THE WALL STREET CULTURE OF CORRUPTION

(h/t Atrios)

This is actually old news but it's starting a second and hopefully better run. Investment banks were making a ton of money selling slices of the Big ShitPile and didn't care that a lot of the underlying mortages were crap. William Poole of the Fed is wrong: greed is to blame for this fiasco.

Dean Baker of TPM pointed out this Morning Edition story and it's another bit of evidence of the widespread corruption in our financial markets.

Auditor: Supervisors Covered Up Risky Loans
by Chris Arnold
Morning Edition, May 27, 2008

Mortgage Quality Control

Tracy Warren is not surprised by the foreclosure crisis. She saw the roots of it firsthand every day. She worked for a quality-control contractor that reviewed subprime loans for investment banks before they were sold off on Wall Street.

It was her job to dig into the loans and ferret out problems. By 2006, they were easy to find.
"I'd see people who were hotel workers saying that they made, in California, making $15,000 a month so that they could qualify for a $500,000 home," Warren says. "If a hotel worker is making $15,000 a month changing sheets at the Days Inn, everybody would want to do it. It just really made no sense."

Warren has worked in the mortgage business for 25 years, the past five in quality control. Most recently, she was a contract worker for a company called Watterson-Prime, which did loan audits for investment banks. She says their biggest client was Bear Stearns, which recently all but collapsed because of its exposure to bad loans.

Putting Bad Apples Back in the Barrel

Warren thinks her supervisors didn't want her to do her job. She says that when she would reject, or kick out, a loan, they usually would overrule her and approve it.

"The QC reviewer who reviewed our kicks would say, 'Well, I thought it had merit.' And it was like 'What?' Their credit score was below 580. And if it was an income verification, a lot of times they weren't making the income. And it was like, 'What kind of merit could you have determined?' And they were like, 'Oh, it's fine. Don't worry about it.' "

After a while, Warren says, her supervisors stopped telling her when she had been overruled. She figured it out by going back later and pulling the loans up on her computer.

"I would look every couple of days, and just see, if it was a loan that I thought was a bad loan, I'd go back and see if it was pulled."

About 75 percent of the time, loans that should have been rejected were still put into the pool and sold, she says.