Stakeholder or Industry Element<\/b><\/p>\n<\/td>\n

Mission<\/b><\/p>\n<\/td>\n

Its Self-perceived Risk\/Incentive<\/b><\/p>\n<\/td>\n<\/tr>\n

U.S. Congress<\/p>\n<\/td>\n

Affordable Home Ownership<\/p>\n<\/td>\n

Incentive:\u00a0 Voter approvals and economy benefits<\/td>\n<\/tr>\n

Homebuyer<\/p>\n<\/td>\n

Ownership of shelter<\/p>\n<\/td>\n

Incentive: Nicest affordable home possible<\/td>\n<\/tr>\n

Mortgage Broker<\/p>\n<\/td>\n

Pair borrower with lender<\/p>\n<\/td>\n

Incentive: Commission Income<\/td>\n<\/tr>\n

Mortgage Lender<\/p>\n<\/td>\n

Earn income by making loans<\/p>\n<\/td>\n

Incentive: Sell\u00a0 to Fannie Mae or Freddie Mac for profit and transfer risk<\/td>\n<\/tr>\n

Fannie Mae\/Freddie Mac<\/p>\n<\/td>\n

Incentive: Resell mortgage to pass risk on to investors willing to accept it.<\/td>\n<\/tr>\n

Rating Agency<\/p>\n<\/td>\n

Rate the quality of the mortgage-backed financial product<\/p>\n<\/td>\n

Incentive:\u00a0 Fees and market share<\/td>\n<\/tr>\n

Wall Street<\/p>\n<\/td>\n

Sell CDSs to investors<\/p>\n<\/td>\n

Incentive: Fees and\/or profits from sales.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

What all this means is that Wall Street uses complex financial instruments that distribute the trust and<\/i> risk involved with mortgages around the world with investors who now own the mortgages as part of their mutual funds and retirement nest eggs.\u00a0 These investors may not even be aware of this ownership.\u00a0 And, everyone<\/i> trusts that the risk has been accurately and impartially judged by the rating agency.\u00a0 That is the trust betrayed by S&P.\u00a0 But every element of this industry structure, operating in the cultural ecosystem of the mortgage industry, passed impaired financial instruments (in farm terminology, manure) on to the next level.\u00a0 Note that no one<\/i> in this Farmer\u2019s Market has meaningful incentive to assure the accuracy of the information on which risk level is assessed.\u00a0 Some are accountable, but no one has the motivation (other than to comply with federal law).\u00a0 This is The Farmer\u2019s Market.\u00a0 I call it a crazy market full of \u201cninja\u201d loans…subprime mortgage contracts without anything as a foundation\u2014no income, no jobs, no assets.\u00a0 Produce without nutritional value.<\/p>\n

We now know what happened.\u00a0 In the \u201ccrazy market,\u201d even S&P, a credit rating agency acting as a public guardian in this game, had been compromised! Loss of independence of a public guardian\u2014as we saw earlier in the case of Arthur Andersen and Enron\u2014is a lethal and frequently, catastrophic risk for the markets.\u00a0 It\u2019s as if the protector transmogrified into the predator!\u00a0\u00a0 The Market products? A harvest of loss, distrust, bitterness among those suffering from the collapse of a structure missing the foundation timbers of trust. And ultimately, shame.\u00a0 Every element in the chart above had something to gain.\u00a0 But when federal authorities put Fannie Mae and Freddie Mac into a taxpayer-bailout conservatorship, every taxpayer had something to lose.<\/p>\n

I invite my bringingfreudtofraud<\/i> colleagues to bring their Freudian insights into a deeper view of what was involved in this Faustian bargain\u2014an exchange of accountability for profit.<\/p>\n

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of <\/span>ABCs of Behavioral Forensics<\/span><\/span> (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D.\u00a0 These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud.\u00a0 Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com. <\/span><\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

  (By Vic Hartman) In a previous post, we considered the recent Standard & Poor\u2019s settlement with the federal government concerning charges the company had knowingly misrepresented the risk level in securities backed by mortgages (RMBs, or Residential Mortgage-Backed Securities and CDOs, or Collateralized Debt Obligations).\u00a0 The Department of Justice accused S&P of illegally putting […]<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,1,10],"tags":[],"class_list":["post-289","post","type-post","status-publish","format-standard","hentry","category-accounting","category-audit","category-behavioral-forensics"],"_links":{"self":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/289","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=289"}],"version-history":[{"count":5,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/289\/revisions"}],"predecessor-version":[{"id":292,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=\/wp\/v2\/posts\/289\/revisions\/292"}],"wp:attachment":[{"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bringingfreudtofraud.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}