Wall Street Fraud Goes Unpunished Again

Is there any more illustrative example of the failure of our justice system to deal with corporate malfeasance than today's ruling by the US Court of Appeals for the Second Circuit voiding the $1.27 billion fine that Bank of America had been ruled to pay over its sale of below quality mortgages to Fannie Mae and Freddie Mac during the housing bubble. The case revolved around mortgages that originated out of a program at Countrywide Financial program called High Speed Swim Lane (HSSL) that essentially stripped any controls in the loan approval process and paid bonuses for faster loan originations.  The fact that the program was known as "Hustle", a phonetic rendering of the acronym HSSL, might have been a giveaway about the intentions of this program. Incredibly, the appeals court, despite acknowledging that the Countrywide had intentionally made false statements in contracts with the government agencies, ruled that those intentional breaches of contracts did not constitute fraud.

This story goes hand-in-hand with a book that just came out that everyone should read.  The book, Chain Of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud, by David Dayen, describes the rampant fraud that financial firms committed during the foreclosure crisis in the aftermath of the collapse of the housing bubble. Because of the increased securitization of mortgages and the fact that most mortgage holders were totally unprepared for the number of foreclosures that occurred, the chain of title required by property law was totally ignored. In order to foreclose, firms had to prove that they actually owned title to the home in question and, in order to accomplish that, the firms essentially set up what became known as robo-signing factories that forged signatures of bank officers to speed up the process. When some homeowners challenged those documents during the foreclosure process, banks compounded their illegality by forging new documents and backdating them. Of course, hardly anyone was prosecuted for these crimes and Obama's Justice Department seemed uniquely disinterested in pursuing these crimes, sometimes even impeding investigation by states' Attorneys General. And once again, corporate illegality went virtually unpunished.

On Wall Street and in other industries, I'm sure, everyone "knows" when illegal conduct is occurring. But as long as no one specifically acknowledges it, companies can maintain this fiction that none of it was "intentional" and thereby maintain their innocence. When you or I knowingly make a false statement on a mortgage application, it is mortgage fraud; but when Countrywide intentionally lies in mortgage contracts with government agencies, the appeals court rules it is not fraud. That makes no sense. Somehow we must end this double standard that allows companies to get away scot free doing the very same things that land individuals in jail.