Blown Mortgage » scandals

Why is Citigroup still in business?

Constantine von Hoffman — Fri, 26 Jun 2009 18:14:47 +0000

It’s been quite a week for Citi.

Tuesday it walked into a feces storm of its own making by announcing it would raise salaries by 50% to offset cuts in bonuses.

To be fair to Citi, they are taking (well-deserved) crap for the entire industry on the salary issue. BofA, Morgan Stanley, UBS and others are also trying to dodge the bad PR when huge bonuses are awarded following huge losses. So now instead of bonuses for bad performance execs will just get a huge salary for bad performance. It’s all about retention – or so Citi would like us to believe. Quote from the NYT: “Citigroup executives are so eager to keep employees from fleeing, that in some cases, they are offering them guaranteed pay contracts.” Well, given that those contracts are being paid for with $45 billion of US taxpayer debt who can blame them. Citi is once again free to play with someone else’s money and are being just as responsible as they were the last time. BTW, the idea that these raises are going to the rank-and-file is absolute hogwash. As Alphaville notes, “the biggest increases will go to investment bankers and traders.”

Also on Tuesday, Citi temporarily stopped buying new loans after “discovering” it was missing property appraisals and documents showing borrowers’ incomes.

The discovery came in Citi’s correspondent division, which buys loans from banks and independent mortgage firms, and was responsible for about half of the bank’s $115 billion in mortgages last year. Two great quotes about this:

“There remain key areas that fall short of our quality- control process. We ask you to review your processes and join us in this effort to collectively address these areas of concern.” — Brad Brunts, a managing director at the bank’s CitiMortgage division.

And this from an analyst

“It is better to pull people off the line, and have a thorough re-education of what goes into a loan, so they can come back and do this the right way.”

Not a good sign when you have to re-train people processing mortgages on the most basic elements of how to do their jobs. Are these some of the folks being offered those guaranteed contracts?

Finally, today Japan ordered Citi to halt the marketing of all financial products to retail customers for a month because of bank “failed to implement sufficient measures aimed at preventing suspicious transactions, including money laundering.”

This really takes the idea of not verifying income to a new level.

RealityFrame’s comment about the raises could really be applied to pretty much everything the bank touches: Anybody want to dispute that those banksters aren’t indeed the "best and the brightest"?

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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41 Charged as Mortgage Fraud Hits Condos & Suburbs

Jay Hammond — Thu, 25 Jun 2009 00:51:17 +0000

Federal law enforcement officials recently announced charges have brought against 41 defendants in five separate cases in Chicago. The cases involve more than $48 million in fraudulently obtained mortgages for dilapidated homes in urban areas as well as deals involving million dollar condominiums in a Chicago high-rise and sprawling homes in affluent suburbs like Wheaton and Glenview. The vice president of a title company, mortgage brokers, loan officers, appraisers, real estate investors and an attorney are among the 37 defendants charged.

“Mortgage fraud is a serious issue that affects not just financial institutions but ordinary citizens who may have invested in such financial institutions or who hope to purchase, sell or refinance a home by honestly setting forth their finances. Today’s charges also show that the mortgage fraud issue affects suburbs as well as cities,” said Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, who announced the charges along with Robert D. Grant, Special Agent-in-Charge of the Chicago Division of the FBI and Barry McLaughlin, Special Agent-in-Charge of the U.S. Department of Housing and Urban Development (HUD) Office of Inspector General in Chicago.

