At the height of the financial ‘boom’ in 2006, a Connecticut-based consultancy was regularly being hired by Wall Street to analyse mortgages given to borrowers with poor credit. All of these were due to be repackaged into credit derivatives, and then sold to (mainly institutional) investors, but senior Wall Street bank executives knew that getting on for 1 in 3 loans were highly toxic.
The institutions involved were mainly investing on behalf of ordinary Americans saving their capital for pensions, endowments and other sorts of Mama & Papa small-time retirement pots. The firm – Clayton Holdings – has now released some of the more damning data from the worst case-histories, having over time become ethically concerned about its many warnings going ignored by Wall Street banks.
Clayton appears not only entirely innocent itself of any wrongdoing, the company’s action is effectively about to audit for the first time what many in the financial community still insist is a myth: that most Wall St firms knew perfectly well they were passing on their own idiot loan profits-waiting-to-become-losses for the American middle class to pay for them….before those real people with real lives were asked to bail out other lunatic bank practices as taxpayers to the Fed.
What’s more, it is alleged, if firms like Clayton found ‘too many’ worms in the mortgage can, they were quietly sidelined from the process of loan analysis. And during the frenzied last months of the boom, when lenders and securitizers were trying to sell off as many worm-ridden contracts as they could before the market collapsed, the figure for loans being ‘scrutinised’ reached as low as 5 percent.
The list of villains fingered by the Clayton evidence reads like a Who’s Who of the financial aristocracy – or, put another way, the usual list of suspects: Bank of America, JPMorgan Chase, Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley, Bear Stearns and Lehman Brothers. That’ll be another ‘tiny minority’ then.
The Great 21st Century lie is ‘it’s only a tiny minority’. This piece is dedicated to showing just how thin and feeble that defence is in relation to the financial community. To sign off here, I offer these links to a list of rabidly Communist media which reported regularly this year on the antics of those people that prissy journalists in the UK think should not be called ‘gamblers and spivs’.