It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions

by Nomi Prins

  89 Joe Nocera, “So When Will Banks Give Loans?” New York Times, October 24, 2008.

  90 United States Senate Committee on Banking, Housing and Urban Affairs, Pulling Back the TARP: Oversight of the Financial Rescue Program, 111th Cong., 1st sess., 2009.

  91 February Oversight Report, Congressional Oversight Panel, February 6, 2009, p. 4.

  92 Nomi Prins and Krisztina Ugrin, “TARP Evaluation,” June 2009, http://www.nomiprins.com/bailout.html.

  93 February Oversight Report, Congressional Oversight Panel, February 6, 2009, p. 8.

  94 U.S. Office of SIGTARP, “Testimony Before the House Committee on Financial Services Subcommittee on Oversight and Investigations,” February 24, 2009, p. 1, http://sigtarp.gov/reports/testimony/2009/Testimony_Before_the_House_Committee_on_Financial_Services_Subcommittee_on_Oversight_and_Investigations.pdf.

  95 Nomi Prins and Krisztina Ugrin, “Bailout Tally,” June 2009, http://www.nomiprins.com/bailout.html.

  96 Sue Kirchhoff, “Paulson Defends Bailout, Lawmakers Seek Foreclosure Aid,” USA Today, November 19, 2008.

  97 United States Department of the Treasury, “Statement by Secretary Henry M. Paulson, Jr. at the Development Committee Meeting,” press release, October 12, 2008, http://www.treasury.gov/press/releases/hp1198.htm.

  98 Henry M. Paulson interview by Maria Bartiromo, The Call, CNBC, January 12, 2009.

  99 Jacki Calmes, “Senate Confirms Geithner for Treasury,” New York Times, January 26, 2009.

  100 Federal Reserve Bank of New York, About the Fed, “Organization,” http://www.newyorkfed.org/aboutthefed/org_chart.html; Federal Reserve Bank of New York, Organization, “Stephen Friedman,” January 2008, http://www.newyorkfed.org/aboutthefed/orgchart/board/friedman.html.

  101 Goldman Sachs, “Managing Directors,” January 1, 2009; “An Economic War Council,” Portfolio, May 12, 2008, http://www.portfolio.com/graphics/2008/05/An-Economic-War-Council.

  102 Gary Weiss, “The Man Who Got Saved (or Got Suckered by) Wall Street,” Condé Nast, Portfolio, June 2008.

  103 Federal Reserve Bank of New York, “New York Fed Names Timothy F. Geithner President,” press release, October 15, 2003, http://www.newyorkfed.org/newsevents/news_archive/aboutthefed/2003/oa031015.html.

  104 Kevin Dowd, “Too Big to Fail? Long-Term Capital Management and the Federal Reserve,” The Cato Institute Briefing Papers 52, September 23, 1999.

  105 Weiss, “The Man Who Got Saved (or Got Suckered by) Wall Street.”

  106 National Economic Council, Lawrence H. Summers, The White House, http://www.whitehouse.gov/administration/eop/nec/chair.

  107 Times Topics, “Timothy F. Geithner,” New York Times, March 24, 2009, http://topics.nytimes.com/topics/reference/timestopics/people/g/timothy_f_geithner/index.html.

  108 Sheryl Gay Stolberg, “In a World Not Wholly Cooperative, Obama’s Top Economist Makes Do,” New York Times, February 16, 2009.

  109 Andrew Ross Sorkin, ed., comment on “Hearing Over, Geithner’s Confirmation Is Expected,” DealBook, comment posted January 21, 2009, http://dealbook.blogs.nytimes.com/2009/01/21/hearing-over-geithners-confirmation-is-expected.

  110 Politics, “Transcript: Timothy Geithner Confirmation Hearing,” Washington Post, January 21, 2009, http://www.washingtonpost.com/wp-srv/politics/documents/transcript_geithner_012109.html.

  111 Yalman Onaran and Michael McKee, “In Geithner We Trust Eludes Treasury as Market Fails to Recover,” Bloomberg, February 25, 2009, http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aLhs5Byln00k.

  112 Structured Investment Vehicle: “A pool of investment assets that attempts to profit from credit spreads between short term debt and long-term structured finance products such as asset backed securities.” Investopedia, “Structured Investment Vehicle,” Forbes Digital, http://www.investopedia.com/terms/s/structured-investment-vehicle.asp.

  113 Citigroup, “Robert E. Rubin Announces His Retirement from Citi,” press release, January 9, 2009, http://www.citigroup.com/citi/press/2009/090109d.htm.

  114 Onaran and McKee, “In Geithner We Trust Eludes Treasury as Market Fails to Recover.”

  115 Christine Harper and Jeff Kearns, “Citigroup Falls Below $1 as Investor Faith Erodes (Update 2),” Bloomberg, March 5, 2009, http://www.bloomberg.com/apps/news?pid=20601087&sid=aKLJO8S5nFaU&refer=home.

