At a time
when one in four Americans has either zero or negative net worth, and the real median
wage of the American male has fallen to the level it was in 1950, renting a 94-room
hotel for three days for a teenager's party is a bit much.
So why are Verschleiser and other such fraudsters not in jail?
If the
allegations in the Ambac suit are true, Verschleiser's actions were clearly illegal. Most notably, the pocketing of putback money was
outright theft.
The rest of the
Bear/Verschleiser's scheme is also illegal, but in a more complicated way. If you read the complaint in the Ambac suit,
what you see is a blueprint for how
mortgage securitization worked in general during this period.
There is a wide
range of fraudulent and corrupt practices here -- everything from withholding
material facts from customers and ratings agencies, to threatening ratings
agencies with lost business if they didn't fraudulently overrate bonds, to outright
lying in the securities "offering' documents, to the criminal manipulation/falsification
of accounting procedures. (This even went
on after the loans had moved onto Chase's books). But the most flagrant violation in the suit
involves the issue of due diligence.
It seems
that when Bear really did have due
diligence done in preparation for these deals, it very frequently overrode the findings of the firms they'd
hired to do that due diligence, then including the red-flagged shitty
loans in the deals anyway. In the third
quarter of 2006, Bear overrode its due diligence firm 65% of the time, putting shitty
loans into their securitization investment (MBS) packages, despite an outside
firm having red-flagged them.
Even worse, Bear went out of its way to hide the
evidence that it was knowingly ignoring due diligence.
This from the lawsuit complaint:
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