13 ms·

Blowing the Whistle on the Mortgage Bubble

233 points by xivSolutions 14y ago

bjhoops1 14y ago
The entire expose is worth reading: http://www.pbs.org/wgbh/pages/frontline/untouchables/ http://www.pbs.org/wgbh/pages/frontline/untouchables/ The most outrageous part in my mind was where Assistant AG Lanny Breuer (who just resigned) gave a speech in which he talked about how he loses sleep at night over concerns about what bringing a lawsuit against a big Wall Street corporation could do. Imagine if you applied that argument to prosecuting drug cartels! "Just think of all the poor footmen and couriers who might lose their jobs if we prosecute their ringleader"
patio11 14y ago
Worth it just for the email in the middle by a Citi underwriter. http://cybercemetery.unt.edu/archive/fcic/20110310201200/http://c0181567.cdn1.cloudfiles.rackspacecloud.com/2007-11-03_Citi_Email_from_Dick_Bowen_to_Robert_Rubin_and_David_Bushnell_Re_concerns_financial_issues.pdf http://cybercemetery.unt.edu/archive/fcic/20110310201200/htt... I don't agree with every stylistic choice, but that's some of the best professional writing in the fling-a-firecracker-outside-of-your-silo circumstance that I've ever seen. ("I do not believe our company has recognized the material financial losses inevitably associated with the above Citi liability." is accountant-speak for "THE WORLD IS ON FIRE!")
- arethuza 14y ago
  Alistair Darling, the UK Chancellor of the Exchequer at the time of the crisis, pretty much did think that the world was going to end - he had the chairman of RBS (one of the worlds biggest banks, possibly the biggest at the time) phone him up and say that he thought they might be able to last 2 or 3 hours. [NB I'm pretty sure I've read they were considering going to what sounded awfully like a wartime "emergency" government if the UK banking sector had collapsed.]
  - gadders 14y ago
    I doubt if RBS were the largest at the time. They're big, but they're not as big as JP Morgan, HSBC etc.
    - arethuza 14y ago
      From their Wikipedia page: "Before the 2008 collapse and the general financial crisis, RBS Group was very briefly the largest bank in the world and for some time was the second largest bank in the UK and Europe" http://en.wikipedia.org/wiki/The_Royal_Bank_of_Scotland_Group http://en.wikipedia.org/wiki/The_Royal_Bank_of_Scotland_Grou... Of course, it depends how you decide on the size of a bank... Also they had been on an insane binge of acquisitions, including the ABN Amro deal which was possibly the worst acquisition in history (paying tens of billions with one ring folder of information for due diligence - what could possibly go wrong!).
      - gadders 14y ago
        Interesting. They didn't even have a proper investment banking arm, just primarily fixed income, and not much of a bank network outside of the UK.
        arethuza 14y ago
        Here is a good documentary about the fall of RBS and ex-Sir Fred "The Shred" Goodwin: http://www.youtube.com/watch?v=fg3K-S5GqBo http://www.youtube.com/watch?v=fg3K-S5GqBo
  - SilasX 14y ago
    If their business was that brittle, it should have been in bankruptcy court already, not in 2-3 hours.
- wcgortel 14y ago
  I sent a similar email to the CEO of my bank in 2007 -- there was a product I was involved in that (it was clear) was not understood by our sales force or by our investors. I'll spare the details, but I was called into his office and reminded that the "e" in email stands for "evidence."
  - nicholasjarnold 14y ago
    I cannot express how angry reading comments like this makes me. Clearly many of these guys at the top (bank CEO's, fund managers, ect.) were systematically defrauding everyone in order to turn a larger profit. Call me naive, but isn't this shit (the massive fraud perpetrated on us by banks) supposed to result in hefty jail sentences?
    - wcgortel 14y ago
      I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time. I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point. Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).
      - SkyMarshal 14y ago
        >Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors). Plugging a stealth mode startup? C'mon man spill it, you know you want to, and now we're all curious.
        wcgortel 14y ago
        My thing takes your investment capital and cohorts it sensibly against your time horizons. It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond. My thing is an invented modification of a CDO/CLO that keeps your global risk sensible while making sure that your short term objectives are preferentially met. It also makes really customized risks available at almost no cost. It's cool. PM me for details.
cremnob 14y ago
This documentary didn't reveal anything that wasn't already known. There aren't any criminal prosecutions because it's hard to prove that there was fraud. It then goes on to speculate why Breuer hasn't been able to charge anyone.
- xradionut 14y ago
  Nothing will change until it's much too late because the financial industry and monied interests has completely captured the federal government and main stream press.
- flyinRyan 14y ago
  >This documentary didn't reveal anything that wasn't already known. I really, really hate this sentiment. "Oh look, it's yesterday's news!". It doesn't matter. It should be repeated every day on every station until something is done about this. How can we claim our "society" is anything more than an illusion when people can be arrested for tampering with devices they purchase, but people who steal billions get a small fine for it. The only thing Madoff did wrong was he didn't steal enough.
- rauljara 14y ago
  That is largely what Frontline does. They sometimes break original stories, but a lot of what they do is building on other people's reporting and compiling the information in a clear and organized fashion. Then they add interviews for depth and insight. They don't try to be breaking news. They try to be comprehensive. I'm a big fan. They aren't perfect (who is), but they take reporting and informing very seriously, and they dive deep. I've always gotten a lot whenever I've actually sat down to watch. I really need to watch more.
  - josefresco 14y ago
    I cannot agree more, and cannot express more my wish that we had more programs like Frontline that "go deep" and focus on topics that are important to society not just trending.
  - snowwrestler 14y ago
ck2 14y ago
