It's Good - no - Great to be the CEO Running a Huge Criminal Bank

Everyone involved in the faux foreclosure review -- the "consultants" hired who to do the review, the mortgage servicers, the (non) regulators, and the GAO performed abysmally.  The "review" was an expensive farce.  The regulators did not conduct the review.  The servicers did not conduct the review.  The consultants were chosen by the servicers, which the regulators should never have allowed.  The consultants were allowed to have additional conflicts of interest such as having worked on the loan foreclosures they were reviewing.  The "design" of the (non) study was an embarrassment.  The (non) study collapsed almost immediately because it turned out that many of the servicers' files were so pathetic that the study "design" could not be followed.  Rather than stop and reconsider the implications of those file defects for the likelihood that the servicers engaged in fraud in order to foreclose the regulators decided to continue.  The more severe the file defects the greater the incentive of servicers to engage in foreclosure fraud.

The consultants were soon hopelessly behind schedule and budget because of the severity of the loan file defects.  Eventually, the (non) regulators gave up and brought the (non) study to an end, not with a bang but with a whimper.  Real regulators would have had great negotiating leverage.  The servicers had agreed to conduct the study and failed.  It would cost the servicers more to complete the review than simply boost the payout by several billion dollars.  The two obvious answers were to continue the study and order interim payouts or to stop the study and in return for a significantly larger payout to homeowners.  Naturally, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve found a third, far worse choice.  They left the cash on the table that could have gone to the homeowners.  The GAO was no stronger.  They do agree that the OCC and the Fed left billions on the table but they also give them a pass, saying that the settlement is in the "range" that would emerge from the regulators assumed rate of bad foreclosures.  The problem, as the facts disclosed in the GAO's report make clear, but GAO's analysis ignores, is that the regulators' assumed rate of bad foreclosures had no reliable basis and was proven to be far too low an estimate by the fact that the loan files were so incomplete that the consultants could not complete the study.  So, there is no reliable basis for GAO's claim that there is any "range" of reasonableness for the payments to homeowners.  This passage from the GAO report conveys the GAO and the regulators' unique approach to (non) quantification.

" Failure to maintain sufficient documentation of ownership. Although the 2010 coordinated reviews found that servicers generally had sufficient documentation authority to foreclose, examiners noted instances where documentation in the foreclosure file may not have been sufficient to prove ownership of the mortgage note. Likewise, during the subsequent consent order file reviews, some consultants found cases of insufficient documentation to demonstrate ownership [GAO 2014: 55].

"Generally," "instances," and "some consultants found cases" -- billions of dollars were spent to produce nothing but these useless, vague phrases.  The "study" "results" were so worthless that the GAO reports that the consultants did not even bother to create reports on their work.  Instead, and this is hilarious, the OCC and the Fed held "exit interviews" with the consultants.  Only a PR "expert" planning to put lipstick on a wild boar would spend even more money on such a useless exercise."  The GAO tells us that many of the regulators' exam teams given the exit interview materials concluded that they were useless.

Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, has been trying to get the regulators to do the right thing and has urged the chairman of the committee to investigate the servicers' and regulators' actions.  Waters has been, rightly, extremely critical of the servicers and the regulators.  Here is the link to an interview of her that is well worth reading in its entirety.

Postscript: The WSJ op ed's Ode to Insider Trading

Henry Manne is back.  The WSJ published his op ed on same day these other two stories ran.  Manne ran the effort for decades to indoctrinate judges and law professors in theoclassical economics.  Manne's metaphor is that insider trading is like prohibition.

Manne's op ed asserts that insider trading cases target "low level functionaries."  Manne's so-called "low level functionaries" consist of millionaires and multi-millionaires that include the head of a major hedge funds and a senior official at Goldman Sachs.

"We see federal prosecutors making names for themselves by convicting mostly low-level functionaries. We see the so-called corruption of otherwise good folks, including medical researchers and high-tech specialists, with valuable information. Yet with so much wealth at stake, this 'corruption' surely goes far beyond what prosecutors have been able to demonstrate."

Manne's point is that if business officials have an incentive to cheat they will.

"There is about as much chance of stopping trading on undisclosed financial information as there ever was of stopping the consumption of booze. There is simply too much money sloshing around the world's stock exchanges waiting for an 'edge.'"

To use Manne's metaphor, Wall Street is manned by alcoholics who are so addicted to greed and so devoid of ethics that Manne says it is impossible to deter them from committing these felonies even if you put hundreds of them in prison.

"The imagination of wealth seekers in using valuable information in the stock market will always outpace the ability of regulators to cope. The payoffs are too big and too accessible and the number of willing players too great for the practice to be significantly inhibited by scores of convictions."

So, the financial industry is run by alcoholics who are so addicted to greed that they think they have the right to profit personally from confidential corporate information -- and Manne's answer is to roll out the keg and shout "drinks for everyone."  Manne provides another proof of one of our family rules: it is impossible to compete with unintentional self-parody.

Is anyone on Wall Street horrified by Manne's "defense" (indictment) of them?  Now would be a good time for you to take a public stand and lead a long-term public campaign to clean up the Street.