The Frontline; episode The Untouchables
In the episode The Untouchables, the Frontline investigates the reasons that caused the Wall Street’s leaders escape prosecution for any kind of fraud related to transactions with bad mortgages. It is based on memories of people who took significant part in the process which lead to the financial crisis in 2008 with Lehmon Brothers’ collapse and affecting large number of shareholders, banks, companies, and many others.
Insiders of mortgage industry blew the alarm whistle before 2008 when the scandal exploded followed by huge consequences. Due diligence underwriters who were known as outside contractors and were responsible for examination of loans’ quality on the part of major investment banks discovered “a ticking time-bomb in the industry that went up to the very top of Wall Street” (Frontline, Jan. 22, 2013, Blowing the Whistle on the Mortgage Bubble).
Tom Leonard who was a due diligence underwriter and supervisor from 2002 – 2007 described the whole process processing thousands of boxes filled with mortgages files, the working environment as hotel rooms full of boxes with files. On the question what kind of training did the underwriters have, he answered that the people hired for the job in 2002 were experienced in evaluating and processing mortgage loans but as the industry expanded they had to hire more and more people running out of experienced in mortgage industry people. (Frontline Jan.22, 2013)
Eileen Loiacono, also due diligent underwriter, said “there were times that everything in the file was made up, paycheck stubs, they were cut and paste. You could see it. Bank statements were not real. Nothing was real.” (Frontline, Jan. 22. 2013). Then she went on with the instructions they received “If you saw something that was a misrepresentation, such as stated income that was double what the W-2 showed in a person that was an employee, you earlier called that fraud. You called that misrepresentation. You were expressly told, Don’t write ‘fraud’ or use the word ‘fraud” (Frontline, Jan. 22, 2013).
The story goes further with Richard Bowen’s (senior vice president and chief underwriter for correspondent and acquisitions for Citigroup’s commercial lending group) description of his efforts to provoke investigations since already sixty percent of the loans did not meet the requirements of the credit policy. He met no response to his warning e-mails and telephone calls to his high – ranking officials even he discovered that the loans which were turned down by his group of employees were approved on higher level. He was connected at last with SEC where he testified and showed piles of documents in 2008 and the Justice Department in 2010.
The reasonable question is why and for what that all was perpetrated. The answer is large margin of unjustified profit. We may qualify it as the next white collar crime committed aggressively comprising huge funds. According to Attorney General Eric Holder the big banks “have an inhibiting impact on prosecutors” and “the Justice Department hasn’t been sufficiently aggressive in prosecuting major banks for the fiscal crisis.” (Frontline, March 6, 2013, Sarah Childress, Big Bank’s Clout has an Inhibiting Impact on Prosecutors”
The measures which had to be undertaken to prevent this financial turmoil to happen have their detailed expression in Dodd – Franc Wall Street Reform and Consumer Protection Act, undersigned by President of the United States Barack Obama on July 21, 2010. The whole document provides for financial stability, control and discipline. Among those we may underline the following:
- Establishing Financial Stability Oversight Council;
- Banks and non-banks institutions to submit certified reports to the Council;
- Ensuring Wall Street transparency and accountability;
- Ensuring access to Mainstream Financial Institutions;
- Establish strict regulations of Advisers to Hedge Funds and Others, etc.
Childress, Sarah, Frontline, The Untouchables, March 6, 2013, Big Banks’ Clout Has Inhibiting
Kahn, Armat, Frontline, \The Untouchables, Jan. 22, 2013, Blowing the Whistle on
the Mortgage Bubble.
The Dodd – Franc Wall Street Reform and Consumer Protection Act (Pub.L.111-203, H.R.4173)