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8 Things You Should Know About the New Lawsuit Against the Banks That Torpedoed the Economy

The FHFA filed lawsuits last Friday alleging nearly $200 billion in fraud by the nation's biggest banks. Could this be the beginning of accountability for the banksters?

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It's an optimistic viewpoint, to be sure—as noted above, FHFA director DeMarco has shown little interest in mortgage modifications. Still, avoiding a protracted messy legal fight by helping struggling working families stay in their homes would be a real benefit for real people as well as for the economy—and for Obama. Colpitts pointed out:

“Some 73 million Americans are homeowners and about two-thirds are mortgage holders, representing a huge voting block for President Barack Obama. With little chance of the unemployment rate being reduced much before the next presidential election, the biggest way Obama could influence voters is through the housing mess....The FHFA...is sitting in a perfect place to negotiate those results and take the pain out of the foreclosure mess for millions of Americans.”

6. Attack on the great vampire squid

Goldman Sachs has been emblematic of the financial crisis since Matt Taibbi memorably described it as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” It's got its tentacles in both parties, from former New Jersey governor and former Goldman CEO Jon Corzine to bailout architect and former Goldman CEO Henry Paulson—and was the largest donor, through its employees, to President Obama. (Taibbi is actually quoted in the FHFA's lawsuit against Goldman, though not his best line.)

And Goldman takes it on the chin in the FHFA's lawsuits, accused of committing fraud directly as well as aiding and abetting fraud. The Times pointed out, “the suit says that 'Goldman was not content to simply let poor loans pass into its securitizations.' In addition, the giant investment bank 'took the fraud further, affirmatively seeking to profit from this knowledge.'”

Several executives are named in the lawsuit, but most prominently Daniel Sparks, former head of Goldman's mortgage department. Courtney Comstock at Business Insider noted, “Dan Sparks is full-on attacked in the lawsuit. The FHFA basically blames the rot of Goldman's mortgage business on him and his team's 'traveling the world' to 'make some lemonade from some big old lemons' (his words).”

Those big old lemons, of course, were mortgages that were not created by Goldman; they were simply repackaged and resold by the finance giant, preferably as quickly as possible, the lawsuit argues, to keep them off its own books because it knew they were likely to fail.

7. Global financial crisis, part 2

The banks named in the lawsuits aren't just US companies; three of them are based in the UK and one of those, RBS, is already majority-owned by the British government. The Telegraph noted “[T]hrough its US-based investment banking arm RBS Securities was hit with a $30.4bn claim, compared with $6.2bn for HSBC and $4.9bn for Barclays...For Barclays and HSBC the sums, while not small, would be far from existential, but for RBS the spectre of full-nationalisation remains a constant threat.”

The British, of course, are already suffering under an austerity regime that has yet to fix the economy even though working people are suffering and students are facing unprecedented costs for education.

Frankfurt, Germany-based Deutsche Bank is also a target of the lawsuits. The Eurozone is already in crisis, which pushed Deutsche Bank's stock down nearly 10 percent—a hit from the FHFA suit could be big trouble.

On Monday, Deutsche Bank's CEO Josef Ackermann gave a speech at a conference in Frankfurt where he said, “It is an open secret that numerous European banks would not survive” having to re-price the sovereign debt on their books at market prices (market price right now is, of course, rock-bottom).

 
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