My mother used to quote my nana's favorite sayings, and one of them was, "The fishmonger never yells 'Rotten fish for sale!'" Nana, of course, didn't understand that with the right financial instruments, the fishmongers could not only sell rotten fish, they could make quite a bundle of money on the back end by explaining to selected people that they were indeed selling rotten fish:

As homeowners were falling behind on their subprime mortgages, wreaking havoc for investors that owned slices of their mortgages in securities peddled by Wall Street, Goldman Sachs was "well positioned," according to internal company emails from top executives.

The firm had "the big short," declared chief financial officer David Viniar -- Goldman Sachs was making money off the souring of the very securities it had peddled to the market.

The internal emails released Saturday by the Senate Permanent Subcommittee on Investigations paint a picture long known by most of the country, yet never before so vividly and explicitly articulated by Goldman officials. (Scroll down to see the full text of the emails.) As early as May 2007, as homeowners were being crushed under the weight of subprime mortgages, the most profitable firm on Wall Street had long taken out a form of insurance on those delinquencies.

The firm made money on the upside -- originating, securitizing and selling subprime mortgage-based securities to investors -- and on the downside, thanks to the insurance.

"Bad news," a May 17, 2007, email began from one Goldman employee to another. A security the firm had underwritten and sold had just lost value, costing Goldman about $2.5 million.

Further down in the email, the employee, Deeb Salem, wrote "Good news...we own 10mm protection...we make $5mm."

The firm made $5 million betting against the very securities it had underwritten and sold.

Somewhere, Matt Taibbi is laughing his butt off as the Vampire Squid goes down. Now when do we see the criminal charges - not just against Goldman Sachs, but the rest of the gang involved in crashing our economy for their own gain?

The Securities and Exchange Commission filed charges Friday against Goldman Sachs, one of the most successful but vilified banks on Wall Street, for misleading and defrauding investors in selling a financial product based on subprime mortgages.

In filing the civil suit against Goldman Sachs, the agency is targeting one of the banks that largely escaped the wreckage of the financial crisis and, with the help of various forms of government aid, emerged stronger.

The SEC's suit strikes at a practice that was one of the main causes of the financial crisis: the creation of poisonous investments derived from home loans made to borrowers who couldn't afford the houses they were buying.

The suit also drags into a legal maelstrom Paulson & Co., the firm of legendary hedge fund manager John Paulson, who made billions of dollars by betting against the housing market in the years before it went bust. He and his firm have not been accused of wrongdoing.

Goldman Sachs had no immediate comment. Paulson & Co. also had no immediate comment.

In this case, the SEC alleges that Goldman Sachs created and marketed a financial product known as a collateralized debt obligation, often referred to as a CDO, whose value was linked to that of home loans. The SEC says the bank failed to tell investors important information about the investment -- in particular that Paulson & Co. played a central role in helping Goldman assemble the CDO while the hedge fund at the same time placed bets that the CDO would lose value.

McClatchy has more.

And from the American Prospect:

One note of caution: These are hard cases to prove. Even if Goldman Sachs officials knew how crappy these financial instruments were, they also got solid ratings from the bond-ratings agencies, giving Goldman a real out. If the SEC brought this case, they must have a high level of confidence, but now they need to execute what will undoubtedly be one of the most high-profile financial fraud cases since Enron.

Incidentally, the fact that hedge-funder John Paulson played a role in picking these securities helps confirm the argument that I made in my review of Michael Lewis' book The Big Short: Even the investors with the foresight to see the bubble and bet against it were acting as pernicious speculators who helped drive the bubble up and exacerbate its consequences, not as hero intellectuals tweaking the nasty big banks. These were symbiotic relationships that hurt regular Americans and the economy, make no mistake about it.

This news will only give more momentum to the Democratic financial-reform plan and, hopefully, more impetus toward strengthening the bill in any number of key areas where it could be improved.

When it comes to the Wall Street meltdown, just about every financial institution out there is a villain. Then there's Washington Mutual, who may have rewritten the definition of villain by their conduct in the subprime mortgage madness of the past decade.

The Senate Permanent Subcommittee on Investigations is beginning hearings today on Washington Mutual's lending practices to make a record on the behaviors that led to Wall Street's meltdown in 2008. Based on what I've read so far, it promises to be explosive.

Levin:

Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river,” said Levin. “Using a toxic mix of high risk lending, lax controls, and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad. Examining how Washington Mutual operated, and what its insiders were saying to each other, begins to open a window into the troubling mortgage lending and securitization practices that took our economy over a cliff.

