The PJ Tatler

In Other Financial News of Crooks, Judge Rules Banks Helped Cause Crash of '08

Remember the big, conveniently timed Crash of ’08, the one that helped propel a malevolent nobody from the Chicago Machine into the Oval Office? Yeah, that one:

Many on Wall Street have long argued that the banks did not generally break the law when they packaged shoddy mortgages and sold them to investors in the lead-up to the financial crisis of 2008. But on Monday, in the starkest of terms, a federal judge dealt a strong blow to that version of history. She ruled that two banks misled Fannie Mae and Freddie Mac in selling them mortgage bonds that contained numerous errors and misrepresentations.

“The magnitude of falsity, conservatively measured, is enormous,” Judge Denise L. Cote of Federal District Court in Manhattan wrote in a scathing 361-page decision.

No sheetrock, Sherlock. And yet by and large the reckless criminals who brought down the American economy have skated on this one, first bailed out by the taxpayers and then merrily enjoying a rising Dow while the rest of the country suffers.

The ruling came in a closely watched case brought by the government against the Japanese bank Nomura Holdings and Royal Bank of Scotland. They were the only two of 18 financial firms that took their case to trial, arguing that it was the housing crash, and not deceptive loan documents, that caused the bonds to collapse.

The other firms — including Goldman Sachs and Bank of America — settled, together paying nearly $18 billion in penalties but avoiding a detailed public airing of their conduct.

Gee, I wonder why… couldn’t have anything to do with the fact that among Obama’s many nicknames is this one: the president from Goldman Sachs.

Judge Cote’s ruling described a dangerous and toxic period in the American economy. As house prices were soaring, Wall Street banks were purchasing high-risk mortgages and then bundling them into bonds that were sold around the world. As this huge mortgage machine churned on, the quality of the loans plunged.

Some financiers and housing industry analysts have since asserted that, while Wall Street was acting out of greed and with a cavalier disregard for risk, it did not act deceptively. But Judge Cote, in her order, took a dim view of the banks’ conduct. She said that loan guidelines were “systematically disregarded” and found “disturbing examples” showing that Nomura was willing to package and sell defective loans.

“This case is complex from almost any angle, but at its core there is a single, simple question. Did defendants accurately describe the home mortgages in the offering documents for the securities they sold that were backed by those mortgages?” she wrote in her decision. “Following trial, the answer to that question is clear. The offering documents did not correctly describe the mortgage loans.”

For the best primer — from a liberal perspective! — read my friend Les Leopold’s book on the subject: The Looting of America. You’ll be glad you did.