By Richard Lawless
Almost two years ago, the FBI was presented with significant and wide reaching evidence that credit rating agencies were selling fraudulent credit ratings to technically bankrupt companies and that the major banks on Wall Street were knowingly selling these worthless bonds to innocent investors.
Richard Lawless is a former senior banker who has specialized in evaluating and granting debt for over 25 years. He has a Master’s Degree in Finance from the University of San Diego and Bachelor’s Degree from Pepperdine University. He sits on several Corporate Boards and actively writes for several finance publications.
Without question the cause of the 2008 financial crisis was that criminals were packaging junk mortgages into bonds. These criminals went to the credit rating agencies and could buy fraudulent ratings on these packages of loans. The banks then knowingly sold this crap to the public. The rating agencies and banks made hundreds of billions of dollars.
The Wall Street firms then shared some of this stolen money with our politicians, who then put pressure on the Department of Justice to neither investigate nor prosecute the Wall Street executives. A near perfect organized criminal enterprise.
This activity could have easily been prosecuted under the RICO statues or existing securities laws. Instead, the DOJ concluded it was just messy bookkeeping. A simple eight trillion dollar mistake.
Today the rating agencies and banks are at it all over again. This time instead of home mortgages they are using municipal and corporate bonds.
While examining the default of $70 billion dollars in municipal bonds in Puerto Rico, I found that many, if not all the entities issuing the bonds were technically bankrupt, they neither had the cash flow or assets to support the repayment of the bonds. Forensic accounting reviews showed that the issuers were using phantom, non-existent income in their financial statements to mislead the bond buyers. A trick that could never get past the experienced executives at the banks or the rating agencies.
Then the government of Puerto Rico put together a special Senate Committee Hearing (HR1049) in which one municipal executive after the other testified under oath that the rating agencies and banks knew these bonds were no good but for the right fee they would sell them.
To the surprise of no one involved in this process, all $70 billion in bonds defaulted. The issuers, the rating agencies and the banks flooded Congress with money and legislation was passed that would benefit them and make it more difficult to sue.
I handed all this evidence to the US Attorney and the FBI, only to be told by one field agent after the other that my complaint would go nowhere, they are a protected class. Meanwhile one assistant director after the other claimed to me that they took this very seriously and were very concerned.
The leadership at the DOJ has neither the personal integrity nor courage to protect the American people. It is time to clean house at the Department of Justice. The US Attorney and FBI are bloated with politically corrupt bureaucrats more interested in their own well-being than blind justice.
In a few more years Wall Street will have as many fraudulent bonds out in the market as they did in 2008 but this time we will not have the resources as a country to get through it.