Here are some of the revelations you can expect to hear:

• WaMu intentionally lured borrowers qualified for prime mortgages into subprime mortgages, then bundled those with the riskier loans to "spread the risk."
• Over half of the loans made were obtained with fraudulent information.
• The WaMu culture emphasized revenue and production over all else, including prudent lending practices, rewarding employees with trips to Hawaii and the Caribbean for high production.
• Loans were marketed and sold by mortgage brokers who were not employed by WaMu. After funding the loans, WaMu chose the ones most likely to default for packaging as securities to be sold on Wall Street.
• When Washington Mutual executives were made aware of the danger in 2006, their only concern was for how it would make them look, rather than the damage it could do to the financial structure of the country as a whole.

If Washington Mutual were unique, we could listen to these hearings, call for prosecution of those executives who should have been more prudent and banker-like in their dealings and move on. But it wasn't unique. Countrywide Mortgage engaged in similar practices, as did other large banks and lenders across the country, while the rug was pulled out from under the middle class.

I expect the subcommittee hearings to reveal a story of greed, power, privilege and unparalleled arrogance. Senator Levin is carefully making the case for sound financial reform with a consumer protection agency at the center of it.

LA Times:

Levin said the findings showed the need for a new consumer financial protection agency, which Obama has proposed as part of his regulatory overhaul, to stop lenders from preying on borrowers. "The bottom line is that WaMu had poor policies, poor controls, inadequate oversight of its loans [and] turned out toxic mortgages that sunk the bank, devastated homeowners and polluted the financial system like a poison," Levin said. "This was a Main Street bank that got taken in by these Wall Street profits."

Stay tuned. I know I will.

Joe Nocera, who writes the Executive Suite column for the New York Times, has done an interesting thing today. He 1) points out banks are lying about their involvement in subprime mortgages, he 2) notes that Barney Frank is absolutely wrong to defend them and 3) offers documents that support his claim. This is something we used to call "journalism," and I'm happy to see it:

“There has not been a case made that there is an enforcement problem with banks,” Edward Yingling, the head of the American Bankers Association, said last week. “There is a problem with enforcement on nonbanks.”

As I wrote in my column last week, this has become something of a mantra for the banking industry. We aren’t the ones who brought the world to the brink of financial disaster, they proclaim. It was those awful nonbanks, the mortgage brokers and originators, who peddled those terrible subprime loans to unsuspecting or unsophisticated consumers. They’re the ones who need to be regulated!

Apparently, when you say something long enough and loud enough, people start to believe it, even when it defies reality. Here, for instance, is the normally skeptical Barney Frank on the subject: “What happened was an explosion of loans being made outside of the regular banking system. It was largely the unregulated sector of the lending industry and the underregulated and the lightly regulated that did that.”

To which I can now triumphantly reply: Oh, really???

Last weekend, after the column was published, an angry mortgage broker — someone who felt she and her ilk were being unfairly scapegoated by the banking industry — sent me a series of rather eye-opening documents. They were a series of fliers and advertisements that had been sent to her office (and mortgage brokers all over the country) from JPMorgan Chase, advertising their latest wares. They were dated 2005, which was before the subprime mortgage boom got completely out of control. They’re still pretty sobering.

“The Top 10 Reasons to Choose Chase for All Your Subprime Needs,” screams the headline on the first one. Another was titled, “Chase No Doc,” and described the criteria for a borrower to receive a so-called no-document loan. “Got Bank Statements?” asked a third flier. “Get Approved!” In a number of the fliers, Chase makes it clear to the mortgage brokers that the bank doesn’t need income or job verification — it just needs to look at a handful of old bank statements.

“There were mortgage brokers who acted unethically, absolutely,” my source told me when I called her on Monday. (She asked to remain anonymous because she still has to work with JPMorgan Chase and the other big banks.) “But where do you think mortgage brokers were getting the subprime mortgages they were selling to customers? From the big banks, that’s where. Chase, Bank of America — they were all doing it.” So enough already about how the banks weren’t the problem. Of course they were. Here’s the evidence, right here. Read ’em and weep.

(Hi, dday here from Hullabaloo and Calitics and my own site D-Day. Thanks to John for having me over for the week to fill in for Dave Neiwert.)

