Bank Lawyer's Blog

TARP Takers Are Tired

Banks who took TARP recapitalization investments and hung on to them have had it with being poor mouthed by pinheads in the nation's capitol. According to FinCr Advisor, they're getting so gosh darn tired of being subject to media "gotchas" that they sound like they might be channeling the spirit of Sarah Palin.

Community banks that received TARP money are bristling at the daily criticism from Washington that they are misspending the funds. Last week's release of an audit from TARP's Special Inspector General (SIGTARP) that detailed TARP spending didn't help matters.

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The watchdog report was based on a survey sent to banks that received TARP funding through January. While most of the banks reported that they had not segregated the government's funds from their own, more than 80% reporting using the funds to either make new loans or help them avoid reduced lending. More than 40% said they used the money to boost their capital cushions. About one-third said they invested the funds in agency-mortgage backed securities, positioning themselves for increased lending later. And a smaller number of banks said they used the TARP dollars to repay outstanding loans, buy other banks or had not yet allocated the funds.

Yet those findings led to headlines like "US Banks Misused TARP Money" from UPI, and "Bank Overseer Says Banks Misused TARP Funds" in The Washington Post.

One TARP recipient after another got his nose bent out of joint at all this finger-pointing and carping.

"Nobody wants to stand up for the good bankers in this deal," says Robert B. Atwell, chairman, president and CEO of Nicolet Bancshares ($636 million) in Green Bay, Wis., which received a $15 million capital infusion from Treasury last December.

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"I don't like the tenor of the whole dialogue around TARP since we got involved with it," Atwell says, noting that most people are unaware that the banks pay interest on the funds. When he answered Special Inspector General Neil Barofsky's survey, he noted that he was concerned that "a broad brush is being applied to the banking industry and to all banks that received TARP funds." 

Rusty Cloutier, president and CEO of Midsouth Bank ($937 million) in Lafayette, La., scoffs at the notion that banks are not using TARP funds to make more loans. "No bank is not trying to make loans," he says. "I wish they would stop grandstanding and solve the real problems."

Sorry, boys, as much as I sympathized with banks who took TARP capital when they took unwarranted kicks to the groin from their fellow bankers, it's been obvious for a few months now that when you dance with the devil, you don't get any sympathy when you bitch about the fact that it's hot out on the dance floor. Other TARP takers figured this out and have been paying that once-attractive TARP capital back as fast as they can raise fresh capital to do so. Anyone left in the game at this point is asking for it.

It's not fair that banks are criticized, but unfair criticism is a fact of life when you enter into a partnership with the federal government. That's reality. Get used to it. Either grow a thicker hide and ignore the sniping or do what so many of your sensible brothers and sisters are doing: pay it back.

Countrywide Continues To Pay The Piper

In February of this year, Colorado’s Attorney General proudly announced that “Colorful Colorado” had squeezed $6 million out of Countrywide Financial Corp. for alleged violations of Colorado’s Consumer Protection Act, arising out of Countrywide’s subprime mortgage lending in that state. As we noted, the $6 million was only a small drop in the bucket compared to the amounts that other states were flushing out Countrywide’s fire hydrant of cash.

Texas recently showed how much blood a great big pair of Justin boots can stomp out of the Countrywide turnip.

Countrywide Financial will send $7.46m in restitution to eligible Texans who lost their homes to foreclosure, according to a statement from the Texas attorney general.

The restitution program, first announced by Attorney General Greg Abbott in February, disperses the funds to Countrywide’s Texas customers whose loans originated between Jan. 1, 2004 and Dec. 31, 2007.

[…]

The program was part of a $345m settlement between the attorney general’s office and Countrywide, which also provides $335m in loan modifications for 30,000 Texans.

[…]

And roughly 1,400 Texans who are in or approaching default and voluntarily relinquish their residence to the Relocation Assistance Program could receive $2,000.

The Relocation Assistance Program plans to send $2.8m in benefits to Texas homeowners.

So, all told,Texas made out like a bandit compared to Colorado. However, California, with a whopping $3.5 billion carved out of Countrywide's hide, remains the Platonic ideal of claimants, of whom all other claimants are merely pale reflections.

