Inside Job
Page 36
7. All company data are from annual reports and SEC filings.
CHAPTER 2 Opening Pandora’s box : The Era of Deregulation , 1980–2000
1. Vincent Carossa, Investment Banking in America: A History (Cambridge, MA: Harvard University Press, 1970), 322–351.
2. Banking Act of 1933 (original version), Public Law 66, 73rd Congress, sec. 21(a)1.
3. Thomas Philippon and Ariel Resheff, “Wages and Human Capital in the U.S. Financial Industry: 1909–2006” (December 2008); draft available at http://pages.stern.nyu.edu/~tphilipp/papers/pr_rev15.pdf.
4. Lawrence J. White, The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation (New York: Oxford University Press, 1990); Martin Mayer, The Greatest Ever Bank Robbery (New York: Scribners, 1990). Mayer reprints the Greenspan letter on pp. 334–336.
5. The standard sources are James Stewart, Den of Thieves (New York: Touchstone, 1992); and Connie Bruck, The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the Junk Bond Raiders (New York: Penguin, 1989).
6. For a minute-by-minute account of the 1987 crash, see the Brady Commission Report, Report of the Presidential Task Force on Market Mechanisms (Washington, DC: USGPO, 1988).
7. Bethany McLean and Joe Nocera, All the Devils Are Here: The Hidden History of the Financial Crisis (New York: Penguin, 2010), chapter 2, “Ground Zero, Baby.”
8. Yves Smith, Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism (New York: Palgrave Macmillan, 2010), 152.
9. Charles R. Morris, Money, Greed, and Risk (New York: Times Books, 1999), 168–171.
10. Alan Greenspan, “Testimony Before the House Committee on Banking and Financial Services,” September 16, 1998.
11. Alan Greenspan, “Testimony Before the House Committee on Banking and Financial Services,” October 1, 1998.
12. Alan Greenspan, “Remarks to the Chicago Conference on Bank Structure and Competition,” May 8, 2003.
13. “Greenspan Admits ‘Flaw’ to Congress, Predicts More Economic Problems,” PBS NewsHour,October 23, 2008, http://www.pbs.org/newshour/bb/business/july–dec08/crisishearing_10–23.html.
CHAPTER 3 The Bubble, Part One: Borrowing and Lending in the 2000s
1. Federal Reserve Board, “Selected Interest Rates,” http://www.federalreserve.gov/releases/h15/data.htm.
2. Center for Responsible Lending, “Subprime Lending: A Net Drain on Home Ownership,” CRL Issue Paper no. 14, March 27, 2007.
3. S&P/Case-Shiller U.S. National Home Price Index, http://www.standardandpoors.com/indices/sp–case–shiller–home–price–indices/en/us/. Between January 2000 and December 2005, the 10-City Index increased by 120 percent, the 20-City Index by 103 percent, and the National Index by 87 percent.
4. The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States (New York: Public Affairs, 2011), 89–90.
5. S&P/Case-Shiller index.
6. Rick Brooks and Constance Mitchell Forbes, “The United States of Subprime,” Wall Street Journal, October 11, 2007. The article covers only “high-rate” loans, a category that excludes all the high-risk loans initiated with very low teaser rates, which may have been the majority of them.
7. Financial Crisis Inquiry Report, 89.
8. The primary source materials for WaMu are Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, hearing before the U.S. Senate Permanent Subcommittee on Investigations (hereafter PSI), 111th Congress, 2nd sess., April 13, 2010, “Exhibits: The Role of High Risk Loans” (exhibits are not paginated); and Federal Deposit Insurance Corporation v. Kerry K. Killinger et al., Complaint, U.S. District Court, Western District of Washington at Seattle, March 16, 2011.
9. PSI, Wall Street and the Financial Crisis, “Exhibits: The Role of High Risk Loans,” Washington Mutual, “Higher Risk Lending Strategy,” Finance Committee Discussion, January 2005, and Home Loans Discussion, Board of Directors Meeting, April 18, 2006.
10. Ibid. Washington Mutual, President’s Club 2006—Kauai Business
Meeting.
11. Ibid. Rotella to Killinger, April 27, 2006.
12. Ibid. Jill Simons to Timothy Bates, Risk Mit Loan Review Data “Confidential,” e-mail, August 28, 2005.
13. Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc. et al., Superior Court of the Commonwealth of Massachusetts, Complaint and Jury Demand, July 9, 2010, 55–56; The People of the State of New York v. First American Corporation et al., Supreme Court of New York, March 30, 2009.
14. FDIC v. Killinger, 23, 25.
15. PSI, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, Majority and Minority Staff Report, April 13, 2010, http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf.
16. http://www.nytimes.com/2011/12/14/business/ex-bank-executives-settle-fdic-suit.html.