I don't think I'm being hyperbolic by saying that the average subprime mortgage broker should probably be in prison by now. They took loans that their customers had no possibility of paying back, often by forcing them into exotic arrangements where their payments would shoot up by double after a reset. They got bonuses for putting people into a higher interest rate than what the borrowers could qualify for. Now lots of those loans have gone sour, but the broker's company has already passed on that risk in the form of mortgage-backed securities. Indeed, these same lenders who preyed upon homeowners by getting them into residences they couldn't afford are now ripping them off again by setting up loan modification companies.

Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.” [...]

FedMod is but one example of how many of the same people who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry focused on selling loan modifications.

Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company. The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees. The suit seeks an end to FedMod’s practices, and compensation for customers.

“Our job was to get the money in and then we’re done,” said Paul Pejman, a former sales agent who worked out of FedMod’s two-story headquarters in Irvine, Calif. He recounted his experience, he said, because “I really feel bad.”

Before state regulators and the Feds figured out this was going on, hundreds of loan modification companies took probably billions from distressed homeowners and provided virtually nothing in return. They saw opportunity in crisis - and they also CREATED much of the crisis by selling the homes to people who couldn't afford them in the first place.

Special place in hell reserved for them...

See, now I'm really confused. The people on the cable teevee told me this mortgage mess was the fault of all those dark-skinned people from ACORN who got mortgages they couldn't afford to pay, and now it turns out they could - only the banks charged them as if they couldn't. You don't suppose the people on the teevee are covering up for the real culprits, do you?

The NAACP is accusing Wells Fargo and HSBC of forcing blacks into subprime mortgages while whites with identical qualifications got lower rates.

Class-action lawsuits were to be filed against the banks Friday in federal court in Los Angeles, Austin Tighe, co-lead counsel for the National Association for the Advancement of Colored People, told The Associated Press.

Black homebuyers have been 3½ times more likely to receive a subprime loan than white borrowers, and six times more likely to get a subprime rate when refinancing, Tighe said. Blacks still were disproportionately steered into subprime loans when their credit scores, income and down payment were equal to those of white homebuyers, he said.

Melissa Murray, vice president of corporate communications for Wells Fargo & Co., called the lawsuit "totally unfounded and reckless." The bank is receiving federal bailout funds.

[...] An NAACP member, Amara Weaver of Milwaukee, said she was one of the victims of predatory lending. She bought her first home in 1984, receiving a 6.25 percent fixed-rate mortgage. She says she had a steady job as a human resources director for a social services agency, never missed a mortgage payment and maintained excellent credit.

In 2004, she wanted to buy the house next door for her son to live in. She said the bank promised her a low fixed rate for a $40,000 loan, but at the closing, when reading the fine print, she noticed that the rate was actually 11 percent.

"I was blown away," said Weaver, an NAACP member. "I didn't have any choice (but to sign). ... It made me feel violated."

Similar NAACP lawsuits are pending against a dozen other subprime lenders.

"This is systematic, institutionalized racism," Tighe said. "Once you take out factors relative to income and credit risk, the only difference between the borrowers is the color of their skin."

You know, it's getting hard to read between the lines these days. This NY Times story about FDIC chair Sheila Bair, the only Bush official who's been looking out for homeowners facing foreclosure, has all the signs of a classic hit job: Unnamed sources (even "a representive of IndyMac" who remains unknown) expressing deep concern that Bair is a hot dog whose so-called policies don't work.

The only question remains is, who's trashing her - and why?

I read recently that the Obama team wants to dump her (more unnamed sources, of course). So is Bair as good as I've heard, and is being targeted for ruffling the Good Old Boys' feathers, or is she a self-promoting hot dog? You'd never know from reading this story. It's a masterwork of insinuation.

Boy, I wish there was a real newspaper I could read that could make that distinction, draw a credible conclusion and bolster it with facts people would back - on the record.

Hey, New York Times, here's a thought: instead of asking unnamed sources for quotes on her policies, why not do your homework?

Corporate welfare at its finest.

White House:

This is a pivotal moment for America's economy. Problems that originated in the credit markets -- and first showed up in the area of subprime mortgages -- have spread throughout our financial system. This has led to an erosion of confidence that has frozen many financial transactions, including loans to consumers and to businesses seeking to expand and create jobs. As a result, we must act now to protect our nation's economic health from serious risk.

There will be ample opportunity to debate the origins of this problem. Now is the time to solve it. In our nation's history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment.

America's economy is facing unprecedented challenges, and we are responding with unprecedented action.

Paul Krugman details what happened and says:

The unthinkable - a government buyout of much of the private sector's bad debt - has become the inevitable.