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Kathy

IT'S ENRON ALL OVER AGAIN--THE GARGANTUAN FRAUD THAT CREATED THE HOUSING CRASH

http://money.cnn.com/2007/11/13/news/companies/bulldog_enron.fortune/index.htm?postversion=2007111405

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Kathy,
I am posting complete article.  Others here have been in contact w/ Bethany McLean regarding mortgage servicing fraud and Wall Street derivative meltdown, so it's high time she got on the story.  

Uh-oh. It's Enron all over again
CNNMoney.com 

Everything was supposed to be different in the post-Enron era. So why, asks Fortune's Bethany McLean, does it feel like someone hit rewind?

By Bethany McLean, Fortune editor-at-large

(Fortune Magazine) -- Start with the headlines about off-balance-sheet entities known as structured investment vehicles, or SIVs (or sieves, as some wags are calling them). As Gertrude Stein never said, an off-balance-sheet vehicle is an off-balance-sheet vehicle is an off-balance-sheet vehicle.

Just as Enron's off-balance-sheet vehicles were propping up its stock price by camouflaging the company's real financial results, so SIVs were inflating the credit market by providing demand for the complex securities created out of mortgages and loans used to finance buyouts.

Like Enron's off-balance-sheet vehicles, SIVs were invisible to those on the outside -- and to many on the inside -- until they weren't. When times were good, these creations made money for their sponsors, but when times changed, they became a problem for the rest of us.

It's a little bit like "heads I win, tails you lose," which is pretty much how a former Enron executive described that company's off-balance-sheet vehicles.

In both cases, part of the problem was that the rating agencies, which are supposed to serve as watchdogs, were blindly optimistic, either through sheer incompetence or because of conflicts of interest. Just as Enron's investment-grade rating -- which it kept until four days before its bankruptcy -- turned out to be an illusion, so did the investment-grade ratings on many mortgage-backed securities.

"Structured finance," as the Street calls the black art of making one thing look like something else, couldn't transform Enron from a money-losing company into a moneymaking one, and it couldn't make subprime mortgages into investment-grade debt.

Now the rating agencies are scrambling to explain why it isn't a problem that they are paid by the very people they're supposed to rate, and Congress is holding hearings. That's exactly what happened six years ago.

Just as with Enron, the messy truth here is that some of the victims are also the villains. Buyers of these complex mortgage-backed securities didn't understand what they were getting, just as buyers of Enron's stock didn't understand its accounting.

But no one wants to remember two simple rules -- some things are too good to be true, and be wary of Wall Streeters bearing gifts -- when everyone seems to be making so much money. And the collateral damage always hits the true innocents, such as gas pipeline workers and homeowners.

While Marx may be right that history repeats itself, it rarely does so exactly. One of the biggest enablers of the Enron mess was the accounting firm Arthur Andersen. Today it appears that the accountants have gotten some backbone. In early October the Center for Audit Quality -- which has the backing of the Final Four accounting firms -- issued a paper saying that firms could not employ wishful thinking in valuing the complex securities on their books. And that just might explain the mammoth losses that firms are suddenly declaring.  To top of page

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arkygirl
Enron showed all of us what they were doing and how they were doing it. The whole road map was in the Enron case. But did anyone on Wall Street clean up their acts? Did anyone on the Street learn anything? Evidently not, because the Wall Street giants just kept right on keeping on with their house of cards and their lies and their frauds. And dumba$$ investors with dollar signs dancing in their heads and their dreams and their unspeakable greed for a fast buck just kept on feeding the lie until it became bigger than Wall Street, bigger than us, and bigger than this entire country.

Enron was terrible for those who had invested in it, no doubt about it. It was terrible for the people who worked there. But Enron fallout was pretty well contained and the overall economy didn't suffer much. The effects of this CDO debacle are worldwide. The dollar is in freefall and inflation is already beating us all up.

The majority of us were spared having to pay for Enron's greed and lies as long as we had sense enough to avoid their toxic stock. We will ALL pay for this one. The Fed is injecting billions into the markets to prop them up. So far it has injected and later withdrawn the liquidity. But as the spiral continues downward it will eventually be forced to crank up the printing presses (the PPT will have to go to work soon) and look out below! That's you and me here below....our pockets will be picked via outrageous inflation levels coupled with a devalued dollar. Our buying power will plummet...fuel will continue to increase in price (commodities will probably be our next Fed-generated bubble)....

Why? So that those pigs on Wall Street can stay fat and healthy and continue their scams and lies and the creation of their next bubble. It was illegal, but nothing seems to be "illegal" as long as certain folks are making money; the laws are extremely "bendable" in boom times. While the boom is on the regulatory agencies become handicapped; deaf, dumb and blind. Where I find boom times suspicious by their very nature, the agencies just look away rather than look to see if the boom is "sound". They have cleverly "spread the guilt" in this mess until almost no one knows where to look for the culprits.

Ultimately it all falls onto the backs of anyone trying to work for a living. We will be paying on into the next generation for this one. As long as there is a mostly unregulated Wall Street and the pigmen are allowed to scheme unchecked, this country will continue to endure these boom and bust cycles.

It will always be the little guy who winds up homeless and without hope. It has always been thus. It will always be so as the transfer of wealth continues in light speed now. This is not Enron, this is something so much worse that it gives me cold chills to consider the future ramifications for all of us. Enron was a minor cold to America; this is Spanish influenza and the odds of survival are much, much less.

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