While it may have placed well on down the list of Countrywide jackpot winners, Colorado won bragging rights to one of the most hotly contested competitions in recent memory, namely, the right to be named as the beer of choice by one of the three participants in The Change We Have Been Waitng For’s “teachable moment” this Thursday before dinner at The White House. Apparently, "The One" prefers a Budweiser (surprisingly, because customarily Bud's the choice of those pathetic lower class prols who cling to their guns and their religion). Well, this Bud’s for you, Mr. White House Change Meister!

The bantam rooster who helped provoke this firestorm of a “teachable moment,” Harvard Professor Henry Gates, reportedly prefers either Red Stripe or Becks. That means in a contest between The Change and The Prof over who'd you rather pop a frosty with, the Prof wins hands down. Not to be outdone, however, Officer James Crowley, the other half of the testosterone-laden duo, is quaffing a blue ribbon beer, and we don't mean Pabst, we mean Blue Moon. That beer started out as a microbrew sold only at The Sandlot, a pub within the confines of Coors Field in Denver. As a season ticket holder of the Colorado Rockies when they made the move into Coors Field in 1995, I consumed many a Blue Moon, although it's been a blue moon since I've had one (being now converted to the wonders of Shiner Bock). Nevertheless, as the world now understands, Colorado's own Blue Moon is a beverage worthy of the most teachable moments in the most powerful hovels that this planet possesses.

Colorado may have been short-changed on Countrywide "swag," but it can take pride in its place at The White House table. Unless, of course, Crowley and Gates over-imbibe their respective favorites, once again pull out their rulers and start measuring, and all hell breaks loose. Actually, that would be one teachable moment I'd enjoy watching, with or without my favorite beer in hand.

Mile High Mortgage Brokerage "Disaster"

In 2006, we reported on the trouble that Danny Payne, then commissioner of the Texas Department of Savings and Mortgage Lending, was having with mortgage brokers who couldn't pass a basic test of compliance knowledge that was required by Texas law in order to retain their licenses to broker mortgage loans. At that time, 25% of the brokers in Texas had failed the test and 35% had failed to take it. The next year, it was Washington's turn in the dunce's corner, with 56% of the brokers failing the required exams. This year, Colorado is under the gun, and Colorado's Director of Real Estate, Erin Toll  (a BLB favorite, pictured left) has issued a dire warning about the consequences.

About half of Colorado’s 8,729 licensed mortgage brokers have failed to pass a required exam and may lose their licenses on Aug. 31, which could have a tremendous impact on Colorado’s real estate market.

“We could be looking at a complete disaster,” said Erin Toll, director of the Colorado Division of Real Estate, which regulates mortgage brokers.

A "disaster"? That seems a tad bit dramatic, doesn't it? Not according to Ms. Toll.

“I don’t want to be Chicken Little, but the market is so volatile, it could be disastrous for Colorado,” Toll said. “You shrink the loan-originator population and then tell the lenders ‘we’re not going to buy your loans on the secondary market’ when up to 70 percent, in our estimate, of all residential loans are sold to Fannie Mae or Freddie Mac on the secondary market. We could have a disaster.”

The "disaster" might consist in people having to use one of the more than 4,000 mortgage brokers who did pass the test, and the thousands of more who work for banks and who don't have to take or pass the test in the first place. Moreover, it's not clear how many of the brokers who haven't bothered to take the test have simply given up on mortgage brokerage and decided to finally seek honest work, like pole dancing or going to law school.

“There has been a dramatic decline in employment in the mortgage industry from 2006 to 2009, and I would be willing to bet that the vast majority of those people who have not completed their education and testing requirements are no longer in the business,” said CMLA President Terry Jones. “I don’t think it’s going to have an impact at all in terms of the availability of loan products to the public in Colorado.”

I agree. Sorry, I simply have a hard time envisioning a "crisis" that involves a creditworthy consumer not being able to find a first mortgage loan to buy a house or refinance the one he or she already owns because there aren't enough mortgage brokers in Colorado. It's more likely that a comet will hit the Earth, killing all life as we know it, than it is that the economy in Colorado will be wrecked by a shortage of mortgage brokers.

However, Ms. Toll does issue one dire warning for those mortgage lenders who did pass the examination that rings true.

Another consequence of inactivating half the state’s mortgage brokers is that licensing fees on the other half likely will double, Toll said. Currently, the application fee is $200 for a three-year license, but that was based on the expectation that at least 8,000 brokers would be licensed.