Among the cases are:

U.S. v. Lisnek, et al. is one of the most comprehensive mortgage fraud schemes ever charged in Chicago. The 22-count indictment names 19 defendants, including LaSalle Title Company and three other businesses, who allegedly schemed to fraudulently obtain loans totaling more than $10 million on 70 residential properties in Chicago, including many blighted homes on the city’s South Side between 2002 and 2007. The resulting losses by various mortgage lenders totaled approximately $5.8 million.
The 23-count indictment returned in U.S. v Askar, et al. names 10 defendants accused of scheming to fraudulently obtain loans totaling more than $17.2 million on various multi-million-dollar condominiums and penthouses at 33 West Ontario St., also known as Millenium Centre. Between July 2004 and December 2006 the co-defendents are alleged to have fraudulently obtaining more than $17.2 million in loans to purchase nine Millenium Centre units.
Six defendants accused of fraud and using stolen or fictitious identities to fraudulently obtain approximately $3 million in home loans from various lenders by submitting false applications for loans in U.S. v. Okulaja, et al.
In another $3 million mortgage fraud scheme, the nine-count indictment in U.S. v. Beck, et al. alleges six defendants were purported to be in the business of buying, repairing and reselling real estate.
U.S. v. Luckett charges the chief executive of a Burr Ridge mortgage lender who allegedly defrauded GMAC Bank out of approximately $15 million in funding more than 450 fictitious residential loans.

All the charges filed in these cases are felonies. They carry a variety of maximum penalties including 30 years in prison and a $1 million fine on each count of mail and wire fraud affecting a financial institution or 20 years in prison and a $250,000 fine if no financial institution was affected. Alternatively, the court may impose a maximum fine totaling twice the gain to any defendant or twice the loss to any victim, whichever is greater. If convicted, the four business entities charged each face a maximum penalty of five years probation and a $500,000 fine.

“People who would want to commit this crime should understand there’s a lot of attention being focused on it, and we’d like to think that we have our ears up,” Fitzgerald told the Chicago Tribune.

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Abracadabra Obama

Morgan — Fri, 12 Jun 2009 16:46:59 +0000

I remember going through a phase where I wanted to learn how to do card tricks to impress my friends and members of the fairer sex. I read several books on the subject and the number one thing to learn is to get the observer’s eyes off the deck of cards. Create a distraction. In fact, it’s in all good illusion handbooks. Misdirection, getting the audience to look in one place so they don’t notice what is going on in another is the key to being a good magician.

As the Obama administration announces its turn to its key campaign issue of healthcare, I cannot help but think back to those books and the key tenent of illusion – creating a distraction so that no one notices what’s really going on. Now, granted, pulling it on a national level in front of an unwitting audience of hundreds of millions is far more difficult than getting your three snot-nosed friends off the scent; but the fact remains that this public move to healthcare by Obama seems nothing less than a ruse to get us off the scent of the bailout. To get us to stop scrutinizing the complete lack of enforcement, investigation, reform or action (other than handing them hundreds of billions of dollars) against the malfeasance, greed, ineptness of those that engineered this meltdown.

As bills like HR 1728 wind through Congress shifting ever-more power in the real estate market to the remaining big banks, and accounts of the Fed buying more mortgage backed securities and running secret repo accounts to keep the markets moving, and the dog-and-pony Congressional hearing of Ken Lewis and the complete lack of enforcement activity by the Federal government and…no wonder the administration is playing slight of hand.

Hopefully you’re as pissed as I am. Your pissed that the government decides that 3-card monte is the way to reduce the public ire and let the status quo remain. That the same folks who caused the mess and are now benefiting from it are also being given the wink-wink, nudge-nudge from the government. An unspoken offer of amenesty to anyone who goes along with their ill-advised plans.

There is a great piece in the Huffington Post about the same thing, and is well worth the read.

This makes me nervous for two reasons. First, it portends a long drawn out legislative battle on health care reform with more time for industry lobbyists and the Congresspersons and Senate persons on their payrolls to compromise away or wreck the change we so deeply need.

Second, it confirms that the lobbyists for financial institutions — the people responsible for the collapse of our economy—have been scheming and wrangling to gut the reforms that could stop anther economic breakdown. Reviving this industry without restructuring and re-regulating it just guarantees another disaster down the line.

…

Shamus Cooke writes on Global Research: “History will likely show that these bailouts involved the largest transfer of wealth ever – from the working class to that small group of billionaires who own the corporations. This fact is recognized by most people now and is such common knowledge that even the mainstream media feels comfortable discussing it . . . matter-of-factly.

