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Mortgage Crooks Arrested Nationwide in FBI Sweep

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Recently, the FBI hinted that a lot of criminals might be getting arrested for contributing to the mortgage meltdown. A lot of the citizens they are sworn to protect are going through a lot of pain and suffering right now because of this.

It appears that they are now backing up their words with some action. In a three month period, Operation Malicious Mortgage resulted in 144 mortgage fraud cases in which 406 defendants were charged. So far there have been 60 arrests and charges have been brought nationwide in more than 50 judicial districts. The FBI claims that about "$1 billion in losses were inflicted by the mortgage fraud schemes employed in these cases."

Most notably two senior Bear Sterns executives were taken off the job in handcuffs, charged with securities fraud, wire fraud and insider trading for marketing two hedge funds as low risk, while knowing that they were "in grave condition and at risk of collapse". The collapse of the funds in 2007 resulted in about $1.4 billion in losses to investors.

There is no doubt that a lot of dishonest and very greedy people took advantage of the public at large.

Some people are comparing the mortgage crisis with another economic crisis, where only a rumor of fraud has been suggested thus far.

One of the reasons housing costs skyrocketed and them plummeted was a lot of property flipping. "Many experts blame the US real estate bubble in 2004 and 2005 on investor speculation and "irrational" flipping. Very low interest rates were a root cause, but speculation and flipping compounded the bubble," according to Wikipedia.

Most of this was based on speculation that the price would keep going up.

Now it is rumored that a key reason energy prices are skyrocketing is speculation in the oil market. Huge chunks of oil are bought on paper and paid for with credit. In a lot of instances, the oil is never even actually delivered. The result is that we hear that the price is being driven up because of demand.

Bill O'Reilly (Fox News) did a pretty interesting talking point on this subject, where he said:

Bottom line: Oil is being artificially marketed, and because we all need oil to live, we must pay what the industry dictates because there is no competition.

Add to this the oil speculators. These are people who buy oil contracts for delivery in the future. Only they don't really want the oil. They want the paper.

Speculators bet that oil prices will go higher, and if they do, they sell the paper to concerns that will actually take the oil. If prices go lower, the speculators lose their money.

But get this. The speculators don't have to pay cash to buy the paper contracts. They use credit, so it is easy to play this Las Vegas-type game.

Being just an average person, this leads me to believe that we might see (my opinion) some scandals come out in the future in the energy market, just as we are seeing them now come out in the mortgage meltdown now.

At the end of his talking point, Bill lamented that any help might be a long way off because of all the special interests the oil industry has in Washington.

Interestingly enough, a scandal is now brewing about two prominent Washington types getting sweetheart deals from a mortgage company, while all the real estate speculation was ongoing. The latest is that this money will be given to charity, but it illustrates Bill's last thought on why relief for the average person in the oil crisis might be a long way off.

Granted this is a speculation on my part, but it doesn't appear that it's illegal to speculate, does it?

A short while ago, I wrote another post on this matter. Given that the U.S. Commodity Futures Trading Commission is hosting an international energy market manipulation conference to look into this, perhaps we will hear a rumor that the authorities are hot on the trail of this issue, also.

Maybe some wishful thinking on my part, but remember I'm only speculating!

You can read the FBI press release on the recent arrests at the Bureau's website.

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About Ed Dickson

  • I frankly don’t know if there are any real parallels between the mortgage lending situation and that of big oil. Perhaps.

    I do know that there are many culprits in the mortgage debacle, just as there were with the S&L melt down in the early 1990s. Now, as then, people are jumping up out of their chairs vigorously pointing fingers at anyone in sight.

    Some want the blame to go on the shoulders of lenders, some onto the Federal Reserve, some onto mortgage brokers, some onto builders, some onto appraisers, some onto realtors, some onto individual mortgagors. The blame can fairly be spread amongst all of the above, and perhaps, beyond.

    Having worked for more than 20 years as a residential appraiser in central Indiana, I have seen a number of highs and lows. In that time, the current situation is the worst, the lowest I’ve seen. It’s consequences are more far reaching to a vast portion of the population and the financial community than anything I’ve witnessed.

    Some point out that this has brought opportunity to some who are in a position to take advantage of lower housing prices – namely investors – who, if they have the cash, are out there purchasing homes in volume, perhaps making a small investment in repairs, and turning them over quickly making significant profits. I have two brother in-laws who are doing just that. Unquestionably, this situation is good for them.

