The foreclosure scandal continues to break wide open.
Several banks have halted foreclosures as clear evidence of fraud has emerged in some of their activities. Nancy Pelosi is calling for an investigation and several states, including Ohio and Florida, have already opened ones of their own.
The financial industry forging signatures and faking documents on a mass scale—hey, sounds like the run-up to the crisis. A leopard doesn’t change its spots (see Tom Toles’s great cartoon about this).
And the potential implications are enormous. Here’s a good Wall Street Journal story today on the implications for the mortgage-bond market, which triggered the financial crisis in the first place.
Yves Smith, whose work on this story has been outstanding (and early), says today:
Yet comparatively few members of the media have asked the right question: why would servicers and law firms engage in fraudulent activity on such a widespread basis?
The ugly answer, as we have detailed long form in earlier posts (see here and here for more detail) is just as the front end of the mortgage securitization pipeline broke down, with originators increasingly simply pumping any deal through in the interest of pulling out fees, the same behavior spread to the back end.
Evidence is mounting that the various parties responsible for getting the notes (the borrower IOU into the securitization trust, failed to perform a series of tasks that were clearly set forth in the governing contract, the pooling and servicing agreement. These procedures were designed to thread a path through a complex thicket of multiple legal considerations (state real estate statutes, federal securities law, trust law, IRS provisions, to name a few). The failure to do it right means any retrospective fixes run afoul of multiple boundary conditions. Thus to industry participants, fraud, bizarrely, looks to be less bad than admitting to their colossal failures to respect contractual obligations and legal requirements.
We are seeing more recognition of the consequences of this clusterfuck, which in more polite company might be called, “My dog ate your mortgage.”
This is going to get real ugly.
— I liked this Dennis Berman column yesterday in the Journal on the decline of American manufacturing and what to do about it—something we need more journalists focused on.
Berman tracked down a few brave people who have opened plants in the U.S. and talked to them about the outlook for business:
It was shocking to see just how much the government was a part of this rare crop of new factories: As a consumer of rugged boots for U.S. soldiers in Afghanistan produced at LaCrosse Footwear’s new factory in Portland, Ore.; as a provider of tax incentives for a new Sub-Zero Inc. refrigerator plant in Goodyear, Ariz.; as a builder of roads built with the aid of machines from a new $140 million Caterpillar Inc. plant in North Little Rock, Ark.
While the executives talked, it became clear they have grown concerned by the role of government in their companies. Local governments deploy tax breaks to simply steal jobs from one another, a zero-sum exercise that does little to help the national economy.
Meanwhile, federal tax laws have made U.S. business less competitive against those who should be their true rivals: foreign manufacturers.
More, please.
— Rupert Murdoch’s News of the World scandal gets worse.
A former top reporter there now says he busted into people’s private bank and medical records to try to find stories. Worse yet: He defends doing so.
Speaking at a City University debate last night, McMullan said that he “hacked into mobile phones, bank accounts and medical records” when he was investigating a cocaine smuggling ring for the paper…
He added: “I was investigating gun trafficking and people trafficking, it was in the public interest.”
Your press pass doesn’t give you a right to break the law, dude.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.