17. Financial Crisis Inquiry Report, 89–90; “Final Report of Michael J. Missal, Bankruptcy Court Examiner” (hereafter Examiner’s Report), In re: New Century TRS Holdings, Inc. et al., Debtors, U.S. Bankruptcy Court for the District of Delaware, 57.
18. Examiner’s Report, 81–82.
19. Ibid., 2
20. Ibid., 127–128.
21. Ibid., 131.
22. Ibid. (Covers the accounting issues in detail; see esp. 177–212.)
23. Shawn Tulley, “Meet the 23,000% Stock,” Fortune, September 15, 2003. The Countrywide account is based primarily on the e-mail trails and other documents assembled by the FCIC. The individual documents are available on a searchable website, http://fcic.law.stanford.edu/resource.
24. For one list, see http://en.wikipedia.org/wiki/Angelo_Mozilo#.22Friends_of_Angelo_.28FOA.29.22_VIP_program.
25. This account of Foster’s experiences at Countrywide relies heavily on three sources. The first is the OSHA Finding letter describing her experiences after she filed a whistleblower lawsuit, which she won. The letter can be found online at http://www.documentcloud.org/documents/250789-cwd-ef-final-osha-order.html#document/p8. The second source is her interview with Steve Kroft, broadcast on 60 Minutes in December 2011. This can be found online at http://www.cbsnews.com/8301-18560_162-57336042/prosecuting-wall-street/?pageNum=8&tag=contentMain;contentBody. The third source is Michael Hudson’s articles based on his interview with her. Michael Hudson is a journalist working at the Center for Public Integrity. His articles can be found at http://www.iwatchnews.org/2011/09/22/6687/countrywide-protected-fraudsters-silencing-whistleblowers-say-former-employees.
26. See http://www.cbsnews.com/8301-18560_162-57336042/prosecuting-wall-street/?pageNum=2&tag=contentMain;contentBody.
27. Commonwealth of Massachusetts v. Fremont Invest & Loan et al., Final Judgment by Consent, June 9, 2009. The final judgement included a $10 million fine.
28. Cited in Cambridge Place Investment v. Morgan Stanley, 66.
29. Ibid., 69–74.
30. Financial Crisis Inquiry Report, 89, 12.
31. Cambridge Place Investment v. Morgan Stanley, 75–78.
32. Washington Post, June 10, 2008, see http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html.
33. Calculated from respective annual reports.
34. http://www.sec.gov/news/press/2011/2011-267.htm.
35. Alan Greenspan and James Kennedy, “Sources and Uses of Equity Extraction from Housing,” Federal Reserve Board, 2007. Mr Kennedy at the Fed has kept the data up to date beyond the period in the study and furnishes them upon request.
36. “A Home-Grown Problem,” Economist, September 10, 2005.
CHAPTER 4 Wall Street Makes a Bubble and Gives It to the World
1. Financial Crisis Inquiry Report, 152–154.
2. http://www.finra.org/AboutFINRA/Leadership/.
3. The Charles Schwab Corporation v. BNP Paribas Securities, Inc., et al., Amended Complaint, Superior Court of the State of California,
August 2, 2010.
4. Financial Crisis Inquiry Report, 166.
5. Ambac Assurance Corporation et al. v. EMC Mortgage Corporation et al., Complaint, Supreme Court of the State of New York, February 2, 2011.
6. Consolidated Amended Class Action Complaint, American Home Mortgage Securities Litigation, U.S. District Court, Eastern District of New York, June 3, 2008.
7. Ambac v. EMC, 70.
8. Ibid., 71n181.
9. Ibid., 71.
10. Ibid., 72, 72n185.
11. Ibid., 74–76.
12. Ibid., 81–83.
13. Ibid., 78, 86–87.
14. Ibid., 93, 93n255.
15. Ibid., 65, 66n161, 69.
16. Ibid., 99–100.
17. Ibid., 97.
18. Ibid., 103.
19. Ibid., 104.
20. Allan Sloan, “House of Junk,” http://money.cnn.com/2007/10/15/markets/junk_mortgages.fortune/index.htm.
21. Employees’ Retirement System of the Government of the Virgin Islands et al. v. Morgan Stanley & Co., Incorporated, et al., Class Action Complaint, U.S. District Court, Southern District of New York, December 24, 2009.
22. Ibid., 13.
23. Ibid., 15.
24. In re: Morgan Stanley & Co., Incorporated, Assurance of Discontinuance, Superior Court of the Commonwealth of Massachusetts, June 24, 2010.
25. Virgin Islands v. Morgan Stanley, 11.
26. For an interesting and extended dissection of this episode, including Hubler’s relationship to his boss Zoe Cruz and the possible role of sexism in allowing Hubler’s losses, see http://nymag.com/news/business/46476/.
