Wall Street's Scams, Lies and Frauds

By Danny Schechter, AlterNet. Posted May 26, 2009.

Only one-third of these illegal practices were even reported and, then, hardly any in unregulated sectors which, in turn, dispensed 80 percent of them. These were the mortgages Wall Street bought, securitized, sliced and diced, borrowed against and resold under false pretenses. Did they know? You bet they did.

Black estimates there have been a half-million fraudulent mortgage cases annually that should have been prosecuted, but the FBI only has the capacity to handle 500 per annum because most of its white-collar-crime fighters were reassigned to the war on terror.

This is common says Sam Antar, a former, or maybe not so former, admitted white-collar criminal who laughs at government attempts to control the crimes:

"Because the government doesn't have the resources to do it, and the white-collared criminals know it. The government basically ceded complicated crimes right after Enron. They ceded prosecuting complicated crimes. You see today, like the AIG thing, uh, Andrew Cuomo gets up there in front of the microphone and says, 'We're gonna get those bonuses back!!' Any schmuck prosecutor could've gotten those bonuses back. Where are the complicated crimes that are being investigated? All we're getting today is small dinky guys getting prosecuted here and there for relatively easy crimes to investigate."

The goal of control frauds are to defeat all attempts at controlling fraud and artificially, through accounting tricks, to inflate the value of shares, promote a bubble or in short, "optimize the firm for fraud." He says the control fraudsters are the real super-predators producing greater losses than all property crimes put together.

He charges this is as part of creating a "crimogenic" environment dressed up in legitimacy.

This is just one fraud. Black cites others, including insider trading and "tunneling" -- using bank holding companies as conduits for monies transferred from banks to executives and their underlings.

Two economists, Nobel Prize-winner George A. Akerlof and Paul M. Romer, published a fascinating paper on deliberate looting using bankruptcies. Their thesis: "Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations."

Sound familiar?

In a lecture he gave recently in Iceland, a country’s whose government collapsed because of other frauds and speculation, Black noted that ratings agencies involved in setting the price of assets never even looked at the loan files when certifying many of these deals as "triple A," thus inflating their value, aided and abetted by phony appraisals. This is what was behind the rash of no-doc or "liars" loans that deliberately misled borrowers.

After securities based on this allegedly asset-backed mortgage paper (with no assets behind it) began to fail in large numbers, one agency, Fitch, went back and reviewed the underlying information only to conclude in a low-key way that "the results were disconcerting because of the appearance of fraud in every file we review."

"Disconcerting?" How about infuriating, because more that $2 trillion worth of these "toxic" assets were sold and bought contaminating the global economy. These crimes need to be fully investigated. A commission that investigated the savings-and-loans crisis concluded that in the big losses they studied "fraud was invariably present."

Three questions: Why didn’t anyone read that report? Second, what do you think an investigation of this crisis will reveal? And finally, why isn’t William Black speaking more in America?

See more stories tagged with: economy, obama, wall street, financial crisis

Danny Schechter writes the News Dissector blog for Media Channel. His latest book is Plunder: Investigating Our Economic Calamity (Cosimo Books).

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