How Wall Street Sabotages the Democratic Party

Part 2, The Stealth Methods Used to Defeat HAMP

“The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true. It really happened. These suspicions are valid”.

-Niel Barofsky, Special Investigative Counsel, TARP

Part 1 of this article here explains how Wall Street always has its men in the right place for the right time. In 2008, they ensured an original $700 billion for homeowner relief trickled down to only 12.2 billion dispensed through HAMP resulting in about 10 million foreclosures due to the 2008 Crisis.

In this article, I will explain the stealth methods the Treasury Secretary used to defeat HAMP by letting the banks administer the program and deny qualified applicants so their houses would go into foreclosure.

in Part 3, I will explain why. The bankers then formed corporations and scooped up the houses at fire sale prices driving up housing costs.

This all seems to be ancient history. Why is it important? Because Trump will destroy the economy and the working class will wake up to the fact that they have been taken in by a clever showman. But the next time the Dems are in power, Wall Street will again use this undetectable method to defeat the Dem’s programs to help the working class— and once again convince them that the Republicans are their saviors. (The following is a continuation of just one example from the Section, How Wall Street Controls Washington).

As I'm writing this, a current example has manifested. In 2021, Congress passed the Corporate Transparency Act requiring companies to reveal their ultimate shareholders. This would make it easier for the IRS to uncover the ultra wealthy who hid their assets in tax havens. It has yet to come into force.

This week Treasury Secretary, Scott Bessent, (a former hedge fund manager) announced Treasury would not be enforcing that Act. Instead, Treasury would write a new rule that only applied to foreign corporations. Congress wishes be damned–again!

How Did Geithner Do It?

Banks create separate corporations to administer their mortgages called mortgage servicers. Geithner used these bank-controlled mortgage servicers to implement HAMP.

For more on this process called securitization see: The Quiet Change in Commercial Banks.

In July 2015, Christy Romero, Special Inspector General of the Troubled Asset Relief Program (TARP), reported on the failure of Servicers to implement HAMP. • The mortgage servicers had rejected 72% of applicants (p 99).

• The big banks were the big offenders. “J P Morgan Chase and Bank of America, Historically the Two largest HAMP Servicers, and Citibank each turned down 80% or more of homeowners who applied for HAMP.” (p106)

• “Homeowners living in the middle of the United States, including the Great Plains, had the hardest time getting into HAMP” (p104)

Romero described what her investigators found on many Servicers premises. Sun Trust was the most egregious example:

“SIGTARP found that SunTrust Mortgage had no effective document management system in place to process and retain borrowers’ documentation and, as a result, routinely lost HAMP application paperwork. SIGTARP found that SunTrust employees piled so many unopened Federal Express packages from homeowners containing their HAMP supporting documents into one room that eventually the floor buckled. SIGTARP also found that SunTrust mass denied homeowners from HAMP without reviewing their applications at all.’ (p113)

As the report naively noted, “Treasury has a responsibility to ensure that the banks involved in the program are not wrongfully rejecting homeowners for a modification. But that’s not happening.” [Emphasis added.] As in the introductory quote above, earlier, the Senate Congressional Oversight Panel on TARP had made the same negative finding (St. Louis Fed, Jan 09, 2009). Nothing changed.

But that was Geithner’s intent.

The Perverse Incentives

These Servicers had massive financial conflicts of interest so could be relied upon to reject applications.

• Servicers make much of their profit based on a percentage of the principal. If it is reduced by HAMP, their own commission is reduced (Intercept, December 28, 2018).

• Servicers are paid more on a foreclosure out of the sale proceeds than seeing a mortgage to its completion. HAMP did a little,but not enough to counter these perverse financial incentives (Intercept, Dec. 28, 2018).

Bank Staff Bonuses for Denials

Bankers saw a way to use HAMP to make money.

It is rare to get an inside look at what happens in a bank. However, we do have one case. Several former Bank of America employees swore affidavits in support of a class action against that bank. They deposed that they were paid bonuses for denials. According to these former employees, Bank of America used HAMP as a tool to squeeze as much money as possible out of struggling borrowers before eventually foreclosing on them (Salon, June 18, 2013).

Bank of America was able to prevent this evidence from attracting major publicity at a trial and having a court decide on the truth of the former employees’ allegations. It moved to dismiss the class action not on the merits but on the basis that technically it did not conform to the requirements to be a class action. A judge agreed and killed the class-action (Reuters, Sept 05, 2013).

Bank of America denied all of what the former employees were saying, pointing to how many mortgages it had in fact modified. As there was no trial, you will have to decide whether you believe the denials by management of the Bank of America or the claims by its former employees.

How Did a Failed Regulator Get to be Treasury Secretary?

Lawyer economist Bill Black, who oversaw the prosecution and conviction of 1000 bankers in the S&L crisis (Frontline, Jan 22, 2013), as explained to Bill Moyers that Geithner failed in his job as head of the New York Federal Reserve to investigate bank conduct despite clear warnings from the FBI:

“Well, Geithner, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well, he's a failed legacy regulator”.

(For more on the fraud that was covered up see: Fraud at Every Step of the Mortgage Securitization Chain).

But Citibank wanted him there.

John Podesta was a co-chairman of the Obama-Biden Transition Project. Michael Froman, an executive of Citibank, sent Podesta an email on October 6, 2008 setting out a list of who he wanted in Obama’s cabinet. He practically selected the cabinet: he got 30 of 33 of his wishes including, Timothy Geithner.

Citibank also got its reward. Under Geithner’s administration, Citibank would ultimately become the recipient of the largest bailout from the federal government during the financial crisis.

It’s relevant to note here, CitiMortgage, a unit of Citibank, carried out Geithner’s intent superbly. It had the worst record, rejecting 87 percent of borrowers applying for a loan modification. (NYT, Sep 02, 2015)

As Michael Lewis and David Einhorn explained Treasury gave Citibank:

• $25 billion from the Troubled Asset Relief Program (TARP) initially.

• Later, another $20 billion from TARP.

• Guarantees of $306 billions of Citibank’s assets.

Why the colossal guarantee? As Lewis and Einhorn explain:

“The $306 billion guarantee was an undisguised gift. The Treasury didn’t even bother to explain what the crisis was, just that the action was taken in response to Citigroup’s “declining stock price”.” (NYT, 2009/01/04)

What Was in It for Geithner

Geithner went to his reward on Wall Street. The German private equity firm Warburg Pincus appointed him managing director in 2014. His take home pay went from six figures to seven overnight.

The message for all government regulators: Wall Street generously rewards all its faithful servants when they leave their former government positions.

What Can Be Done

Indicating that the entities subject to regulations, in this case the banks, control the person in the government that regulates the and in this case the Secretary of the Treasury.

This corrupting practice could be ended by prohibiting anyone who takes a cabinet position from ever taking a job, directly or indirectly, from an entity that they regulated after retirement from government.

And yet, surprisingly, no politician has made this a central part of their platform, no media has given this the attention that they would give to the missing Debbie Petitto to make it part of public consciousness.

What happened to all the foreclosed homes comes next.

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