  116 United States Securities and Exchange Commission, “SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets,” press release, September 19, 2008, http://www.sec.gov/news/press/2008/2008-211.htm.

  117 United States Department of the Treasury, “Treasury Secretary Tim Geithner Remarks before the Council on Foreign Relations,” press release, March 25, 2009, http://www.ustreas.gov/press/releases/tg68.htm.

  Chapter 2. This Was Never about the Little Guy

  1 Justin Fox, “18 Tough Questions (and Answers) about the Bailout,” Time, September 30, 2008, http://www.time.com/time/business/article/0,8599,1845816,00.html.

  2 E. D. Hirsch Jr., Joseph F. Kett, and James Trefil, The New Dictionary of Cultural Literacy (Boston: Houghton Mifflin, 2002), p. 51.

  3 Tracy McVeigh, “The Party’s Over for Iceland, the Island That Tried to Buy the World,” The Observer, October 5, 2008, http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch; Lee Christie, “Las Vegas Tops Foreclosure List,” CNN Money, February 5, 2008, http://money.cnn.com/2008/02/05/real_estate/zip_code_foreclosures/index.htm.

  4 Subprime borrowers: “A classification of borrowers with a tarnished or limited credit history . . . subprime loans carry more credit risk, and as such, will carry higher interest rates as well,” Investopedia, “Subprime,” Forbes Digital, http://www.investopedia.com/terms/s/subprime.asp; Eric Petroff, “How Will the Subprime Mess Impact You?” Investopedia, http://www.investopedia.com/articles/pf/07/subprime-impact.asp.

  5 Data from Realtytrac, http://www.realtytrac.com “Foreclosure Activity Decreases 6 Percent in May,” press release, June 11, 2009.

  6 Nomi Prins and Krisztina Ugrin, “Bailout Tally,” June 2009, http://www.nomiprins.com/bailout.html; United States Department of the Treasury, “Remarks by Secretary Henry M. Paulson, Jr. at the Ronald Reagan Presidential Library,” press release, November 20, 2008, https://treas.gov/press/releases/hp1285.htm.

  7 Data from the United States Federal Reserve Board of Governors, http://www.federalreserve.gov/econresdata/releases/mortoutstand/mortoutstand20090331.htm.

  8 Andrew Ross Sorkin, ed., comment on “As Goldman and Morgan Shift, a Wall St. Era Ends,” Dealbook, comment posted September 21, 2008, http://dealbook.blogs.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies.

  9 2002-2007 data from Thomson Reuters Financial, http://www.thomsonreuters.com/business_units/financial.

  10 Sarah Butcher, “Sector View: Securitization Is Backed by Demand,” Risk, October 12, 2004, http://news.risk.efinancialcareers.com/ITEM_FR/newsItemId-3542.

  11 Gregory Cresci, “Merrill, Citigroup Record CDO Fees Earned in Top Growth Market,” Bloomberg, August 30, 2005, http://www.bloomberg.com/apps/news?pid=10000103&sid=a.FcDwf1.ZG4&refer=us.

  12 Jody Shenn, “CDO Market Is Almost Frozen, JPMorgan, Merrill Say,” Bloomberg. com, February 5, 2008, http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aCk0Qr1f2Eew.

  13 “EU Wants Banks to Come Clean on Toxic Assets,” EU Business, February 26, 2009, http://www.eubusiness.com/news-eu/1235566921.44.

  14 Lawrence J. White, “Mortgage Backed Securities: Another Way to Finance Housing” (draft of paper prepared for the Joint Congress of UN HABITAT and the European Federation of Building Societies Berlin, September 22-24, 2004), Stern School of Business, New York University, August 11, 2004, http://www.stern.nyu.edu/eco/wkpapers/mortgagebacked.pdf, p. 18.

  15 Ibid.

  16 Data from the Federal Housing Finance Board, Monthly Interest Rate Survey, http://www.fhfb.gov./webfiles/6005/MIRS_table13_2005.xls.

  17 Financial Wisdom Online Resource Library, “Does
Your Adjustable Rate Mortgage Still Make Sense?” United Services Credit Union, http://www.financialwisdom.com/ResourceLibrary/1stUSCU/CS/ARMMortgage.shtml.

  18 Board of Governors of the Federal Reserve System, Chairman Ben S. Bernanke at the Federal Reserve Bank of Kansas City’s Economic Symposium, Jackson Hole, Wyoming, speech transcript, August 31, 2007, http://www.federalreserve.gov/newsevents/speech/bernanke20070831a.htm.