    But at what cost? To my leftist, bleeding heart mind, there is something unseemly about profiting from the misfortune of others. It’s an old tale. Thousands, perhaps hundreds of thousands of people are finding themselves in dire financial straits. Some are being left homeless and/or facing bankruptcy. In some cases, it is at least partly, if not wholly, their own fault.

    But it is also true that many have been caught up in circumstances not of their own making. Many were pressured, cajoled and duped into entering into adjustable rate mortgages without a clear understanding of how it was all likely to play out a few years down the road.

    To that, some say, “Tough shit.” Caveat emptor. What I find so objectionable about that mind set is that it indemnifies the predators. It says that such tactics are fine and dandy. That those who succumb to the pressure deserve their fate. It is truly seen as a part of “the American way,” that it is capitalism in its purest form. If, in fact, that is the ideal, then the best I can say of it is that it sucks.

    At a personal level, it is IMO despicable and grossly unethical. It reveals just how little regard some people have for others, especially in the name of financial profit.

    Baritone (who is NOT Baronius)

  • bliffle

    Boom and bust are characteristic of many economies. In low-level economies such as agricultural barter economies the cycles are triggered by natural phenomena such as famine and flood.

    But in highly monetarized economies where all trade occurs in a synthetic ‘money’ which can be saved and invested, cycles are initiated internally by the money system itself. That’s because market trends re-enforce themselves resulting in positive feedback and that causes oscillations. The bigger the money supply the more unstable the system is. It’s a difficult problem to control because the positive feedback system is very fast by virtue of the liquidity of money: a simple telephone call can shift large amounts of money. An automated computer transaction is even faster.

    The oscillation is finally limited by some externality finally, like total available credit or capital, whence there is collapse. That’s why bubble markets look like ‘relaxation oscillations’ that reach a peak and crash, rather than ‘linear oscillations’ that oscillate smoothly like sine waves.

  • bliffle

    Oh, I forgot to say, so the boom/bust are from the same source: the instability of the monetary system. In fact, as housing busted the winners had to find a new boom to fuel with their winnings, so oil was handy.

    So, you see, they are connected.

    In addition to the unstable speed of our liquidity system is that we have way more reasons for paper money (which is not the folding cash you might think it is, but rather the value of all the paper monetary instruments in the economy, a much larger number), you know contracts upon contracts, each level representing less actual value, in other words, leverage. Just like your home loan.

    The USA has about 12 times as much value in such paper instruments as the entire capital value of everything in the USA, which means we’re betting and investing with about 8% margin. Just like 1929.

  • Gollum

    What are the names of the 406? I thought an arrest was a public document.

  • Arch Conservative

    Are Chris Dodd, Jim Johnson, and Kent Conrad on the list?

  • derrida derider

    i dunno about the mortgage stuff, but this meme about the high price of oil being due to “speculators and hoarders” is garbage. Blaming speculators for rising prices is as old as capitalism – in fact it predates it. It was a common cause of anti-semitic pogroms over the centuries, for example.

    What it ignores is that for everyone who buys a futures contract there has to be somebody who sells it – ie who has promised to deliver the physical goods. Unless you can point to a *huge* (and rapidly growing) quantity of oil lying around in storage tanks being physically withheld from the market, those futures contracts are not affecting the quantity of oil delivered.

  • It’s not really reasonable to expect the list of all the people who had warrants sworn out for them to be put into an article like this. And I’m pretty sure that no congressmen are included in the warrants, since they aren’t known for their predatory lending practices.


  • STM

    Roughly one third of the recent rise in the price of fuel is down to speculative trading in oil.

    That’s a fair chunk. It’s not illegal to make money out of something that’s in demand, but given that it has the ability to bring down governments around the world and force huge suffering on the average working family, perhaps we need to make an exception.

    Or rather, governments need to make an exception and legislate against it.

    You know, we’re not talking about pork bellies or orange juice here.

    That’s the problem. Plus, it’s driving up the price of food as well.

    If it keeps going at this rate, it won’t be too long before household budgets double (yes, I’m in Australia and our problems are exactly like those in the US).

    When it gets to a certain point, oil speculators are in danger of being lynched.

  • An inherent problem with “markets” as they have evolved is that they don’t appear to be grounded in anything substantive. The mad ups and downs of markets are largely based upon fears often brought about via nothing more substantial than rumors or vague hints that something or someone may do such and such. I read recently somewhere that such responses demonstrate how finely tuned the market place is. I suggest it is more akin to a long tailed cat in a room full of rocking chairs.