27. Financial Crisis Inquiry Report, “Testimony of Richard M. Bowen,” III, 1–2.
28. See the SEC complaint in the most publicized case, available at http://dealbook.nytimes.com/2011/10/26/in-fight-against-securities-fraud-s-e-c-sends-wrong-signal/.
29. HSH Nordbank AG v. UBS AG and UBS Securities, LLC, Summons and Complaint, Supreme Court of the State of New York, February 25, 2008.
30. The discussion here is drawn from PSI, Wall Street and the Financial Crisis, 243–317.
31. Financial Crisis Inquiry Report, “Interview of Robert Rubin,” March 11, 2010.
CHAPTER 5 All Fall Down: Warnings, Predators, Crises, Responses
1. Raghuram G. Rajan, “Has Financial Development Made the World Riskier?” proceedings, Federal Reserve Bank of Kansas City, August 2005, 313–69, www.kc.frb.org/publicat/sympos/2005/pdf/rajan2005.pdf.
2. Wyatt, Edward, “Judge Blocks Citigroup Settlement with SEC,” New York Times, November 28, 2011, http://www.nytimes.com/2011/11/29/business/judge–rejects–sec–accord–with–citi.html?_r=1.
3. PSI, Wall Street and the Financial Crisis, “Exhibits: Role of Investment Banks,” David Viniar to Tom Montag, e-mail, December 15, 2006, and trail; Fabrice Tourre to Geoffrey Williams et al., e-mail, December 18, 2006.
4. Ibid. “The Subprime Meltdown: Timeline of Recent Events,” presentation to Goldman Sachs board of directors, subprime mortgage business, March 26, 2007; Daniel Sparks to Gary Cohn et al., e-mail and trail, February 8, 2007.
5. Ibid. Sparks to Montag et al., e-mail, February 14, 2007.
6. Ibid. Sparks to Josh Birnbaum et al., e-mail, February 22, 2007.
7. Ibid. Sparks to Jon Winkelried, e-mail, February 21, 2007.
8. Ibid. Viniar to Gary Cohn, e-mail, July 25, 2007.
9. Ibid. Birnbaum to [redacted], e-mail, July 12, 2007.
10. Ibid. Code of Business Conduct and Ethics, May 2009.
11. Ibid. Fabrice Tourre to Jonathan Egol, e-mail, December 28, 2006.
12. Ibid. Jonathan Egol to Geoffrey Williams, e-mail, October 24, 2006, and trail.
13. Ibid. E-mails: Aliredha Yusuf to Sparks, March 9, 2007; Peter Ostrem to Sparks, March 9, 2007; Robert Black to ficc spcdo et al., March 21, 2007; Omar Chaudary to David Lehman, June 7, 2007; exchange of e-mails between Sparks and Bohra Bunty, April 19, 2007.
14. Ibid. Darryl Herrick to Mahesh Ganapathy, e-mail, October 12, 2006; sales book, Hudson Mezzanine Funding 2006-1, Ltd., October 2006.
15. Ibid. Sales book, Hudson.
16. Ibid. Ostrem to team, e-mail, October 30, 2006; Sparks to Montag, e-mail, January 27, 2007.
17. PSI, Wall Street and the Financial Crisis, Majority and Minority Staff Report, 585.
18. PSI, Wall Street and the Financial Crisis, “Exhibits: Role of Investment Banks,” Salem Deeb to Michael Swenson, e-mail, December 15, 2006, and trail.
19. Ibid. GS Syndicate to T–Mail Subscribers, e-mail, March 28, 2007.
20. Ibid. Montag to Sparks, e-mail, June 22, 2007.
21. Ibid. Matthew Bieber to Christopher Creed, e-mail, September 17, 2007 and trail.
22. Gregory Zuckerman, “Profiting from the Crash,” Wall Street Journal, October 31, 2009; http://online.wsj.com/article/SB10001424052748703574604574499740849179448.html.
23. Tourre to Egol, e-mail, December 18, 2006, “Wall Street and the Financial Crisis,” hearing exhibits.
24. Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre, Complaint, U.S. District Court, Southern District of New York, April 16, 2010, 10.
25. PSI, Wall Street and the Financial Crisis, “Exhibits: Role of Investment Banks,” sales book, ABACUS 2007-AC1, March 23, 2007.
26. http://www.nytimes.com/2010/04/21/business/21deals.html.
27. The financial details are those stated in SEC v. Goldman, which were the basis for the settlement.
28. SEC v. Goldman, Consent of Defendant Goldman Sachs & Co., July 16, 2010.
29. See the series by Jake Bernstein and Jesse Eisinger, commencing with “The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going,” ProPublica, April 9, 2010; Smith, Econned, 257–263.
30. Smith, Econned, 260.
31.http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON_uNe7I.
32. Financial Crisis Inquiry Report, 243–44, 265–75.
CHAPTER 6 Crime and Punishment: Banking and the Bubble as Criminal Enterprises
1. http://www.nytimes.com/interactive/2011/11/08/business/Wall–Streets–Repeat–Violations–Despite–PromisesStsssss.html?ref=business.