It’s the same thing that happened to real estate brokers, who saw licensing fees soar last year after new applications plummeted by 60 percent.

Mortgage brokers in Colorado are going to feel like they suddenly morphed into a federal savings bank. With a declining number of members left to bear the assessment load, every survivor's piece of the burden will go up dramatically.

Bair Turns The Corner

According to last Friday's The American Banker, when it comes to working Congress, Sheila "Care" Bair is a grand master and guys like Tiny Tim Geithner haven't yet mastered checkers. Not even Chinese checkers.

The Change We Have Been Waiting For's bank regulatory reform legislation has run into strong headwinds, especially in the Senate, the more deliberative body of the two chambers of Congress. "More deliberative" in the sense that a person who has just suffered a major stroke is more deliberative than...say...Britney Spears. In either case, we're not talking about Stephen Hawking (with or without his voice synthesizer). It's just that the average Senator does seem to have a few more IQ points than the average Congressperson, and radical change makes many of them actually trip over an occasional "WTF?" moment. That's always bad news when you're trying to panic the whole herd of lemmings off a cliff.

A couple of the toughest nuts to crack in a whole bushel basket filled with nutty ideas that Obama and Geithner sent to Congress have to do with a new consumer protection agency and with giving the Federal Reserve Board more power to oversee "systemic risk." The FDIC, FRB and OCC don't want to give power to a new agency and cut back on their own power, and no one but the Fed thinks it did such a marvelous job with either monetary policy or supervision of subprime lending abuses that it qualifies for a power boost. Thus, we've had what The New York Times labeled a "turf war" among federal banking agencies that left those opposed to the legislation "entertained."

The American Banker's Stacy Kaper, though, saw Bair's testimony last week as laying out a path to progress that had a number of legislators nodding their heads in agreement (perhaps it was narcolepsy, but they appeared to be awake) .

Chairman Sheila Bair stepped up with an alternative strategy Thursday that dodges many major political obstacles and could rally support for the plan.

Bair continued to argue that a regulatory council, not the Federal Reserve Board, should oversee systemic risk and countered criticisms leveled against the council by Treasury Secretary Tim Geithner. Most members of the Senate Banking Committee endorsed her approach at a hearing Thursday, showing it is attracting broad bipartisan support. The FDIC chief also suggested a new way to structure a proposed consumer protection agency that would likely ease the banking industry's objections.

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During a Senate Banking Committee hearing on Thursday, Bair dismissed as too weak the administration's proposed systemic risk council, which would advise the Fed but have no real authority.

"The oversight council described in the administration's proposal currently lacks sufficient authority to effectively address systemic risks," Bair said.

Asked by Dodd to respond to Geithner's criticisms that a more powerful regulatory council would lack the necessary accountability and speed to act during a crisis, Bair said she disagreed.

"Bringing multiple perspectives together is going to strengthen it, not weaken it," she said. "You are talking about tremendous regulatory power being invested in whatever this entity is going to be, and I think in terms of checks and balances it is also helpful to have multiple views … and come to a consensus."

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Bair also suggested ways to save the Obama administration's proposed consumer protection agency, which is under heavy fire from the banking industry.

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While Bair supported the creation of a new agency to write new consumer protection rules, she said banking regulators should keep their existing enforcement authority over banks.

"We strongly, strongly, recommend the examination and enforcement component [stays] with the bank regulators," she said. "There are important synergies between prudential and consumer supervision. We typically cross-train our examiners … abusive mortgages that are abusive to consumers are also unsafe and unsound and frequently we will find those consumer affairs problems."

Her plan is likely to address the industry's objection that being regulated by two different agencies is too difficult.

[...]

But Bair did recommend strengthening consumer protection by focusing the new agency's enforcement powers on nonbanks. She also suggested there could be better coordination between regulators and the new agency if regulators had a seat on its board, and suggesting the consumer protection supervisor gain a seat on the FDIC board.

