I’m shocked, absolutely shocked that bailing out the banks, not sacking their managers or prosecuting those engaged in fraud has not stopped their bad behavior:
Citigroup Whistle-Blower Says Bank’s ‘Brute Force’ Hid Bad Loans From U.S. Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.
Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify. Hat tip: The Big Picture
Wow a $158.3 million penalty. Isn’t this like making a thief hand back only part of what they have stolen?
Citigroup has approved about 30,000 loans with a value of $4.8 billion for FHA insurance since 2004; more than 30 percent of those borrowers have quit paying, the Justice Department said in its complaint. Almost half the bank’s FHA loans originated in 2006 and 2007 have defaulted, the government said, with HUD paying out almost $200 million in insurance claims on mortgages Citigroup originated or underwrote since 2004.
If the crime pays, then it is rational to engage in it. Some people will respond to incentives. Particularly as we have eroded much of our ethical base and replaced it an “It’s not a crime if you can get away with it” attitude. This partly flows from the plethora of laws. Not just those associated with drugs. How about speeding? How about running a red light on a deserted street at 2.00am? How about driving while over the limit? What about some type of petty copyright violation? In total all these laws actually work to undermine the foundations of Western civilization. They have an emergent property quite at odds with their individual effects. It’s a bit like welfare creating welfare dependency, both for individual and corporate “beneficiaries”.
Once the “law abiding” middle class looked upon the police as a source of assistance. Now if they see a police car they often glance worryingly at the speedometer. This is a fundamental change, the ramifications of which are still working their way through our society.
Needless to say at Citibank incentives appear to have worked:
Hunt’s co-workers, instead of checking for fraud or making reports about underwriting defects to the FHA as required, argued with her over the soundness of the loans, she said. Employees who acted as “gatekeepers” applied “what they describe as ‘brute force’ to pressure Citi’s quality control managers” into downplaying defects, according to the government’s complaint.
Some colleagues had pay incentives tied to reducing the number of reported problems, and they spent hours trying to get her to relax her warnings, including those about the most basic deficiencies, Hunt said.
Sad. Particularly given recent history:
Taxpayers rescued the bank with a $45 billion bailout that same year and guaranteed more than $300 billion of its risky assets after the lender’s stability was threatened by mounting costs on soured loans. The bank lost a total of $29.3 billion in 2008 and 2009.
Lest you think it an isolated incident:
MBIA tells judge of newly uncovered Countrywide fraud database Last week Bank of America agreed to pay $1 billion to resolve the Justice Department’s claims that it defrauded the government by underwriting Federal Housing Administration mortgages to unqualified borrowers. MBIA is making similar mortgage-origination allegations about the loans underlying securities it agreed to insure. And in the process it’s demanding discovery that could be of use to all the other monolines and investors clamoring for a pound of the bank’s flesh. Can Bank of America really afford to let this case continue? Hat tip: The Big Picture
There is a post begging to be written on the role of the individual in a corrupt system, but it will have to wait for another time.