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Wall Street's Dirtiest Deals Show Why Our Economy Fell Apart

By   Follow Me on Twitter     Message Richard Clark       (Page 1 of 6 pages)     Permalink

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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.


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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.

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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."

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To better understand this, consider a simple analogy


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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)

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