Fraud and Folly: The Untold Story of General Electric's Subprime Debacle
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GE told iWatch News that it will “vigorously defend” itself against the lawsuit. It says the suit’s claims are “based upon a flawed statistical sampling of a small number of loans.”
The Federal Housing Finance Agency, meanwhile, charges that General Electric misled investors in the sale of hundreds of millions of dollars in securities backed by WMC mortgages.
The agency’s lawsuit claims GE didn’t tell the truth about how well WMC followed its loan underwriting guidelines, or about how much borrowers owed on their homes or whether they intended to live in them or use them as investment properties.
GE denies the allegations, and insists that Freddie Mac, which invested in the securities, made out well on the deals.
On the record
Dave Riedel no longer reads the financial news. When someone brings up the mortgage crisis at a party, offering opinions about what happened and why, he keeps his mouth shut. Talking about it makes his blood pressure rise.
After WMC closed, he spent almost two years looking for work before he found a sales job outside the banking industry. Nobody in the banking business was interested in hiring him.
Of the 40 best fraud investigators he knows, Riedel estimates that maybe four of them still have jobs in banking. Meanwhile, he says, bureaucrats without the talent or temperament for fighting corruption have snapped up choice fraud-control jobs at many big banks.
Despite his desire to put his mortgage days behind him, he says he felt an obligation, when iWatch News contacted him, to tell what he knew.
Later, he had second thoughts, worrying there might be blowback against him for talking about what happened inside WMC and GE, even if he stuck to facts rather than opinion. He asked his comments be put “off the record.” When he was told it wasn’t possible to go off the record after the fact, he made peace with going public.
“I have an ethical problem with covering things up,” Riedel says.
Given a chance, he adds, he’d be willing to talk to the FBI about what he uncovered during his time at WMC.
The feds should be turning over rocks, he believes, across the mortgage industry. People who committed or condoned fraud and helped crash the economy, he says, need to be held accountable.
“I can’t tell you who broke the law and who should or shouldn’t go to jail,” he says. “But I can tell you that these people should have to answer to somebody about what happened.”
This story was reprinted by permission from the Center for Public Integrity.
Michael Hudson covers business and finance for The Center for Public Integrity. He previously worked as a reporter for the Wall Street Journal and as an investigator for the Center for Responsible Lending.