the exact specifics, which are dredged up as evidence. The FDIC does not target corrupt organizations, but dysfunctional ones. There may be criminality involved, but the only crime you need to commit to get the attention of FDIC is to have an unbalanced loan portfolio too heavily weighted to hotels, or novelty manufacturers etc. Losing your shirt will also get their attention. But the FDIC are regulators not gangbusters. The department of Justice does not regulate crime, it fights it. That is the difference. The corrupt business practices that go on in the banks housed in the FDIC chop shop while waiting for resolution of the deposits and loan assets is not a reflection in any way of how the government handles anything. They are what is known in health care as pre-existing conditions. The scale of the social phenomena you are analyzing is not appreciated by many the writers here when they post what I consider to be nonsensical political opining. The government is not enabling crime anymore than prisons are by putting too many sociopaths together in one place. The protection afforded by the army of civil lawyers in this country is clear, as they seem to be uncovering the fraud in the financial servicing operations. The government is now acting, based on the evidence gathered by civil attorneys and reported by you and others in the 4th estate. It is how the theoretical system of checks and balances is supposed to operate.

        1. Paul Tioxon

          Richard, sorry if I did not directly attack you. I am trying to place my comments where I think they reflect my point. My point being, attacking the FDIC for being part of the robo-signing club makes no sense. I view this as an attack on the government’s mishandling of the entire financial crisis in general, and a particular instance supporting that contention.

          First, I don’t think their inheriting a corrupt business practice shows a failure of the FDIC.

          Second, I don’t think there is a lot of confidence in the government in this particular crisis. You don’t need to attack them on this point, it adds nothing.

          Third, the democrats are in the middle of unwinding a lot of wrecked agencies in the Federal Gov’t, not the least of which is the FDIC. Although this site in general does point out the the horrific news and grossly over matched federal bank regulators, examiners and other political oversight that seem bereft of even basic understanding of what is going on, there is the rest of the government and popoulation that are suffering from a non-governing government that needs to be addressed.

          For example, the recent regulatory changes from the National Labor Relations Board, allowing for union elections in the airline industry to be run democratically, instead being run like an Orwellian doublespeak farce. Those unions were forced to endure elections run in this matter. Of all of the employees in a company, the total amount who voted would have their votes tallied as they voted, yes or no, to certify having union representation. After those votes were tallied, the remaining number of employees who did not vote, would then be counted as no votes. This would mean, for example, if out of 10,000 employees in an airline, if 5000 actually voted and 4,999 voted yes to certify a union, there would be not union allowed to represent them, because the 5,000 that did not vote at all would be added to the no vote tally of 1, giving the union a defeat 5,001 to 4,999. This is not mentioned in the news media at all.

          The FDIC did not robo sign, IndyMac did. I don’t see the point in smearing them or making enemies with them by this characterization. I don’t think this is yellow journalism, I think it is just weak analytical reasoning and worse politics. I am not sure how active any of you have been in a pitched political fights with these kind of stakes, but you Richard, on the whole are doing a good job of making a lot of buried news items impossible to ignore. I would just like to see the punches you throw be more damaging than a jab.

        2. Richard Smith

          “I view this as an attack on the government’s mishandling of the entire financial crisis in general, and a particular instance supporting that contention.”

          Well, so do I, so we agree.

          “I don’t think their inheriting a corrupt business practice shows a failure of the FDIC.”

          Nor do I. In fact, that’s quite a likely turn of events, when you take over a failed bank.

          “The FDIC did not robo sign, IndyMac did.”

          Here we differ. FDIC need to have a think. Control means control: if they operate a bank, they must do it legally. They will have to defy their staffing woes and get a process together for dealing with this particular type of problem PDQ. Otherwise, there will be more of these farces. This must not keep happening.

          “I don’t think there is a lot of confidence in the government in this particular crisis. You don’t need to attack them on this point, it adds nothing.”

          Disagree. They’re nominally in charge. I just assume that someone on the inside reads this stuff, and thump away until someone feels encouraged to so the right thing, or until I run out of thumps.

          1. moslof

            Government contractors are swamped with regulations, orders, and political agendas without the funding or incentives to comply with them. They know the game is to make the government happy by pretending to comply and protecting the status quo. What’s left of Indymac is probably in the same boat.