These corporations have also exerted tremendous influence in other realms of politics, working towards destroying Obama’s campaign promises of health care, job creation, civil liberties, the Employee Free Choice Act, peace, etc.

In each case, the promised reform was gutted of its essence, and ‘compromise’ versions of the bills are now being discussed: instead of universal health care, we will likely be universally mandated to purchase health insurance; instead of ‘job creation’ we are told that the stimulus has ’saved jobs’ (contrary to the evidence); while troops are ‘drawing down’ from Iraq, the war in Afghanistan/Pakistan is being escalated; instead of allowing workers to organize unions easier, a compromise version — Employee Free Choice Act, minus card check – seems more politically ‘pragmatic,’ etc.”

What do you think? How angry are you that while employment tanks we’re being fed a line of crap about healthcare to take our minds off the fact that nothing, NOTHING, has changed.

Hocus Pocus.

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The Tale of Two Countrywides & Maybe Bank of America

Jay Hammond — Fri, 05 Jun 2009 01:35:38 +0000

“This is the tale of two companies,” Robert Khuzami, Director of the Security and Exchange Commission’s (SEC) Division of Enforcement explained in a public statement announcing the filing of financial fraud charges against Countrywide Financial CEO Angelo Mozilo and two other former executives. “Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk. Angelo Mozilo privately described one countrywide product as ‘toxic,’ and said another’s performance was so uncertain that Countrywide was ‘flying blind.’”

The SEC alleges that Mozillo, former chief operating officer (COO) and president David Sambol and former chief financial officer (CFO) Eric Sieracki deliberately mislead investors about the significant credit risks Countrywide was taking in an effort to build an maintain the company’s market share. The enforcement action further alleges that from 2005 through 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the company’s ability to sell them. Countrywide failed to disclose these important trends to its investors in its SEC filings as required by law. The complaint, which alleges Mozilo, Sambol and Sieracki actually knew, and acknowledged internally, that defaults in the loans Countrywide serviced and loans the company packaged and sold as mortgage-backed securities, was filed in federal district court in Los Angeles.

Mozilo was additionally charged with insider trading for selling his Countrywide stock based on non-public information for nearly $140 million in profits. From November 2006 through August 2007, Mozilo exercised more than 5.1 million stock options and sold the underlying shares pursuant to written trading plans. Bloomberg reports that Mozilo, “the most prominent executive targeted by regulators investigating the subprime mortgage crisis, also issued internal warnings and admitted the company had no means of quantifying the risk associated with some mortgages. Mazilo’s attorney, David Siegel of Irell & Manella LLP in Los Angeles, told Bloomberg the charges were “without merit” while Sambol’s attorney, Walter Brown, maintains the complaint is the result of public and political pressure.

“Angelo Mozilo had access to detailed and alarming information about Countrywide’s operations,” said Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office. “He knew that countrywide was gambling with increasingly risky mortgage and he kept those details from investors while he was actively taking his own chips off the table.”

He may have known it, but he certainly did not reveal his knowledge outside the company in obvious disregard for the law as well as consumers. In fact, when he left Countrywide in 2008 he said: “My primary focus today – as it has been for the past 40 years – is to do what is in the best interests of Countrywide’s employees, customers and shareholders.”

Countrywide merged with and became a wholly owned subsidiary of Bank of America (BoA) in 2008. In October, Countrywide Financial Corp., Countrywide home Loans, Inc., Countrywide Capital IV and Countrywide Capital V notified the New York Stock Exchange (NYSE) of their intention to voluntarily delist certain securities. Following the delisting the Countrywide issuers withdrew the securities from registration with the SEC and suspended their reporting obligations. Separately, Bank of America applied for the listing of trust preferred securities related to the obligations assumed under the merger agreement.