2. The standard account is Kurt Eichenwald’s Conspiracy of Fools: A True Story (New York: Broadway Books, 2005).
3. For the Citi and Chase transactions, see In re Enron Corporation Securities Litigation, First Amended Consolidated Complaint, U.S. District Court, Southern District of Texas, May 14, 2003, 35–39 (this is the primary class-action suit filed by Enron shareholders); SEC v. JPMorgan Chase, Complaint, U.S. District Court, Southern District of Texas, July 28, 2003; Securities and Exchange Commission, Accounting and Auditing Enforcement Release no. 1821, in the matter of Citigroup, Inc., respondent, July 28, 2003.
4. In re Enron Corporation, 500–501; SEC v. Merrill Lynch, & Co., Inc., et al., Complaint, March 17, 2003, U.S. District Court, Southern District of Texas at Houston.
5. Harold Meyerson, “The Enron Enablers,” American Prospect, May 10, 2007.
6. Charles R. Morris, “The Hole in the Economy,” Boston Globe, July 7, 2002.
7. Geoff Lewis, “The Bloody Mess After the Internet Bubble,” Registered Rep, May 1, 2005.
8. Ibid.
9. William H. Donaldson, “Testimony Concerning Global Research Analyst Settlement,” Senate Committee on Banking, Housing and Urban Affairs, May 7, 2003; Securities and Exchange Commission, Litigation Release, “Federal Court Approves Global Research Analyst Settlement,” October 31, 2003; Securities and Exchange Commission, Administrative Proceeding, In the Matter of Jack Benjamin Grubman, October 31, 2003; Securities and Exchange Commission, Administrative Proceeding, In the Matter of Henry M. Blodget, October 31, 2003.
10. The account of this episode is drawn from SEC v. Charles E. LeCroy and Douglas W. MacFaddin, Complaint, U.S. District Court, Northern District of Alabama, November 4, 2009; SEC, Administrative Proceeding, In the Matter of JPMorgan Securities, Inc., O
rder Instituting Administrative and Cease-And-Desist Proceedings, November 4, 2009; and William Selway and Martin Z. Braun, “JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County,” Bloomberg, May 22, 2008.
11. The narrative is from Martin Z. Braun, “Auction Bond Failures Roil Munis, Pushing Rates Up,” Bloomberg, February, 10, 2008; Liz Rappaport and Randall Smith, “Credit Woes Hit Funding for Loans to Students,” Wall Street Journal, February 13, 2008; Floyd Norris, “Auction Market Chaos for Bonds,” New York Times, February 20, 2008.
12. SEC v. Banc of America Securities LLC et al., Complaint, U.S. District Court, Southern District of New York, June 9, 2009, 7. This and other complaints provide a complete description of the process.
13. Expected settlement costs from SEC press releases on each case.
14. SEC litigation releases.
15. http://dealbook.nytimes.com/2011/02/15/del-monte-ruling-challenges-cozy-buyout-bids/.
16. The account here is distilled from U.S. Department of Justice Press Release, “Justice Department & IRS Announce Results of UBS Settlement & Unprecedented Response to Voluntary Tax Disclosure Program,” November 17, 2009; Carolyn B. Lovejoy, “UBS Strikes a Deal: The Recent Impact of Weakened Bank Secrecy on Swiss Banking,” North Carolina Banking Institute Journal 14 (February 10, 2010): 435–466; Joann M. Weiner, “Brad Birkenfeld: Tax Cheat and UBS Informant Doesn’t Deserve Pardon,” Politics Daily, June 2010; Carlyn Kolker and David Voreacos, “UBS Tax Net Snares Credit Suisse, Julius Baer Clients,” Bloomberg, September 18, 2009; and Cyrus Sanati, “Phil Gramm and the UBS Tax Case,” New York Times, August 20, 2009.
17. William Wechsler, “Follow the Money,” Foreign Affairs, July/August 2001.
18. United States of America v. Credit Suisse, AG, Deferred Prosecution Agreement, U.S. District Court for the District of Columbia, December 16, 2008. Details from Exhibit A, Factual Statement.
19. Press Release, New York County District Attorney’s Office, “Barclays Bank PLC Agrees to Forfeit $298 Million in Connection with Violations of the International Emergency Economic Powers Act and the Trading with the Enemy Act,” August 18, 2010; and Press Releases, U.S. Department of Justice, “Credit Suisse Agrees to Forfeit $536 Million in Connection with Violations of the International Emergency Economic Powers Act and New York State Law,” December 2, 2009, and “Lloyds TSB Bank Plc Agrees to Forfeit $350 Million in Connection with Violations of the International Emergency Economic Powers Act,” January 9, 2009.