- The earlier filing of fraud charges against Wall Street
banking titan Goldman Sachs by the US Government Securities and Exchange
Commission (SEC) was only the tip of a huge fraud iceberg. Now a US mortgage
insurer has charged one of the most aggressive banks involved in the US
subprime mortgage scam of fraud. The bank is none other than Deutsche Bank.
This case is also likely to be just the "tip of a very big iceberg."
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- Since he left his post as president of the Swiss-US Credit
Suisse bank to go to Deutsche Bank, Swiss banker Josef Ackermann has focused
on making the premier German bank into an imitation of the major Wall Street
banks. It seems he has succeeded only too well.
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- Assured Guaranty Ltd., owner of Assured Guaranty Mortgage
Insurance Company of New York has sued affiliates of Deutsche Bank AG over
$312 million of mortgage-backed securities (MBS), the controversial bonds
that the bond insurer guaranteed and says were "plagued by rampant
fraud and misrepresentations." Assured Guaranty is asking a judge
to force Deutsche Bank to repurchase the loans, on which the insurer has
already paid almost $60 million in loss claims with potential for tens
of millions of dollars more. The suit was filed in New York State Supreme
Court against DB Structured Products Inc. and ACE Securities Corp. The
bond insurer, backed by billionaire Wilbur Ross, is also seeking reimbursement
for the claims paid and for future losses. This is major.
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- When asked by the press, a spokesman for Deutsche Bank
in New York declined to comment.
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- "The entire pools of loans that Deutsche Bank securitized
and to a large degree originated in the transactions are plagued by rampant
fraud and misrepresentations and an abdication of sound origination and
underwriting practices," Assured stated in its New York court filing.
They declared, "more than 83 percent of 1,306 defaulted loans examined
in one of the transactionsbreached Deutsche Bank's representations and
warranties." In other plain language, they claim Deutsche Bank lied.
In the second deal, Home Equity Loan Trust, 86 percent of the 1,774 loans
breached the agreements, Assured said.
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- The Wall Street model backfires
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- According to members of the Frankfurt financial community,
Joe Ackermann came to Deutsche Bank with the clear goal of making the traditional
German bank a competitor to the most successful Wall Street investment
banks.
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- The only problem, as began to emerge with the explosion
of the US Financial Tsunami in 2007 around Wall Street's securitization
(Verbriefung?) of bundles of thousands of individual low quality, high-risk
home mortgages, dubbed "sub-prime" as in below best quality,
is that the success "model" of Wall Street was based on fraud
to begin with. That's the model for mega-profits and giga-bonuses that
Ackermann's Deutsche Bank is apparently building its business on.
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- In recent weeks it has emerged that perhaps millions
of US homeowners had been fraudulently tricked into signing mortgages in
which their true costs were hidden only to explode some years after they
signed the loan agreement with the lender, forcing them to default and
the banks to repossess the homes, so-called bank foreclosure. Now legal
action is also hitting Germany's esteemed Deutsche Bank.
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- 'Stupid Germans'
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- According to Bloomberg financial writer and author, Michael
Lewis, under Ackermann's leadership at Deutsche Bank, the bank, through
its New York offices, set out to outdo Goldman Sachs in the home mortgage
securitization bonanza of the past decade. Lewis documents the fact that
Deutsche Bank in New York was selling what it knew were toxic waste or
junk mortgage bonds on US subprime mortgages to "stupid German investors
in Duesseldorf" as one Deutsche Bank New York bond trader told Lewis.
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- The "stupid German investors in Duesseldorf"
it turns out, were IKB, the daughter of the German state Kreditanstalt
für Wiederaufbau. The interesting point is that Ackermann's DB sold
what were allegedly fraudulently-constructed "AAA" CDO's or Collateralized
Debt Obligations, some of the highest risk fraudulent derivatives from
Wall Street mortgages to IKB at a time Deutsche Bank knew or should have
known that the US mortgage default crisis was beginning to explode. In
effect it appears that the DB dumped its toxic waste onto IKB. At the same
time Deutsche Bank was selling exotic US real estate collateralized debt
obligations too the "stupid German investors" at IKB, it was
aggressively organizing other Wall Street banks and hedge fund managers
to bet on the crash of that same mortgage bubble. No one at Deutsche Bank
headquarters in Frankfurt seemed to mind so long as the profits rolled
in from all parties.
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- To add injury to insult, or even more injury to injury,
Deutsche Bank's Ackermann personally sent a notice to the head of the German
bank regulator, BaFin-Chef Jochen Sanio, on July 27, 2007, kindly alerting
the German regulators that IKB held a pile of toxic bonds and that the
bank could be in trouble. Ackermann even went public to the press and admitted
he knew because Deutsche Bank had sold the toxic financial securities to
IKB.
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- That announcement by Ackermann is credited with bringing
IKB to the brink of bankruptcy and necessitating a state taxpayer rescue
of billions. What the charitable Herr Ackermann did not divulge is how
much profit his bank might have made in the collapse of IKB. The collapse
of IKB, as I detail in my Der Untergang des Dollar Imperiums was the catalyst
to explode the multi-trillion Euro US financial bubble worldwide, a bubble
which today is far from deflated.
- Notable as well is the fact that two days after being
sued for fraud in New York court, Deutsche Bank announced that it had set
aside more in compensation for employees of its corporate and investment
bank in the first nine months of 2010 than Goldman Sachs. Deutsche Bank
reserved enough money to pay a bonus of 285,352 euros to each of the 16,194
workers at the division, which includes transaction banking, company data
show. But that money goes only to a handful of top traders whose bonus
is likely in the tens of millions. "The market continues to be very
competitive and top talent has its value and its price and we cannot ignore
that fact," Deutsche Bank Chief Financial Officer Stefan Krause said
according to a report in Business Week magazine. "And the beat goes
on, and the beat goes on, on, on" as the pop song goes.
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- Shannon D. Harrington and Karen Freifeld, Assured Guaranty
Sues Deutsche Bank Over Mortgages, Bloomberg, October 25, 2010. T The case
is Assured Guaranty Corp. v. DB Structured Products Inc., 651824/2010,
New York state Supreme Court (Manhattan)., accessed in HYPERLINK "http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ada1QmQYr_BI"
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ada1QmQYr_BI
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- Michael Lewis, The Big Short, London, Penguin Group,
2010, p.93
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- Anne Seith , Ackermann im IKB-Prozess: Der Teflon-Zeuge,
Spiegel Online, HYPERLINK "http://www.spiegel.de/wirtschaft/unternehmen/0,1518,694403,00.html"
http://www.spiegel.de/wirtschaft/unternehmen/0,1518,694403,00.html
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- Ibid.
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