BoA, who is not named in the SEC complaint, recently announced the departure of Chief Risk Officer Amy Woods Brinkley and director Robert Tillman. Their abrupt departures again raises speculation regarding the role the federal government is playing in bank’s decisions, according to the Wall Street Journal. In addition, the San Fernando Business Journal reports BoA has offered to modify more than 100,000 mortgage loans. The modifications, according to the L.A. Times, are part of the bank’s agreement settling state cases brought by several states against Countrywide for predatory lending practices.

The SEC’s complaint against the Countrywide executives seeks permanent injunctive relief, officer and director bars, and financial penalties against all of the defendants and the disgorgement of ill-gotten gains with prejudgement interest against Mozilo and Sambol.

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California trys to deter loan modification and foreclosure rescue scams

Morgan — Wed, 03 Jun 2009 23:30:57 +0000

California foreclosure consultants and loan modification companies must post a $100,000 bond and register with the state to legally operate, effective July 1, 2009. This according to a news release by California Attorney General Jerry Brown.

The move is aimed at bringing some transparency and accountability to a cottage industry filled with scam artists and ripoff shops who prey on homeowners desperate to save their homes.

From the release:

“California is awash with con artists who prey on vulnerable families facing foreclosure,” Brown said. “By forcing foreclosure consultants to submit detailed information to my office and post a $100,000 bond, this registry will help bring long-overdue transparency to this shadowy world.”

As I’ve always said, you don’t need help with a loan modification. You can do loan modifications on your own if you learn how. You can sign up for my free report on The 10 Deadliest Loan Modification Mistakes here for more information.

Disclosure: I am compensated for folks that sign up for the DIY loan mod course, more info in the post above.

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AIG wants donations back to pay bonuses

Morgan — Mon, 01 Jun 2009 17:02:12 +0000

The sickening feeling in my stomach continues to worsen. AIG is looking to clawback a $490 million endowment and the $27 million in donations already made to charities to pay employee bonuses instead. The New York Post has the details on this underhanded, disgusting move by a company and board that has long been disgraced.

From the NY Post:

Insurance giant AIG is trying to seize a $490 million charitable endowment — and claw back $27 million it already awarded to New York charities — to pay executive bonuses, The Post has learned.

The endowment, called Starr International Foundation, is run by former AIG chairman Hank Greenberg, and has given millions to the Sept. 11 Memorial and Museum, Citymeals and other local groups.

My favorite part about this all? AIG is in court to get the money back of course – spending taxpayer dollars to take money out of the needy’s hands and put in to lining pockets of mostly overpaid hacks who can’t run a hot dog stand, let alone an insurance conglomerate.

When will the depravity end?

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The ups and downs of mortgage fraud

Jay Hammond — Tue, 28 Apr 2009 01:06:33 +0000

The FraudBlogger Index climbed to 1427 during the first quarter of 2009, double what it was in the first quarter last year. Already in April a federal grand jury has indicted four individuals as part of a massive â€œDream Homesâ€ mortgage fraud scheme and 24 individuals in a Racketeering Influenced and Corrupt Organizations Act (RICO) conspiracy in a mortgage fraud scheme based in San Diego, CA.Â At the same time, Congress is looking to extend federal fraud laws to cover mortgage businesses and increase funding for mortgage fraud investigations.

Looking back at the quarter that was

The bad news is that is double the amount of fraud activity seen during the first quarter of 2008, according to MortgageDaily.com. The good news is that fraud activity actually declined by nearly half (49 percent) compared to the previous quarter. More than $1.5 billion in mortgage fraud cases were tracked at some point during the first three months of 2009.

Around $300 million in open fraud activity helped push Utah’s state index higher than any other state in the nation during the quarter. Rounding out the top five were Texas, Florida, Pennsylvania and Minnesota. Utah also led the nation by dollar amount of mortgage fraudÂ Â followed by Florida, Utah, Minnesota, Pennsylvania and New York.