Personally, I think a new consumer protection agency is completely unnecessary. The existing agencies have all the power they need to enforce existing law, which is adequate to address the problems the administration's "reform" proposal is supposed to suddenly "solve." As even Boy Spitzer noticed, the problem isn't that the regulators didn't have the power, it's that they didn't exercise the power. The recent Supreme Court decision to allow states to enforce non-preempted state consumer protection laws against national banks ought to spur the federal banking regulators to up their game in this area, although you'd think that the very fact that Congress is entertaining such radical legislation to kick the federal agencies to the curb ought to be incentive enough.

That said, Bair's proposal is a clever compromise. Create a federal agency that, when the dust settles on the final version of the legislation, will set national standards for consumer protection, which the federal banking agencies would be required to enforce against the banks they regulate and which the new agency would enforce against currently unregulated (at the federal level, at least) lenders. That avoids the power-stripping turf war that's going on now. If the banking lobby can accept the new federal agency's existence in return for gutting the legislation of its current proposal to let the states set and enforce higher standards, that may an acceptable trade-off. The states won't like it, but since when has D.C. given a rat's tukus about states' rights?

As to systemic risk, a council as opposed to the Fed on drugs (steroids, in this case) avoids a Fed in a 'roid rage with power to shock and awe. On a council, any one or two influential members (Chair Bair, for example) can temper precipitous action that could inflict unwise mayhem (or, of course, wise mayhem) on members of its favored group of supervised financial institutions. Who doesn't like another useless tower of babble in D.C., which is what a council would likely become? Competing interests tend to impede efficient functioning, and when you're talking about a body that could wreak havoc in the name of "too big to fail," impeding efficient functioning is the name of the game for the private enterprise crowd.

Yes, Ms. Bair is an astute player of the game of bureaucratic wrangling in the fast-paced world of D.C. banking regulation and policy. In this case, she's way out in front of Treasury and the Fed. 

To top off Ms. Bair's most excellent adventure week in D.C., she also appears to be winning her claymation death match with Citigroup's board and upper management. Citi's Board is replacing old members with new ones, and Sheila couldn't be more pleased. As fate would have it, one of the new Board members is an old thorn in my heart, Diana Taylor, former New York State Banking Superintendent and current main squeeze of New York City's mayor, Michael ("Short-People-Got-No-Reason-To-Live") Bloomberg. I'd congratulate her, but I'm still subject to that stupid restraining order.

FDIC officials were pleased with the board changes announced today, a person close to the agency said. Taylor heads a 19-member committee formed by Bair in 2006 to advise the agency on ways to expand banking services to underserved populations.

Bair declined to comment, as did John Dugan, head of Citigroup’s primary banking regulator, the Office of the Comptroller of the Currency.

She may have publicly declined to comment, but my completely impeachable sources assure me that Sheila and Diana, joined by FDIC staff members, performed a version of that too-cute-from-overuse Jill & Kevin's Wedding Dance to Chris ("Babe Beater") Brown's "Forever" that we've been viewing on Youtube all week, after which they got jacked up on cheap champagne and ended up at the Chippendales show in Las Vegas, where a member of Pacman Jones' posse stabbed a bouncer after Sheila refused to give Pacman a lap dance, although Sheila was later seen "grinding" a Chippendale dancer named "Manimal."

I can see I've been horribly, horribly wrong about Chair Bair. As wrong as a bank lawyer can be, which is pretty damn wrong. Any gal pal of Diana Taylor has got to be too cool for school.

Also, I dig Sheila's new 'do.

Like John "The Biscuit" Cage in the old Ally McBeal sitcom, "I find my self drawn to her."

Barney Ain't To Blame

A reader sent me a link to a video of an interview with Barney Frank in which Barney engages in rapid-fire rewriting of history, and asked me what I thought of it. I thought it was business as usual for a slug like Frank, who wouldn't know the truth if it ran up and bit him in the hind quarters. Revisionist history inside The Beltway is just politics as usual.

In Frank's case, he's been doing it for awhile. Larry Doyle at Sense on Cents fisked Frank's lies about home-ownership-versus-subsidized-rental-housing a few months ago. It's as if these clowns don't understand that there's this technology called "television," and when you stand in front of a TV camera and you're recorded saying one thing in 2003, 2004, or 2005, there's a record of it, so that when a few years later you tell a completely different story, your lies are rendered completely transparent.

