A Curious Day At The Foreclosure Mill….

[Door Slamming]

Her:  “Honey, is that you?  It’s awfully early for you to come home.  Are you ill?”

Him: “Yeh, I know it’s early.  I’m OK. I just didn’t feel like working anymore.”

Her: “What’s wrong?  Don’t you enjoy your work kicking people out of their homes anymore?   I thought you loved having Big Bank clients who specialized in that sort of thing.”

Him: “That was then, this is now. After a couple of years of writs of executions and evictions, the thrill is gone.  I’m tired of watching U-Haul trailers getting packed up and children on the sidewalks crying.  I never thought I’d say it, but maybe I’m starting to grow a conscience – hard as that sounds.  Whatever it is, I’m beginning to wonder if I’m playing for the wrong team.  I’m noticing how people kinda shy away from me at the cocktail parties now.  Like I’m some kind of monster.  I remember early on when we had our soirees, I was the life of the party, regaling everyone with stories of my latest foreclosure, and how I kept postponing the auction sales letting the beleaguered borrower think they were actually going to get a loan mod, and then at the last minute, when they were on the 99-yard line, I’d drop the hammer and foreclose ‘em.  I had people rolling on the floor laughing.  Now no one wants to hear about this anymore.  I feel like the lonely Maytag Repairman.”

Her:  “Well, I never thought foreclosing people of out their homes was fun or funny.  I’m glad you’re starting to see that it may not have been the best career move.  Like I’ve said before, a business model whose success is tied to a rising misery index can’t sustain itself.  Besides, what do you put on your resume’, a “body count” of all the people you’ve foreclosed and evicted?   Not real impressive stuff if you ever want to get a real law job that is socially acceptable. Is that what’s been bothering you the last few weeks?  I’ve noticed you’ve gotten quieter lately.”

Him:  “Well, it’s actually more than that. Not only am I getting tired of the eviction and foreclosure business, but I’m actually starting to dislike our firm’s Big Bank clients.  They used to impress me – the guys in their $2,500 suits and Hermes ties, and the women wearing their stiletto Gucci shoes. I wanted that to be us!  But lately, I’m beginning to wonder.  Our Big Bank clients just seem to be getting into more and more trouble – and it all comes back to greed.  It seems they’ll break any law, anytime, as long as they can make a buck.  They refer to their clients as “muppets.” They’re not happy unless there is risk – the more risk, the better the adrenaline high.  Ethics, morals, even common sense, don’t enter into the equation.  Yet, not one executive at a Big Bank has ever gone to jail for their shenanigans – so what do they have to fear?  Have you been reading about HSBC lately?  It’s worse than anything you’d see on the Sopranos!”

Her: “HSBC? Who are they?”

Him:  “Just one of our firm’s long time Big Bank clients, that’s all.  We’ve made a jillion dollars off them, trying to keep them out of trouble with the regulators for years. Well, they’ve finally made it to the front page of the financial papers.  If you want to see the latest expose’ read what ProPublica had to say, after reviewing the 335-page report by Senator Levin’s Permanent Subcommittee on Investigations.    

I printed off the best part, just to remind myself how HSBC makes the money it pays our firm.  It’s called “HSBC’s Money Laundering Lapses, By The Numbers” and they’ve linked their statistics to the pages in Levin’s report:

17,000: The backlog of unreviewed, potentially suspicious activity alerts[1] at HSBC’s U.S. arm as uncovered by government regulators in 2010.

200: Number of compliance staff in bank’s U.S. branch between 2006 and 2009, of which a smaller group was charged with making sure the bank was following anti-money-laundering rules. HBUS[2] had millions of accounts, and more than 16,000 employees overall, and according to the report, kept compliance staff small as a cost-cutting measure. Members of the anti-money-laundering group told investigators that understaffing was a key problem.

85: Number of problems with the anti-money-laundering efforts at bank’s U.S. arm red-flagged by the OCC between 2005 and 2010. That was a third more than the next-closest major bank.

0: number of enforcement actions the OCC took in that time period.

3: number of years, from 2006 to 2009, for which HSBC’s U.S. branch didn’t do any money-laundering monitoring for transactions with HSBC banks in other countries.