Among the notable fraud cases brought during the first quarter were:

A California mortgage broker who originated $1 billion in fraudulent loans throughout six states. When he was caught at the Canadian border, he had $70,000 stuffed into his boots.
Another California broker allegedly use the social security numbers of 25 children.
In Maryland, one mortgage broker us the proceeds from more than $30 million in fraudulent loans to pay for her $800,000 wedding.
A bank vice president in Minnesota pled guilty to forging her husband’s name on a $200,000 mortgage.
In Texas, a woman was sentenced to 99 years in prison for her role leading a $3 million scheme. Other family members including he husband, sister and daughter have also been indicted.
A city councilman in Pennsylvania pled guilty to helping his daughter commit fraud.
An executive of the Federal Deposit Insurance Corporation (FDIC) recently testified that one straw buyer was given a suitcase containing $10,000 cash in exchange for closing on an IndyMac loan.

A new quarter begins

Although the number of fraud cases declined during the start of 2009, this does not meanÂ Â law enforcement and investigators are not vigorously pursuing mortgage fraud cases. In fact, the U.S. Department of the Treasury, the U.S. Department of Justice, the Department of Housing and Urban Development, the Federal Trade Commission (FTC) and the Attorney General of Illinois announced a new multi-agency crackdown on mortgage loan modification fraud and foreclosure rescue scams in early April. The new effort will align responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities and the private sector to protect homeowners from predatory schemes and criminal fraud.

â€œThe Criminal Division and the U.S. Attorney’s Offices are jointly committed to redoubling our efforts to uncover and prosecute fraud and abuse in all facets of the housing market â€“ a market upon which so many American families have pinned their hopes and their futures for so many years,â€ said Lanny A. Breuer, Assistant Attorney General of theÂ Criminal Division. â€œI want to assure the American public that we will not rest until the tide of this criminal activity is turned.â€

Within days of the announcement, 24 individuals were charged in San Diego with racketeering for allegedly participating in a mortgage fraud scheme that involved 220 properties with a total sales price exceeding $100 million. The indictment alleges that the defendants devised a scheme to defraud mortgage lenders and to obtain money and property by false and fraudulent means. Darnell Bell, the alleged leader of the group, is said to have received at least $9 million from the scheme while Stanley Gentry, a licensed real estate broker who facilitated the fraudulent purchase of property in exchange for a monthly payment of $10,000. Several real estate businesses, including the Ivy House, Inc., the Real Estate Center of Southern California, and the Real Estate Center of La Mesa, were allegedly used by the group to purchase real estate between January 2005 and April 2008 or even more recently.

â€œThis indictment represents the largest mortgage fraud case ever prosecuted in the history of the Southern District of California,â€ said U.S. Attorney Karen P. Hewitt. â€œAlthough this case marks an important milestone for the U.S. Attorney’s Office, the FBI and the IRS, we have much additional investigative work ahead of us to hold accountable those individuals who engaged in similar mortgage fraud schemes throughout San Diego and Imperial counties.â€

More recently, on April 22, four individuals were indicted and information was filed against a fifth person for their part in a purported mortgage payment program called the â€œDream Homes Program.â€ According to the indictment, from 2005 to 2007 more than 1,000 investors invested approximately $70 millionÂ with the defendants under such corporate names are â€œMetropolitan Grapevine LLCâ€, â€œMetro Dream Homesâ€ and â€œPOS DH LLCâ€. The indictment also seeks forfeiture of the fraud proceeds, including the $70 million. The prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia.

â€œThe indictment alleges that the defendant used slick marketing to conceal empty promises,â€ explained U.S. Attorney Rod J. Rosenstein. â€œThey convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices, while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses. The indictment alleges that there was no revenue to pay the mortgage payments. Instead, the conspirators used some of the investors’ money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves.â€

It should be noted that indictments are not findings of guilt. All defendants in these cases are innocent until proven guilty in a court of law.