It's likely that Frank feels comfortable in the fact that there's nothing he can do except not bring home the pork that would cost him his seat in Congress. The bottom line is that he doesn't care. Like Humpty Dumpty, a word means whatever he says it means. His constituents apparently deserve him, since they return him every two years, no matter what he says, does, or doesn't do.

Frank's not the only cynical sack of utter uselessness cluttering the corridors of the nation's capitol. He's just low-hanging fruit that's easy to pick off. When  your time to blog is limited, low-hanging fruit is attractive.

As the truth commissions begin the arduous task of assigning blame for the current mess in strict accordance with political ideology, expect the duck-and-run-for-cover reprobates of both parties to all be singing the same basic song. Rome burns, Nero fiddles.

CRE Tsunami

Yesterday's The Wall Street Journal disclosed a frightening factoid that those of us who represent community and regional banks have been aware of for some time now (unfortunately, for some of our clients).

U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years, according to an analysis by The Wall Street Journal. At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.

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The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions.

[...]

In contrast to home loans, the majority of which were made by about 10 lenders, thousands of U.S. banks, especially regional and community banks, loaded up on commercial-property debt.

There are a couple of factors at play. First, community banks find it extremely difficult to play with the big boys in the retail banking game. Consumers routinely expect a lot in the way of service, much of which requires an investment in technology that small banks can't afford, certainly not through infrastructure investments and often not through third party service providers. In addition, the costs, hard and soft, of regulatory compliance with respect to consumer lending are substantial. Many community banks have turned to commercial lending, especially commercial real estate lending, as one of the few avenues left open to them where they can not only make decent money but provide better (i.e., more personal) service to the borrower than many of the big banks. Thus, their portfolios are often laden with CRE. Obviously, this is a bad time to be so burdened.

Ironically, small banks appear to be much less aggressive in recognizing losses than their bigger brethren. According to the Journal analysis, the largest banks, with assets of more than $100 billion, saw charge-offs roughly quadruple last year, while losses at many medium-size banks grew at a much smaller rate of 120%.

I'm not convinced that the difference in write down "aggressiveness" between small and large banks is "ironic." Aggressive write-downs usually mean aggressive hits to capital, and in many cases community banks are disproportionately affected by write-offs that a large bank could take in stride. Moreover, as we've seen thus far from the federal bank regulators, especially the FDIC, massive CRE write-offs are a prelude to a death spiral for banks that are "too small to save." The federal regulators have been in the process of beating up the commercial real estate portfolios of community banks nationwide in the same manner they hammered the commercial real estate loan portfolios of banks and thrifts in the Southwest during the 1980s. It's deja vu, all over again.

Experts cited in the article worry that bank regulators and banks aren't being sufficiently proactive. They worry that if the losses remain "buried" in loan portfolios, the pain of working through troubled commercial real estate will be unwisely prolonged. For community banks, however, the concern is that in being zealous to require write downs and loss reserves, the regulatory "doctors" may kill the "patients." Both concerns are valid.

Commercial real estate pain is in its early stages and it's only going to get worse. Let's hope the ill survive the treatment.

Cramer v. Kramer

When Jim Cramer bashes Sheila Bair, I am reminded of the famous saying "The enemy of my enemy might still be a butt-head."

Cramer and his sock puppet staff writer are put out that Sheila failed to extend a helping hand to CIT. We feel his pain. At the same time, he's such a buffoon that when you're standing next to him in the same foxhole, it takes a herculean effort of self-restraint not to jump up and toss a grenade back into the hole as you run for other cover.

Also, at the rate that all the writers on the Mad Money site constantly refer to the host by the one-word moniker "Cramer," I expect that he'll soon be writing his own "Commentaries." Referring to yourself in the third person is something rarely heard outside the confines of an NBA locker room.

Frankly, the guy reminds me more of a "Kramer" than of a "Cramer." And like Kramer, he obviously loves a good cat fight.

Let The Good Times Roll

It seems that these days, there's nothing but bad news coming out of this nation's capitol, a town I like to call "Washington, D.C." but other, less charitable types refer to as "A Sullen City In A Swamp." Therefore, when a news flash of glad tidings like this one bursts across the airwaves, you've got to grab it and squeeze until it pops like a cannolo shoved in a fat congressperson's gaping pie hole.

The economic malaise hanging over the Washington area has ushered in a massive wave of business lawsuits as lenders, suppliers and contractors — and their attorneys — come knocking.

