IndyMac Attack: Did Schumer, Paulson, Soros, and the CRL Kill the Bank and Profit From Its Collapse?
- 2010/04/23 00:08:30
- Read all 7 opinions
At the end of 2007, hedge fund billionaire John Paulson invested $15
million in the leftist non-profit, Center for Responsible Lending, their
largest single donation ever. Around the same time, Paulson and his
employees contributed over $100,000 to the Democratic Senatorial
Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly
six months later, CRL and Sen. Schumer both launched a highly public
attack on the California-based mortgage lender, Indymac. The lender
failed, wiping out the investment of thousands of people. Roughly six
months after that, John Paulson, in partnership with George Soros,
bought up the remnants of Indymac for pennies on the dollar.
It is a drama that no longer surprises us, unfortunately. Wealthy
investors use their access to elected officials and their checkbook to
advocacy groups for private profit. But this story has a twist; a top
executive of CRL when this deal went down, Eric Stein, is now working at
the Treasury Department, heading up the proposed Consumer Financial
Protection Agency. Mr. Stein will be the chief federal official
designing regulations to protect consumers. Right.
This is that story.
Financial crises create opportunities. Prudent and discerning
entrepreneurs who save their capital for a rainy day are able to acquire
assets at firesale prices and put these assets to higher and better
uses. Market forces cleanse wasteful malinvestments, innovative
business models make existing ones obsolete and the economy roars
forward all the stronger for it.
But while market entrepreneurs generally prosper during times of
great dislocation, ultimately to the benefit of all participants in the
economy, today political entrepreneurs have hijacked the economic
system. The politically connected elites have used this downturn to
carry out a massive wealth transfer from the people to the public and
private sectors, fleecing the middle class for their own enrichment. In
their hypocrisy, the long ago small businesses that grew large because
of free markets have helped chain these markets through lobbying for
regulations and subsidies to shield themselves from competition and
their own errors.
This has occurred most egregiously in the financial sector, where
there has been a veritable free-for-all in legalized
political plunder. Those who understand the illusory nature of our
monetary and symbiotically related political and financial systems have
clamored to profit as much as possible before the house of cards falls,
with the sanction of our supposed representatives.
The biggest asset bubble contributing to this Depression, occurring
in housing, was largely attributable to artificially low interest rates,
government agencies and concomitant policies that pushed profligate
lending, and the lobbying and more brutish efforts put forth by the
groups that proliferated around and prescribed to the pollyanish at best
and perverse at worst “home-ownership for every American” persuasion.
Here at Big Government we have been working to pull the veil back and
expose these organizations, most notably in the Center
for Responsible Lending (CRL). As readers may
recall, most recently we examined the Center’s alleged lobbying violations. This organization is highly
significant in that for its efforts, the CRL has won a front row seat in
helping design the Consumer Financial Protection Agency (CFPA), as one
of its major architects is former CRL senior executive Eric Stein who is serving as the Treasury Deputy
Secretary for Consumer Protection and will likely be tabbed as the CFPA
Like with all of the economic and social justice-peddling shell
organizations, in the case of the CRL the acorn does not fall far from
the ACORN. Hidden beneath an innocuous title is
an organization in the CRL whose activities serve ends directly opposite of those
they purport to promote. Under the guise of fostering fairness in
lending, the CRL has been used as an attack dog to force banks to lend
to poor credit risks. Due to the Community Reinvestment Act (CRA),
redlining lawsuits and the intimidation of groups like the CRL, many
banks were threatened into creating mortgage products such as Alt-A and NINJA loans, discarding all rational lending
standards and helping create a market ripe for speculators and sure to
ultimately be delinquent homeowners.
That the CRL has been largely funded by the Sandler family of option-ARM (and SNL) fame in itself stinks. The Sandlers, Co-CEOs
of Golden West Bank were major underwriters of these mortgages generally
structured to have low “teaser” rates in early years, followed by
massive increases in rates when the mortgages reset, rates that many
borrowers could never afford. The explosion in this imprudent lending
helped pump housing prices to epic levels, and the Sandlers wisely dumped these mortgages on Wachovia
as the bubble reached its apogee. This is a Soros-like strategy of
playing the market, which is likely no coincidence as we will soon see.
John Paulson, recently back in the news due to the SEC’s civil suit against Goldman Sachs was the most
famous winner of the subprime mortgage debacle, as he used derivatives
to bet against mortgage-backed securities that in some cases he had worked with banks to create in
order to profit when the housing market crashed. He has received much
acclaim for being an astute investor who took a contrarian view and put
his money to work accordingly even in the face of rising housing prices,
placing bets that ended up paying off handsomely. Paulson & Co.
earned an unprecedented $15 billion from the trades, and Paulson himself
was said to pocket approximately $4 billion in 2007.
