Smoking Gun: New Evidence of How Wall Street Shafted Pension Funds by Misrepresenting Mortgages; Rep Miller Calls for Full Audit of Fannie Mae

Josh Rosner, who heads the research firm Graham Fisher, presents new proof that banks knew they were selling bad loans. The following video is as discussion between Rosner and Elliot Spitzer about the smoking gun and what to do about it. It's well worth a listen.



Partial Transcript of "Inside Job"

SPITZER: What I would be doing right now would be to drop a subpoena on every investment bank saying, I want to track this information, these documents came from Clayton, the due diligence firm, see where in the company they went, who saw them, who knew about them, who had a conversation about them, and what did they do? And somebody who saw these documents, and as Josh said, saw that there was 29 percent noncompliance and still pushed these mortgages into the security, boom, charge them right there -- failure to apply the rigorous standards. Charge them, recover all the money. And this time, I would hope the ax comes done, no bailout, we claim every...

ROSNER: Eliot raised an interesting question: What if the trading desk saw the due diligence documents, knew that 29 percent didn't meet the underwriting standards, knew that those were sold as securities to investors and then with that knowledge traded against that by going short these securities.

SPITZER: Let me explain what you're saying, because this is such a huge point. At the hearings and in this movie, there is an outtake of Lloyd Blankfein saying, we traded against the very documents and very mortgages that we sold to the entire investment community, meaning we shorted them, we were betting on them going down, not up. If they did that when they had knowledge from these documents that they we're now talking about, that in fact they were going to blow up because 29 percent or more were not compliant, that is trading on inside information, could create critical liability. So again, the critical issue is who saw these documents, when, what did they do with that information? This is a swamp, a cesspool and somebody should be dropping 1,000 subpoenas right now on this.

ROSNER: And by the way, this information has been sort of floating around in the ether, in the public ether, in the law enforcement ether, for the past three years and there's been...

SPITZER: Why is the SEC not jumped all over this to see if these mortgages were safe and secure...

ROSNER: True. Very good question.

SPITZER: You know, I'm just flabbergasted when, you know, you called me a while back and you had seen about these things and we began to talk. This is, it seemed to me, the Holy Grail that explains and is the blueprint for unmasking how absolutely venal the behavior was inside these investment banks.

Dylan Ratigan Show

Democratic congressman Brad Miller calls for an audit of all the loans at Fannie and Freddie to see if they were conforming to the standards necessary to get government backing.



Partial Transcript

MILLER: There are $trillion of mortgage backed securities out there that are very much in doubt. The pension funds have been pushing for some time now to get information about whether the securitizer, the big banks that bought the mortgages and put them in pools, and sold the mortgage backed securities, whether the securitizer should have to buy back the mortgages for not meeting the contractual requirements.

If those banks have to buy back that stuff it's a big liability.

RATIGAN: Let's not kid ourselves, it's lights out.

MILLER: I've pushed the Obama administration to ... find out exactly what mortgages are in those pools that Fannie and Freddie on the securities for and figure out if they have the requirements. And if they don't, to push and make the banks buy them back so that we [taxpayers] don't get stuck. ... If you do not pursue the legal rights, it's another back door subsidy, back door bailout. If we have legal righst to reduce taxpayer exposure, we need to pursue it.

I pushed secretary Geithner, I pushed the Obama administration, and I plan to keep pushing.

Miller also said another TARP will not happen, "not in this lifetime", and if banks have to take back enough mortgages the resolution authority will have to deal with it.

I would sure like to see it come to that, but it won't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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