Liar's Loans Ain't "Rocket Science"

Indeed, though multiple organs of the U.S. have banned liar's loans on fraud and predatory lending grounds, DOJ's pursuit of the fraud mice -- and implicit defense of the fraud lions -- is so extreme that it even sponsors "expert" testimony by a Bank of America official in mortgage fraud prosecutions of the fraud "mice" that claims that liar's loans were fine products and that the lender is "shocked, shocked" that 90% of them are fraudulent. All of this is typically done through the testimony of very low level loan underwriters for the lenders who are (implicitly) asked: "did you commit a fraud in making this loan?" The answer, of course, is inevitable unless the underwriter has been flipped.

Because mortgage fraud is vastly more common in loans made by lenders that are accounting control frauds and because DOJ never prosecutes the senior bankers running those frauds the cases it prosecutes are heavily weighted against borrowers of the most fraudulent lenders. It is the norm that the loans are liar's loans and it is common that the lenders make the OCC's "worst of the worst lenders" lists. This is so perverse and unjust that it should be a national scandal. It also, of course, destroys effective deterrence.

My goal has never been to "deter" DOJ from prosecuting mortgage fraud. I want them to start prosecuting mortgage fraud. The shameful record is that DOJ has not even attempted to prosecute a single senior officer of any of the lenders on the government's list of the "worst of the worst lenders" even though DOJ knows that they were endemically fraudulent lenders and drove the financial crisis that cost our Nation $21 trillion (a trillion is a thousand billions) in lost GDP and over 10 million jobs.

DOJ invariably seeks to bar courts and juries hearing mortgage fraud cases from considering all evidence, even evidence from other agencies of the United States with far greater financial expertise and evidence from cooperating unindicted co-conspirators such as Clayton, that demonstrate that the lenders' underwriting standards are shams and that the lender's decision-makers are leading accounting control frauds. DOJ does not merely invariably fail to provide defendants with exculpatory evidence such as the Clayton reports, it does everything possible to prevent the jury from being made aware of all exculpatory evidence about the criminal nature of the lenders' decision-makers and portrays the Nation's worst financial fraudsters as "victims" of alleged fraud mice. DOJ's approach to prosecuting mortgage fraud cases is Orwellian.

Unsurprisingly, the DOJ and the FBI take this victim meme from their "partner" in mortgage fraud prosecutions against the mice -- the Mortgage Bankers Association (MBA) -- the trade association of the "perps." DOJ and the MBA have adopted a fake "definition" of "mortgage fraud" in which the controlling bank officers are always the victims and the people who brought down the global financial system are purportedly the clever, ethnic, hairdressers who outwitted the guys at Bear Stearns with starting salaries of $300,000. We are supposedly experiencing the first "Virgin Crisis," conceived without sin in the C-suites. It would be very funny as satire, but alas, as the satirical riff in Men in Black put it: "We at the FBI do not have a sense of humor we're aware of."

DOJ is systematically misleading courts and juries through this testimony in order to convict the fraud mice. This strategy, of course, would make it vastly more difficult for DOJ to prosecute the senior officers who led history's most destructive (and personally lucrative) epidemics of accounting control fraud because DOJ ends up vouching for these lenders' compliance with their sham loan underwriting standards. DOJ, however, sees no cost in vouching for the officers that led the fraud epidemics. DOJ has no intention of prosecuting those elite (and not terribly elite) senior officers of the fraudulent lenders, no intention of suing them in civil cases, and no intention of "clawing back" the enormous wealth they gained by leading the three fraud epidemics.

DOJ's strategy is a legal obscenity and has produced the greatest strategic failure to prosecute elite (and not so elite) white-collar criminals in DOJ's modern history. DOJ has made it clear to senior (and even middling) bank executives that they can loot with absolute personal impunity. This guarantees future financial crises will be far more severe. But DOJ has reached a new nadir by giving top agency awards to those who lead its abject failures and by claiming that it cannot prosecute bank officers (hilariously rebranded by DOJ as "rocket scientists") because DOJ attorneys cannot do 5^th grade math.