In the grips of a brutal financial crisis that continues to worsen despite all efforts by the governments across the world to stop it, and foreclosures continuing their unstoppable climb, there’s no question that things are pretty bad out there. Banks, in particular, have been given no reprieve at all by shareholders even as they tap into government provided funds to shore up their balance sheets and (supposedly) use that money to continue lending. With all of this chaos and hardship caused by an industry that lost sight of any sense of risk management and proper diversification, someone has to be responsible right? This wasn’t all one big mistake, obviously, someone was there to knowingly pull the trigger. The question is, two years into this crisis, who?
The answer, according to William Black, who was counsel to the Federal Home Loan Bank Board during the Savings and Loan Crisis and one of the men who blew the whistle on the “Keating Five” in 1989, says that while we know the lenders that were involved (looking at you IndyMac and Countrywide), we don’t have the investigative power or resources to know yet. The answer to why not is actually pretty straightforward, according to Black: “There is no poster child [for the housing scandal] because you need to investigate, and you need to bring cases and we haven’t done either against the major players.”
That’s because the FBI made a “strategic alliance” with the Mortgage Bankers Association which, as you might have guessed, served the major industry players. So while investigations were focused on individual mortgage brokers, major industry leaders were responsible for plenty of recurrences of fraud as well. So, as the article puts it: “In this case, the foxes truly were guarding the hen house”
What’s that mean for the future? There will undoubtedly be investigations and arrests and someone will be punished along the way, but it’s going to take time as the FBI ramps up investigations that they should have opened previously. It’ll be especially difficult for them to gather that evidence since these firms in many cases have already shut their doors, so the FBI can’t send in undercover agents to catch them in the act. The FBI will also need a lot of additional resources if we expect them to track these fraud cases down and prosecute those responsible. Unfortunately for all of us, however, plenty will still get away.
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