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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: ridingycurve who wrote (68904)	8/27/2006 1:32:06 PM
From: ridingycurve	of 110194

Examples of High-Risk, Fraudulent Loans COB Big Shot drops off a loan application for XYZ company and other documents to CEO Lap Dog for presentation to the executive meeting the following morning. Since CEO Lap Dog has no abilities to perform financial analysis, he drops the information on the desk of VP Innocent Victim. VP determines that XYZ is on the verge of insolvency, does not have CF to repay the debt, and that the value of obsolete construction equipment to be pledged as collateral is grossly overstated. VP presents his findings at the exec committee meeting the following AM, whereupon Big Shot jumps to his feet yelling and screaming that, no matter what VP thinks, the blankety blank loan is going to be made. VP is thereafter excluded from exec committee meetings and it becomes apparent that he is very much in disfavor. Later VP is told by Lap Dog to make a multimillion $ transfer to a certain correspondent bank because said correspondent is going to make a large loan to Big Shot. VP points out that such compensating balances are violations of Title 18 of the U.S. Criminal Code. With a disgusting smirk, Lap Dog simply replies “I know it” and walks out of VP's office. Another officer is designated to make the transfer, and VP is soon out of a job (he would have left anyway). Only later does VP learn the importance of the loan to XYZ. It owes money to Big Shot which it cannot repay. Several more violations of Title 18. VP moves on to bigger and better things, XYZ’s entire loan balance is later written off; a few years later COB and CEO take Chapter 7, as does EVP Fairly Good Guy. He had inexplicable cosigned a note with COB and CEO, and is stiffed with the entire payoff. Three years after VP leaves the bank the FDIC FINALLY begins to catch on, and two years afterwards the FDIC mergers said failed bank into a larger, solvent bank. The FDIC never catches on to the fraud involved in the XYZ and compensating balance loans.

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