I hope pbs eventually covers the zero prosecution for HSBC bank money laundering. Only penalty was a month's worth of profit. Not one person will serve a day in prison. But hey, don't unlock your phone, it's a felony. Or download and free journal articles.
- watty 14y ago
  The sensationalism isn't helping. It's perfectly legal to download free articles.
  - delinka 14y ago
    You're absolutely correct: it's perfectly legal to download free articles. But this is why I made my "semantics matter" argument a few days ago: He said "download and free," free being a verb and intending to mean "set them free." Yes, there appears to be an allusion to Aaron's particular case. However, one could certainly see where a particular journal publisher holds the copyright on many excellent articles made available online for a fee having to protect their copyright from some unscrupulous academician using their paid acces to liberate those writings. And how, given the predilection of prosecutors to scare would-be defendants, automating that task might see the threat of criminal charges. To actually respond to your comment, it may be legal to download free articles (and it's probably legal to download articles for which you've paid), but is it legal to distribute someone else's copyrighted work without their permission? Price doesn't matter.
  - logn 14y ago
    Like with the Swartz case, learning the facts involved sways our opinion. Learn the facts on HSBC: https://www.youtube.com/watch?v=I2Sr2JbC4WE https://www.youtube.com/watch?v=I2Sr2JbC4WE (by Young Turks host Cenk Uygar) Edit: no offense. Not sure if I grok your comment or you grok'd GPs.
pathy 14y ago
As someone on Twitter said: "Justice Dept said they'd never speak to @FrontlinePBS again after this Wall Street doc. So naturally it's a must-watch" via https://twitter.com/trevortimm/status/294337455321133056 https://twitter.com/trevortimm/status/294337455321133056 I found the programme to be very interesting and raise important points but as always, it IS very hard to prove criminal actions in cases like these and while some might be greedy they might not actually be criminal. That said; it seems that some knew about these unsavory dealings and hopefully they will face justice.
jcven 14y ago
The best whistle blowing before the bubble popped had to be Peter Schiff telling a huge crowd of mortgage bankers they were about to lose their jobs in Nov 2006: http://www.youtube.com/watch?v=jj8rMwdQf6k http://www.youtube.com/watch?v=jj8rMwdQf6k
- xutopia 14y ago
  Peter Schiff fascinates me. He's had many right predictions and he's been making money off of these, all while telling the world exactly how he'll do it.
  - dev_jim 14y ago
    Peter Schiff has been screaming about hyperinflation for years and has been completely and utterly discredited.
  - amalag 14y ago
    I don't think his investments are making much money. He bet on decoupling while the rest of the world looked to USA as the safe haven. He was right on some things, but didn't make a lot of money like some did in the crash. Like the hedge fund manager who bet on large mortgage defaults.
- patrickgzill 14y ago
  For those who don't want to watch an hour long presentation, you can watch a compilation of clips from different news show appearances, "Peter Schiff Was Right" http://www.youtube.com/watch?v=2I0QN-FYkpw http://www.youtube.com/watch?v=2I0QN-FYkpw
jstalin 14y ago
Our system is strictly based on confidence at this point. Fiat currency, fractional reserve banking, massive leverage, and more systemic debt than the world has ever seen all rely on the fact that big banks are essentially untouchable. We'll never see prosecutions of big banks or their principles. It would break the entire system.
- Nursie 14y ago
  Isn't the system, and the whole concept of money in general, all entirely a confidence game?
  - mpyne 14y ago
    Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.
    - patrickgzill 14y ago
      Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.
      - jonpeda 14y ago
        An insignificant fraction of the price of gold is intrinsic value. The rest is derived from it's value as money.
      - aliston 14y ago
        Legitimately curious... what exactly is the intrinsic value of gold? Are you basing it's "intrinsic" value on its commercial value or something else? There are a number of metals that have much more useful applications than gold. From what I've read, gold's intrinsic value was ultimately a western idea that, again, stemmed from a confidence in it's value. When the Spanish discovered gold in central Mexico, the Aztecs had no idea what they were so excited about -- it had no intrinsic value to them. There's a great discussion of the history of gold as money in "The Ascent of Money"
Create 14y ago
http://video.pbs.org/video/2327953844 http://video.pbs.org/video/2327953844 http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213 http://www.rollingstone.com/politics/blogs/taibblog/outrageo...
- Nrsolis 14y ago
  Matt Taibbi isn't what I would call the most distinguished journalist to be getting your info from. He's a bit sensationalist for my taste. For that matter, he seems to enjoy picking a position to write from before he really has all the facts.
  - Create 14y ago
    Still, some prosecutors proposed that Attorney General Eric H. Holder Jr. meet with Treasury Secretary Timothy F. Geithner, people briefed on the matter said. The meeting never took place. After months of discussions, prosecutors decided against a criminal indictment, but only after securing record penalties and wide-ranging sanctions. http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/?ref=business http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9... "This process has highlighted some unacceptable shortcomings that HSBC deeply regrets," said Levey in written testimony. "While our old model served us well historically, it does not work in an interconnected world where transactions cross borders instantaneously and where weaknesses in one jurisdiction can be quickly exported to others." WASHINGTON – Global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls, a Senate Permanent Subcommittee on Investigations probe has found. http://www.hsgac.senate.gov/subcommittees/investigations/media/hsbc-exposed-us-finacial-system-to-money-laundering-drug-terrorist-financing-risks http://www.hsgac.senate.gov/subcommittees/investigations/med...
martinced 14y ago