15 billion: Total value of U.S. dollar bills (as in paper money) the bank accepted as part of bulk-cash transactions from foreign HSBC banks during that period, with no anti money-laundering controls. 

This bank even had two U.S. accounts established by its European U.K. operation for the “Taliban.” Of course, when asked by Senate investigators, HSBC was unable to say whether they ever processed transactions for them. And their Mexican banking operation, called “HBMX,” is even worse.  Here’s what ProPublica gleaned from the Senate report in their “By The Numbers” article:

7 Billion: U.S. dollars exported from 2007-2008 from HBMX accounts to HSBC’s U.S. accounts. At the time, both American and Mexican officials raised concerns that such a volume was only possible if it included illegal drug money.

1: Rank of HBMX in repatriation of U.S. dollars from Mexico for those years. HBMX is only the 5th largest bank in Mexico.

50,000: Number of clients in 2008 with U.S. dollar accounts at an HBMX shell operation in the Cayman Islands.

75: Estimated percentage of those accounts for which HBMX had incomplete information on the account holder.

15: Estimated percentage of such accounts for which the bank had no account holder information. (In 2009, HBMX closed 9,000 Cayman U.S. dollar accounts, but continues to allow new ones to be opened there.)

According to the Senate report, this has been going on for years.  OK, so the CEO apologizes – sort of –  saying: “What happened in Mexico and the US is shameful, it’s embarrassing, it’s very painful for all of us in the firm.” Ya think!?  So a couple of heads will roll, they’ll pay a huge fine, stay out of jail, admit no wrongdoing, and it’ll be back to business as usual, laundering money for drug dealers and terrorists.  So these are the folks that pay our legal fees! I wondered why they always insisted on paying us in cash – now I know.  Dirty money!  I want to put finger condoms on just to count it.”

Her:  “Hmmm.  I don’t think I needed to know all this.  I’d like to think I’m using clean money when I buy clothes at Nordstom and Saks….  Well, honey, there’s always one bad apple in the barrel.  I don’t think you need to indict the entire industry.”

Him:  “Sorry to disappoint, but HSBC isn’t the exception – it’s the rule.  The Big Banks are all sleazy in one way or another. It’s like one big fraternity from hell.  Greed is their common denominator.  All of our Big Banks clients cheat in one way or another.  Look at Barclays and the LIBOR scandal. We now learn that during the height of the financial crisis, they were fudging the rates they disclosed as their cost of their overnight borrowing from other large London banks. Their numbers, as well as several other U.K. Big Banks all disclose their borrowing rates for the index.  But Barclays feared that disclosing a higher cost of money might telegraph to their clients that there was a perceived risk, so they decided to lie about it. But that wasn’t all.  It appears that some of their traders were getting inside information from others within Barclays about what their daily LIBOR submissions were going to be. They tried to manipulate these submissions for their derivative trades, and in some cases succeeded.  So they were not only lying for their reputation, they were lying for profit.  The LIBOR index is used around the world as benchmarks for all sorts of lending, including adjustable rate home mortgages, and trillions of dollars in other financial instruments.  Well, you can imagine the lawsuits that are going to come out of this.  This was the subject of a recent Economist article, “Suing the Banks – Blood in the Water.”  And what’s more interesting is that as a part of Barclays’ settlement, they are going to “drop a dime” on their fellow banks. The phrase “Honor Among Thieves” may apply to the Mafia, but not to the Big Banks.

And then right after the LIBOR story broke, we learned that the head of Peregrine Financial Group, Inc. disclosed – in a suicide note, no less – that he’d siphoned $200 million from his customers’ accounts over the past twenty years.”

Her: “Wow! But I don’t understand.  What are the regulators doing, sleepwalking?  How is it that these Big Banks keep getting caught, but never busted?  A criminal felony charge would close one of them up as fast as Arthur Anderson during the Enron scandal. But that never seems to happen. I don’t get it.”

Him: “That’s the problem. The regulators are just as bad as the banks they supposedly regulate.  The relationships between the two are both incestuous and incompetent.  The Levin Committee’s report on HSBC said that the Office of Comptroller of the Currency (“OCC”) HSBC’s regulator “had failed to take a single enforcement action against the bank, formal or informal, over the previous six years, despite ample evidence” of money laundering.” [Emphasis mine].

