Turning the Tide Toward Borrowers

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Editor’s Comment:

Nocera and several other responsible journalists have finally reached the point of taking a larger perspective than the narrow myths perpetuated by Wall Street. Wall Street would have us believe that they took bad risks and “made mistakes” causing the financial collapse. His point is the Justice Department has taken after “the smallest of smallest” and he believes that those prosecutions are in lieu of the prosecutions that ought to occur against those who are responsible for setting up a criminal enterprise with the appearance of a conventional business structure.

The problem is easy to describe and difficult to solve.  It is simply true that prosecutions of “small fry” are easier because they don’t have the resources or knowledge necessary to properly defend themselves.  It is equally true that the successful prosecution can be used for public relations purposes to show that a regulating agency or law enforcement is doing its job.

On the other hand prosecution of Jamie Dimon or Lloyd Blankfein would provoke a vigorous defense conducted by dozens of lawyers whose purpose would be to merely poke holes in the prosecutions case rather than proving their clients innocence.  In order to prosecute such people and those close to them, it would be necessary for the regulating agencies and law enforcement to acquire specialized knowledge so that they would know what to investigate and arrive at conclusions as to which violations to prosecute based upon their likelihood of success. 

The solution is obvious.  Since there is no likelihood that most regulatory agencies and most law enforcement agencies would ever be able to mount such a challenge to the Titans of Wall Street, and the political risk of losing such a case would be devastating, they simply must maintain the status quo, which is to say that they should continue the policy of going after “small fry”.  On the other hand if they really want to represent the citizens of their country or their state (or their county), they could appoint a special prosecutor whose payment would be relatively minimal in terms of getting the case started and largely dependent upon the actual payment of fines, penalties, interests, and restitution.  There are at present at least a dozen law firms in the country (including our very own GarfieldFirm.com) who could perform this service under the direction of the Attorney General or county attorney or both.

The only thing that the state would need to provide is space and facilities and perhaps some minimal capital.  To put this in perspective, I made an approach to the appropriate people in government in the state of Arizona in 2008 in that proposal it was my naïvely idealistic presumption that the state would be more than happy to collect taxes, fees, fines, penalties interest etc that were due from out of state residence residing on Wall Street in the state of New York.  Based upon existing AZ law I projected a 10 billion dollar recovery.  Their finance department looked over my analysis and decided I was wrong.  They projected a recovery of 3 billion dollars which as it turns out is exactly the amount of the budget deficit of the state. 

At this point it is fair to say that the risk reward ratio of prosecuting the Titans of Wall Street has reached a point where it is irresistible if it is performed by a special prosecutor who has no ambitions for public office.  In the process, the state would recover not only the taxes, fees, fines, penalties and interest, but the homeowners would be virtually guaranteed some form of restitution based upon the wrongful foreclosures and the trading of their loans and securities whose value was derived from their loans. 

It is well understood and known that we are only halfway through a contest of enormous consequence.  Without appropriate restraints on banking and financial service companies most of the liberties and rights set forth in the founding documents of our country will become meaningless.   Until now the investment banks have been able to control the narrative.  But the facts about their misdeeds and malfeasance are starting to drown out the gigantic Wall Street machine.  I’m not saying that the tide has already turned.  But with the help of readers like you who become proactive and write letters to their attorney generals, county attorneys, and the regulatory agencies demanding such action, the tide will turn earlier rather than later. 

The Mortgage Fraud Fraud


I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend the rest of his life with a felony on his record.

Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document — his mortgage broker did it, and he was actually a victim of mortgage fraud. (The broker later pleaded guilty to another mortgage fraud.) Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence that could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that took place during the housing bubble, the Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell.

As I would later learn, Charlie Engle was no aberration. The current meme — argued most recently by Charles Ferguson, in his new book “Predator Nation” — is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough.

But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry — and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for the government to act.

“These people thought they were pursuing the American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general — who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble — complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering that he had had a mistress and an out-of-wedlock child. Salacious though it was, the case has zero public import. Yet this same Justice Department isn’t willing to use similar resources — and perhaps even trot out some novel legal theories — to go after the pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime.”)

