EasternOrthodox
Ammunition for Occupy Wall Street
Posted on: 12/13/2011 19:52
As most readers know, a large part of the anger in the US has been about fall-out of the 2008 financial crisis. This is a long story, but basically it resulted from a steady loosening of banking regulations, eventually leading to mortgages being issued to almost anyone (the "subprime" crisis), the consequent real estate bubble, and then the Great Collapse in 2008.
Truly, the fault lies with the law-makers. If you open the door to the chicken house and invite the fox in, then you are delinquent in your duty!
However, many of the bankers packaging these subprime mortgages became wealthy from high salaries and bonuses, and in some cases, their institutions went bankrupt. Shareholders thus lost all their money too. So did taxpayers, who had to guarantee all the deposits.
But there have been virtually no breaks for beleaguered home-owners, who have been foreclosed on by the million.
Here is story from The Wall Street Journal that I am re-posting from Financial Crisis (which no one seems to read). Washington Mutual is called a "thrift" (essentially a bank). The management were particularly aggressive in the subprime area and WaMu went bankrupt. The management were either too stupid to see they were heading for bankruptcy, or simply decided they were already wealthy enough personally and perhaps did not care.
FDIC (Federal Deposit Insurance Corporation, representing the government agency that guarantees bank deposits) sued WaMu, to try and claw back some money from the management. Limited success....
http://online.wsj.com/article/SB1000142405297020433610457709474216147362...
WaMu Ex-Officials Settle FDIC Lawsuit
Payout Would Only Be Fraction of Amount Sought by U.S.
DECEMBER 13, 2011
Three former executives of Washington Mutual Inc. have agreed to settle a civil lawsuit stemming from the biggest-ever U.S. bank failure for less than 10% of the $900 million that was sought by federal regulators, according to people familiar with the situation.
The deal would mark the latest setback for the government in a high-profile, financial-crisis-related case. The lion's share of the payout, which is expected to total less than $75 million, would come from insurers and the bank's estate—not from the pockets of the former executives.
Although only a fraction of the amount sought by the Federal Deposit Insurance Corp., the payout would be among the largest since the financial crisis and would end the most prominent attempt by the agency to bring cases against bank executives for alleged wrongdoing.
The FDIC, in a lawsuit filed in federal court in Seattle in March, accused former Chief Executive Kerry Killinger, ex-President Stephen Rotella, and David Schneider, the bank's former home-loans president, of taking gambles that sparked the thrift's collapse in 2008. The agency also accused the three, along with the wives of Messrs. Killinger and Rotella, of seeking to shield cash and their houses from legal claims. The three former executives received a total of $95 million in compensation between 2005 and 2008, the FDIC said in its lawsuit.
A lawyer for Messrs. Rotella and Schneider said a settlement had been reached but declined to comment about the dollar amount. The settlement also would end litigation against their wives. A lawyer for Mr. Killinger declined to comment, as did the FDIC. The defendants didn't admit or deny any wrongdoing in settling the suit.
In its lawsuit, the FDIC alleged the three executives "focused on short term gains to increase their own compensation, with reckless disregard for WaMu's longer-term safety and soundness."
The three denied the allegations. Mr. Rotella said last March in a statement that it was "patently unfair for the FDIC to expect an individual to have perfect foresight into a crisis that the FDIC itself did not see coming." Mr. Killinger said in a statement in March that "the management of Washington Mutual was sound and prudent." He said banking regulators had reviewed the bank's position and had "unfettered access" to its books in the months leading up to its collapse.
Messrs. Killinger, Rotella and Schneider had asked for the case to be thrown out. In harshly worded filings, they accused the FDIC of trying to deflect criticism of its handling of Washington Mutual's troubles, which ended with the FDIC's September 2008 seizure of its banking assets and their sale to J.P. Morgan Chase & Co. The FDIC, which didn't suffer any losses in taking over Washington Mutual, plans to use the funds it recovers in the lawsuit to defray the cost of other bank failures.
A criminal investigation involving Washington Mutual was closed by the U.S. attorney's office in Seattle earlier this year, with no charges being brought. Other probes into criminal charges at other companies that helped fuel the subprime mortgage boom, such as IndyMac Bancorp and New Century Financial Corp., have stalled and could result in no charges being filed, said people familiar with the situation.
One of the few successful criminal prosecutions ended in June, when a federal judge sentenced the former chairman of Taylor, Bean & Whitaker Mortgage Corp. to 30 years in prison for running a multibillion-dollar fraud that led to the collapse of the Ocala, Fla., company and regional Colonial BancGroup Inc. of Montgomery, Ala.
Regulators have had more success with civil enforcement actions related to the financial crisis, partly because officials pursuing civil proceedings don't have to prove intentional wrongdoing.
