Last year, fellow Bank Whistleblowers United colleague, Michael Winston, the Countrywide Whistleblower, and I, along with C.R. “Rusty” Cloutier, MidSouth Bankcorp. Inc, Founding President and CEO, and Rashad Abdel –Khalik, PhD. Professor of International Accounting at the University of Illinois, joined Dennis McCuistion; the host of the McCuistion Program for an insightful look at “What Caused the 2008 Financial Crisis? (Part Two).”
The program which airs in several markets, principally on KERA, Channel 13, PBS, Dallas, reairs this segment Sunday, July 30th, in the Dallas Metroplex at 11:30 AM, and can be seen online at www.frtv.org. I feel compelled to comment on how little progress we have made since the program aired; in fact, since the debacle itself, to assure a financial crisis of the magnitude of 2008 does not happen again.
On that program, we each spoke of our personal experience as it related to the 2008 crisis and of the fraud and mismanagement we witnessed in our professions. We agreed on several points, including one key factor which contributed to the 2008 crisis: the lowered credit standards set by Fannie Mae, Freddie Mac and the FHA which were mandated by Congress in the “spirit of affordable housing“ for all.
But these government entities then purchased mortgages from the TBTF banks relying solely on bank representations that the mortgages met the published guidelines when as much as 60-80% of the mortgages purchased did not meet even those lowered standards. Thus Fannie, Freddie and the FHA, enabled massive fraud perpetrated by the banks.
In fact, banks continued to fraudulently represent the quality of loans they sold and continued this same fraud with the fraudulent representations made to purchasers of private mortgage securitizations.
Instead of holding the banks accountable, we rewarded their behavior by bailing them out. I’ve spoken out several times on this issue.
In a program sponsored by the John Ben Sheppard Public Leadership Institute, I took issue with my fellow panelists Ben Stein and Ray Perryman who believed that our government had no choice but to bail out the banks to avoid economic collapse.
In media coverage of the event, I was quoted as saying, “I don’t accept the premise that people throw out that we would have incurred a catastrophe if they had not acted. I don’t necessarily accept that. Would there have been some difficult times? Yes. From my standpoint, it is my belief that the Federal Reserve kicked the can down the road.” 
And, as Michael Winston noted, you get what you reward. We rewarded the TBTF for their fraudulent behavior. So why are we surprised that it continues? And so have we learned? No, we are still seeing what we rewarded. Wells Fargo’s fake accounts scandal is just one instance of this.
The recent Consumer Financial Protection Agency attempt to rein in banks to stop forcing customers to use arbitration agreements and the furor that has caused is another example.
And when will we learn that perhaps some regulation is needed to keep crooked hands out of the cookie jar (or piggy banks)? From my perspective, our moving toward deregulation is not a good sign. The deregulation period beginning in the late eighties which culminated with the repeal of Glass-Steagall certainly contributed to the crisis. The new administration’s pledges to repeal Dodd-Frank and further soften the SEC are troubling.
With the new administration top heavy with former Too Big To Fail alum and our present DOJ Attorney General Jess Sessions, shifting the focus away from white collar crime, we are lessening the chance of future accountability among our larger banks. As a Fox news report said, “President Trump and Attorney General Jeff Sessions have made it clear they want to crack down on drugs, violent crime and illegal immigration, signaling what some experts say could be a shift in resources away from prosecuting white-collar criminals on Wall Street and beyond”.
So am I concerned? Better believe it.
Loosening credit standards once again troubles me. The plethora of issues I just mentioned all contribute to a future crisis.
I certainly do not want to be called on to comment on “What Caused the Financial Crisis of 2019?!”
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
3 short answers: 1-The American public learned that the major US banks are more predatory than ever and are willing to drive the US economy to the brink of collapse in their efforts to fleece consumers. 2-Americans learned that Federal Financial Regulators are so captured by the Too Big To Behave Banks that they will let them get away with just about anything. 3-Congress learned NOTHING about what happens when Bank Watchdogs turn into Bank Lapdogs.
An excellent summary of what large numbers have learned, but I am not sure that the overall American public have truly learned it yet. If they had, there would be more outrage.