Bank Fraud

Let’s start with a definition of fraud. Fraud is the intentional perversion of the truth in order to induce another to part with something of value or to surrender a legal right. It involves deceit, trickery or misrepresentation. And of course fraud is a criminal act.

So who committed this fraud? You may find this hard to believe but the deceit was coldly planned by those in charge of the major banks and lending institutions in the country. The CEOs, CFOs and members of the boards are guilty of fraud. They have not been prosecuted and they have not been found guilty but that is what they were about. To make themselves personally rich they deliberately made bad loans because bad loans pay extremely well. These loans were called “liar’s loans”. That means that nothing is documented. A borrower applies for a mortgage and the lender does not verify the borrower’s job, his income or his assets. He is encouraged to misrepresent, i.e. lie about his finances. This kind of deception can only lead to disaster. For example, the bank known as Indy Mac in Los Angeles went down because it had made $80 billion (!) worth of “liar’s loans”.

The complicated financial instruments such as CDOs (collateralized debt obligations) that were created to deceive buyers, i.e. institutional investors, were made up of liar’s loans and given AAA ratings by the rating agencies without even looking at them. AAA means “zero credit risk”. But in fact these instruments had overwhelming risk. One trader said that “the banks knew they were selling crap”. And that is how these investments became toxic. When the original mortgages foreclosed, the banks became insolvent. That is where we are today. But the government is covering up the insolvency of the banks saying it will take 2 trillion taxpayers’ dollars to solve the problem. But at the same time the banks are claiming they are fully capitalized, i.e. solvent. What is the truth? The real solution is to close the banks, put them in receivership and fire the executives who caused the problems which means that a person is appointed to manage the corporation during the reorganization. It is not nationalization and it was done during the S & L debacle in the 80’s.It was also done during the Great Depression in the 30’s. It happens to be legally mandated and it is being disregarded. By the way the FDIC will protect your deposits during the re-org. So don’t panic if it ever comes to that.

Primarily we need to get rid of the people at the top who committed the fraud and caused the problem If they remain in charge, we will never find out how the fraud was perpetrated, who was responsible and what are the assets (if any) really worth. We can’t expect the guys who did it to tell us anything. Dump these guys and put in new people we can trust. In short, uncover the cover-up and then regulate.


References:

Black, William K, Bill Moyers Journal 4/3/09
Common Dreams.