  19 Data from the Federal Housing Finance Board, Monthly Interest Rate Survey, http://www.fhfb.gov/webfiles/6521/MIRS_table36_2006.xls; Nomi Prins, “Subprime Lending’s Smartest Guys in the Room,” Mother Jones, March-April 2008.

  20 Associated Press, “Inquiry Is Begun on Home Builder,” New York Times, March 28, 2007, http://query.nytimes.com/gst/fullpage.html?res=9A02E5DB1330F93BA15750C0A9619C8B63&fta=y.

  21 Binyamin Appelbaum, “Beazer: Exec Tried to Destroy Records,” Charlotte Observer, June 28, 2007.

  22 Executive Profile, “Ian McCarthy,” Businessweek, http://investing.businessweek.com/businessweek/research/stocks/people/person.asp?personId=332734&ric=BZH&previousCapId=332730&previousTitle=Beazer%20Homes%20USA%20Inc.

  23 Edgar Online, “New Century Financial Corp—Current Report Filing (8-K) Section 1 Business and Operations,” United States Securities and Exchange Commission, filed on April 6, 2007, http://sec.edgar-online.com/new-century-financial-corp/8-kcurrent-report-filing/2007/04/06/ Section4.aspx.

  24 Tim McLaughlin, Jonathan Stempel, and Joe Giannone, “American Home Mortgage Files for Bankruptcy,” Reuters/USA TODAY, August 7, 2007, http://www.usatoday.com/money/economy/housing/2007-08-06 american home mortgage-bankruptcy_N.htm.

  25 “Criminal Probe Said to Focus on Collapsed Lender,” Los Angeles Times, October 3, 2007.

  26 Bradley Keoun, “Countrywide Taps $11.5 Billion Credit Line from Banks (Update 7),” Bloomberg, August 16, 2007, http://www.bloomberg.com/apps/news?pid=20601087&sid=aEA8xNnecDiw&refer=home.

  27 Associated Press, “Countrywide CEO’s Stock Sales Scrutinized,” CBS News, October 18, 2007, http://www.cbsnews.com/stories/2007/10/18/business/main3379814.shtml.

  28 Prins, “Subprime Lending’s Smartest Guys in the Room.”

  29 Edgar Online, “New Century Financial Corp—Current Report (8-K),” United States Securities and Exchange Commission, March 12, 2007, http://www.sec.gov/Archives/edgar/data/1287286/000129993307001553/htm_18857.htm.

  30 William Heisel, “Edward Gotschall Dies at 53; Helped Found Subprime Giant New Century Financial,” Los Angeles Times, January 13, 2009.

  31 Annys Shin, Ylan Q. Mui, and Nancy Trejos, comment on “Ameriquest Settlement,” The Checkout, comment posted January 23, 2006, http://voices.washingtonpost.com/thecheckout/2006/01/ameriquest_settlement.html.

  32 “Ameriquest Watch,” Inner City Press/Fair Finance Watch, last updated December 1, 2008, http://www.innercitypress.org/ameriquest.html.

  33 Washington State Department of Financial Institutions, “12,000 Washington Consumers Eligible for State’s $21M Settlement with Mortgage Company,” press release, August 14, 2003, http://www.dfi.wa.gov/cs/householdsettle_nr.htm.

  34 Jason Ryan, “Fraud ‘Directly Related’ to Financial Crisis Probed,” ABC News, February 11, 2009, http://abcnews.go.com/TheLaw/Economy/Story?id=6855179&page=1.

  35 Mortgage Fraud, “Just the Facts: The Latest Mortgage Fraud Statistics,” United States Federal Bureau of Investigation, http://www.fbi.gov/hq/mortgage_fraud.htm.

  36 United States Federal Bureau of Investigation, “More than 400 Defendants Charged for Roles in Mortgage Fraud Schemes as Part of Operation ‘Malicious Mortgage,’” press release, June 19, 2008, http://www.fbi.gov/pressrel/pressrel08/mortgagefraud061908.htm.

  37 Facts for Consumers, “High-Rate, High-Fee Loans (HOEPA/Section 32 Mortgages),” United States Federal Trade Commission, February 2009, http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea19.shtm.

  38 “Final Lending Plan Clears Senate Panel,” New York Times, September 22, 1993.

  39 “Mortgage-Fraud Bill in Works,” The American Banker, February 18, 1993.

  40 GPO, Introduction of the Predatory Lending Consumer Protection Act of 2000, H. R. 4250, Congressional Record Volume 146, Number 46, April 12, 2000.

  41 Mark Jickling, “The Enron Loophole,” Congressional Research Service, July 7, 2008.

  42 “Where Credit Is Due: A Timeline of the Mortgage Crisis,” Mother Jones, July- August 2008.

  43 Eric Lipton and Stephen Labaton, “A Deregulator Looks Back, Unswayed,” New York Times, November 16, 2008.

  44 United States Senate Committee on Banking, Housing, and Urban Affairs, “Sarbanes Announces Introduction of Legislation to Combat Predatory Lending Practices,” press release, May 1, 2002, http://banking.senate.gov/prel02/0501pred.htm.