"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt because governments are going to default. If you think 2008 was bad, wait until the house of cards collapse. It shall make 1929 look like a cute event. Some economists are predicting a worlwide GDP drop of as much as 25%. Of course economists that you see on Fox news and CNN like Krugman (sure, lets create a one trillion $ coin, it's a good idea: why not then create 16 of these and be done with our public debt?) either totally lost it or are playing the game that the state asked them to play: propaganda. Capitalism cannot work if the cost of printing money is zero (quantitative easing). Actually I don't think we're living in a capitalistic world. I think we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation. But the system has its limit. And who are you going to prosecute and hold responsible once everything collapses? The states are basically forcing everyone into buying their junk bonds. Do you really think anyone would buy government bonds seen the current situation? The people responsible for this are very very high up the chain. They're desperately trying to prevent the house of socialist cards from falling apart. "The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Of course they're going to pretend that it's not the states that created the state debt but "evil" capitalists. What a joke : (
- antidaily 14y ago
  Needs more paragraphs.
- Nursie 14y ago
  That's right, socialists are the ones to blame. Good citizen, you've been well trained to see socialist enemies hiding around every corner. We do not live in a socialist world. If you had any comprehension of what the word meant you would stop using it.
  - 14y ago
sophiabatka464 14y ago
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logn 14y ago
"I think we’ve developed in our society an idea that any time we see a problem, we can create a law that’s going to prevent that problem from happening in the future. We don’t need new laws. We need to enforce the laws that have been on the books before." -Tom Leonard (Mortgage underwriter) That's the duty of the Executive branch. "we have a responsibility in the person of our President; he cannot act improperly, and hide either his negligence or inattention; [...] far from being above the laws, he is amenable to them in his private character as a citizen, and in his public character by impeachment." -James Wilson (a Founding Father of the US) "Not but that crimes of a strictly legal character fall within the scope of the power [of impeachment]; but that it has a more enlarged operation, and reaches, what are aptly termed political offenses, growing out of personal misconduct or gross neglect, or usurpation, or habitual disregard of the public interests, various in their character, and so indefinable in their actual involutions, that it is almost impossible to provide systematically for them by positive law." -Joseph Story (Supreme Court Justice, 1811-1845)
pitt1980 14y ago
while back I read the Big Short what I came away with was how durable secrets are here was this billion dollar opportunity that a bunch of people became insanely rich exploiting and it wasn't a secret at all a bunch of people where doing everything they could to tell people how overpriced the housing market was, and the opportunity still persisted it seems like there is so much noise in the world, that signal becomes indistuinghable
Irregardless 14y ago
My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collapse of Citigroup in less than 2 pages was interviewed by the SEC and then never heard from them again. Then there's this guy: > The congressional responses were, “Thank you for your letter, and thank you for your interest.” And, “We’ll look into this,” basically. > I also wrote letters to just about every television journalist, and network journalist that I could get my hands on. Sent as e-mail with attachments and never received any response. [I wrote to] CNN and Fox News. ABC News, NBC News, CBS. My daughter was working at that time with one of the network affiliates in Phoenix, and she knew how upset I was about this whole thing. So she put me in contact with their consumer reporter, who does the consumer complaints and that sort of thing. He came out to my house and interviewed me for about 45 minutes. And I gave him documentation, and tried to as best I could to explain the situation to someone that was basically ignorant of the mortgage industry. Never heard another word. … > During the mortgage meltdown, [Fox News host] Bill O’Reilly was having a temper tantrum on his show where he was going off about, “Why didn’t I hear about this? Why didn’t somebody tell me about all this that was going on?” And I almost threw my shoe through the television set. Ask my wife — I was screaming and yelling, “I did try to let you know.” ‘Cause he had been one of the ones that I had sent e-mails and attachments with all of this stuff. … What the hell are these people supposed to do? Start posting their warnings all over the internet and hope it goes viral? What are the chances that would work vs. the chances they'd all be dismissed as conspiracy theorist crackpots? It's easy to think "If I were in any of their positions, I would've gotten the entire country's attention", but it seems people at every level are determined to be ignorant as long as it's profitable.
- arethuza 14y ago
  Here is what you would face in a UK bank if you tried to warn anyone: "When I tried to resolve the previous difficulties with Jo Dawson [HBOS group risk director 2004-2005 who eventually replaced Moore], she leant over the table – she stood up – pointed at me and said 'I'm warning you. Don't you make an effin' enemy out of me'," he said." http://www.guardian.co.uk/business/2012/oct/30/hbos-whistleblower-threats-risk-taking http://www.guardian.co.uk/business/2012/oct/30/hbos-whistleb...
cs702 14y ago
The senior banking executives who ignored the early warnings were making tons of money. The mid-level bankers assembling and selling mortgage securities, who also ignored all warnings, were making tons of money too. The ratings agencies and lawyers giving their stamp of approval to these crazy securities, who also ignored all warnings, were making tons of money as well. The mortgage brokers and originators who were making irresponsible loans to home buyers with sketchy credit histories were making plenty of money, and they too ignored the warnings. The home buyers who successfully flipped properties in a matter of months or even weeks were also making money, and also ignored the warnings. The homeowners who borrowed more and more against their home's seemingly ever-rising value were flush with newfound cash, and felt like financial geniuses. To a close approximation, no one wanted to hear the warnings. To find culprits, most Americans need only look in the mirror.
