More Reasons for Financial Reform
From NY Times. Lehman Brothers hid risks
In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.
The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.
While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.
None of this was disclosed by Lehman, however.
Before Washington Mutual collapsed in the largest bank failure in U.S.
history, its executives knowingly created a "mortgage time bomb" by
making subprime loans they knew were likely to go bad and then
packaging them into risky securities, a congressional investigation has
In some cases, the bank took loans in which it had discovered fraudulent activity -- such as misstated income by borrowers -- and rolled them into mortgage securities sold to investors without disclosing the fraud, according to the report released Monday by the Senate's Permanent Subcommittee on Investigations.
The actions were driven in part by greed, according to the committee report, which pointed out that WaMu's pay practices rewarded loan officers and processors based on how many mortgages they could churn out.
Do Republicans really want to fight reform and stand up for Wall Street over the middle class? It appears some will try. Here's a memo (as reported by MSNBC) trying to coach Republicans on how to water down or stop the financial reform by pretending to care about the middle class when they really want to protect the banks:
Strikingly, McConnell's words echo a memo that GOP pollster Frank Luntz wrote earlier this year on how to defeat the financial reform legislation.
An example of Luntz's recommended language: "Taxpayer-funded bailouts reward bad behavior. Taxpayers should not be held responsible for the failure of big business any longer. If a business is going to fail, not matter how big, let it fail."
More Luntz: "Highlight the exemptions. Broadcast them. Remind them, 'The legislation is filled with lobbyist loopholes that exclude certain wealthy, powerful industries from regulations.'"
How can that possibly be a winning issue for them? I don't think President Obama should cave an inch on this one. The current plan (pushed by Dodd) has important proposals (if anything it should be tougher) and will help save us from a sequel to the financial horror movie we just went through.
The Democrats are out with a few clever ads to gain traction on the issue. If there is any issue that should be unifying, it's this one.