Think back to the last time the federal government went after corporate crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.





30 Responses

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  4. Dateline June 5th, 2012 10:00 p.m. CST

    Walker WINS in Wisconsin! You all know that I am no fan of either the R’s or the D’s, as I believe it’s the Ruling Class (Government, Academia, Media, and (?unions?)) against everybody else. But what happened here is nothing less than historic. Wisconsin went for Obamarama by 18% in 08. Today, another defeat for big government and the socialist agenda. Now let’s take this Tea Party/OWS/Libertarian/Ron Paul momentum and coalesce into a LAW AND ORDER “Americans First” party. Those 4 groups really don’t understand how closely they’re all aligned with each other. OWS has been portrayed by the media as deadbeat unemployed rich kids with their hands out; the Tea Party as racist homophobe-Right-Wing Bigots; Libertarians as pothead tax-code anarchists; and Ron Paul fans as “New World Order Tin-Foil Hat (and Tax Code) Kooks”!

    Take control. This is just the beginning.

    and thank to harry for the vote of confidence in the lien avoidance defense.

  5. You da man, usedkarguy!

  6. Judge: “We’re here for Creditors’ objection to Debtors Chapter 13 plan. Counselors?”
    Bank attorneys: “There is no allocation of payments for the secured creditor”.
    Judge: “Who is that? Oh, where’s your claim? Is this a first mortgage, second mortgage, what?”
    Bank attorneys: “Uh…we haven’t filed it yet, uh,..need final numbers from the client…uh….first mortgage….”
    ukg attorney: “You’re honor, we’ve objected to standing of any claimant regarding the real property, and how can (those guys) ask for payment on a claim that isn’t filed?”
    Judge: “Isn’t there an adversary action associated with this case, counselor?”
    Judge: “Does it include both of these entities?”
    ukg attorney: “Yes, your Honor. All three, actually.”
    Judge: “I can expect that when? The fifteenth? Thank you. Objection to Debtors plan is OVERRULED! Court is adjourned!”

    Yes, my friends. This is where the rubber hits the road.

  7. “The nonjudicial foreclosure proceedings were marred by repeated statutory noncompliance. The financial institution acting as lender also appeared to be acting as the trustee under a different name…and the trustee conducted a sale without statutory authority. Equity cannot support waiver given these procedural defects and the purchaser’s status as a sophisticated real estate investor or buyer who had constructive knowledge of the defects in the sale…We conclude the trustee sale was invalid…”

  8. http://www.huffingtonpost.com/2012/06/05/lilly-washington-bofa-foreclosure_n_1570860.html?ref=business

    Lilly Washington Says BofA Foreclosed On Her Home, Took Her Son’s Purple Heart, While She Was Visting Him In A Military Hospital

    Upon returning home from a visit with her son in a military hospital abroad, Lilly Washington was surprised to find a “for sale” sign had been planted in the yard.

    The Phoenix woman had been in the middle of a loan modification with Bank of America when she left for Germany to visit her son, according to local news station Fox 10. The bank had assured her in writing that they would wait for her return and finish the modification process, Washington says, a reason she was shocked to later find the bank had gone ahead and foreclosed on the home…

  9. DeMarco contiunies to defend the bonuses paid out to the loss-making government-owned mortgage firms Freddie and Fannie. Also he continues to deflate neighborhoods and make the taxpayer pay for the crimes comittted by Wall Street and the Bankster. In summary DeMarco is nothing but a NAZI puppet who continues to kick millions to the curb and collects his profit.

    ******************* FIRE DeMarco ******************************

  10. E.Tolle I so agree with you.Scruples and common horse sense seem to have flown out the window never to return.Stuck on stupid or what?

  11. Message to the Dead Beat DeMarco who continues to deflate my neighborhood and steal my hard earned money. You and your Freddie
    buddies created 70% of this mess. You need to clean it up or get a new job !

    ******************** Go Green – Fire DeMarco ! ********************

  12. Why is it surprising that Obama is soft on bankers, Obama oozes banker out of every pore of his body. Hillary Clinton was denied the 2008 democrat nomination by Soros and friends, who I assume felt Obama would be a much better yes man.