- SkyMarshal 14y ago
  >To find culprits, most Americans need only look in the mirror. Without looking up the statistics, I doubt it was 'most' Americans, aka 50%+. You heard a lot about 'flipping', but I don't think the majority of the country was engaged in that, even if you include the financial enablers. It had an outsized effect on the entire economy for sure, though.
  - JackFr 14y ago
    No most people weren't flipping, but cash-out refinancings were fairly common.
mikecane 14y ago
It's very simple. As long as bonuses are based on the amount of business booked, fraud of this type will continue. Once they get their bonuses, they can jump ship and spout, "I don't remember" all they want to investigators. EDIT for a typo.
nikcub 14y ago
Interesting related podcasts if you want to read more: http://www.npr.org/blogs/money/2012/03/16/148751661/the-friday-podcast-inside-the-mortgage-industry http://www.npr.org/blogs/money/2012/03/16/148751661/the-frid... http://www.thisamericanlife.org/radio-archives/episode/405/transcript http://www.thisamericanlife.org/radio-archives/episode/405/t... The Frontline episode 'The Warning' is related and also good: http://www.pbs.org/wgbh/pages/frontline/warning/ http://www.pbs.org/wgbh/pages/frontline/warning/
tomkin 14y ago
You know what's disgusting? This fucking bubble shit. Let's call a spade a spade. A bubble is when you're in a la la cloud of utopia. This wasn't that. I think there was about a zillion people (rough estimate) who knew where this was all heading. It's disgusting because we don't get to say Aaron Swartz lived in a "freedom of information bubble". Aaron Swartz downloaded some documents – was to be thrown in jail and eventually died by his own hand, perceivably because of the weight of the hammer being dropped down on him. BUT...wreck the entire economy, cause thousands to lose their home, their job, their careers? NOTHING. What the fuck is going on?
spoiledtechie 14y ago
My mother was on the inside of all this.... She saw it coming about a year in advance. Knew something was wrong, but couldn't do anything.
ww520 14y ago
The people in the high-up knew. A lot of people in all levels knew. People knew it was a bubble and it cannot last. What people didn't know was how to pop the bubble gently to have a soft landing. Remember real estate and mortgage were majority drivers of the economy from 2000 on after the Dotcom and stock crash. Popping the bubble meant wrecking the economy. People were really uneasy in deliberately engineering a recession. The longer the wait the worst the crash.
- duncan_bayne 14y ago
  Nit pick - a bubble bursting doesn't wreck the economy any more than dismantling an engine for a tune up wrecks that engine. A recession is really a readjustment of the economy, bringing it in line with reality.
gtani 14y ago
http://dealbook.nytimes.com/2013/01/23/financial-crisis-lawsuit-suggests-bad-behavior-at-morgan-stanley/?smid=tw-share http://dealbook.nytimes.com/2013/01/23/financial-crisis-laws... more tragicomedy, with some great work by NYT euphemism writer "suggests bad behavior"
gtrubetskoy 14y ago
This documentary implies that applicants were submitting fraudulant applications, which is not true. Most people (including the Frontline producers, apparently) still do not understand who was defrauding whom here. If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. You can say you're a teacher making a million a year and what's supposed to happen is the application should be denied (and may be your credit score might suffer). It is the responsibility of the bank, not the applicant, to make sure that the applicant can repay the loan. Issuing a loan to someone who you know is misrepresenting one's financial situation is fraud and a crime. When such a loan is issued, it is the bank defrauding the applicant (not the other way around). It's essentially loan sharking or extortion, which is a felony. In doing so the bank is also failing in its fiduciary responsibility to the depositors, which is a (separate) crime as well.
- twoodfin 14y ago
  If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. Lying is absolutely a crime if it's considered perjury, and many (all?) loan applications require you to certify the accuracy of statements under penalty of perjury.
  - gtrubetskoy 14y ago
    Taken out of the context of a loan, you're right. But borrowing is a special case. Because if the responsibility were entirely on the borrower, then it would be advantageous to the bank that you lie on the application. Then they could take all your material possessions as soon as you fail to make a payment and send you to prison to boot. (Which is not far from what happened with the mortgage crisis.) This is how loan sharking works, and why it is illegal. If someone issues you a loan that you cannot repay, it is the issuer's loss, it's as simple as that. If the issuer knew you couldn't repay it, it's not just their loss, but they're also committing a crime.
    - JackFr 14y ago
tsunamifury 14y ago
It was never a secret. Everyone knew values were out of whack on housing and people were taking out mortgages to high. But the sound of a few tiny whistle blowers is nothing compared to the collective will of the American people to buy bigger and better homes or make a quick buck. This was a lesson we needed to learn as a nation, not one we just need to blame on bankers. Many people participated in the fraud, many banks were complicit with the fraud. That means we should be locking up home buyers right along with the bankers. In fact many of the people interviewed here as whistle-blowers went on being complicit with fraud. None (except the one executive) quit their jobs or even protested in a significant fashion. They all just kept doing work they knew was wrong. Disclosure: Im an ex-Journalist and an ex-Banker.
anonymouz 14y ago
Isn't, for example, prostitution illegal in the US even in Las Vegas? If so, I can easily imagine that there are at least a bunch of people where job description and income don't quite match up ("waitress" in Las Vegas with 12,000 USD/month).
malandrew 14y ago
Why isn't the job of underwriter totally automated? I imagine that a good bayesian classifier should be able to spot likely fraud. Sounds like a good startup opportunity.