The number of contract-related business suits filed in five area jurisdictions is nearly triple what it was three years ago, according to court records collected by American City Business Leads and analyzed by the Washington Business Journal.

[...]

The total number of lawsuits is up 75 percent from 2006 levels.

“This is what happens in recessions,” said Pete Evans, a partner in Holland & Knight LLP’s D.C. office, who said many of the new lawsuits are disputes about money that is owed.

"Disputes about money that is owed." To a bank litigator, that phrase is as orgasmic as "This is bet-the-company litigation to us, counselor." You turn on the billing clock and it just keeps going and going and going until the Second Coming or the client goes broke, whichever occurs first. Actually, it doesn't really matter which comes first, because every lawyer knows, in his or her heart-of-hearts, that it is easier for a camel to pass through the eye of a needle than for a lawyer to pass through the pearly gates. We might as well, in our brief moment in eternity, cry "Havoc!" and let loose the hounds of the billable hour.

To put a cherry on the top of the sundae, the Journal found that four of the five most litigious entities were banks or finance companies. I assume the fifth was a claimant to the estate of the late, great King of Pop. By the way, have any of you heard that Michael Jackson is still dead? I just heard that on CNN, Fox News and MSNBC.

At any rate, litigators who represent banks are busy planning to rip a larger piece of their law firm's economic pie away from those useless transactional attorneys, especially all the slugs who used to do securitization work. Swimming with sharks subjects the Groupers to such agony when there's chum in the water. That's always the case. So sad. Get ready for the kinder, gentler fish to be eaten by their more pugnacious brethren. It's the law of the sea.

The civil (what an ironic term) litigators better not get too comfortable, though. The article portends stiff competition in the "I-billed-more-hours-than-you-did-this-month" race from two groups that are often their bête noire: bankruptcy lawyers and white collar defense counsel. In times as bad as these, those two groups are always as busy as one-armed paper-hangers. Throw in divorce lawyers and you've suddenly assembled The Four Horsemen of the Apocalypse.

Bad times for banks and most businesses. Good times for many lawyers.

Brings a little tear of joy to the corner of your eye, doesn't it?

A Calm And Measured Tone

Former FSLIC official, and current college professor, Bill Black, has been trying to paint the banking industry with a broad bush just chock-full of black paint for decades. To me, he is, and has been for some time, a cartoon character who's so over-the-top that it's hard to believe that anyone takes him seriously. Then again, this blog is frequently so over-the-top that the only people who take it seriously are unemployed "management consultants," certain underemployed federal banking regulators, and lawyers for Diana Taylor who fail to understand that the fine line between true love and stalking is not a bright one. Therefore, I understand guys like Black, except for the fact that Black appears to actually believe his own bloviations.

Black was at it again not long ago on the PBS show "Bill Moyer's Journal." Moyer, former press secretary to President Lyndon Johnson and once a respected journalist, whose mind appears to be turning to mush, served up so many softballs and leading set-up questions that Black might as well have been interviewing himself. The relatively short excerpt from the interview embedded below gives you an idea of Wild Bill's major premise, which is that the entire mortgage meltdown--subprime, prime, and all shades in between--was caused by a deliberate and widespread fraudulent "Ponzi scheme" perpetrated by the "top elites" (I don't understand the difference of "top" and "bottom" elites, but perhaps it has something to do with kinky sex) of the "boardrooms and executive offices" of the nation's largest lenders, investment bankers, securitizers, and rating agencies.

So, according to Black, CEOs and directors of both regulated and unregulated banks like IndyMac deliberately concocted a scheme to make "bad loans" (which "pay more than good loans"). The CEOs were able to by-pass ("suborn") internal controls because internal "accountants" report to the CEO and the CEO controls the "accountants'" compensation. I assume that Black meant "auditors" instead of "accountants" and that he's been out of the loop of even overseeing banks (much less working for one) for so long that he forgot that the internal audit function reports to the audit committee of the board of directors.

Black never mentioned the incentive for directors, especially outside directors, to consciously participate in planning and executing a criminal conspiracy which was bound to ultimately fall apart. He discusses the motivation of CEOs (bonuses) but not of directors. Directors may have been negligent, but that's not what Black's alleging. He alleges that directors of the largest lenders committed deliberate "fraud."

