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Bill Black: Bank of America and other financial giants undeterred by Obama Admins weak oversight and enforcement of industry

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JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. And welcome to this latest edition of The Black Financial and Fraud Report.

Now joining us his Bill Black. He’s an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist and a formal financial regulator. He’s the author of The Best Way to Rob a Bank Is to Own One and a regular contributor to The Real News.

Thanks for joining us, Bill.


NOOR: So, Bill, as I know you are aware, ProPublica recently broke a story of how former Bank of America employees have claimed in sworn testimony in federal court that Bank of America deliberately mishandled loan modifications and even paid employees bonuses to foreclose on homeowners without reason. Talk about your reaction to this latest news and the specific practices that the former Bank of America employees allege they were rewarded for.

BLACK: Well, unfortunately, it’s a continuation of business as usual at Bank of America, in particular after it acquired Countrywide and picked up tens of thousands of people who what they did every day for years during the crisis was create the fraudulent loans that went into foreclosure.

NOOR: Bank of America has vowed to fight these charges, and they’ve said that each of the former employee statements is “rife with factual inaccuracies”–I’m quoting ProPublica right here. What’s your response?

BLACK: Well, I mean, we can’t judge the individual facts yet. Bank of America isn’t, certainly, making an effort to clean things up. And it isn’t just the whistleblowers. The government group that is supposed to monitor the settlement on foreclosures has reported that four of the largest banks that handle all mortgage servicing, or, you know, the great bulk of mortgage servicing in America have violated the settlement agreement, and Bank of America is prominent in that governmental report as one of the entities that violated it. And these reports have been all through the industry for well over a year.

What we’ve seen time after time is enormous hostility towards any settlement of a problem with homeowners, in which you would do, for example, a sort sale. And a short sale is where you sell the property with the permission of the entity that owns the mortgage for less than the price of the mortgage, and it wipes out your liability as the borrower. But these things can save a great deal of in terms of ultimate losses for the banks. But they have a big, big problem, and that is they lead to quicker sales, or at least they should lead to quicker sales, and then the banks would have to recognize their losses on the bad loans, and the banks don’t want to recognize their losses on the bad loans. And, by the way, that’s another scandal.

The reason they get to play these delay games is that they used their political power and got Congress to extort the Financial Accounting Standards Board to change the normal accounting rules so that the banks could greatly delay the recognition of their losses. This is a deliberate governmental and industry policy to hide the losses to make banks appear more profitable.

NOOR: So, Bill, as you alluded to, there was recently a massive settlement between these large financial institutions like Bank of America. Something like $25 billion was paid out by these banks to address a lot of these similar allegations. Does this latest news kind of tarnish this settlement?

BLACK: Yeah, but this settlement had a bastard birth, and its course through life so far has been very poor.

So, to back up, there was nowhere near $25 billion paid. That was again a whole bunch of governmental propaganda and industry propaganda. The actual cash flows were dramatically lower than that, and the average cash flow to a actual human being who was wronged by these folks is somewhere in the order of under $20,000, in many cases substantially less than that. So the settlement was not something that anyone could be proud of in government. It was much worse. It was going to be much worse.

It’s critical to understand that the timing of this settlement was during the election, and it was very much part of the election. And there were sort of three dramas going on simultaneously. First, the deal was so bad that several of the state attorney generals, including New York Attorney General Schneiderman, Attorney General Biden, and Attorney General Harris in California said, no, hell no, we’re not going to approve this deal. The second thing was intense pressure from the Obama administration to get the attorney generals to back off their opposition. And the third was this supposed resolution in which, lo and behold, the feds gave Attorney General Schneiderman, who was leading the opposition to the deal, a position as the cohead of this supposed new task force that was going to go after the elite frauds and that was going to show that President Obama’s administration was finally serious. And, of course, that task force turned out to be a farce. There appear to be no new people. There were no new offices for years. They didn’t indict anybody. And they immediately started talking not about bringing criminal cases but civil cases.