233 points by xivSolutions 14y ago

The entire expose is worth reading: http://www.pbs.org/wgbh/pages/frontline/untouchables/ http://www.pbs.org/wgbh/pages/frontline/untouchables/ The most outrageous part in my mind was where Assistant AG Lanny Breuer (who just resigned) gave a speech in which he talked about how he loses sleep at night over concerns about what bringing a lawsuit against a big Wall Street corporation could do. Imagine if you applied that argument to prosecuting drug cartels! "Just think of all the poor footmen and couriers who might lose their jobs if we prosecute their ringleader"

patio11 14y ago

Worth it just for the email in the middle by a Citi underwriter. http://cybercemetery.unt.edu/archive/fcic/20110310201200/http://c0181567.cdn1.cloudfiles.rackspacecloud.com/2007-11-03_Citi_Email_from_Dick_Bowen_to_Robert_Rubin_and_David_Bushnell_Re_concerns_financial_issues.pdf http://cybercemetery.unt.edu/archive/fcic/20110310201200/htt... I don't agree with every stylistic choice, but that's some of the best professional writing in the fling-a-firecracker-outside-of-your-silo circumstance that I've ever seen. ("I do not believe our company has recognized the material financial losses inevitably associated with the above Citi liability." is accountant-speak for "THE WORLD IS ON FIRE!")

arethuza 14y ago
Alistair Darling, the UK Chancellor of the Exchequer at the time of the crisis, pretty much did think that the world was going to end - he had the chairman of RBS (one of the worlds biggest banks, possibly the biggest at the time) phone him up and say that he thought they might be able to last 2 or 3 hours. [NB I'm pretty sure I've read they were considering going to what sounded awfully like a wartime "emergency" government if the UK banking sector had collapsed.]
- gadders 14y ago
  I doubt if RBS were the largest at the time. They're big, but they're not as big as JP Morgan, HSBC etc.
  - arethuza 14y ago
    From their Wikipedia page: "Before the 2008 collapse and the general financial crisis, RBS Group was very briefly the largest bank in the world and for some time was the second largest bank in the UK and Europe" http://en.wikipedia.org/wiki/The_Royal_Bank_of_Scotland_Group http://en.wikipedia.org/wiki/The_Royal_Bank_of_Scotland_Grou... Of course, it depends how you decide on the size of a bank... Also they had been on an insane binge of acquisitions, including the ABN Amro deal which was possibly the worst acquisition in history (paying tens of billions with one ring folder of information for due diligence - what could possibly go wrong!).
    - gadders 14y ago
      Interesting. They didn't even have a proper investment banking arm, just primarily fixed income, and not much of a bank network outside of the UK.
      - arethuza 14y ago
        Here is a good documentary about the fall of RBS and ex-Sir Fred "The Shred" Goodwin: http://www.youtube.com/watch?v=fg3K-S5GqBo http://www.youtube.com/watch?v=fg3K-S5GqBo
- SilasX 14y ago
  If their business was that brittle, it should have been in bankruptcy court already, not in 2-3 hours.
wcgortel 14y ago
I sent a similar email to the CEO of my bank in 2007 -- there was a product I was involved in that (it was clear) was not understood by our sales force or by our investors. I'll spare the details, but I was called into his office and reminded that the "e" in email stands for "evidence."
- nicholasjarnold 14y ago
  I cannot express how angry reading comments like this makes me. Clearly many of these guys at the top (bank CEO's, fund managers, ect.) were systematically defrauding everyone in order to turn a larger profit. Call me naive, but isn't this shit (the massive fraud perpetrated on us by banks) supposed to result in hefty jail sentences?
  - wcgortel 14y ago
    I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time. I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point. Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).
    - SkyMarshal 14y ago
      >Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors). Plugging a stealth mode startup? C'mon man spill it, you know you want to, and now we're all curious.
      - wcgortel 14y ago
        My thing takes your investment capital and cohorts it sensibly against your time horizons. It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond. My thing is an invented modification of a CDO/CLO that keeps your global risk sensible while making sure that your short term objectives are preferentially met. It also makes really customized risks available at almost no cost. It's cool. PM me for details.

cremnob 14y ago

This documentary didn't reveal anything that wasn't already known. There aren't any criminal prosecutions because it's hard to prove that there was fraud. It then goes on to speculate why Breuer hasn't been able to charge anyone.

xradionut 14y ago
Nothing will change until it's much too late because the financial industry and monied interests has completely captured the federal government and main stream press.
flyinRyan 14y ago
>This documentary didn't reveal anything that wasn't already known. I really, really hate this sentiment. "Oh look, it's yesterday's news!". It doesn't matter. It should be repeated every day on every station until something is done about this. How can we claim our "society" is anything more than an illusion when people can be arrested for tampering with devices they purchase, but people who steal billions get a small fine for it. The only thing Madoff did wrong was he didn't steal enough.
rauljara 14y ago
That is largely what Frontline does. They sometimes break original stories, but a lot of what they do is building on other people's reporting and compiling the information in a clear and organized fashion. Then they add interviews for depth and insight. They don't try to be breaking news. They try to be comprehensive. I'm a big fan. They aren't perfect (who is), but they take reporting and informing very seriously, and they dive deep. I've always gotten a lot whenever I've actually sat down to watch. I really need to watch more.
- josefresco 14y ago
  I cannot agree more, and cannot express more my wish that we had more programs like Frontline that "go deep" and focus on topics that are important to society not just trending.
- snowwrestler 14y ago

ck2 14y ago

I hope pbs eventually covers the zero prosecution for HSBC bank money laundering. Only penalty was a month's worth of profit. Not one person will serve a day in prison. But hey, don't unlock your phone, it's a felony. Or download and free journal articles.

