Hold Those Responsible Accountable!

Outright bank fraud and fraudulent and reckless banking practices contributed to the current economic meltdown.  Everyone involved in the process - from the borrowers to the brokers to the bankers to the underwriters and ratings agencies - should be held accountable.  How?  Existing fraud laws are sufficient, but Congress should expressly authorize private individuals to pursue these bad actors for a cut of the recovery.  Authorize the public to bring the equivalent of a qui tam  action in the name of the People of the United States against those  involved in this massive fraud and reckless conduct.  Until these individuals are pursued, the country will not be able to put the crisis behind and will not be able to have faith in the markets or banking system.   

As we well know by now, borrowers falsified mortgage applications to get loans they could not repay in order to buy houses they could not afford.  Mortgage brokers assisted and guided these borrowers into lying in order to get qualified so the mortgage broker could get a commission from the banks.  The banks, in turn, knew and understood that they were approving loans with less security and lower ratios than they usually required, and they knew that noone to that point had verified the information on the mortgage applications.   Knowing these loans were substandard, the banks packaged the mortgages for sale and colluded with the ratings agencies to give the collective pool of loans a higher rating than the individual loans in that pool deserved.  That was only the start of the chain, but that chain is oozing with culpability.

Instead of bailing out the banks that were at the very least collusive with the reckless conduct and/or using my tax dollars to pay my neighbor's mortgage, spend the tax dollars to pursue and hold accountable those truly responsible or authorize the private sector to do so.  Create an army of private attorneys general to pursue those who participated in this fraud.  Start with the borrowers who lied on thier applications.  Not all borrowers lied on thier applications and not all borrowed beyond their means.  Recover what you can from the ones that are culpable and leave the rest alone.  Some estimates are that these liars are less than 8% of the mortgage borrowers.  Hold these thieves accountable!

After ferreting out the dishonest borrowers, use discovery or whatever practical leverage can be applied to encourage the lying borrowers to identify the mortgage broker involved and the process used.  Then pursue the mortgage brokers.  With a vengence.  Like borrowers, not all mortgage brokers are evil.  Many were actually doing a great job placing legitimate credit with lenders.  As an aside, it is a shame that the governments are moving to over regulate the mortgage brokerage industry based on the fruadulent actions of a relatively small minority.  Focus on the small minority of mortgage brokers.  Discover how the brokers encouraged (or misled) borrowers into misstating accurate information on their application.  (Did you ever use a mortgage broker - you filled out forms by hand and they input the numbers into the computer on their forms - - the trouble is the broker never put the same numbers onto the form - - but I digress.)  These brokers were instrumental in perpetrating the fraud.  Either they failed to input the correct information in order to fudge the numbers, and/or they encouraged the borrower to misstate their financial information and/or they turned a blind eye to obviously false information.  Ferret these brokers out and recover from them the money defrauded out of the system by these loans.  Hold these thieves accountable!

 Don't stop at the mortgage brokers.  The fraud gets worse and the pool of wrongdoings is not empty.  Go after the executives and everyone in the chain at the banks who recklessly or intentionally encouraged the mortgage brokers to lie.  There is a now famous "Cheats and Tips" memo from Chase that circulated instructing its brokers how to lie on loan applications.  (Isn't that bank fraud?)   Many more examples will surface if we stop protecting those responsible and hold them accountable.  Hold these thieves accountable!

There is further to go too!  We have the ratings agencies that packaged and sold these junk bond grade assets as the highest grade assets.  That is fraud too.  It isn't just an errant opinion on value, it is systemic fraud.  Hold these thieves accountable!

Authorizing private actions and an army of private attorneys general will remove the burden of prosecution from the government and remove the recovery from the spectre of government corruption.   Part of the problem with arresting the downward slide of the economy is that noone has any faith in the system - with good reason.  It was a rigged game.  Until the government is willing to prosecute the people that raped our banking system with fraudulent and reckless practices to line their own pockets, no faith will ever be restored in the system.  (With all this fraud out their, maybe we should just forget about authorizing private actions and use the stimulus money to hire every attorney out there to purse the perpetrators - nah  - we need the private attorneys general. )