For starters, fraud and perjury:

http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-i...

The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).

It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).

Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).

Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

Edit: A bit surprised at the thoughtless downvoting for not agreeing with the common narrative

Not quite. The fraud that is happening today is part of the attempt to cover up the fraud that happened during the crisis. (That's the thing about crime, as all the good dime novels say: Once you do the first one it just leads to another.)

I'm no lawyer, let alone a real estate lawyer, so I can't refute this to the extent that it probably deserves. But some things even I understand: If Bank A lent money to a customer, and then Bank A sold the mortgage to Bank B without properly transferring the paperwork (according to the very well established law concerning such things), and then Bank B sold that mortgage upstream to Bank C, and then Bank C sold Investor D a security that is "backed by actual mortgages"... someone committed fraud. Either Bank B lied to Bank C by selling something that they did not own, or Bank C happily paid Bank B for a thing that was not, legally speaking, a properly transferred mortgage ("Bank B hereby sells this IOU, written on a Post-It note, to Bank C") but then claimed to its investors that it actually owned mortgages. Post-It notes are not mortgages.

What is happening today is that the Bank Cs of the world, who are on the hook to their investors to pay off those supposedly "mortgage-backed" securities, are foreclosing on houses to try and recoup some money. But Bank C doesn't actually own the houses because someone messed up the paperwork. So they wave the Post-It notes around with great energy, committing more fraud and perjury (and stupid mistakes) in the process, and hope that nobody gets prosecuted.

EDIT: Note: these are not just alleged crimes, they seem like seriously embarrassing alleged crimes. They lost the papers! What a rookie mistake! If only they'd been a little less sloppy this wouldn't have happened!

But, once again: Where there is one crime there may well be others. It's quite possible that this level of sloppiness and fraud was not allowed to go on just by accident. It may well have served to disguise other frauds, like (e.g.) effectively selling a mortgage more than once as part of different securities.

If the people who may have been complicit in the last meltdown are conspicuously not being punished for covering their tracks, then the people who have the power to trigger the next meltdown will not fear prosecution for “the greater causes”, either.

It has everything to do with the greater causes. The reason it's happening is to try to cover up the fact that in many cases, mortgages were improperly transferred along the chain from the lender to the REMIC trusts. This means that (a) the banks selling MBS to investors lied when they said they had properly transferred the notes, and (b) in some states, the screw-ups jeopardize the securitization of the debt. Had there not been such a mortgage bubble, this probably wouldn't have happened.

They did repay them; they gave the bank their house back. In a non-recourse state (which California is), when you make a loan you the lender agrees that it will take the house at any time instead of the full value of the outstanding loan.

Given this, any sane lender wouldn't make a loan without a reasonable down payment to protect against any downside. The lenders however were giving no money down, no income, no asset loans where one didn't even have to pay the full interest (though it still accrued) for the first 5 years (and then selling them as quickly as possible to investors).

Copy a CD you own to an MP3 player you own and you're breaking the law. Sell a bad debt to a client and then bet on the same client failing and you get a bonus.

Every security has a price, "bad" securities are just cheaper than "good" securities. Participants in the markets always have different views. A bank (or any other principal) is not obligated to make sure that you're aware of their view. By definition, the person selling a security thinks they are better off selling it, and the person buying it thinks they are better off buying it.

Viniar made no mention of Goldman's short bets or the $266 million gain. Instead, he said the market had seen "a little bit of nervousness" but the housing weakness had been "so far largely contained.

The did not disclose material analysis that they where using to hedge the company against mortgage backed securities and explaining to analyst and clients that the losses where "so far largely contained". That is cut and dry fraud. They knew it was not contained and that is why the where bailing as fast as possible.

The sales desk is required to disclose information on the composition of the security they are selling. I.e.: "Bond X is comprised of 523 loans from Florida, 247 loans from Texas, etc, all rated AAA".

Your link does not suggest they failed to do this.

In much the same way, if I think AAPL will tank, I am legally permitted to sell my shares.

http://www.sec.gov/news/press/2010/2010-59.htm

from the article:

Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process.

Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

Your current link claims Goldman defrauded themselves (for the benefit of Paulson and others) on a bond they took a long position on. Also, Goldman wasn't fined for fraud. Goldman paid the SEC to make the case go away, while admitting no guilt.

(The SEC also gained quite a bit from this. While they were making headlines chasing after goldman, the media mostly ignored their porno scandal. http://www.nydailynews.com/money/2010/04/23/2010-04-23_porn_... )

Specifically from the first article, where the fraud was mentioned:

However, Goldman's limited disclosures in the offering circulars it gave the investors that bought its mortgage securities could cause legal problems.