watty 14y ago
The sensationalism isn't helping. It's perfectly legal to download free articles.
- delinka 14y ago
  You're absolutely correct: it's perfectly legal to download free articles. But this is why I made my "semantics matter" argument a few days ago: He said "download and free," free being a verb and intending to mean "set them free." Yes, there appears to be an allusion to Aaron's particular case. However, one could certainly see where a particular journal publisher holds the copyright on many excellent articles made available online for a fee having to protect their copyright from some unscrupulous academician using their paid acces to liberate those writings. And how, given the predilection of prosecutors to scare would-be defendants, automating that task might see the threat of criminal charges. To actually respond to your comment, it may be legal to download free articles (and it's probably legal to download articles for which you've paid), but is it legal to distribute someone else's copyrighted work without their permission? Price doesn't matter.
- logn 14y ago
  Like with the Swartz case, learning the facts involved sways our opinion. Learn the facts on HSBC: https://www.youtube.com/watch?v=I2Sr2JbC4WE https://www.youtube.com/watch?v=I2Sr2JbC4WE (by Young Turks host Cenk Uygar) Edit: no offense. Not sure if I grok your comment or you grok'd GPs.

pathy 14y ago

As someone on Twitter said: "Justice Dept said they'd never speak to @FrontlinePBS again after this Wall Street doc. So naturally it's a must-watch" via https://twitter.com/trevortimm/status/294337455321133056 https://twitter.com/trevortimm/status/294337455321133056 I found the programme to be very interesting and raise important points but as always, it IS very hard to prove criminal actions in cases like these and while some might be greedy they might not actually be criminal. That said; it seems that some knew about these unsavory dealings and hopefully they will face justice.

jcven 14y ago

The best whistle blowing before the bubble popped had to be Peter Schiff telling a huge crowd of mortgage bankers they were about to lose their jobs in Nov 2006: http://www.youtube.com/watch?v=jj8rMwdQf6k http://www.youtube.com/watch?v=jj8rMwdQf6k

xutopia 14y ago
Peter Schiff fascinates me. He's had many right predictions and he's been making money off of these, all while telling the world exactly how he'll do it.
- dev_jim 14y ago
  Peter Schiff has been screaming about hyperinflation for years and has been completely and utterly discredited.
- amalag 14y ago
  I don't think his investments are making much money. He bet on decoupling while the rest of the world looked to USA as the safe haven. He was right on some things, but didn't make a lot of money like some did in the crash. Like the hedge fund manager who bet on large mortgage defaults.
patrickgzill 14y ago
For those who don't want to watch an hour long presentation, you can watch a compilation of clips from different news show appearances, "Peter Schiff Was Right" http://www.youtube.com/watch?v=2I0QN-FYkpw http://www.youtube.com/watch?v=2I0QN-FYkpw

jstalin 14y ago

Our system is strictly based on confidence at this point. Fiat currency, fractional reserve banking, massive leverage, and more systemic debt than the world has ever seen all rely on the fact that big banks are essentially untouchable. We'll never see prosecutions of big banks or their principles. It would break the entire system.

Nursie 14y ago
Isn't the system, and the whole concept of money in general, all entirely a confidence game?
- mpyne 14y ago
  Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.
  - patrickgzill 14y ago
    Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.
    - jonpeda 14y ago
      An insignificant fraction of the price of gold is intrinsic value. The rest is derived from it's value as money.
    - aliston 14y ago
      Legitimately curious... what exactly is the intrinsic value of gold? Are you basing it's "intrinsic" value on its commercial value or something else? There are a number of metals that have much more useful applications than gold. From what I've read, gold's intrinsic value was ultimately a western idea that, again, stemmed from a confidence in it's value. When the Spanish discovered gold in central Mexico, the Aztecs had no idea what they were so excited about -- it had no intrinsic value to them. There's a great discussion of the history of gold as money in "The Ascent of Money"

Create 14y ago

http://video.pbs.org/video/2327953844 http://video.pbs.org/video/2327953844 http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213 http://www.rollingstone.com/politics/blogs/taibblog/outrageo...

Nrsolis 14y ago
Matt Taibbi isn't what I would call the most distinguished journalist to be getting your info from. He's a bit sensationalist for my taste. For that matter, he seems to enjoy picking a position to write from before he really has all the facts.
- Create 14y ago
  Still, some prosecutors proposed that Attorney General Eric H. Holder Jr. meet with Treasury Secretary Timothy F. Geithner, people briefed on the matter said. The meeting never took place. After months of discussions, prosecutors decided against a criminal indictment, but only after securing record penalties and wide-ranging sanctions. http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/?ref=business http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9... "This process has highlighted some unacceptable shortcomings that HSBC deeply regrets," said Levey in written testimony. "While our old model served us well historically, it does not work in an interconnected world where transactions cross borders instantaneously and where weaknesses in one jurisdiction can be quickly exported to others." WASHINGTON – Global banking giant HSBC and its U.S. affiliate exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls, a Senate Permanent Subcommittee on Investigations probe has found. http://www.hsgac.senate.gov/subcommittees/investigations/media/hsbc-exposed-us-finacial-system-to-money-laundering-drug-terrorist-financing-risks http://www.hsgac.senate.gov/subcommittees/investigations/med...