Black agrees "absolutely" with Moyer's statement that various mortgage securitization structures were "deliberately created so that swindlers could exploit them," and that ratings by the rating agencies were deliberately, consciously falsified. He states that the rating agencies didn't look at the underlying loan files and that when they did after the loans started going south, they didn't like what they saw. That seems to indicate gross negligence rather than fraud, since if you don't know that the loans are bad, how can you know that you're falsifying ratings, which is what Black is alleging?

Moyers gets an incredulous, and Black a superciliously knowing, chuckle out of the "fact" that what caused the current crisis was a "systemic Ponzi scheme," a criminal conspiracy. Black admits that there are "many laws against fraud." That being the case, then I expect that if Black's allegations are true, we'll see massive criminal prosecutions of CEOs and directors of the nation's largest lenders, especially of those like IndyMac, which Black singles out as a purveyor of "liar loans" (Every Alt-A loan involves every borrower deliberately falsifying his or her income and assets, according to Black). If we don't, then I'm sure Black will scream that the top officials of the FBI and the US Justice Department are deliberately participating in this systemic Ponzi Scheme.

I don't hold out much hope that the recently formed "truth commission" that is supposed to come to some conclusions about the causes of the mortgage crisis will not descend into political posturing by the members. However, I put more trust that such a commission will stumble to some conclusions of real merit, including evidence that there was fraud involved in various segments of the mortgage business, including borrowers, lenders, title insurers, appraisers, lawyers, real estate agents, rating agencies, securitizers, investment bankers and others, than I do that Black's overheated allegations point to any useful conclusion.

Ya' see, Bill, just when you think you've got it all figured out, things turn out to be not what they appeared to be, as the following vignettes from that brilliant source of insight into American culture, Bud Light, so dramatically reveal.

Winners and Losers

It matters little who's in power in D.C. You can rest assured that whoever is at the helm of the federal government's ship of fools, the big will be bailed out and the little will be allowed to sink unmourned. The latest example is this afternoon's announcement by CIT that the feds have told it to take a hike. No more bailout bucks for one of the nation's largest lenders to small businesses.

I understand that the FDIC was particularly reluctant to extend a helping hand. That's understandable in light of the new primary mission of that agency under the Care Bair to make sure that delinquent homeowners are bailed out first, and damn the consequences to FDIC-insured banks. What's good for the consumer is good for banking, according to Chair Bair, and there's no such thing as a bad subprime borrower. Small businessmen and women, on the other hand, can pound sand and man their own lifeboats. There's no free lunch for those pogues. They made their own beds, etc., etc.

The government's picking interesting winners and losers, isn't it? For example, Goldman Sachs.

While it turned up its nose at CIT, the FDIC bent over backwards to make sure that a bank started by Democratic Sen. Inouye of Hawaii got a helping hand of government TARP capital, after one of the Senator's aides called the FDIC "to check on the status" of the bank's TARP application. Even a left-wing rag like the WAPO couldn't let that one pass unnoticed, even managing to grind out an editorial condemning the apparent conflict. Sen. Inouye's lame response to a fawning Honolulu TV outlet was not convincing ("I didn't do it, an aide did it." "I don't sit on the Banking Committee, therefore how could I have any influence?"). Nevertheless, this little incident has blown by most of the in-the-tank MSM, so don't expect it to go anywhere. Furthermore, compared to Maxine Waters and Barney Frank, Daniel Inouye's a rank amateur when it comes to this stuff, and those two squirrels are still going strong, so Inouye will almost certainly skate away from any consequences other than a reporter's annoying question or two.

Although The Wall Street Journal panned any move to bail out CIT, it's editorial staff had the honesty to point out the injustice of who's been picked to survive and who's been left to die.

Of course, if the feds do let CIT fail, this will only confirm that the only certain survivors in the current market are banks big enough that the government figures it must bail them out. Just ask the many small banks that have been rolled up by the FDIC at a rate of two a week since the beginning of the year, with eight so far in July alone. That can only strengthen the likes of Goldman [Sachs], which apparently needs no help printing money anyway.

Some day, there will be payback. When and how may not appear to be clear at the moment, but having been through these cycles before, I am convinced that "a day will come."