  13. DeMarco continues to deflate my neigbohood and yet this SOB wants me to pay for the crimes of Wall Street, The banks and Congress…Someone needs to Fire this dirty bastard !


  14. Every little bit of “how-to” helps. Here is a good pointer from Mark Stopa. Actually, FDCPA violation was incorporated in my lawsuit right off the bat and it is one of the easiest causes of action to stick.

    Using the FDCPA in Foreclosure Defense
    Posted on June 3rd, 2012 by Mark Stopa

    Nearly every client with whom I’ve spoken has lamented the never-ending, harassing phone calls received from debt collectors. “How do I make them stop calling?” Many such clients know that the Fair Debt Collections Practices Act exists, but don’t know enough about it to avail themselves of its provisions. In light of some questions I’ve received recently, it’s probably past time that I explain how I put the FDCPA to good use in my foreclosure defense practice.

    Under Section 805(a)(2) of the Act, a bank is prohibited from communicating with a homeowner when the bank knows the homeowner is represented by counsel. There are other parts of the Act and other ways a bank can be said to have violated it, but this provision is simple and straightforward – black and white – with very little room for interpretation. If I’m counsel for a homeowner in a foreclosure case, the bank can’t contact that homeowner about the debt. That’s it; no exceptions.

    Hence, without disclosing any specific conversations with my clients, I’ll say this. What I like my clients to do is log the calls. Keep track. Document them. Get a notepad and write down the date and time of each call, the name of the person who called, the company on whose behalf he/she is calling, and the substance of the conversation. If you have itemized phone bills reflecting the calls, keep them. Then give these documents/logs to me so I can use them to defend your foreclosure case.

    Contrary to what you might have thought, you don’t have to file a lawsuit to put these violations of the FDCPA to good use. You don’t even have to file a counterclaim (and incur the filing fees associated with a counterclaim). All you have to do is assert a setoff defense for the bank’s violations of the FDCPA in your existing foreclosure case.

    How does it work? Just think about it. The bank is suing you for foreclosure, but you contend the amount you owe, if anything, must be reduced by the amount to which you are entitled by virtue of the bank’s violations under the Act. At worst, that creates disputed issues of fact as to the amount you owe, precluding summary judgment. At best, this reduces the amount you owe (in theory, down to zero).

    There are certainly other ways the FDCPA can be used to help consumers. For me, though, if you’re looking to maximize the bang for your buck, i.e. to avail yourself of a legitimate defense with little input of time an expense, this is how. It’s incredibly simple for my clients to document/log the calls they receive from the bank and for me to use these calls as a substantive defense to foreclosure. Nothing fancy, nothing confusing. Just keep track of the calls you receive so I can assert the FDCPA as a setoff defense.

    Oh, and another neat thing here … I firmly believe a homeowner who defends a foreclosure case and brings a setoff defense or counterclaim for a violation of the FDCPA is entitled to a jury trial on that issue regardless of the waiver of the right to a jury trial in the mortgage. After all, the FDCPA claim exists independent of the mortgage (and the jury trial waiver contained therein), and the Eleventh Circuit (one step down from the U.S. Supreme Court) has held that consumers are entitled to a jury trial in a FDCPA claim. See Sibley v. Fulton Dekalb Collection Service, 677 F.2d 830 (11th Cir. 1982). So if/when you get to a trial in your foreclosure case, a jury will get to decide the amount of the setoff for the bank’s violations of the FDCPA.

    Yes, there’s more to the FDCPA than this. There are nuances and complications and many other violations than simply calling a homeowner who is represented by counsel. But this defense is simple and I’m confident it works.

