One of the great canards in the fall out from the mortgage debacle is the idea that no one charge could have known that this was going to happen.
A canard incidentally is a French word meaning duck.
It is used in English to refer to a story that is deliberately false or misleading. Its use originates from an old French idiom, "vendre un canard à moitié," meaning "to half-sell a duck."
In other words, it's a fancy way to say something is BS.
Of course, the real truth about who might have known is otherwise. Lots of people saw this coming from a mile away.
In fact, most of them knew it long before the term "sub prime" became the word of the day.
But in the shark infested waters of Wall Street, closing the beaches simply wasn't an option.
So the con game went on long after it should have ended—even though everyone knew what was beneath the waves.
But when there is so much money involved in the game, greed trumps common sense every time.
Here, by the way, is a great story on the mortgage mess from NPR. It points the blame towards those on the Street that kept the game going.
It is by Chris Arnold entitled: Auditor: Supervisors Covered Up Risky Loans.
"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.
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.
Some legal experts say it's a pretty big deal that people like Warren are willing to talk.
"This is a smoking gun," says Christopher Peterson, a law professor at the University of Utah who has been studying the subprime mess and meeting with regulators. "It suggests that auditors working for Wall Street investment bankers knew how preposterous these loans were, and that could mean Wall Street liability for aiding and abetting fraud."
Peterson said auditors like Warren basically were hired to find the bad apples in the barrel and pull them out: borrowers with payments they couldn't afford, houses with inflated appraisals, people lying about their income.
But Warren says her bosses were taking a lot of those bad apples and putting them back in. And Peterson says he thinks the investment banks had a strong financial incentive to do that.
"They put the bad apples back in the barrel because they knew that they could sell the bad apples along with the good apples and, at least in the short term, nobody would know the difference. That's why they put them back in - because they made more money that way," Peterson says.
"There's a name for this - it's called 'passing the trash,' " says David Grais, an attorney getting ready to sue Wall Street firms on behalf of investors - big pension funds and others - who bought the bad loans."
This was no boating accident.
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