Bill Black has been vindicated by a new study of global financial institutions:
The central point we have been arguing for years is now admitted -- and treated as a universally known fact: "mortgage originators were told to do whatever it took to get loans approved, even if that meant deliberately altering data about borrower income and net worth." The crisis was driven by liar's loans. By 2006, half of all the loans called "subprime" were also liar's loans -- the categories are not mutually exclusive (Credit Suisse 2007). As I have explained on many occasions, we know that it was overwhelmingly lenders and their agents (the loan brokers) who put the lies in liar's loans.
The incidence of fraud in liar's loans was 90 percent (MARI 2006). Liar's loans are a superb "natural experiment" because no entity (and that includes Fannie and Freddie) was ever required to make or purchase liar's loans. Indeed, the government discouraged liar's loans (MARI 2006). By 2006, roughly 40% of all U.S. mortgages originated that year were liar's loans (45% in the U.K.). Liar's loans produce extreme "adverse selection" in home lending, which produces a "negative expected value" (in plain English -- making liar's home loans will produce severe losses). Only a firm engaged in control fraud would make liar's loans. The officers who control such a firm will walk away wealthy even as the lender fails.
And let's repeat: not a single officer of a major bank has been prosecuted or gone to jail for control fraud.
By William K. Black
February 28, 2013 | Huffington Post