‘The individuals charges in this indictment have one thing in common: greed,â€ said FBI Special Agent-in-Charge Keith Slotter, regarding the San Diego case. â€œThey represent precisely those who have undermined our country’s financial system perpetuating such egregarious schemes. The FBI and our law enforcement partners remain vigilant and will pursue those who engage in this type of criminal activity. The extent to which this groups of people went to defraud lenders should also serve as a warning to the public. We urge people to come forward with information of suspicious activities they may encounter when engaged in real estate and mortgage transactions.â€

Funding future investigations and prosecutions

Reuters reports that the U.S. Senate is closer to extending federal fraud laws to cover mortgage lending businesses and provide more funding to federal agencies pursuing mortgage fraud investigations. The Senate bill would also create an independent commission charged with investigating the cause or causes of the current economic crisis. There is a similar bill pending in the U.S. House. To become law both houses of Congress must agree on a final version of the bill which is then presented to the president for his signature.

Senator Charles Schumer (D-NY) is also calling on the federal government to helpÂ district attorneys across the country fight mortgage fraud. The New York Times reports Sen. Schumer is seeking federal grants totaling approximately $100 million and earmarked for the investigation and prosecution of mortgage fraud at the local level. The grants would help district attorney offices demonstrating a need for increased resources to combat mortgage scams hire specialized staff including investigators, forensic accountants and attorneys. The fighting Real Estate Fraud Act of 2009 would also create Real Estate Fraud Units that would focus exclusively on real estate crimes.

â€œHousing scams are a nationwide solution,â€ Sen. Schumer said. â€œHomeowners in New York and across the country have suffered for too long because of scam artists who feel they can take advantage of people without any repercussions. These fraud units will help protect homeowners from these criminals and ensure that rather than walking away from their crimes, they are prosecuted to the fullest extent of the law.â€

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A brilliant and simple guide to how we are being lied to about the meltdown

Constantine von Hoffman — Tue, 07 Apr 2009 16:08:24 +0000

There has been a deliberately high signal-to-noise-ratio (”the ratio of a signal power to the noise power corrupting the signal“) around the financial fiasco. The reason for this is the same reason that a magician does patter — to divert your attention from the sleight-of-hand.

We have heard long explanations about how no one could have seen this coming and how we can’t fire the people who got us into this mess to get us out of it and how we are going to borrow our way out of a debt crisis and how the value of loans shouldn’t reflect actual market conditions when the market is a mess. All of which can be translated to, “pay no attention to the man behind the curtain.”

I am not sure if this rises to the exact level of a conspiracy or if it just coinciding self-interest by people who stand to lose a lot of money if that curtain is pulled back. I am sure that the effect is the same as a conspiracy.

However, Bill Black thinks it’s a conspiracy and that’s good enough for me. In an interview on Bill Moyer’s show Mr. Black — the senior regulator during the S&L crisis & now a prof of economy and law at U. of Missouri — applies a brilliantly sharp Occam’s Razor to the entire fiasco. In less than half-an-hour he explains what went wrong, why and why what we’re doing won’t work. This is a truly bipartisan dissection. Watch it and learn.

My favorite part is his conclusion (transcript here):

So stop that current system. We’re hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what’s failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they’ve had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

(Hat tip to Infectious Greed, Financial Armageddon, and Washington’s Blog)

Here’s part 1 of the interview, go here for part 2 and here for part 3.

“The tragedy of this crisis is that it didn’t have to happen at all.” — William Black

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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Rule change lets banks set the value of their own toxic assets

Constantine von Hoffman — Thu, 02 Apr 2009 15:15:12 +0000

The Financial Accounting Standards Board (FASB) has approved a new set of rules allowing financial firms to fiddle with how big their real-estate losses are.

The change is in mark-to-market accounting rules, which say companies must value assets at prices reflecting current market conditions. But now the phrase “current market conditions” will have a big asterisk next to them. Now the assets will be valued at what they would go for in an “orderly” sale, as opposed to a forced or distressed sale. Smoke-and-mirrors has nothing on ink-and-paper.

“The changes … allow companies to use ’significant’ judgment when gauging the price of some investments on their books, including mortgage-backed securities.“

Or, as Lewis Carrol put it in the aptly titled Through The Looking Glass:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
“The question is”‘ said Alice, “whether you can make words mean so many different things.”