    Mark Stopa


  15. @Guest,

    Yeah but that was an old thing i dug out. I want so much for JP Morgan to go under, I’ll hang to anything that makes me believe it will happen. Nothing personal, though. I mean… almost nothing 🙂

  16. Enron + Morgan + frauds documented here http://www.cabaltimes.com/

  17. This would be ideal but in CA every one of any legal authority is bought

  18. @enraged ,

    You’ve got that right … (your 2:47 post) … they keep digging in deeper .. every mistake is documented and cumulatively they add up to their failure .. when we go down it’s “just” Jim Smith or Daisy Duke singularly,, it’s not all of us as a class … WE are the BORG , WE are the army ants … trying every avenue and adding to our arsenal of knowledge…

    Besides it’s all going to collapse soon anyway .. we really just have to wait it out… we’re going to get the “big reset” in the monetary system before long.

  19. Oops! Never mind. I got carried away in my zeal to dig up dirt… Dang!

  20. Waow! We’re now digging all dirt to tie JP Morgan and Citigroup to some old, old sins we thought dead and burried. Is that the beginning of an in-depth clean up?

    Wednesday, July 24, 2002 Full Show Congress Investigates Citigroup and Jp Morgan Chase for Role in Enron Scandal

    Congress yesterday turned its attention to the role banking giants Citigroup and JP Morgan Chase played in the Enron scandal.

    Citigroup and JP Morgan Chase shares went into free fall as congressional investigators showed how the two biggest US banks made $200 million in fees for transactions that helped Enron and other energy companies boost their cash flow and hide debt.

    Congressional investigators Tuesday laid out evidence that the banks were knowing participants in Enron’s efforts to make its debts appear as trades through the use of “prepaid” energy contracts.

    Senior executives from both banks defended their actions, telling the congressional inquiry that “prepay” transactions were legitimate financing structures used widely on Wall Street.

    But the chairman of the subcommittee on investigations Senator Carl Levin said the banks “knew what Enron was doing, assisted Enron in the deceptions, and profited from their actions”.


    •Charlie Cray, director of the Corporate Reform Campaign at Citizen Works.
    •Dean Baker, co-director of the Center for Economic and Policy Research.

  21. Brown has been one of the most vocal senators against the banks. That guy deserves to be reelected: he’s earning his keep.

    Oversight Of JPMorgan Probed (WSJ)
    A federal agency that oversees J.P. Morgan Chase is taking heat over how much it knew about risk-taking in the part of the bank that suffered more than $2 billion in trading losses. Sen. Sherrod Brown (D., Ohio) asked Comptroller of the Currency Thomas Curry in a letter Friday for details about the regulator’s supervision of trading operations at the largest U.S. bank by assets. Mr. Brown also wants more information about the Office of the Comptroller of the Currency’s “process for reviewing trading operations” at J.P. Morgan and other big banks. The Senate Banking Committee, which includes Mr. Brown, is scheduled to hold a hearing Wednesday that will focus on the trading loss.

  22. such fraudcasters and news-spinners are concealers fed by master banks-in-fraud; they don’t crap about public: http://www.youtube.com/watch?v=HZHIXjQD1vo&feature=results_main&playnext=1&list=PL7D7AF53CB3193822

  23. @ etolle – unfortunately for China, they bought the synthetic swaps in the second CMBS Pool. Wait til they find out we have no intention of paying them back without a haircut.

  24. They keep digging their grave, one bad move at a time. Eventually, they’ll fall into it so deep that there won’t be any pulling them out of it. That day, we’ll all gather around the big hole and, one by one, we’ll throw that proverbial fistful of dirt into it (I’ll bring a shovel on behalf of all those who couldn’t make it), while listening to them holler, beg and plead for help.

    June 4, 2012, 12:18 PM.

    J.P. Morgan Also Increased Risk At Commodity, Bond-Trading Units.

    J.P. Morgan’s pursuit of higher returns in its once-sleepy chief investment office led to its surprise announcement of a $2 billion-plus trading loss earlier this month. But that’s not the only place the bank appears to be ramping up risk.

    AFP/Getty ImagesLittle-noticed amid the furor over J.P. Morgan’s loss is a significant increase in the risk measurement of its commodities and fixed-income trading desks within the investment bank.

    In first-quarter financial filings, the bank said it increased its value at risk–a measurement of the amount the bank could lose in a day–62% in commodities trading and 22% in fixed-income trading over the same year-ago period.