At issue is whether Goldman's bets against the housing market were so "material," or relevant to investors, that their disclosures could have convinced them not to buy its products. Without purchasers for its risky securities, Goldman's exit strategy would have flopped.

The second article showed Goldman didn't disclose something that no one has even been forced to disclose before (identity/motives of the counterparty). In fact, it's often illegal to disclose this. They did disclose the exact composition of the product they sold (and bought for themselves), and by the nature of a synthetic CDO, there was always someone betting against the bonds going into it.

But I'm really curious - can you explain to me why Goldman would defraud themselves? Remember, Goldman bought a piece of ABACUS and lost money on the deal as a result. Why would they buy a bond they knew was designed to fail?

The Stanford scandal and the Porn scandal are relevant to the SEC's motives - just by pure coincidence, they hit an unpopular company ("giant vampire squid") with a really weak case, alleging the company defrauded themselves, at the exact time they were about to get a bunch of negative media attention. I'm sure the two were completely unrelated.

As for fined/settled, it's not semantics. If the SEC had a solid case, they would have demanded Goldman admit guilt. Goldman just paid a bunch of money to get their name out of the media and avoid uncertainty.

For those who don't know the details of the case, heres a quick read -

1) A hedge fund which believed that mortgages were going to go south worked with Goldie to buy a portfolio of stocks which they were short on. They would make money if the stocks tanked. 2) Goldman turned around and sold the Long end of the trade to their clients. 3) Goldman is asked specifically by clients if a neutral third party was making the portfolio. CRITICAL information to a decision maker. 4) Goldman LIES and states that it was a neutral third party.

Watch this video - its the SEC enforcement directory talking about why they were going after Goldman. Do note this was at a time people were making the same assertions that yummyfajitas is making - its wrong illegal to disclose the identity/motives of the counterparty.

http://www.ritholtz.com/blog/2010/04/sec-khuzami-director-di...

I'm going to steal a comment from that page - "In response to the typical question as to “weren’t the investors sophisticated enough to do their due diligence and see for themselves that bla bla bla” Khuzami ( at 3:12 min) revealed a critical detail: “One of the investors specifically requested an independent and objective 3rd party collateral manager to assist in the selection of the portfolio. It was a foreign institution that wanted someone here is the US. It was one of the condition of the deal, and Goldman represented that is was what they were getting, when in fact, it was not the case.”

The subsequent ruling makes it clear that this is material information that is necessary to disclose when dealing with derivatives and CDOs. Do also note that till date derivatives and CDOs are the least regulated part of the entire market and that is why they are also weapons of mass destruction. Getting a legal case which makes it clear that you have to disclose stuff like this is BIG.

Whats really irksome is that the matter at hand is far more complicated and important to understand, yet the coverage of this matter is handled badly.

Funnier still - after the water is muddied it is made to look as if the SEC is forcing "Virtuous Bulwarks of Society TM" to disclose information that a 2 year old should know. WTF? People talk about the SEC going after Goldie like its a BAD THING. I just can not understand this.

There is a LOT of depth complexity to what is going on here. The porno scandal is a distraction. The Rolling Stones article, and the parents link, do not even begin to touch the surface of these issues.

So they put billions of dollars on that bet after doing a lot of research and yet they didn't really know anything? Or are you trying to convince me that the stock market is legalized gambling?

I'm confused here.

It is. Buying a non-dividend-yielding stock is a bet that the price of that stock will go up, while selling a share is a bet that the price will go down. (yes, that's simplified) Doing all that research is like counting cards - you have a lot better information than the average investor, but you can't know for certain whether you should hit or stand on that 16, just what the best play is. So the GP's argument is that banks didn't actually know the securities would go south, but they knew it was more likely than the buyers thought.

The information that the originating banks had that many investors didn't was that the loans were lower quality than mortgage loans had been in the past. So the investors were making their pricing calculations based on historical default data, which would obviously underestimate the default risk, causing them to think that the securities were worth a higher price than they would be if priced with a more realistic default rate in mind. And it wasn't a small difference. It was like a 10x difference in the default rate, which would have made lower tranches nearly worthless and really cut into the value of higher tranches.

Let's use a car analogy. I want to sell my (hypothetical) 2005 Prius, and you're interested. You take a look at the car and it appears to be in good shape, so you're willing to pay roughly the Blue Book value for it. However, I know that the car is actually in need of serious maintenance costing thousands of dollars, and will probably break down on you before it's gone 10 miles. Obviously, I just withheld crucial information and sold you a lemon, with major penalties. Now, had you known it was in need of maintenance and offered a lower price knowing that (because you're a mechanic or something), then that's a different story.