martinced 14y ago

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt because governments are going to default. If you think 2008 was bad, wait until the house of cards collapse. It shall make 1929 look like a cute event. Some economists are predicting a worlwide GDP drop of as much as 25%. Of course economists that you see on Fox news and CNN like Krugman (sure, lets create a one trillion $ coin, it's a good idea: why not then create 16 of these and be done with our public debt?) either totally lost it or are playing the game that the state asked them to play: propaganda. Capitalism cannot work if the cost of printing money is zero (quantitative easing). Actually I don't think we're living in a capitalistic world. I think we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation. But the system has its limit. And who are you going to prosecute and hold responsible once everything collapses? The states are basically forcing everyone into buying their junk bonds. Do you really think anyone would buy government bonds seen the current situation? The people responsible for this are very very high up the chain. They're desperately trying to prevent the house of socialist cards from falling apart. "The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Of course they're going to pretend that it's not the states that created the state debt but "evil" capitalists. What a joke : (

antidaily 14y ago
Needs more paragraphs.
Nursie 14y ago
That's right, socialists are the ones to blame. Good citizen, you've been well trained to see socialist enemies hiding around every corner. We do not live in a socialist world. If you had any comprehension of what the word meant you would stop using it.
- 14y ago

sophiabatka464 14y ago

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logn 14y ago

"I think we’ve developed in our society an idea that any time we see a problem, we can create a law that’s going to prevent that problem from happening in the future. We don’t need new laws. We need to enforce the laws that have been on the books before." -Tom Leonard (Mortgage underwriter) That's the duty of the Executive branch. "we have a responsibility in the person of our President; he cannot act improperly, and hide either his negligence or inattention; [...] far from being above the laws, he is amenable to them in his private character as a citizen, and in his public character by impeachment." -James Wilson (a Founding Father of the US) "Not but that crimes of a strictly legal character fall within the scope of the power [of impeachment]; but that it has a more enlarged operation, and reaches, what are aptly termed political offenses, growing out of personal misconduct or gross neglect, or usurpation, or habitual disregard of the public interests, various in their character, and so indefinable in their actual involutions, that it is almost impossible to provide systematically for them by positive law." -Joseph Story (Supreme Court Justice, 1811-1845)

pitt1980 14y ago

while back I read the Big Short what I came away with was how durable secrets are here was this billion dollar opportunity that a bunch of people became insanely rich exploiting and it wasn't a secret at all a bunch of people where doing everything they could to tell people how overpriced the housing market was, and the opportunity still persisted it seems like there is so much noise in the world, that signal becomes indistuinghable

Irregardless 14y ago

My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collapse of Citigroup in less than 2 pages was interviewed by the SEC and then never heard from them again. Then there's this guy: > The congressional responses were, “Thank you for your letter, and thank you for your interest.” And, “We’ll look into this,” basically. > I also wrote letters to just about every television journalist, and network journalist that I could get my hands on. Sent as e-mail with attachments and never received any response. [I wrote to] CNN and Fox News. ABC News, NBC News, CBS. My daughter was working at that time with one of the network affiliates in Phoenix, and she knew how upset I was about this whole thing. So she put me in contact with their consumer reporter, who does the consumer complaints and that sort of thing. He came out to my house and interviewed me for about 45 minutes. And I gave him documentation, and tried to as best I could to explain the situation to someone that was basically ignorant of the mortgage industry. Never heard another word. … > During the mortgage meltdown, [Fox News host] Bill O’Reilly was having a temper tantrum on his show where he was going off about, “Why didn’t I hear about this? Why didn’t somebody tell me about all this that was going on?” And I almost threw my shoe through the television set. Ask my wife — I was screaming and yelling, “I did try to let you know.” ‘Cause he had been one of the ones that I had sent e-mails and attachments with all of this stuff. … What the hell are these people supposed to do? Start posting their warnings all over the internet and hope it goes viral? What are the chances that would work vs. the chances they'd all be dismissed as conspiracy theorist crackpots? It's easy to think "If I were in any of their positions, I would've gotten the entire country's attention", but it seems people at every level are determined to be ignorant as long as it's profitable.

arethuza 14y ago
Here is what you would face in a UK bank if you tried to warn anyone: "When I tried to resolve the previous difficulties with Jo Dawson [HBOS group risk director 2004-2005 who eventually replaced Moore], she leant over the table – she stood up – pointed at me and said 'I'm warning you. Don't you make an effin' enemy out of me'," he said." http://www.guardian.co.uk/business/2012/oct/30/hbos-whistleblower-threats-risk-taking http://www.guardian.co.uk/business/2012/oct/30/hbos-whistleb...

cs702 14y ago

The senior banking executives who ignored the early warnings were making tons of money. The mid-level bankers assembling and selling mortgage securities, who also ignored all warnings, were making tons of money too. The ratings agencies and lawyers giving their stamp of approval to these crazy securities, who also ignored all warnings, were making tons of money as well. The mortgage brokers and originators who were making irresponsible loans to home buyers with sketchy credit histories were making plenty of money, and they too ignored the warnings. The home buyers who successfully flipped properties in a matter of months or even weeks were also making money, and also ignored the warnings. The homeowners who borrowed more and more against their home's seemingly ever-rising value were flush with newfound cash, and felt like financial geniuses. To a close approximation, no one wanted to hear the warnings. To find culprits, most Americans need only look in the mirror.

