Terrorism, the mob and America's mortgage mess
Tony Soprano and henchman Pauly plotted financial bubbles as well as murders
The aftermath of America’s gigantic mortgage fraud-fest continues to rock world markets and reveal that a cast of baddies profited mightily including terrorists as well as mobsters and crooked investment bankers.
At root was the easy money supply of the Federal Reserve Bank, used to liquefy America out of the tech bubble. Then the bigger culprit was the failure or negligence on the part of America’s regulators, thanks to the Republican’s laissez faire religion. Cheap money, without policing, was equivalent to legalizing heroin without any controls on usage.
(Attempts by Eliot Spitzer, and other attorneys general, to police or tighten up regulations or laws were fiercely opposed in court by the Bush administration.)
No sheriff in Dodge CityBig sting too late
So Washington did nothing to protect the public, or the world for that matter, whose banks ended up with lots of these junk deals because Wall Street bundled them for export.
Now the whole mess is mired in bailouts, lawsuits and arrests. Washington just shored up Freddie Mac and Fannie Mae so they can absorb losses on mortgages that should never have been created in the first place.
But the terrorist connection is relatively unknown and hardly surprising, given the links between organized crime and organized terrorism.
In fact, an Assyrian news website carried a story back in mid-2007 that FBI and other officials were concerned about a “growing trend of terrorist associations [involved] with mortgage fraud rings in the U.S.”
“In the past year , several high-profile mortgage fraud arrests have been tied to federal terrorism investigations, most notably a ring busted up in Salt Lake City that is alleged to have direct ties to the late al-Qaeda leader in Iraq, Abu Musab al-Zarqawi,” said the story.
Money was obtained from banks fraudulently then transferred to Middle Eastern bank accounts controlled by terrorists. These cases grind through courts.
In March this year, more than 400 real estate industry players were arrested in a national sweep and thousands more investigations are underway. These crimes contributed to the country’s housing crisis because there was no policing of the system by governments and regulators.
The sting was dubbed Operation Malicious Mortgage and included Wall Streeters, rings of mortgage brokers and appraisers who made up valuations, or buyers’ identities, in order to defraud banks and collect high fees.
The Mafia cottoned onto this gravy train long ago and participated in the “fudge and flip” technique. This is easy money and consists of corrupting two or more of the real estate intermediaries or players in any deal – buyers, sellers, appraisers, mortgage brokers, bank managers or developers.
The fallout is grim and has become a growth industry for cops and lawyers. Banks are reporting ten times’ the number of suspected mortgage fraud cases as in 2001, according to the Treasury Department.
Foreclosures are sparking lawsuits by states and cities which are suing various financial institutions and ratings agencies for negligence and damages. Buffalo, Cleveland, Baltimore have huge lawsuits against lending institutions for abandoning blighted buildings, causing tax arrears problems and demolition costs.
The latest is last week, Connecticut’s attorney general sued the three major credit-rating agencies charging that they falsely gave low ratings to debt instruments (bonds raised by the state, cities, school boards, roads, prisons) and financially damaged them because it resulted in higher insurance rates than were warranted. Other states are considering suing too.
Meanwhile outside the U.S., there is shareholder litigation against the financial intermediaries like the CIBC or Deutschebank for taking the junk, writing it down and hurting share prices.
This is another Bush legacy, a second king-sized mess like Iraq that will take years and trillions to sort out.