Angelo Mozilo, former chief executive of subprime lender Countrywide Financial Corp., paid $67.5 million last year to settle civil fraud charges filed by the SEC. Mr. Mozilo didn't admit or deny wrongdoing. Countrywide was purchased by Bank of America Corp. in July 2008.
The biggest individual U.S. civil penalty was assessed last month against former hedge-fund manager Raj Rajaratnam, who was ordered to pay more than $92.8 million in an insider trading case brought by the Securities and Exchange Commission. Mr. Rajaratnam is serving an 11-year prison sentence in a related criminal case. He is expected to appeal the conviction and the fine.
Legal experts are expecting a wave of civil settlements in coming years. The FDIC's board has authorized lawsuits seeking total damage claims of at least $7.6 billion against 373 individuals who were involved with 41 failed institutions. In many cases it is targeting the directors and officers insurance proceeds left behind by the failed bank, a tactic FDIC also employed during the savings and loan bust of the late 1980s and early 1990s.
The FDIC's willingness to settle for significantly less than the amount sought in the Washington Mutual case was "probably in large part driven by what's remaining in the directors and officers liability insurance policies," said Kevin LaCroix, executive vice president at broker OakBridge Insurance Services LLC.
The Washington Mutual insurance fund already was tapped earlier this year during a $208.5 million settlement of a separate shareholder class action lawsuit against former executives and directors and other co-defendants. The federal suit alleged Washington Mutual failed to stop investors from investing in the company when it knew, or should have known, the extent of its troubles. More than half of the total will be covered by insurance, according to the settlement document.
There are three components to the new Washington Mutual settlement: the cash from the insurance proceeds, a minimal amount of cash from the three individuals and a potential release of other claims from Washington Mutual's bankruptcy case, such as executive severance payments that would be turned over to the FDIC, said people familiar with the matter.
The last piece of the pact could vary depending on how much those bankruptcy claims are paid out, said a person familiar with the matter.
Washington Mutual's parent has been in bankruptcy court for more than three years. A federal judge has twice rejected proposed plans that would return billions to creditors while also awarding assets to J.P. Morgan Chase.
The FDIC takeover action became controversial when shareholders and some bondholders, both of whom had their holdings virtually wiped out, said after the seizure that WaMu shouldn't have been taken down. A bankruptcy examiner said he found no evidence that FDIC and J.P. Morgan acted improperly when regulators seized the Seattle thrift.
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EasternOrthodox
Posted on: 12/13/2011 20:01
Here is part of a follow-up story today:
http://online.wsj.com/article/SB1000142405297020343040457709636199156758...
Ex-Executives at WaMu to Forgo Retirement, Bonus Claims
....
"In any settlement, we're not going to get the total amount that we're seeking," one senior official said in a conference call with reporters on Tuesday. The FDIC believes the settlement is the maximum recovery the FDIC could have gotten, the official said. As with any settlement, the agency considered the cost of further litigation, defendants' ability to pay and risk of losing the case, officials said.
The settlement could be finalized as early as Wednesday, officials said, and still needs court approval. FDIC officials confirmed the $64 million figure but didn't break out the components of the agreement. The Wall Street Journal had reported Monday the broad outlines of the settlement.
About $400,000 will be taken directly from the pockets of former Chief Executive Kerry Killinger, ex-President Stephen Rotella and former home loans President David Schneider, said people familiar with the matter. They also agreed to give up about $24 million in surrendered retirement and bonus claims against the bank's estate, these people said. The rest of the $64 million will be paid by the liability insurance from the failed bank.
The settlement also comes on top of $125 million the FDIC said it has secured as part of a separate settlement it reached with Washington Mutual to release claims against other former outside directors and officers.
The FDIC, in a lawsuit filed in federal court in Seattle in March, accused Messrs. Killinger, Rotella and Schneider of taking gambles that sparked the thrift's collapse in 2008. The agency also accused the three, along with the wives of Messrs. Killinger and Rotella, of seeking to shield cash and their houses from legal claims. The three former executives received a total of $95 million in compensation from 2005 to 2008, the FDIC said in its lawsuit. Washington Mutual's September 2008 collapse was the nation's largest-ever bank failure.
The settlement would end litigation against the wives of Messrs. Killinger and Rotella. Lawyers for the three men declined to comment.
EasternOrthodox
Posted on: 12/13/2011 19:59
An outraged commenter writes:
Talk about "moral hazard" -- these guys still walk away with millions for having destroyed billions in investor equity and helped bring on our current depression, all if it through the knowing and corrupt investment and sale of worthless securities. Instead they lose their bonuses!
The feds should have clawed back 10 years' salary and bonuses, and thrown them in jail for 10 years. This settlement is analogous to issuing Osama bin Laden a ticket for "disturbing the peace" instead of having shot him on the spot, as he deserved.