          2. Paul Tioxon

            Here is where you are factually incorrect, and not just in disagreement with me regarding control. You seem to have repeated the exact same words as the Bloomberg Opinion piece which states the foreclosure fiasco trail leads to Washington, an OPINION PIECE BY A BLOOMBERG WRITER. You provide this info in yr links posting. This is not an investigative report, but more industry push back. The FDIC did not respond to an RFP for insolvent financial mess, needs resolution PDQ. This is a government agency, which by statutory requirement took control of IndyMac. Let’s be clear about your shared opinion with Bloomberg about what control is. Here, control is not M&A activity with extensive due diligence, lawyerly opinions and endless dickering over price while kicking the tires with a financial electron microscope. Control means the beginning of a forensic process to resolve a failed bank. If you go to usgovjobs website and look up the massive ramping up of hiring at the FDIC across the country, you see that they are responding to the crisis. Unfortunately, the hollowed agency did not know of IndyMacs improprieties just as Arthur Anderson missed that Enron was a total fraud. The difference is the FDIC does not have the same resources as Arthur Anderson did, that would mean higher taxes and all of that other stuff that Washington does that is bad, very very bad. Including the robo signing, which they invented along with Al Gore when he came up with the internet.

            Still think the FDIC needs thumping or is it Bloomberg opinion pieces that need to be vetted?

          3. Yves Smith


            From a corporate governance standpoint, the FDIC is responsible. I don’t think any lawyer who knows the terrain would support your argument.

          4. Richard Smith

            On this immediate issue, I still think it’s the FDIC that needs thumping. They need to add ‘robosigner check’ to their list of things to do when they go into a bank. And even without that, it is extremely tough for them, since the volumes are crazy (400 banks per year?) and it’s basically impossible to ramp up staffing levels to meet this kind of surge in demand, and keep the quality up at the same time.

            But if you object to fraud, you have to object to all of it, otherwise it’s just empty words.

            If Weil had been making some lame anti-Democrat point it wouldn’t have been worth referencing his piece. His reference to Washington is about the effect of the long term neglect of law and regulation under a whole series of governments. That is what it takes to bring us to where we are now.

  3. Neil D

    Apparently Floyd Norris at the New York Times didn’t get the memo and is minimizing the seriousness of this problem. Shame on him.

    “Overpaid and unrepentant bankers do deserve plenty of criticism. The foreclosure scandal is the latest evidence that banks acted irresponsibly. I suspect that we will eventually find little or no evidence that banks foreclosed on people who deserved to keep their homes. But there is plenty of evidence that banks cut corners in processing paperwork when this mess was being created, and that they did the same in an effort to cover up the problems when the loans went bad. Filing false court papers is serious, and there may be some bank lawyers who deserve to face criminal charges.”

    Cue the MSM bashing.

    1. Nathanael

      OK, he deserves the bashing. We have at least 7 (!) cases documented by Barry Reitholtz of people kicked out of their homes by banks which never even *had* their mortgages — if they had mortgages at all, which some of them didn’t. There are many more cases of people being “foreclosed” on who had never missed a payment.

      What an idiot to write “I suspect that we will eventually find little or no evidence that banks foreclosed on people who deserved to keep their homes”. We already have ample evidence of that.

      Even before getting into the servicer accounting frauds designed to cause defaults.

  4. Edwardo

    “It horribly taints FDIC, and I should think it makes it even more difficult for the Government to intervene credibly in the foreclosure/title mess.”

    This is an interestingly worded comment, Yves as, at least for me, it conjures so many different key issues. Here are a few things that come to mind not necessarily in order of importance.

    1.)For those, like yourself, who, for years, have been assiduously examining and analyzing, among other things, the conduct of officialdom in matters pertaining to finance, would you not agree that intervening with, to put it gently, barely a modicum of credibility, has been the stock in trade of “government” for quite some time. I used the quotes around government to suggest, as oppose to baldly state, their capture. In other words, who the &^%#! is the government?

    2.)One devoutly hopes-and hope, which short of something emerging that is truly miraculous, seems like all we have left-that the accumulated taint, one built up like a very bad case of arterial plaque over these years, is now recognized as being so severe that the PTB will engage in a full court press, if for no other reason than abject fear of the ramifications should they fail in their solemn duty to do so.

    1. Richard Smith Post author

      I am more oblique than the other Smith. But you seem to be able to read me right, anyway.

  5. fresno dan


    `When I use a word,’ Humpty Dumpty said in rather a scornful tone, `it means just what I choose it to mean — neither more nor less.’

    `The question is,’ said Alice, `whether you can make words mean so many different things.’

    `The question is,’ said Humpty Dumpty, `which is to be master – – that’s all.’

  6. Conscience of a Conservative

    The real crime in foreclosure gate is how our politicians completely misunderstand this issue. This is not and should not be about keeping people in homes they should not have bought and can’t afford or propping up real estate asset prices to protect bank balance sheets. The FT summed it up perfectly when they wrote this morning….