    The current seemingly out of control speculation on crude oil does, as has been noted here and elsewhere have some connection to concerns regarding future supplies as measured against expected demand. However, it has absolutely no relation to costs. Most commodities are priced based first on cost to produce, cost to get the commodity to market, etc., with a usually reasonable mark up to accommodate entrepreneurial profit.

    What does it cost to bring a barrel of crude oil out of the ground? What does it cost to ship it? To store it? How is this reflected in its current pricing?

    I suppose I’m revealing a certain naivete regarding these types of commodities markets. But, I am looking at this through the eyes of a typical consumer and what most of us were taught in our high school economics classes. The point being that the supposed sophistication of world commodities markets have become so far removed from the individual consumer as to render all of it as meaningless, obfuscating jibberish, similar to legalese, that makes it far more possible for the heavy hitters in these markets to bamboozle the public at large crying about how little money they are really making while they are relaxing on their 120′ yachts in the Mediterranean pondering on whether to settle for the Beluga or to throw caution to the wind and go for the Osetra for lunch. Decisions, decisions!


  • bliffle

    Leverage. It’s all about leverage. A small investment that yields disproportionate rewards. But leverage works both ways, so risk increases. Then, of course, the profits are whittled away by fees, which are often proportional to the size of the principle, not the cash that changes hands.

    Fees fees fees. And then there are taxes. Alimony, child support. All take their toll and prod the investor to higher risks and more cold blooded transactions. We hope that this results in greater efficiency, more accurate response to customer needs and hard work.

    But maybe it leads to unfair use of insider knowledge, bribing officials, predatory business practices. Hard to resist the temptation when you feel the hot breath of the wolf on your neck, and see the goals of your desire within reach: a treasured object, a desirable lover, a victory over a foe.

    But we knew all that.

    Then why deny it? Why do we insist that Free Market forces will rectify human behaviour? That venal people will not be able to create scams?

    Criminal prosecution doesn’t seem to prevent it! They keep committing crimes.

    The countermeasure for society is Civil Regulation, to nip crime in the bud, as it were. To remove temptation.

    But the countermeasure to that is to find a way around the rules. If it looks like the rules then you get the luster of the rules. So packaging insecure low grade subprime loans as AAA bonds makes perfect sense. After all, one may plead, AAA ratings are a matter of opinion, and in this case it was simply bad judgement, not criminal intent. Sort of like invading a country based upon a mistake. Oops. I didn’t do anything wrong. you can’t hold me responsible.

    In fact, we are so innocent that we ARE the victims. So we should be rewarded. Compensated. If we are Bear Stearns you should bail us out, even tho we were not subject to the qualifying regulations.

    We are the innocent victims of our own bad judgement.

    But not those weenie little home buyers! Why, they were taking unreasonable risks!

  • Blif,

    Very well stated. And, of course, IMO at any rate, you are absolutely correct. Some mortgage borrowers were and are culpable. One should remember that a large number of the sub-prime mortgages went to investors often purchasing several properties, not just to individual home owners. Many of those investors knew quite well what they were doing. They knew, as perhaps their mortgage broker knew that they were overstating their income and/or their assets. And many of those investors knew they had no intentions of ever maintaining those mortgages. They knew that their intent was to skate out of their closings and hit the trail as fast as their larcenous little legs would carry them.

    The larger portion of the individuals borrowing against their homes – either as purchase mortgages or as refinance/home equity type loans probably did NOT quite understand what they were getting into. They may have felt vaguely queasy about the whole thing, but for no particularly good reason, they decided to put their trust in their mortgage broker who told them it’d be all right if they reported an income ten, twenty or thirty percent higher than what they actually made. They weren’t quite sure what the quick little wink meant as they were signing on the dotted line, but what the hey.

    Should such people get a pass? No and yes, or at least, maybe. They shouldn’t get a pass in that they are presumed to be responsible adults having the mental faculty, the financial stability and the knowledge necessary to make informed judgments about any such transactions they may seek to enter.

    Yes, perhaps they should get somewhat of a pass to the extent that in losing their homes, having their credit rating smashed to bits is likely punishment enough for most of them. They put their faith in a system that we all are constantly reassured via advertising that a financial institution’s primary interest is looking out for the customer. Of course, it’s a bald faced lie, but if one is to accept this as “the American way,” then who is in the end at fault? The lawyers, you can be assured, will not fail to point out to the hapless mortgagor that it was all there in the fine print all the time. They were just too lazy or too naive to take the time to read and, if necessary, decipher all of it. Caveat emptor.