And, as for Barclays’ LIBOR scandal, Treasury Secretary Timothy Geithner, who was head of the New York Fed at the time, knew back in 2007 that the Libor-setting process “was impaired and flawed and vulnerable to misrepresentation…” according to ProPublica.  He even spoke to the British regulators in 2008 about implementing reforms. The Bank of England and the British Bankers Association were both in the loop on this issue too. But nothing happened for four more years.  It wasn’t until Barclays’ $453 million settlement last  month that everyone sat up and acted surprised. The regulators ought to get the Captain Louis Renault Award for feigning “shock” at learning that LIBOR was being manipulated.

And Peregrine – how the CEO got away with his scam for so long isn’t that much of a mystery. Peregrine’s regulator was the not-so-vigilant U.S. Commodity Futures Trading Commission (“CFTC”) – yes, the same lap watch dog that was supposedly overseeing MF Global, and we know how that worked out…$1.6 billion of customers’ money went missing. Wanna know why the Department of Justice isn’t investigating?  Easy.  Jon Corzine, the head of MF Global, was once a client of Eric Holder’s law firm and he raised $500,000 for Obama’s election.

At Peregrine, the CEO simply cooked the books by forging bank statements.  According to the suicide note, he was the only person who handled the bank statements, so he just Photo-Shopped forgeries for two decades, and the CFTC bought it hook, line and sinker.  Apparently, no one thought to ask whether there were any checks and balances in the company’s banking and bookkeeping systems.

And the final indignity came last month in the form of an Oregon Court of Appeals ruling in the Niday case.  MERS got handed its head on a platter.  This was the first Oregon appellate court to rule on whether MERS could legally be named as a “Beneficiary” in borrowers’ trust deeds. The judge took one look at ORS 86.705(2) and said “No” – you can’t be a beneficiary if you don’t receive a “benefit.”  She also said that ORS 86.735(1) means what it says, i.e. all assignments of the trust deed must be recorded before we can complete a non-judicial foreclosure. But she didn’t stop there.  She added that not only does the statute require the recording of “formal” written assignments, but also those occurring by “operation of law” i.e. when the promissory note is indorsed.  So you know what’s happened? Non-judicial foreclosures have come to a screeching halt.  No new filings. Radio silence. The Big Banks are just trying to figure out what to do next.  It’s eerie – everything was going so well; we recorded our MERS assignments of trust deeds, argued that this satisfied ORS 86.735(1) and figured the Oregon appellate judges would buy it. Well they didn’t. I’m starting to think that with all the Big Bank BS happening, everyone is just piling on, figuring that we deserve all the bad things that happen to us.  And maybe we do.”

Her:   “Some folks might say it’s ‘karma’ – a sort of divine justice that takes over when real justice fails. So, what now?  Are you going to quit?  You said you thought you might be growing a conscious – that’s not permitted when you represent Big Banks.  They told you that during your first day at the firm.  “It makes you soft,” they said, “and you wouldn’t enjoy the drama that comes with kicking families out of their homes.  Zombie lawyers for zombie banks.” 

Him: “I really don’t know.  Except I can’t help but think that all of the attorneys representing the Little Guy are out celebrating the Niday ruling, happy that they smacked down MERS.  They relish the David and Goliath battle. What happens when we win a case?  The Big Banks don’t appreciate it – they expect it.  After all, we are Goliath.  But if we win a case, we can’t all go out to the neighborhood bar and toast our victory in kicking another family out of their home. We’d be tarred and feathered.  The problem at our firm is that we get so hung up on the legal issues that we overlook the human issues.  I’m kinda envious of the attorneys representing the Little Guy. Every foot they move the ball downfield is a victory to them.  It makes them work harder, even if they’re serving pro bono. And most important – all their clients love them….” [To be continued.]

[1] According to the Office of Comptroller of the Currency (“OCC”) a “Suspicious Activity Report” is a report that national banks are required to file if they suspect a transaction involves money laundering or violates the Bank Secrecy Act. See, 12 CFR 21.11.

[2] HBCS’s American banking operation.