Those in favor of the rule change include Citigroup, Wells Fargo, members of The House and the American Bankers Association. (What a list! It is difficult to think of a group more dedicated to playing “let’s pretend” when it comes to accounting.) They argue forcing banks to mark assets to firesale prices when the markets have gone dormant has fueled the financial crisis through the writedowns, big earnings hits, damage to capital ratios, and a reduced ability to lend. In other words, if you don’t like the reality of the situation just ignore it. Ah, there’s nothing like seeing capitalism in action — the invisible hand of the marketplace being chopped off before it can distribute goods and services at the prices they would actually sell for.

Why is it that we needed strict accounting measures when these assets were inflating the banks’ balance sheets but now that they are deflating those same numbers it is time to change them?

FDIC head Sheila “The Voice of Reason” Bair seems to have her doubts as well: “Banks need to have flexibility” in valuing assets but the fair market rule shouldn’t be scrapped, [she] told a gathering of bank executives Wednesday. “There needs to be integrity in those bank balance sheets.” Wasn’t theeir lack of integrity how this all started?

Here’s my favorite line in the AP story: “Critics say the rule mandates onerous write-downs and saps investor confidence in banks.” There is no confidence left to sap, guys. Coming up with new ways to officially approve your guestimates just proves how justified the lack of confidence is.

While I am unimpressed by the FASB’s lack of a spinal cord, the true blame lies elsewhere for this one:

At a hearing last month, a House panel wrung a pledge from FASB Chairman Robert Herz to try to issue guidelines in three weeks that would relax the mark-to-market rule. The head of the House Financial Services subcommittee, Rep. Paul Kanjorski, D-Pa., had held out the threat of legislation to pressure the standard-setting board to take the steps.

The inmates are now officially in charge of the asylum.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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New game lets you get a bonus and a bailout for screwing up the bank

Constantine von Hoffman — Thu, 26 Mar 2009 13:48:51 +0000

“Crunch, The Game For Utter Bankers” is a card game for anyone with a distinctly gallows sense of humor:

[It] allows you to experience the upside of down. Placed in the role of a global banking CEO, you have to juggle the conflicting demands of your ailing bank and your flourishing bank account. … Each player starts the game with a number of Assets in their bank, a small workforce and a few Trust cards. Trust is essential to your bank’s survival. Not only will capitalism falter without it, but each Trust card hides on the reverse a potential Government Bailout.

This is the latest product from the fine warped folks at TerrorBull Games and – judging by the website — it is as bitter and cynical as their last number: War On Terror: The Board Game.

An average game sees you bribing your way out of government investigations, fending off aggressive takeovers and forcing debt onto the unsuspecting public. Meanwhile, reward your hard work by taking inappropriate bonuses and – when no one’s looking – brazenly embezzling your bank’s own funds and hiding them about your person. Crunch is unique in that to win, players are coaxed into cheating.

Fittingly, the game will hit stores on April 1, but it is NOT a prank.

Full disclosure alert:

I have not played the game yet.
I am being given a free review copy.
The company has wormed its way into my heart by sending a free copy of War On Terror to a friend who is currently deployed in Afghanistan.

That said, if the game is half as fun to play as the website is to read it will be great.

Although the problems inherent in, say, spending over a trillion dollars on a war, while your country’s exports diminish year-on-year, would be apparent to the average school child, somehow everyone seemed caught off guard by this. And, being simple people, we started looking around to find out who to blame. …

Unfortunately, you can’t bomb the economy into shape, so looking for culprits was largely a waste of time. Even when bank bosses finally came under fire, it all felt like a bit of a diversion. Like sitting in an upturned, burning car and taking that moment to try and work out where you went wrong, when the car itself has no breaks, no steering wheel, tyres made out of butter and wood instead of glass for windows. And it’s not even a car, it’s an angry lion on roller skates and you’ve been trying to drive it.

Not sure if this will be as much fun as some tar and feathers – but I have my hopes up.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.He is also an avid board gamer.

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