    The banks and their defenders mutter that this is all a bureaucratic technicality and much ado about nothing. Almost all the borrowers had defaulted on their mortgages, they point out, and the problem is simply of the paperwork being improperly prepared, which can be corrected.

    They are wrong, and the fact that they regard court proceedings to repossess homes so lightly is a worrying reflection on Wall Street’s ethical standards, or lack of them. At worst, the banks may have been lying to courts over a vital safeguard in property law – the sanctity of documents.

  7. killben

    “I should think it makes it even more difficult for the Government to intervene credibly in the foreclosure/title mess”

    But that will not stop these a%$^#&*& from stuffing it down tax-payers throat even if there a minuscule chance.

  8. AndyC

    A consortium of Obama friendlies purchased Indy Mac with a maximum downside risk of 20%, all losses thereafter covered by the government, so basically a transaction fees worth of risk as there were several parties involved to unlimited upside potential…..and yet they still have to cheat.

    Nice investment if you could get it!


  9. Yankee

    According to the article, that Erika Johnson-Seck doing all the fraudulent signing is now a Vice President at an Austin Texas Bank.

    Well you can never say crime is not rewarded.

  10. Master David Goodmen

    Many of the comments, above, seem to be right-wing Disinformation—as is posted on too many other sites I use: I.e., in this case, the various bigoted versions of “Obama”, and “the banks are OK because the government did it, too”. Most of the other comments are spot on.

    One piece of information, which I consider important, was not given in any of the links to original information, nor in any of the comments above, is this: Were the robo-signers at the FDIC…

    1) Actually part of FDIC?
    …..Or part of something grafted on to the FDIC?

    2) If they were part of FDIC, then were they actual government regulator personnel doing the robo-signing?
    …..Or just people who are/were part of the bankers’ revolving-door process?

    Revolving-door: The process in which industry personnel infiltrate the entities which are supposed to regulate those very industries. Those “regulators” then go on to back to their industries, to lucrative jobs.
    Quite a racket, and one which has been around so long that the term “revolving-door” is long-established terminology.

    Being of somewhat limited imagination, I am still wondering how The Prez managed to cause all the damage being ascribed to his actions. He has been in office less than two years, and the industry shills have prevented him doing most anything.

    For the resultant almost-nothing to have created decades of financial-industry misbehavior is not understandable! As the LiS robot used to say, “That Does Not Compute!” NOMAD put it more bluntly, “Non sequitur…!”

    Cherry-picking data, in order to create one’s own “fact”, is just more baldface lying.

    1. Richard Smith

      “Were the robo-signers at the FDIC…

      1) Actually part of FDIC?
      …..Or part of something grafted on to the FDIC?”

      It’s kind of the other way round. The FDIC people are grafted onto the existing bank, in effect: they are parachuted in to run the show while the books are straightened out and a buyer for the bank is located. Once the bank is sold, the acquiring bank’s management take over and the FDIC bods get their next assignment. Has worked very well for a long time.

  11. TC

    It really is beginning to appear that, the only credible course of action remaining is reorganization in bankruptcy.

    Yet to do this the President will have to be removed, as chances he finally has his FDR epiphany are slim to none. The man is a Jimmy Carter – Herbert Hoover clone — a wimp, unwilling to exercise his power with acts making his sugar coated language seem pale in comparison. Contrarily, he is all talk and a bona fide fascist in too many deeds. His love for public-private partnerships is a page right out of Mussolini Italy. His health care “reform” is another: a gift to that Venetian enterprise otherwise called the insurance “industry.”

    Pity for the President he must be compared to FDR who rescued the banking system in a matter of a week. This man has had two years and here we are at the brink. He must go, indeed, if we are to assuredly survive as a nation. He can take Bernanke and Geithner with him.

    I am sorry if this judgment of the President seems harsh. Yet it is made only in light of living history, which I am free to speak with all due respect for the institution of the presidency.

  12. karen1p

    And so? The FDIC has known about this fraud for quite some time. There is evidence that the FDIC has been shielding JP Morgan from the WaMu abuses for a long time…and just when you think it can’t get worse, JP Morgan tells (not asks) the government that they will have to pay an additional $8B to cover their losses from the WaMu take-over…thereby asking the taxpayers to pay THEM for the aquisition of WaMu…..


  13. F. Beard

    When good things happen, they generally happen because a society is healthy and working together toward a common goal. Neil D

    And that goal is making life pleasant and easy for the government backed counterfeiting cartel?

    Too bad Neil, the bankers are in the cross-hairs of bad public opinion and nothing you can say will change that. This “We’re all in this together” bullshit won’t fly this time.

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