What is our Justice Department doing besides sitting on their hands and ignoring the fraud and theft of OUR money?
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Worse still, now that all the big financial firms are getting lumped-in together—by Paulson's capital injection plan, as well as other rescue schemes—the innocent have lost some of their innocence. Paulson wanted all the top nine banks to take the capital injection, so that investors and other bankers making loans wouldn't retaliate against the ones that took the government funds, viewing them as weak sisters. But the relative health of Wells Fargo reminds us that, in fact, some banks did resist getting burned by these toxic securities.
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Many of these institutions are little-known state or local banks. One of them, Third Federal Bank of Cleveland, has even built itself a brand new headquarters, with fine trim lawns and red sandstone walls, in a working-class neighborhood devastated by mortgage foreclosures. The man responsible for many of those foreclosures, a small-time broker named Mark Kellogg, who was the subject of a NEWSWEEK story I wrote last spring ("Mortgages and Madness," June 2,), was finally indicted this week, on 73 counts involving alleged mortgage fraud, by the Cuyahoga County prosecutor. But the main supplier of those bad mortgages wasn't Third Federal; instead they were major nonbank lenders like Countrywide. Headquartered as far away as California, these big lenders "bundled" huge amounts of these loans-many of them fraudulent and doomed to default the day they were signed-and then sold them en masse to feckless Wall Street banks. Unlike other Ohio-based banks, such as National City—which had to be bailed out for $7 billion—Third Federal refused to take part in the securitization furor and kept most of its loans on its own portfolio, the traditional way of ensuring that customers' credit is good. "Basically we thought it was unconscionable to be caught up in lending money in that fashion," says Third Federal president Marc Stefanski, whose father started the $10 billion bank. "We wanted to make sure loans were going to be paid back." Stefanski notes that now, in an era when the investment banks are no more, his business is booming.
We can only hope that once the crisis passes, somebody in Washington remembers who the real culprits were, and maybe even rewards the banks and other financial firms that didn't lose their heads or sacrifice their principles.
© 2008
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