I’ve noted the brief answer that I gave on Marketplace. Here’s the expanded answer. This was not a “fraud free financial crisis.” It is a prosecution free financial crisis for the elites whose frauds caused the crisis. Historically, “control frauds” – frauds run by the senior officers who control seemingly legitimate banks and use them as “weapons” to defraud creditors and shareholders – drive serious financial crises. That was true of our two most recent financial scandals. The national commission investigating the causes of the S&L debacle found that at the typical large failure “fraud was invariably present.” The major Enron era frauds were all control frauds. This current crisis was driven by accounting control frauds. We have known, for well over a century, how to make home loans in a manner that limits fraud to negligible levels. We have known for centuries that if bankers do not underwrite the inevitable results are massive losses, endemic fraud, and failure. Honest mortgage lenders do not make liar’s loans. No one ever forced a banker to make liar’s loans. Only fraudulent mortgage lenders make material numbers of liar’s loans. My prior columns have explained that it was the lenders that overwhelmingly put the lies in liar’s loans.
The FBI warned in House testimony in September 2004 that there was an “epidemic” of mortgage fraud and predicted that it would cause a “financial crisis” if it were not stopped. It was not contained.
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