While overnight, Paulson became a celebrity in the financial
community, with the media following his every move, interestingly one
tidbit seems to have largely evaded them. As John Paulson noted in a statement
to the House Committee on Oversight and Government Reform in November
As we saw the difficulty homeowners were having in making
mortgage payments, in July 2007, prior to the initiation of any
government support programs, Paulson & Co. made a $15 million
charitable contribution to the Center for Responsible Lending to form
the Institute for Foreclosure Legal Assistance (IFLA). The institute
supports local groups across the country providing legal representation
to families facing foreclosure.
That Paulson would make such a donation is ironic, in that his
contribution came from money that Paulson & Co. had earned from the
collapse of the very housing bubble that the CRL had helped to blow.
While most in the media remained mum on this curious gift, to its
credit, Business Week provided a disturbing but logical
reason for it, insinuating that Paulson was to financially benefit from a
bankruptcy reform bill that the CRL was advocating.
According to a trade publication called the Credit Union Times, in early 2008 Republican
Representative Patrick McHenry sent a letter to Democratic
Representative Barney Frank requesting a hearing on the use of
non-profits to manipulate markets, citing Paulson’s donation as being
reflective of this problem. Specifically he asserted, “In October, he
[Paulson] gave $15 million to the Center For Responsible Lending, which
has been leading the charge in lobbying for a law that would let
bankruptcy judges restructure mortgage loans. By forcing servicers to
accept lowered monthly payments, market values would likely fall even
further, and Mr. Paulson would most definitely benefit financially.”
This issue though quite suspect is not nearly as significant as the one
we are approaching.
Paulson was not the only major benefactor of the CRL. As Activist
Cash notes, George Soros’ Open Society Institute has
donated at least $100,000 to the CRL. Soros of course seems to be behind
almost all of these leftist groups as has been well-documented in numerous
articles and in David Horowitz’s 2007 book, The Shadow Party: How George Soros, Hillary
Clinton, and Sixties Radicals Seized Control of the Democratic Party.
When it comes to Soros’ character and aspirations, it bears noting that
Soros willingly confiscated property with the Nazis who slaughtered
his own Jewish people during the Holocaust, and was quoted in a damning
2004 Newsmax article
as saying that he wanted to “puncture the bubble of American
supremacy.” He has also had a penchant for making bundles of money off
of collapses resulting from the socialist policies that he so ardently
supports. Needless to say that in my view, George Soros is a dangerous
and diabolical character.
During the throes of the credit crisis with banks failing across the
country due to their collapsing loan portfolios, friends of the CRL John
Paulson and George Soros along with a handful of other money managers
formed an investment vehicle called IMB
Management Holdings to acquire these beaten down assets. The first
bank that they purchased? IndyMac.
As you may remember, IndyMac was the struggling bank that New York
Democratic Senator Charles Schumer curiously was said to have caused a run on
in July of 2008, and I say curiously given that a. IndyMac was a
commercial bank in California, about as far as could be from Schumer’s
constituents, and b. normally it does not fall under the job description
of members of Congress (even ones with a fetish for the camera as great
as that of Schumer) to leak statements that may materially affect
financial institutions. Schumer’s statements
on the problems of IndyMac were eerily similar to those divulged in a report
released by the Center for Responsible Lending entitled “IndyMac: What
Went Wrong? How an “Alt-A” Leader Fueled its Growth with Unsound
Abusive Mortgage Lending.” The very business that the CRL had helped
push banks like IndyMac into was now being criticized by the CRL as
The timing of Schumer’s actions and those of CRL are worth noting.
Sen. Schumer released his “concerns” about Indymac on a Thursday. On the
following Monday, CRL released their “report” on Indymac. Understand,
the CRL report was the first time in the organization’s history that
they released a full research report on an individual company. Built on
interviews with former employees, the report would have taken some time
to compile. It may have been a weird coincidence, but a PR firm could
not have designed a better schedule.
Whether or not Schumer and the CRL orchestrated the bank run, within 11 days of Schumer’s revelations,
depositors withdrew more than $1.3 billion from IndyMac. A bank that at
its peak in March of 2008 had held $32 billion in assets was sold to
Paulson and Soros’ holding company for $13.9 billion in a deal that closed in March of 2009. Created out of
IndyMac’s remains was OneWest Bank.
Senator Schumer and The Center for Responsible Lending appear to have
been on the same page for some time. In February of 2008, the CRL
cited Senator Schumer in a white paper critical of Countrywide’s lending
practices. In March 2009, Schumer co-sponsored a bill to create a “Financial Product
Safety Commission,” supported by “over 55 national and state
organizations, including Consumer Federation of America, Center
for Responsible Lending, Leadership Conference on Civil Rights,
NAACP, La Raza, AFL-CIO, SEIU, National Consumer Law Center, Consumers
Union, Public Citizen, and US PIRG.” Additionally, in June of 2009,
Senator Schumer was honored by ACORN, one of the CRL’s closest allies.
