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Woman Who Couldn’t Be Intimidated by Citigroup Wins $31 Million
- bgilroy26 14y agoI've been hearing about this story a lot. Is there an angle? Is it the idea that folks always have about how "if you go up against company x's legal department you'll get destroyed no matter what"? One lady winning doesn't really change the odds in general.
- yashchandra 14y agoBut it is worth learning about. Also, it shows that it is possible though very unlikely.
- patrickgzill 14y agoThe total fine of $158 million, after Citi got billions in support, is nothing, a mere rounding error on one of their quarterly reports. A simple cost of doing business... The key take-away is: no one at Citi went to jail for fraud.
- mindcrime 14y agoBingo! Give this man a cookie. It's bullshit that these guys perpetrated outright fraud like this, and - at the end - nobody was really punished, even though they basically admitted they were guilty. This shit is what gives capitalism a bad name... I'm as much a proud anarcho-capitalist, Ayn Rand reading, Ludwig von Mises quoting, Gary Johnson supporting libertarian as the next guy, and it pains me to get beat up for believing in capitalism because of these crooks at Citi and BoA, when nobody is being punished for their fraud. Capitalism does not inherently entail accepting fraud like this, but every time these asshats get away with this kind of behavior, it reinforces all the negative images that people have about capitalism. If we're going to accept the idea that government (or something like government) is to protect property rights and enforce a "rule of law" that protects against this kind of fraud, then our government needs to step the %$!# up and prosecute some of these assholes.
- cynicalkane 14y agoIn a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. That's why the corporation is a "legal person" that can itself be legally responsible for stuff and get sued: corporate personhood arose partially as a solution to this problem. This has borne out in legal practice, where even when there's obvious blood in the water, prosecutors have trouble convicting all but a few top guys. Anyway, I also find your profanity-laden vitrol unbecoming of discussion on this site. EDIT: I guess it's now considered a sin to state an easily-verifiable truth and ask for polite discourse.
- laserDinosaur 14y agoTechnically a corporation is a person, is it not? What if we tried to send the corporation to jail instead? =)
- maratd 14y ago> In a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. What? We solved this problem a long time ago. Corporations are beneficial because they provide liability protection to the employees. That's it. In the case of fraud, we decided the corporate veil should be lifted. So all you have to do is go through each individual in the corporation, see what laws they broke, and go after them. It's very straightforward. The problems occur when the corporations received ungodly amounts of money from the government, when a government "appoints" individuals to positions within the corporation, and when there's quite a bit of collusion between the corporate entity and the government. At that point, the government has very little incentive to prosecute and the corporate entity has even more incentive to commit fraud.
- cynicalkane 14y ago"Limited liability" and "corporate veil" refer to shareholder protection, not employee protection. Traditionally shareholders, not employees, were on the hook for lawbreaking. Anyway, you say something like "go through each individual in the corporation, see what laws they broke, and go after them" as though it's easy. In practice prosecutors have a hard time doing this even when they want to for the reasons I just said. Some of the Enron guys were acquitted by a jury, for example.
- JackFr 14y agoYou understand what the fraud being perpetrated is right? Citi passed fraudulent mortgages on to investors. That is, either homeowners or third party mortgage brokers fraudulently obtained loans to which they otherwise would not have been able to get. The victim of this fraud is not the homeowner, but the lender. Citi became culpable only when they bought loans that a prudent man would have recognized as obtained through fraud and packaged and sold them as securities. Now if you're willing to send officers of Citi to jail for complicity in a fraud perpetrated by and large by home owners and small time mortgage brokers, who also were the primary beneficiaries, you've got to be willing to send them to jail as well.
- Klinky 14y agoMany of the lenders were complicit in fudging numbers to make people qualify for loans they should not have qualified for. They are just as responsible, if not more so than the borrowers.
- intended 14y agoThe foreclosure mill mess is ridiculous, and there is downright fraud. The bank lost its papers and forged them for gods sakes. That's a differrent level of wrong doing altogether!
- FJim 14y agoOriginators lend the money and sell the loan. It is agreed that the originate to sell model has perverse incentives. However, the point is that home borrowers are not the victims of this fraud. The people who bought securities backed by these loans are the victim of the fraud. The homeowners got the money, the investors lost the money because the homeowners can't pay it back. The originators and the securitizers (Citi) facilitated the fraud, because they got their cut as the money passed through the pipeline.
- Klinky 14y agoHomeowners were mislead as to the viability of the housing market & the concept that a house was a great investment. Many wanted to get in before it got "too expensive". Many of the loan products on the market were misleading as far as the actual costs and mortgage brokers who were hungry to get people into houses often glossed over explaining the viability of the loan. Some homeowners were stupid, but most people are their own unpaid, untrained, part time financial adviser. The banking, investment & real estate industries have extremely well paid employees who should know better and are paid as though they do.
