DOJ Probes Wells Fargo: Unravelling the Scam Piece by Piece

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Editor’s Comment and Analysis: For those, like myself, frustrated with the pace of the investigation, we must remember that the convoluted manner in which money and documents were handled was intended to obscure the PONZI scheme at the root of the securitization scam and false claims based upon securitization.

None of us saw anything this complex and after devoting 6 years of life to unraveling this mess I am still learning more each day , even with an extensive background on Wall Street and even with my experience with bond trading, investment banking and related matters.

So first they are going after the low-hanging fruit, which is the obvious misrepresentations to the investors who actually comprise most of the same people who were foreclosed. It was pension funds and retirement accounts managed directly or indirectly by the Wall Street banks that bought these bogus “mortgage-backed” bonds. Those same funds are now underfunded and headed for another bailout fight with the Congress.

The problem is that DOJ is still looking at documents and representations when they should be probing the actual movement of money. It is there that they will find the holy grail of prosecutable crimes. The money just didn’t go the way the banks said it would. The banks took trading profits out of the money before it even landed in an account which incidentally was never titled in the name of the REMIC that issued the fake mortgage bonds backed by loans that did not exist in the “the pool.”

Nonetheless I am encouraged that DOJ is chipping away at this, and getting their feet wet, as they get to understand what was really happening, to wit: a simple PONZI scheme in which the deal would fold as soon as there were no more investments by investors.

This simple core was covered by multiple layers of false documentation, robo-signed documents and other transmissions with disclaimers, such that there would be plausible deniability. In the end it is nothing different than Madoff, Drier or other schemes that have landed many titans in prison for the rest of their lives — unless they died before serving their sentence.

I’m an optimist: I still believe that in the end, these banksters will be brought to  justice for real crimes they committed or were directing through their position in the institutions they supposedly represented. The end result is going to be an overhaul of banking like we have not seen before perhaps in all of U.S. history.

The fact remains that the assets on the balance sheets of these banks are (a) overstated by assets that are either non existent or overvalued and (b) understated by the amount of money they parked off-shore in “off balance sheet transactions.”

In the end, which I predict could still be five years away or more, the large banks will have disappeared and the banking industry will return to the usual marketplace of large, medium and small banks, each easily subject to regulation and audits.

How the staggering toll exacted from the middle class will be handled is another story. Nobody in power wants to give the ordinary guy money even if he was defrauded. But unless they give restitution to the pension funds and homeowners, the economy will continue to drag and lag behind where it should be.

Wells Fargo Wachovia Unit Faces Probe Over Mortgage Practices

Reuters

Nov 6 (Reuters) – The government’s investigation of mortgage-related practices at Wells Fargo & Co includes the making and packaging of home loans by its Wachovia unit, the bank said in a filing Tuesday.

The No. 4 U.S. bank by assets disclosed in February that it may face federal enforcement action related to mortgage-backed securities deals leading to the financial crisis.

In Tuesday’s quarterly securities filing, Wells Fargo reiterated that it’s being investigated for whether it properly disclosed in offering documents the risks associated with its mortgage-backed securities.

The bank also said the government is investigating whether Wells Fargo complied with applicable laws, regulations and documentation requirements relating to mortgage originations and securitizations, including those at Wachovia.

San Francisco-based Wells Fargo acquired Wachovia at the peak of the financial crisis in 2008 as losses in the Charlotte, North Carolina-based bank’s mortgage portfolio ballooned.

Mortgages packaged into securities for investors during the housing boom still haunt big banks years later. Banks have been accused of failing to ensure the quality of the loans and for misrepresenting their risk to investors.

In January, the Obama administration set up a special task force to investigate practices related to mortgage-backed securities at banks.

In the group’s first action, New York State Attorney General Eric Schneiderman last month filed a civil suit against JPMorgan Chase & Co for alleged fraud at Bear Stearns, which JPMorgan bought at the government’s request in 2008.

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