LBmuskoka
Posted on: 12/14/2011 08:53
Record high household debt in Canada triggers alarm
tavia grant
From Wednesday's Globe and Mail
Published Tuesday, Dec. 13, 2011 8:45AM EST
Canadians have set a new record for household debt, a sign that many families are leaving themselves vulnerable to an economic shock.
The debt burden of Canadian households has surpassed levels of both the United States and the United Kingdom and, by at least one measure, they are hurtling toward those countries’ peak levels of 2007, new Statistics Canada data show.
The concern is that any sudden negative event – such as a jump in unemployment, falling house prices or rising interest rates – could put many thousands of families in financial stress. The debt squeeze also suggests that consumer spending will be muted in the year to come, putting a damper on economic growth.
[...]
Excessive spending is only part of the equation. On the other side of the ledger, Canadians are facing falling real wages and job creation that has stalled, on top of tumbling stock prices and a drop in the value of pension assets.
Indeed, that’s one reason TD’s Mr. Burleton thinks Canadian debt levels will rise further, even as the rate of debt accumulation slows.
Per capita household net worth sank to $180,100 from $184,700 in the second quarter – the sharpest quarterly drop since the end of 2008, the statistical agency said.
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But of course the Canadian OWS protesters where just a bunch of spoiled whiners and dismissed.....
It is funny how mortals always picture us as putting things into their minds: in reality our best work is done by keeping things out.
Senior Demon: C.S. Lewis, The Screwtape Letters
EasternOrthodox
Posted on: 12/18/2011 16:00
About time, but this looks pretty tame compared to the damage wrought by Fannie and Freddie.
http://online.wsj.com/article/APbdc71849d39b45fe8a26256c60ac9b10.html?KE...
US charges ex-Fannie, Freddie CEOs with fraud
Associated Press, December 17, 2011
WASHINGTON — Two former CEOs at mortgage giants Fannie Mae and Freddie Mac on Friday became the highest-profile individuals to be charged in connection with the 2008 financial crisis.
In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron.
The executives were accused of understating the level of high-risk subprime mortgages that Fannie and Freddie held just before the housing bubble burst.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, SEC's enforcement director.
Khuzami noted that huge losses on their subprime loans eventually pushed the two companies to the brink of failure and forced the government to take them over.
The charges brought Friday follow widespread criticism of federal authorities for not holding top executives accountable for the recklessness that triggered the 2008 crisis.
Before the SEC announced the charges, it reached an agreement not to charge Fannie and Freddie. The companies, which the government took over in 2008, also agreed to cooperate with the SEC in the cases against the former executives.....
Many legal experts say they don't expect the six executives to face criminal charges.
"If the U.S. attorney's office was going to be bringing charges, they would have brought it simultaneously with the civil case," said Christopher Morvillo, a former federal prosecutor now in private practice in Manhattan.
Robert Mintz, a white-collar defense lawyer, says he doubts any top Wall Street executives will face criminal charges for actions that hastened the financial crisis, given how much time has passed...
Mudd, 53, and Syron, 68, led the mortgage giants in 2007, when home prices began to collapse. The four other top executives also worked for the companies during that time...
According to the lawsuit, Fannie and Freddie misrepresented their exposure to subprime loans in reports, speeches and congressional testimony.
Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. That same year, Mudd told two congressional panels that Fannie's subprime loans represented didn't exceed 2.5 percent of its business....
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
During the financial crisis, the two firms verged on collapse. The Bush administration seized control of them in September 2008.
So far, the companies have cost taxpayers more than $150 billion — the largest bailout of the financial crisis. They could cost up to $259 billion, according to their government regulator, the Federal Housing Finance Administration.
Mudd was paid more than $10 million in salary and bonuses in 2007, according to company statements. He was fired from Fannie after the government took over. He's now the chief executive of the New York hedge fund Fortress Investment Group.
Syron made more than $18 million in 2007, according to company statements. His compensation increased $4 million from 2006 because of bonuses he received — part of them for encouraging risky subprime lending, according to company filings. It's not clear what portion of the bonuses was for his efforts to promote subprime lending.....
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An excellent book on the topic:
Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon
by Gretchen Morgenson and Joshua Rossner
Times Books
http://www.amazon.ca/Reckless-Endangerment-Outsized-Corruption-Financial...
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See also this WSJ editorial on Newt Gingrich's links to Freddie Mac:
http://online.wsj.com/article/SB1000142405297020369940457704631240815335...
EasternOrthodox
Posted on: 12/28/2011 23:19
US-oriented (Republicans AND Democrats), but I am sure Canada is no better.
http://www.nationalreview.com/articles/286704/repo-men-kevin-d-williamso...