  45 Legislation, “S.1928: Predatory Lending Consumer Protection Act of 2003,” Govtrack.us, http://www.govtrack.us/congress/bill.xpd?bill=s108-1928.

  46 Holden Lewis, “Study: Flood of Foreclosures Coming,” Bankrate.com, April 18, 2007, http://www.bankrate.com/bosre/news/mortgages/20070418_subprime_mortgage_foreclosure_a1.asp?caret=1d.

  47 Data from the Federal Housing Finance Board, Monthly Interest Rate Survey, http://www.fhfb.gov/webfiles/6001/MIRS_table09_2005.xls.

  48 Bank of America, “Bank of America Agrees to Purchase Countrywide Financial Corp.,” press release, January 11, 2008, http://newsroom.bankofamerica.com/index.php?s=43&item=7956.

  49 Ari Weinberg, “Countrywide Branches Out beyond Mortgages,” Forbes, April 16, 2004, http://www.forbes.com/2004/04/16/cx_aw_0416cfc.html.

  50 Washington Mutual, “WaMu Closes $7 Billion Equity Issuance, Strengthening Capital Position,” press release, April 15, 2008, http://newsroom.wamu.com/phoenix.zhtml?c=189529&p=irol-newsArticle&ID=1129868&highlight=; Washington Mutual, “WaMu Reports Significant Build Up of Reserves Contributing to Second Quarter Net Loss of $3.3 Billion,” press release, July 22, 2008, http://newsroom.wamu.com/phoenix.zhtml?c=189529&p=irol-newsArticle&ID=1177849&highlight=; Christopher Palmeri, “JPMorgan Chase to Buy Washington Mutual,” Businessweek, September 26, 2008, http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080925_760466.htm.

  51 Sara Lepro, Associated Press, “Wells Fargo Buys Wachovia for $15.1 Billion,” ABC News, October 3, 2008, http://abcnews.go.com/Business/SmartHome/story?id=5946486&page=1.

  52 Souphala Chomsisengphet and Anthony Pennington Cross, “The Evolution of the Subprime Mortgage Market,” Federal Reserve Bank of St. Louis Review (January-February 2006): 31-56, http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf.

  53 Joint Center for Housing Studies of Harvard University, “The State of the Nation’s Housing 2007,” 2007, pp. 15-19, http://www.jchs.harvard.edu/publications/markets/son2007/son2007_homeownership.pdf.

  54 Jody Shenn, “Subprime Loan Defaults Pass 2001 Peak, Friedman Says (Update 4),” Bloomberg, February 2, 2007, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFGf71vlQkWM; Little Shop of Horrors, Internet Movie Database, www.imdb.com/title/tt0091419.

  55 Office of the Comptroller of the Currency, Administrator of National Banks, United States Department of the Treasury, “Summary of the Highlights of ‘The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,’ ” Office of the Comptroller of the Currency, Administrator of National Banks, United States Department of the Treasury, October 17, 2005, http://www.occ.treas.gov/law/SummaryoftheHighlightsofBankruptcyLaw109-8.pdf.

  56 Office of Federal Housing Enterprise Oversight, “Largest U.S. House Price Increases in More Than 25 Years,” Office of Federal Housing Enterprise Oversight press release, September 1, 2005, http://www.fhfa.gov/webfiles/1183/2q05hpi.pdf.

  57 Rick Brooks and Constance Mitchell Ford, “The United States of Subprime,” Wall Street Journal, October 11, 2007.

  58 Mark Furletti, “An Overview of Credit Card Asset Backed Securities,” Federal Reserve Bank of Philadelphia, December 2002, http://www.philadelphiafed.org/payment-cards-center/events/workshops/20
02/CreditCardSecuritization_012002.pdf.

  59 Bond Basics, “Bond Basics: Evolution of Asset Backed Securities in Europe,” Pimco, January 2007, http://europe.pimco.com/LeftNav/Bond+Basics/2007/Bond+Basics+-+Evolution+of+ABS+in+Europe+-+Jan+07.htm.

  60 Cohen & Company, “Cohen Brothers, LLC Hires New Chief Executive Officer,” press release, February 27, 2006, http://www.cohenandcompany.com/press/PressRelease20060227.asp.

  61 Felix Salmon, “Recipe for Disaster: The Formula That Killed Wall Street,” Wired, February 23, 2009, http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all.

  62 Carol D. Leonnig, “How HUD Mortgage Policy Fed the Crisis,” Washington Post, June 10, 2008.

  63 Steven A. Holmes, “Fannie Mae Eases Credit to Aid Mortgage Lending,” New York Times, September 30, 1999.