- chernevik 14y agoHere's a question: If Citi was selling out-of-compliance loans to Fannie and Freddie and the FHA, why aren't those institutions forcing Citi to buy those loans back? Likewise JP Morgan, Bank of America, etc. I don't know the answer and there might be a good one. But I can't help noticing that these institutions were "too big too fail", that substantial sums were advanced and pledged to keep them afloat, and that their preservation has been an important consideration of Fed policy for going on five years. It isn't too hard to imagine a decision to accept additional losses among the GSEs and federal housing agencies for the higher purpose of keeping the US financial system afloat. Please note that Fannie and Freddie are something like $100 billion in the hole to the Federal government, financial catastrophes that dwarf any bailout extended and yet have somehow escaped the public attention proportionate to their amazing losses. (Indeed we have politicians advocating still greater losses for them as part of efforts to settle the housing market.) These banks are big beyond the wisdom or fortitude of public officials to conduct prudent and and equitable policy. If banks that big exist, they'll earn rents based on their regulatory position, and their executives' compensation be essentially free from any market discipline. And those banks and executives will provide political contributions and favors and soft landings to politicians and regulators whose views will matter so much to their profitability. It's an "iron triangle" secured by the governments' regulatory monopoly and the flow of capital through the system. The expansion of the government into housing finance through the GSEs and various guarantors only makes the situation worse. There is no doubt that smaller banks lead to higher capital costs and accepting lower slower economic growth. There are real economies of scale in these businesses. But realizing that potential contribution requires an intelligence and integrity of regulation, over sustained periods of time, that is simply beyond the institutional capacities of public institutions. They thus accumulate excess risks, which translate to costs, which ultimately consume their promised potential and leave us with net losses. And political distortions to boot. There are few on this board more conservative than I. But US banking policy must be put into a place where no one can fail to know that the failure of any US financial institution will result in losses for its capital providers, equity and debt, with no possibility of public intervention on any basis. The freedom of our economy and polity must be distorted to the extent of our deviation from that state.
- shawnee_ 14y agoHunt still remembers her first impressions of CitiMortgage’s O’Fallon headquarters, a complex of three concrete-and-glass buildings surrounded by manicured lawns and vast parking lots. Inside are endless rows of cubicles where 3,800 employees trade e-mails and conduct conference calls. Hunt says at first she felt like a mouse in a maze. Accountability is a tough thing to manage when companies get to this stage. The larger the institution, the less accountable every individual within that institution tends to act. Organizational architecture pushes the risk downstream while pulling the reward upstream. Workers had a powerful incentive to push mortgages through the process even if flaws were found: compensation. The pay of CitiMortgage employees all the way up to the division’s chief executive officer depended on a high percentage of approved loans, the government’s complaint says. How does this organizational structure differ from the pyramid scheme, or MLM? With scrutiny, it really doesn't. This organizational structure is what has kept the Realtor-Broker model perpetuating for as long as it has: risk essentially becomes decoupled from the reward for Brokers; they can push their Realtors to pursue risky prospects because they get a cut every time. Furthermore, when Realtors collude with their Brokers, they have collective incentive to both negotiate prices upward and take as large of a cut as possible of that inflated amount. Missing from the equation is a system of checks and balances. CitiMortgage mortgage brokers' compensation being tied to volume means that turnover in the housing market is something they aim(ed) for. There is something seriously wrong with this model. The fact that nobody in the NAR or mortgage industry is being held accountable is puzzling.
- glesica 14y ago> The larger the institution, the less accountable every individual within that institution tends to act. I'm reading Liars and Outliers, by Bruce Schneier, and this is one of the big points he makes in his discussion of how trust and security balance to allow society to function. There is a huge difference between personal morality and organizational morality, for instance. Even if every person working for Citigroup had been basically moral (in the sense that they wouldn't have committed fraud alone) this still could have happened, and probably would have. The argument that gets repeated ad nauseum, that things like this are the fault of "a few bad apples", is just plain false. The bad apples certainly exist (especially given that our society and economy reward anti-social behaviors), but the incentive structure is the real problem. It's systemic, there's no getting around that fact.
- planetguy 14y agoCan we get a version of this story with a less editorialistic headline? This is clearly a "fits the narrative" type headline, hardy individual versus big bad bank; and I don't trust stories when they fit popular narratives. Tell me the facts of the case, Bloomberg, I'll make up my own mind how I want to feel about it.
- JabavuAdams 14y agoRun that in reverse: if the headline were less sensational, you'd automatically trust the article more? Just read the article. The headline is one sentence. You have to evaluate the whole thing anyway.
- intended 14y agoActually that won't be possible. You are coming to this story at the end of the narrative which has taken years to reach this far. It's also a tortured story - complex, with one narrator actively trying to cover his tracks. And This article is more for adding a human angle to what is extremely tortured and boring reading. For you to get the facts at this stage is not going to happen from an article like this. You would need to google gumshoe a bit to read up for that.
- sparknlaunch 14y agoIt's a great story however skeptical of these retrospective views. I wonder how much of her motives were driven by protecting the mortgage holders and the economy; or protecting her career prospects. Saying this, Hunt seems much more deserving than the former banker in this article: http://gawker.com/5553737/ http://gawker.com/5553737/
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- horsehead 14y agoWow. that's not an editorialized headline by bloomberg.
- DigitalSea 14y agoIt sickens me that Citigroup acknowledged they fraudently bought loans without the required documentation and even in some cases said documentation was forged or incomplete and all they got was a $185 million slap on the wrist. What makes matters worse is that the people who have these mortgages are completely oblivious as to what is going on. What makes the whole situation even more laughable is the fact they got billions in bailout cash and yet were only fined $185 million. They didn't deny the allegations, why didn't someone go to jail over this? They breached mortgage regulations and by the sounds of it most of their purchased loans were fraudelent. Disgusting. Even after the housing bubble popped it surprises me that banks are still doing these kinds of things. The saying history repeats itself couldn't be more true even if it tried.
- deleted 14y ago[deleted]