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Generational Dynamics Web Log for 4-May-2011
4-May-11 News -- U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations

Web Log - May, 2011

4-May-11 News -- U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations

Deutsche Bank's actions make you want to vomit

U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations

The federal government sued Deutsche Bank on Tuesday, saying the bank committed fraud and padded its pockets with undeserved income as it repeatedly lied so it could benefit from a government program that insured mortgages, according to AP. This comes just five days after the European Commission opened antitrust investigations on 16 major financial institutions, including Deutsche Bank. EU Observer.

First page of complaint

First page of complaint

As I've been writing for years, the massive fraud that led to the continuing financial crisis occurred at almost every financial and real estate institution in the world. The contempt for ethics and rules that Deutsche Bank, and its subsidiary MortgageIT, showed is typical of what happened in financial institutions around the world. It's worth extracting a few paragraphs from the complaint (PDF):

"1. ... Deutsche Bank and MortgageIT repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profied from the resale of these Government-insured mortgages, thousands of American homeowners have faced faced default and eviction, and the Government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future. ...
9. Deutsche Bank and MortgageIT repeatedly lied to HUD to obtain and maintain MortgageIT's Direct Endorsement Lender status. Deutsche Bank and MortgageIT failed to implement the quality control procedures required by HUD, and their violations of HUD rules were egregious. For instance, Deutsche Bank and MortgageIT failed to audit MortgageIT's early payment defaults; Deutsche Bank and MortgageIT failed to dedicate sufficient staff to quality control; MortgageIT repeatedly failed to address dysfunctions in the quality control system, which were reported to upper management; MortgageIT took only the staff member dedicated to auditing FHA-insured mortgages, and reassigned him to increase production instead; and when an ouside auditor provided findings to MortgageIT revealing seroius problems, those findings were literally stuffed in a closet and left unread and unopened. ...
89. Until late 2005, MortgageIT had no personnel to conduct the required quality control reviews for closed FHA-insured loans.
90. In or about 2004, MortgageIT contracted with an outside vendor, Tena Companies, Inc. ("Tena"), to conduct quality control reviews of closed FHA-insured loans.
91. As noted above, those reviews did not include early payment defaults because MortgageIT failed to identify early payment defaults to Tena.
92. Throughout 2004, Tena prepared findings letters detailing underwriting violations it found in FHA-insured mortgages underwritten by MortgageIT.
93. The findings letters included the identification of serious underwriting violations. Among the serious underwriting violations identified in the Tema findings were violations by a MortgageIT underwriter in the MortgageIT Chicago branch. The underwriting violations involved mortgages in the Michigan market, including properties in and around Darborn, Michigan, and certain repeat brokers in that market.
94. No one at MortgageIT read any of the Tena findings letters as they arrived in 2004.
95. Instead, MortgageIT employees stuffed the letters, unopened and unread, in a closet in MortgageIT's Manhattan headquarters.
96. The letters remained unopened until December 2004 or January 2005.
97. In December 2004, MortgageIT hired its first quality control manager. The quality control manager asked to see the Tena findings, but was not provided with any findings. After searching throughout the office, the head of the credit department at MortgageIT showed the quality control manager to a closet. The quality control manager opened the closet and found a series of envelopes, unopened and still sealed, in the closet.
98. The envelopes were disorganized. They contained the unread Tena findings.
99. The quality control manager opened the Tena findings, for the first time, in December 2004 or January 2005. The quality control manager quickly identified serious underwriting violations, which had remained unread over the course of the preceding year.
100. MortgageIT's failure to read the audit reports from its outside vendor prevented MortgageIT from taking appropriate actions to address patterns of ongoing underwriting violations."

If you skipped reading the above paragraphs, you ought to go back just to take in the sordid, sleazy attitudes of these people, and the depraved, debauched acts they committed. I've read many stories like this in the past few years, and they make me want to vomit.

Deutsche Bank was hardly unique. Fraud was not the exception during the credit and real estate bubble years; it was THE RULE. Fraud was rampant all over the place, and still is.

The housing bubble was caused by massive fraud throughout the entire financial and real estate industries, from top to bottom, whether it was homeowners lying on their applications, construction firms colluding with appraisers and brokers to get kickbacks by over-valuing homes, lenders who resold mortgages without checking any of the claims, lenders who adopted predatory lending practices, granting loans to people with no hope of making payments, "financial engineers" creating synthetic securities that could mathematically be proven fraudulent, investment banks that securitized loans based on the assumption that real estate prices would rise forever, ratings firms and monoline insurers that took fat fees to lie about these potentially worthless securities.

The only possible explanation for such ubiquitous debauchery is generational. There's no other way that it could have reached every corner of every financial and real estate organization, except in the contemptuous attitudes of greedy, nihilistic Generation-Xers, perpetrating fraud right under the noses of their greedy, incompetent Boomer bosses, who condoned the crimes because they also gain. This lethal combination of Gen-X nihilism, combined with Boomer incompetence is what got us where we are.

And it's far from over. The same people are still in the same jobs, adapting to new laws, and figuring out new ways to defraud. Stock brokers fraudulently ignore "one time expenses" when quoting valuations. Banks still have on their books many trillions of dollars of toxic assets that haven't been marked to market, meaning that quarterly statements are still defrauding investors. And bankers are charging usurious 30% interest rates and using the money to pay themselves million dollar bonuses, which they believe that they deserve, since they've been so successful at defrauding the public.

The financial crisis has only begun.

(Comments: For reader comments, questions and discussion, see the 4-May-11 News -- U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations thread of the Generational Dynamics forum. Comments may be posted anonymously.) (4-May-2011) Permanent Link
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Generational Dynamics Web Log for 4-May-2011 4-May-11 News -- U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations

U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations

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Generational Dynamics Web Log for 4-May-2011
4-May-11 News -- U.S. sues Deutsche Bank for $1 billion, as the EU investigates antitrust violations