Eighteen hours ago, as I write this article, CBS News confirmed what our staff writers have known for years. The subprime mortgage crisis was caused by greed and economic incentives that outweighed potential fines. Then there were the fraud investigation cover-ups.
“If you talk to people who work on the front lines, they’ll tell you again and again that they saw [the crash] coming. There were people in the mortgage industry and even on Wall Street who were trying to blow the whistle. In most cases, they say they were ignored, marginalized, harassed, demoted, fired or some combination thereof. And this idea that there was some sort of global financial act of nature that no one could’ve expected doesn’t stand up to scrutiny. People knew about it, but they were muzzled or ignored.”
Obviously we also saw the crash coming, which is one of the reasons we started writing about it. But when we told our own families to divest themselves of Fannie Mae and Freddie Mac they told us we were crazy. “That would never happen” they said, as we forecast worthless stock and company problems.
Shocking to us was the realization that many people would lose their jobs. CBS confirmed a different aspect, saying this:
Drawing on federal whistle-blower claims, court documents and their own reporting, Hudson and his colleagues at the Center for Public Integrity have identified 63 former employees at 20 financial institutions who say they were fired or demoted for reporting fraud or refusing to commit fraud. That total doesn’t count financial firm staff who expressed concerns about their companies’ practices and were simply ignored.
Almost evey week we hear about Bank of America paying for Countrywide Mortgage issues. But before you feel sorry for Bank of America, or ask about due diligence, note this fact. Bank of America (BAC) fired its own fraud investigations chief in 2008 for discovering widespread fraud within its Countrywide subprime lending unit.
The CBS Money Watch article is titled “Investigation: How lending industry ignored risks” and is written by Alain Sherter.