    The moves were the largest increase in risk measurements among the major Wall Street banks in the first quarter, a review of regulatory filings shows, and rose out of proportion to the risk in underlying benchmark indices in those markets.

    By contrast, the VaR on the S&P GSCI, a widely-cited commodity-market benchmark, rose about 20% during the period, and actually fell 5% on the Barclays Capital Aggregate Bond Index, a broad credit benchmark, according to an analysis prepared for Dow Jones by risk advisory firm MSCI.

    A J.P. Morgan spokeswoman declined comment and said bank executives wouldn’t discuss the reasons behind the increase in the risk measurements.

    Assuming the indexes bear some relationship to the bank portfolios, “I would say that’s some indication they have changed something,” said Christopher Finger, Geneva-based executive director of MSCI. “It could be the portfolio got bigger, it could be more risky, we can’t know why. But it can’t all be attributed to the market heating up.”

    Despite the rise in risk, revenue in J.P. Morgan’s trading unit that includes both desks remained relatively flat, falling 2.5% to about $5 billion in the first quarter from about $5.1 billion a year ago.

  25. Who is really naive enough to believe the “taxpayers” have ANY influence in the decisions of AGs, justice and all the enforcement agencies? Havent we learned anything?

    The powers that be are OWNED by the corporatists. A few feeble cries from journalists won’t do a thing to undo this “heist.”

    Didn’t we just watch a laughable settlement go down which only lined the pockets of politicians and state coffers, if you believe the rumors. It sure wont help homeowners.

  26. What important is that there is movement everywhere, even in states where people were so subdued that they just took it in the chin. I can see change coming. The kind I can believe in…


    N.H. state and federal courts see a big increase in the number of suits challenging foreclosures
    By Bob Sanders Friday, June 1, 2012

  27. Neil ,

    Can you do something in the Smith, Hiatt & Diaz Case v ABBY G. LOPEZ debacle … (LPS not knowing who owns loan e:mails and Smith Hyatt & Diaz complicit in continuing with wrong plaintiff name) … forcing compliance by plaintiffs attorneys in disclosing known fraud and verifying data submitted to the courts is HUGE ,, Nevada made good changes to their laws ,, we need to make fraud/theft painful … VERY PAINFUL to bank attorneys here in Florida.

  28. “On the other hand prosecution of Jamie Dimon or Lloyd Blankfein would provoke a vigorous defense conducted by dozens of lawyers whose purpose would be to merely poke holes in the prosecutions case rather than proving their clients innocence. In order to prosecute such people and those close to them, it would be necessary for the regulating agencies and law enforcement to acquire specialized knowledge so that they would know what to investigate and arrive at conclusions as to which violations to prosecute based upon their likelihood of success.”

    Well, we do pay their salaries, don’t we? Anyone with a minimum of responsibility in any given “service” field seems required to keep updated regularly through continuous education. Doctors are required to have “C.E. credits hours”. So are nurses, teachers and many others. I too must comply with the C.E requirements if i am to keep functioning. Wouldn’t it be fair and just for those regulatory agencies staff to be required to learn the ways of the banks, in order to adequately fight and prosecute them? Once again, this is a monumental cop out to justify the lack of prosecutions.

    Those guys are going to lose their jobs, as they should. I can’t see flat broke tax payers condoning the lack of education as an excuse not to prosecute the culprits. And what i do see is tax payers starting to demand that regulatory agencies hire lawyers as qualified as those payed by the banks. Either way, it is our money, right? Since we’re paying for banks’ defense (seemingly indirectyly but it is our money all the same), we might as well pay for the prosecutions too and make sure they are adequately conducted!!! In the end, we will also pay to house those guys in jail. But in that case, it will be money well spent.

  29. Thank God responsible journalists are starting to get it, only ten years into the largest heist in the history of the planet. At this rate, the Milky Way will crash headlong into the Andromeda Galaxy along about the time prosecutions of someone other than appraisers and house flippers get going.

    Oh and btw, the nation’s founding documents were securitized and the income stream was sold off years ago. Scruples are so 1960’s.

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