an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities
Sounds like he's calling the risk ratings "fraud." It would be a tough case to prove, though. There were two convenient mistakes that nobody wanted to stop making. First, the incorrect ratings, which were motivated by a conflict of interest: the folks selling the mortgage-backed securities paid the ratings agencies to rate their securities. Second, the fact that people bought the securities as if the ratings were trustworthy, despite the glaring conflict of interest.
To make a criminal case, you'd have to prove they weren't just stupid. (Sorry, Ivy League grads, that degree is not sufficient evidence by itself.) Somebody would have to find a paper trail that proved the criminals' state of mind, like an email saying, "Hey Joe, I just finished rating the latest mortgage-backed CDOs. The computer gave them all AA (LOL!) I wonder how long we can get away with using this stupid formula to overrate CDOs. Our customers love it so much, and we are getting mega rich. The people who buy these things are suckers, but they're probably getting rich selling them to somebody else LOL. Everybody gets rich except stupid grandma when her pension fund goes broke LMFAO"
In many cases, discovery of emails has shown that workers in the investment community privately believed that investment instruments were trash, while they told clients otherwise. That is fraud. We would know of more such cases if more discovery of company records had been done by government law-enforcement agencies. But unwillingness of those agencies to subpoena relevant records is precisely what the article is about.
They are also seemingly fraudulent in another sense. Many of these mortgage-backed securities are coming under scrutiny for not being properly "mortgage-backed" at all.
When created proper paperwork trails were not kept, and the notes and mortgages were split (which is a no-no in some states) and proper records were not filed at the county level. In a lot of cases county and state law was just wholesale ignored through the MERS system.
None of this is ever a problem unless you actually need to collect on the home that serves as collateral for your note. Apparently some in Wall St didn't think far enough ahead. This is beginning to work its way through the courts and will open a whole new bag of worms for those holding these notes at par.
So not only did the 'system' encourage the writing of irresponsible mortgages and scummy sales tactics, the banks also defrauded their customers: state endowments, pension plans, universities and other purchasers of these improperly structured financial products.
Yet this is all a civil matter and nobody will go to jail. Chalk another one up to the 'best and the brightest' of Wall St.
The author is a bit sloppy, but their heart is in the right place. What recourse do people have when the government that is supposed to be enforcing laws on the behalf of the citizenry is completely controlled by the very industry ripping them off?
Sounds like he's calling the risk ratings "fraud." It would be a tough case to prove, though. There were two convenient mistakes that nobody wanted to stop making. First, the incorrect ratings, which were motivated by a conflict of interest: the folks selling the mortgage-backed securities paid the ratings agencies to rate their securities. Second, the fact that people bought the securities as if the ratings were trustworthy, despite the glaring conflict of interest.
To make a criminal case, you'd have to prove they weren't just stupid. (Sorry, Ivy League grads, that degree is not sufficient evidence by itself.) Somebody would have to find a paper trail that proved the criminals' state of mind, like an email saying, "Hey Joe, I just finished rating the latest mortgage-backed CDOs. The computer gave them all AA (LOL!) I wonder how long we can get away with using this stupid formula to overrate CDOs. Our customers love it so much, and we are getting mega rich. The people who buy these things are suckers, but they're probably getting rich selling them to somebody else LOL. Everybody gets rich except stupid grandma when her pension fund goes broke LMFAO"