SkyMarshal 14y ago
>To find culprits, most Americans need only look in the mirror. Without looking up the statistics, I doubt it was 'most' Americans, aka 50%+. You heard a lot about 'flipping', but I don't think the majority of the country was engaged in that, even if you include the financial enablers. It had an outsized effect on the entire economy for sure, though.
- JackFr 14y ago
  No most people weren't flipping, but cash-out refinancings were fairly common.

mikecane 14y ago

It's very simple. As long as bonuses are based on the amount of business booked, fraud of this type will continue. Once they get their bonuses, they can jump ship and spout, "I don't remember" all they want to investigators. EDIT for a typo.

nikcub 14y ago

Interesting related podcasts if you want to read more: http://www.npr.org/blogs/money/2012/03/16/148751661/the-friday-podcast-inside-the-mortgage-industry http://www.npr.org/blogs/money/2012/03/16/148751661/the-frid... http://www.thisamericanlife.org/radio-archives/episode/405/transcript http://www.thisamericanlife.org/radio-archives/episode/405/t... The Frontline episode 'The Warning' is related and also good: http://www.pbs.org/wgbh/pages/frontline/warning/ http://www.pbs.org/wgbh/pages/frontline/warning/

tomkin 14y ago

You know what's disgusting? This fucking bubble shit. Let's call a spade a spade. A bubble is when you're in a la la cloud of utopia. This wasn't that. I think there was about a zillion people (rough estimate) who knew where this was all heading. It's disgusting because we don't get to say Aaron Swartz lived in a "freedom of information bubble". Aaron Swartz downloaded some documents – was to be thrown in jail and eventually died by his own hand, perceivably because of the weight of the hammer being dropped down on him. BUT...wreck the entire economy, cause thousands to lose their home, their job, their careers? NOTHING. What the fuck is going on?

spoiledtechie 14y ago

My mother was on the inside of all this.... She saw it coming about a year in advance. Knew something was wrong, but couldn't do anything.

ww520 14y ago

The people in the high-up knew. A lot of people in all levels knew. People knew it was a bubble and it cannot last. What people didn't know was how to pop the bubble gently to have a soft landing. Remember real estate and mortgage were majority drivers of the economy from 2000 on after the Dotcom and stock crash. Popping the bubble meant wrecking the economy. People were really uneasy in deliberately engineering a recession. The longer the wait the worst the crash.

duncan_bayne 14y ago
Nit pick - a bubble bursting doesn't wreck the economy any more than dismantling an engine for a tune up wrecks that engine. A recession is really a readjustment of the economy, bringing it in line with reality.

gtani 14y ago

http://dealbook.nytimes.com/2013/01/23/financial-crisis-lawsuit-suggests-bad-behavior-at-morgan-stanley/?smid=tw-share http://dealbook.nytimes.com/2013/01/23/financial-crisis-laws... more tragicomedy, with some great work by NYT euphemism writer "suggests bad behavior"

gtrubetskoy 14y ago

This documentary implies that applicants were submitting fraudulant applications, which is not true. Most people (including the Frontline producers, apparently) still do not understand who was defrauding whom here. If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. You can say you're a teacher making a million a year and what's supposed to happen is the application should be denied (and may be your credit score might suffer). It is the responsibility of the bank, not the applicant, to make sure that the applicant can repay the loan. Issuing a loan to someone who you know is misrepresenting one's financial situation is fraud and a crime. When such a loan is issued, it is the bank defrauding the applicant (not the other way around). It's essentially loan sharking or extortion, which is a felony. In doing so the bank is also failing in its fiduciary responsibility to the depositors, which is a (separate) crime as well.

twoodfin 14y ago
If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. Lying is absolutely a crime if it's considered perjury, and many (all?) loan applications require you to certify the accuracy of statements under penalty of perjury.
- gtrubetskoy 14y ago
  Taken out of the context of a loan, you're right. But borrowing is a special case. Because if the responsibility were entirely on the borrower, then it would be advantageous to the bank that you lie on the application. Then they could take all your material possessions as soon as you fail to make a payment and send you to prison to boot. (Which is not far from what happened with the mortgage crisis.) This is how loan sharking works, and why it is illegal. If someone issues you a loan that you cannot repay, it is the issuer's loss, it's as simple as that. If the issuer knew you couldn't repay it, it's not just their loss, but they're also committing a crime.
  - JackFr 14y ago

tsunamifury 14y ago

It was never a secret. Everyone knew values were out of whack on housing and people were taking out mortgages to high. But the sound of a few tiny whistle blowers is nothing compared to the collective will of the American people to buy bigger and better homes or make a quick buck. This was a lesson we needed to learn as a nation, not one we just need to blame on bankers. Many people participated in the fraud, many banks were complicit with the fraud. That means we should be locking up home buyers right along with the bankers. In fact many of the people interviewed here as whistle-blowers went on being complicit with fraud. None (except the one executive) quit their jobs or even protested in a significant fashion. They all just kept doing work they knew was wrong. Disclosure: Im an ex-Journalist and an ex-Banker.

anonymouz 14y ago

Isn't, for example, prostitution illegal in the US even in Las Vegas? If so, I can easily imagine that there are at least a bunch of people where job description and income don't quite match up ("waitress" in Las Vegas with 12,000 USD/month).

malandrew 14y ago

Why isn't the job of underwriter totally automated? I imagine that a good bayesian classifier should be able to spot likely fraud. Sounds like a good startup opportunity.