If there was
ever a news story that crystalized the total corruption of Wall Street, this is it. What
follows here is a synopsis and simplification of this report.
The facts of
it were exposed in an explosive Atlantic magazine story, published last year,
called, "E-mails Suggest Bear Stearns Cheated Clients Out Of
Millions." The story begins at Bear
Stearns, where a shyster named Jeff Verschleiser used to work -- up until the
company fell apart, in large part because of the crooked schemes he devised and
implemented.
Verschleiser
headed Bear's mortgage-backed securities (MBSs) operations and he engaged in
what at the time was the industry-wide practice: putting together gigantic packages of crappy subprime mortgages and
dumping them on unsuspecting clients in the form of (bundled-mortgage)
investment securities (MBSs) that were toxic from the get-go.
But
Verschleiser went beyond that. According to a lawsuit later filed by bond
insurer Ambac, Verschleiser also masterminded a kind of double-dipping
scheme. He would sell a bunch of toxic
mortgages into a bond-investors' trust, which like all mortgage trusts had provisions
written into their pooling and servicing agreements (PSAs) that required the original lenders to buy the
loans back if said loans went into default.
So
Verschleiser would indeed sell these bad mortgages back to the banks, at a
discount; but instead of passing the returned money back
to the trust, per the contractual agreement, he and other Bear execs simply pocketed (stole) this returned money.
From the report in The Atlantic:
"The traders were essentially
double-dipping -- getting paid twice on the deal. Here's how: Once the security was
sold, the traders lacked a legal claim to get cash back from the bad loans because
that claim belonged to the bond investors. But these traders not only retrieved the cash,
they kept it. Thus, Bear was cheating
the investors to whom they had promised to sell a safe product -- they cheated
them out of their cash. And according to
former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Verschleiser was one of
two originators and operators of this double dipping scheme."
To better understand this, consider a
simple analogy
Next Page 1 | 2 | 3 | 4 | 5 | 6
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).