    But, some realtors, yes, some appraisers, some builders, a goodly number of mortgage brokers, and, of course, a lot of lending institutions should have their legs cut off at the knees. They damn well should have, and likely did know exactly what they were doing. The higher up the ladder you go, the more these people should have understood regarding the consequences that such lending practices would have, not only on individuals, but on the industry and even the nation’s economy. But greed won the day.


  • Surfer

    Largely as a result of the global credit crunch brought about by the fallout from the sub-prime collapse in the United States, and underlying inflation brought about by wages growth and a red-hot economy running on the back of a mining boom, my mortgage interest rate is now up over 9 per cent thanks to about 15 rate rises in the past three years.

    That equates to an increase of $A600 ($US570) a month on my payments since February last year!

    The banks also now seem to be increasing their rates whenever they feel like it, independent of the Resrve Bank. One does it, and the rest of the major banks follows suit.

    Add to that retail fuel prices that have gone up depending on location by 50-60 cents a litre in the past six months (a litre of diesel in Australia this week is $A1.89, which is about $US1.80 this morning, unleaded is hovering at $1.70, while my calculation is that Americans are paying about $A1.10 a litre for unleaded) and increased food bills as a result, and suddenly my wages dollar looks worth a lot less than it did three years ago, despite the fact that it’s now at near parity with the greenback.

    The only way that would be good was if I went on holidays this year to Hawaii, which one of my friends has just done. However, she reports that the same price increases across the board that have stung us have also stung Americans, so she thinks she might have been better off saving the international airfare and flying up to Queensland for a break instead.

    Moral: It only has to fart in the US, and rest of us get shat on from a great height.

    Damn yankees!

  • Marcia Neil

    The ‘new’ age-55+ condominium communities might be contributing to the incidence of death and arrests among young people in those regions, especially in states that accommodate “wintering” populations and are relatively recent real estate offerings.

  • Clavos


  • bliffle

    The question is, of course, why do we impose a merit test on the weenie little home borrowers, but not the hedge fund operators? We are going to be scrupulous that no undeserving fellow who took a risk on his home purchase gets an unwarranted benefit from the government, but no such virtue examination applies to the beneficiaries of Bear Stearns.

    The answer is: because they can. The struggling little home buyer is not an acquaintance of our imperious rulers, who have no trouble at all with their home purchases, usually owning several (e.g., John McCain owns 9 homes), and get favorable terms from their peers in The Biz (e.g., Chris Dodds favorable treatment from Countrywide, even as it’s name is being widely associated with scandal).

  • Thanks so much. Finally I’m reading something that tells me that the nation is really ready to do something about those who were directly involved in the creation of the foreclosure crisis. For months now the nation has been watching as numerous homeowners are being forced out of their homes. Many city blocks have been dotted by vacant houses and the it seems like the entire real estate market has cratered. It is not enough to say that people borrowed too much money or were over leveraged. It is not enough to say that those losing their homes knew they couldn’t afford the homes before they bought them. Yes the homeowner must take responsibility. However, in order to be fair the mortgage industry and those directly involved giving out loans to people who didn’t qualify are also responsible. This must not become a witchhunt where we chase down every mortgage broker and banker. However in order to restore dignity and respect to the profession I believe that those in the financial sectors must clean up their act. I thank the FBI for helping them to get it straight.

    The Foreclosure Doctor Online.

  • bliffle

    The problem for the Little Guy is that he really has no choice. He cannot determine the terms of his loan, those are administered by a de facto monopoly in the loan biz. All the Free Market affects at all is ‘points’ or ‘rates’, not terms.

    And the Little Guy has to play. He can’t get a home elsewise. And he MUST buy because his rent is rising and, for all the usual reasons (monthly cash flow, taxes, equity) he MUST play. Even if he looks at the deals he’s offered and doesn’t like them, he must take the risk.

    And there’s the problem: The Risk. More and more The Risk is being pushed downward. Smart businessmen realize that they must foist off risk on others, and it’s too hard to push it uphill. Thus the motto: privatize the profit and socialize the risk.

    In almost all aspects of modern US society Risk is devolving downward. Even if a homeowner has home insurance, for example, he is really taking a risk that the insurance company will actually payoff in case of catastrophe. Same thing with health insurance. We all know the stories.