Evidence Builds Against Big Banks
Over two years after the sudden fallout of the financial markets in late 2008, the government still has not brought a civil or criminal charge against any individual or business for a role in the crisis. Some argue the financial system itself collapsed and no individual or business committed any crimes, but a bipartisan Senate subcommittee report released on Thursday contrarily argues several major institutions became aware of the inevitable crisis and deceived customers to "massage" the numbers.
After a two-year investigation, the Permanent Subcommittee on Investigations, led by Senators Carl Levin (D-MI) and Tom Coburn (R-OK), released the 635-page report [.pdf]," along with over 5,000 internal documents." from relevant institutions. This comprehensive report details high-risk lending amid weak markets, inflated credit ratings, conflicts of interest within investment banks, and even regulatory failures that led to the financial crisis.
High-Risk Lending: The report details how Washington Mutual, whose September 2008 collapse was the largest bank failure in US history, strategically sold higher risk loans and mortgage backed securities on Wall Street because they garnered higher prices, due to the high-risk nature eventually leading to higher interest rates and profit.
Washington Mutual and its subprime lender Long Beach Mortgage Corporation continued to accept high-risk loans and sell these on Wall Street, despite internal reviews "describing extensive fraud by employees who willfully circumvented bank policies." These practices include accepting loan applications without verifying income, steering borrowers to higher risk loans they could not afford, and using teaser rates that could lead to payment shock when higher interest rates took effect.
Washington Mutual President Steve Rotella even went as far as to describe Long Beach as a "mess" that was among the "worst managed businesses" he had seen in his career. The report concludes Washington Mutual was far from the only institution that partook in shoddy practices and it is merely emblematic of all the high-risk loans that polluted the financial system and eventually ignited the financial crisis.Continued on the next page