Small Victory for Little Guy After Financial Crisis

Thomas FrankThomas Frank wrote an excellent article this last weekend, Finally, Wall Street Gets Put on Trial: We Can Still Hold the 0.1 Percent Responsible for Tanking the Economy. I’ll give you a basic rundown and some thoughts here, but you should read the whole thing. It calls into question the administration’s claims that they couldn’t go after the bankers because “financiers simply could not have committed fraud, since you would expect fraud to result in riches and instead so many banks went out of business.” This is nonsense, of course.

As I have admitted before, I find finance and the whole idea of money to be mystifying. But this is very clear. We know only too well that from the CEOs on down, people at banks were able to enrich themselves in the short run by doing things that were bad for the banks in the long run. Of course, because the administration has shown so little interest prosecuting the bankers, it’s worked out for them in the long term too. And it mostly hasn’t been bad for the banks because the government was there to bail out the whole industry.

As you may recall, after the financial crisis, the conservative narrative was that the problem wasn’t the banks. No, it was those greedy poor people who bought houses they couldn’t afford. It was Rick Santelli’s neighbor who made an addition to his house. It was Freddie and Fannie and Barney Frank pushing “those people” to buy homes they couldn’t possible afford because everyone knows that “those people” don’t have jobs! But as Frank noted, “Sure enough, when taking on ordinary people who got loans during the real-estate bubble, the president’s Department of Justice has shown admirable devotion to duty, filing hundreds of mortgage-fraud cases against small-timers.” When it comes to the people giving out the loans, Mitt Romney could hardly have been more forgiving.

One of these cases of the federal government going after those mean poor people occurred recently in Sacramento. It concerned a “group of eastern European immigrants” who bought houses in 2006. They got what are called “liar’s loans” where those applying didn’t have to prove their income. All they had to do was state it on the loan application. The bank would not check. That was the main selling point of the loan:

And lenders so didn’t care back in the bubble days. They invented liar’s loans and blanketed the country with them during the Oughts not because the poors talked them into doing it, or because the liberals in the Bush Administration forced them to do it — on the contrary, the government warned them against issuing these things, just as the government warns us against swallowing arsenic. The reason bankers did it was because liar’s loans were making bankers rich.

The way the government sees it, the banks have been victims in all of this. Of course, there is a case to be made for this. But the banks were not victims of people taking these loans; the banks were victims of their own people who were selling these loans. But the government prosecutors apparently haven’t even considered this. In these cases, they haven’t even talked to the management at the banks. When a federal agent was asked if he was concerned about the conduct of those loaning the money, he replied, “No. I would consider — they’re the victims in this case. That’s how I consider them.” Note how the conduct of Trayvon Martin and Michael Brown are very much of interest to prosecutors.

Regardless, there is this thing in the law that states that fraud must be “material.” That means that it has to have been part of the decision process. So if you told your loan officer that you never cheated on your wife when you had, that would not be material because it wouldn’t be part of deciding if you got the loan. Well, with these “liar’s loans” it is clear that the banks didn’t care if the borrower was telling the truth or not. They were going to give out the loan because they were going to make money regardless.

Using this fact, the defendants were acquitted of the fraud charges. It’s very good news. And now other people are going to use the same defense. The problem, however, is that there are many (probably most) judges who won’t even allow the behavior of the banks to be considered in the trial. These are poor people: we can’t allow them to get away without punishment! And dragging the behavior of the rich bankers through court will be so unfair! But this is at least a little bit of great news.

Of course, the Obama administration has no intention of easing up:

Have no fear. The government is on the case. They’re going to track down people who lied on a loan application in the last decade and go after them. Unrelenting pursuit of the people at society’s bottom.
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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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