Note I'm not exclupating 'Wall St' from blame, merely expressing regret that 'piling on' takes more of a front seat to trying to work out what went wrong, where the opportunities now are, and what lessons can be learnt.

I don't excuse Wall St, but I do think the government is as much, or more to blame. Individuals on Wall St were given a set of rules to work within, some broke them, many stayed within the law. The entire industry cannot be declared bad. It takes an entire economy to mess things up. Everyone is complicit, including the media and even some parts of the general public.

It's the aspect of finding a single scapegoat that I don't find comfortable. Because I feel that hunting down a responsible party and blaming them results in avoiding valuable life lessons. The valuable life lessons here are making sure you don't go along with the crowd, do your own critical thinking and don't for one minute believe the government has your best interests at heart.

I absolutely agree, the problem is determining who is who, the relationship is so incestuous that who is the government and who private enterprise is sometimes vague when it comes to who they are acting for. When it comes to being weight in the balance I think the general public is the least wanting. By no means am I saying lets intact laws and retroactively throw these guys in jail, but the reality of the situation is that given the cozy nature of business and government in this sector nothing is going to happen until the general public starts calling for blood. They are embolden by all they have gotten away with it will not be reduced and no laws will be enacted until there is a fear of the general population. I think the mid-terms helped to stoke that fear. I don't want to get into the politics of the change but a mass flushing of Washington should send a signal. As well I think the general public has paid for their sins, I think the government has paid some with the mid-terms. I don't think the banks have covered their part of the tab yet. Which is why my tone reflects them being the most accountable.

While I agree that people should have known better, I still blame the mortgage brokers, banks and realtors. The average American barely has the math skills for "12*12=144". There's a principal-agent issue here in my mind. The average American thought that the broker/bank wouldn't offer a clearly unpayable loan, because they would lose money on it. Not to mention that they don't look like sketchy auto body shops or something, but they look like legitimate businesses. So when this guy who's clearly a mortgage/finance expert says "Great news, because of assorted financial wizardry that's WAY, WAY over your head, we can put you in your dream home for about what you're paying in rent right now", people are going to believe him, because (a) they're primed to trust this guy, and (b) they badly want it to be true. There's a lot of resemblance to a con in that way. To add to this, Joe Schmoe is seeing his coworkers, friends, and neighbors getting into these deals as well - it can't be a trick if everyone's doing it, right? Not to mention that I've read standard MERs mortgage documents, and they are ludicrously opaque. So while I agree that "main street" people screwed up and should shoulder some blame, I can certainly see their perspective.

I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street.

I don't know why, they are the experts who are supposed to know who to lend to and who not to lend to based on statistics and analysis. If they where incompetent at doing there job then that is on them, not the consumer. Further they are getting bailed out by the consumer so there is really little blame to put on the consumer we are paying the tab.

Blaming the consumer is akin to saying the consumer dressed too much like a hooker.

The difference between that personal risk and the bank's risk is that the government ended up saving the banks, while the commoners got foreclosed on. And that's certainly a good reason to get angry.

Edit: Great, downvotes for not blaming it all on those evil Wall Street fat cats.

I will give you an up-vote because I think your point of view is valid and this thread is going to get political. No guarantee it is going to remain up though.

Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. The only way to keep it going was to give everyone and their dog a mortgage & they practically did, knowing full well that most of the people would not be able to pay it back. Essentially fraud.

It was also ingrained into the fabric of the American household. How many time has one heard, buy land they are not making any more of it or if you want to protect your money from inflation buy a house, they always go up. For 3 generations this has pretty much been a constant reality, one would have to go back to the depression to find wisdom that went against this reality.

I remember many friends saying we just have to get in before we get priced out of the market forever. People where so afraid of becoming renters for life that they where doing anything possible to secure a house before prices doubled again and they where permanently locked out of the market.

We are not talking about experienced investors here we are talking about people who just wanted to ensure they where not locked out of the American dream. Sure there where speculators, but the reality is speculators where only a fraction of the market and where some of the first to bail on their notes.

There where also many who used their house as an ATM, but with the shrinking job market can you really blame them many unwisely used it to maintain their standard of living and to put off the pain of adjustment to some point in the future, with the hope that better times would cover the call. which while unwise is not that out of the norm hell the government has been doing it for years.

To be clear, I am not making excuses for them but I think we are holding the consumer to a pretty high standard given the boom bust economy, the constant decline of jobs over the last decade, stagnant wages over the course of almost 2 decades, that has reduced real buying power and the financial shenanigans that have taken place. To blame the consumer after they have seen the middle class destroyed is really just rubbing salt in the wound.