So this settlement, as I said, hyped as $25 billion, that isn’t remotely close to that. It’s well under $10 billion in cash, and it’s cash they would have had to pay anyway. And doing the foreclosure relief would actually make the banks more money in real economic terms. It’s just this phony accounting stuff that is actually motivating the banks’ opposition to doing many of these deals.

Well, so how did it get sold? The Obama administration sold it and the banks sold it as, oh, we have completely cleaned up our act. Those were just some, you know, rogue bad-apple types, very low-level employees who did all of this. We didn’t know anything about it. Now, that story, of course, was preposterous from the beginning. But the government very carefully didn’t actually investigate.

And then as the first part of the settlement, the government said it was going to hire all these private contractors, and they were going to investigate. And that went on for months and months and racked up tens, maybe hundreds of millions of dollars in fees to these outside outsourced contractors–in other words, the accountants that helped cause the crisis. And then they gave up, saying the records are so disastrously bad at the banks that we can’t tell how bad the situation is, we can’t tell who was screwed, so we’ll go to a completely new system where we sort of give more relief to some folks, and again premised on the banks have completely changed their act.

Well, the government then brought a civil suit, not a criminal action. And why did it bring that civil suit? Because there was a whistleblower. And then they held a press conference and they praised all the governmental–you know, the prosecutorial officials and never mentioned the whistleblower who actually brought them the suit. And the whistleblower brought them all the good stuff, including the internal documents that prove that Bank of America was warned in advance that it was going to continue with a program that was going to make massive amounts of fraudulent loans. And the warnings proved to be true.

And rather than deal with it, Bank of America–and, by the way, again, this was the former Countrywide folks working for Bank of America–covered up all the fraudulent loans that they were doing, and the result was disastrous. So we knew from that governmental suit that far from being a good and reformed and now honest player, Bank of America was the old Countrywide guys who were cheating left, right, and center, and we knew that senior officials of Bank of America knew this and did nothing to stop it, and we knew that the Justice Department and its new task force refused to indict them even when the whistleblower gave them the case on a silver platter.

So, again, we can’t judge the individual claims of the whistleblowers in the latest Bank of America foreclosure fraud, but we know that what they’re talking about, the organization they’re talking about is not reformed, has been rotten to the core, particularly in the former Countrywide operations, but not exclusively there. And so there’s very strong reason to take the whistleblower’s complaints seriously, to investigate them fully. And if we had real prosecutors, there would be real prosecutions, because even the governmental report, which, as I say, largely gave up on finding the facts and now simply bases its actions in great part on complaints–and we know that, you know, people complain relatively infrequently even when they’ve been shafted. So you can take these numbers and multiply them times at least four is our experience. Well, they’re getting 50,000-plus complaints on the supposedly cleaned up mortgage procedure. So that’s, you know, several hundred thousand in less than a year.

Now, the good news is it used to be literally millions of cases of foreclosure fraud a year. So maybe in fact we’ve reduced it from a massive fraud epidemic to only a moderately huge fraud epidemic, but that’s the cleaned up people, and, again, there is absolutely no sign that the Justice Department will prosecute, even though it claimed that if the banks didn’t live up to this settlement, they’d be all over them, you know, and bringing criminal charges left, right, and center. Again, as we expected, none of that proved to be true.

But since I’ve done lots of negative news, let me give you one that if it proves true would be good news and could very much relate to this down the road. The Securities and Exchange Commission head, Mary Jo White, the new head, has announced that in at least some cases the SEC will now seek an admission of guilt when it does these otherwise useless settlements with people who commit securities fraud. And the banks, if the whistleblower’s complaints are true, would have not only committed other forms of fraud; they also would have committed securities fraud. And I would remind folks, that is a felony in the United States. It can be charged as both a civil and a criminal wrong.

NOOR: Thank you so much, Bill. And we’ll certainly keep following all of these stories.

BLACK: Thank you.

NOOR: And thank you for joining us on The Real News Network.


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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.