When these points are considered in context of Schumer’s ideological
bent and constituency, I believe it is safe to say that at the very
least Schumer is sympathetic to the CRL’s agenda.
Senator Schumer has also had substantial financial ties to George
Soros and John Paulson.
Most recently, in June of 2009 Soros donated $2000 to Schumer. In 2005, Soros hosted a fundraiser for Democratic Senatorial candidates
headlined by Schumer. In general, given the millions of dollars that
Soros has contributed to Democrats and Democratic causes over the years,
it is likely that other benefits both direct and indirect have accrued
to the New York Senator courtesy of Mr. Soros.
Meanwhile, John Paulson’s
hedge fund Paulson & Co. has
been a very generous donor
to Democrats. In 2007, Paulson made a $25,000 donation to the
Democratic Senatorial Campaign Committee (DSCC) chaired by none other
than Senator Charles Schumer (outdoing even Soros who only contributed a
measly $21,750 to the DSCC that year), and also contributed $2300 each
to Senate Finance Committee Chairman and Democrat Max Baucus, and Senate
Appropriations Subcommittee on Financial Services Chairman and Democrat
Dick Durbin. All told, during the 2007-2008 fundraising cycle, Paulson
& Co. contributed $105,000 to the DSCC, $20,700 to Baucus and
$19,400 to Durbin. More recently, Paulson is reported to have held a $1000-per-head fundraiser
for Democratic Senate Banking Committee Chairman Chris Dodd.
Now to be fair, it is common practice for Wall Street firms to donate
to politicians that legislate on issues dear to them, but in the case
of these two gentlemen, donations have been decidedly partisan and
closely connected to Schumer.
To review, George Soros and John Paulson are major supporters of the
CRL, the ACORN-like group that helped contribute to the financial crisis
and whose former principal Eric Stein is now building and set to run
the Consumer Financial Protection Agency. Chuck Schumer likely shares
the CRL’s agenda and appears to have helped precipitate a run on IndyMac
at the same time as the release of the CRL’s critical report on the
same bank, a bank that Soros and Paulson were later able to purchase in a
deal with the FDIC (though the FDIC has reacted in unprecedented fashion in vehemently
denying this claim). Soros and Paulson have been major contributors to
Senate Democrats including Schumer and his allies.
To add another wrinkle to the story, in July 2008, shortly after
regulators seized IndyMac, Self Help, the financial parent of the CRL that
spawned in response to the CRA chartered a credit union in California with $5
million. The purpose of the union was to serve “low-wealth California
families,” likely the same families that IndyMac had targeted before its
collapse. According to the Credit Union Times, Self Help has swelled since its inception and now
controls $150 million in assets.
Can this all be a coincidence? Given George Soros’ proclivity for shady dealings in his profiting from the collapse
of the Soviet Union, and in his downright frightening instigation of “velvet revolutions” abroad, it is hard to imagine
him partaking in a venture in which the odds are not decidedly in his
favor. Soros’ investing style is to guarantee success by supporting
policies that undermine countries and their industries, and profit
handsomely off of their failures and at times subsequent bailouts, be it
in the case of the British pound or Citigroup. What is peculiar is how wedded Soros has become to John Paulson, a man
whose past I have not found to be checkered with progressivism, but I
suppose their profits trump partisanship.
The above shameful narrative is in my view illustrative of the rule
rather than the exception in contemporary America. Simply put, the
house always wins. The house is the government-financial complex. The best political
entrepreneurs enjoy the spoils of this corrupted system at the expense
of market entrepreneurs and the American people. This system
can only last so long before it collapses, and knowing this, the most
adept players are cashing in under the pretense of crises that will pale
in comparison to the ones we will ultimately face if we do not reverse our path as a people.
The MSM’s reticence to investigate the CRL represents another failure
on their part to do their job. More important however are the the
implications herein regarding the CRL’s potential complicity with
Senators and hedge fund managers which appears to be not only
outrageous, but hazardous especially in light of the CRL’s role in
forthcoming financial regulation. Yet this particular story represents a
mere symptom, albeit writ incredibly large, of a socialistic and thus
immoral system that is fast accelerating our demise.
- Former Alaskan Senator Ted Stevens dead in plane crash.
- Taliban execute pregnant woman for alleged adultery
- Democrats invoke Bush to get support from voters for midterm elections
- Latest jobs data is blow to Obama election hopes
- The Reign Visits Spain