It’s your toxic mortgages at work.
Goldman Sachs investment banker Jeffrey Verschleiser, accused in lawsuits of illicitly profiting from bad mortgages that led to the 2008 meltdown, is spending $1 million to take over a swanky Aspen, Colo., hotel for his Upper East Side daughter’s bat mitzvah, sources said.
Verscheisler is taking over the luxury Hotel Jerome for the entire weekend, and perks for the guests reportedly include autographs from pro skiers.
The Aspen Daily News reports that Verschleiser also rented out the city-owned Aspen Recreational Center, which will close at 4 PM today instead of the usual 9 PM so that the Verschleiser party can take it over.
Gonna be a nice weekend for the Verschleiser family.
And why wouldn't it be?
When you see how much money this crook stole with impunity on Wall Street while the authorities - including then Attorney General Andrew Cuomo - stood by and watched, how could it be otherwise?
So how did Jeffrey Verschleiser get into this position where he could buy up half of Aspen for his daughter's Bat Mitzah?
Matt Taibbi takes up the story from there:
The story begins at Bear Stearns, where Verschleiser used to work, up until the company exploded, in large part because of him personally.
Back in the day, you see, Verschleiser headed Bear’s mortgage-backed securities operations. Toward the end of his tenure, his particular specialty began with what at the time was the usual industry-wide practice, putting together gigantic packages of crappy subprime mortgages and dumping them on unsuspecting clients.
But Verschleiser reportedly went beyond that. According to a lawsuit later filed by a bond insurer called Ambac, Verschleiser also masterminded a kind of double-dipping scheme. What he would do is sell a bunch of toxic mortgages into a trust, which like all mortgage trusts had provisions written into their pooling and servicing agreements (PSAs) that required the original lenders to buy the loans back if they went into default.
So Verschleiser would sell bad mortgages back to the banks at a discount, but instead of passing the money back to the trust, he and other Bear execs allegedly pocketed the funds.
From the Atlantic story by reporter Teri Buhl:
The traders were essentially double-dipping -- getting paid twice on the deal. How was this possible? Once the security was sold, they didn't have a legal claim to get cash back from the bad loans -- that claim belonged to bond investors -- but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme.
Imagine giving someone a hundred bucks to buy a bushel of apples, but making a deal with him that he has to buy back any apples that turn out to have worms in them. That's what happened here: Bear sold the wormy apples back to the farmer, but instead of taking the money from those sales and passing it on to you, they simply kept the money, according to the suit.
In an email one Bear exec called the bonds Bear was hawking "sacks of shit."
Mmm - but that was lucrative shit for Jeffrey Verschleiser, wasn't it?
But it gets worse.
Back to Taibbi:
So did Verschleiser himself know the mortgages were bad? Not only did he know it, he went so far as to tell his colleagues in writing that it was a waste of money to even bother performing due diligence on the bad bonds:
Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, "[we] are wasting way too much money on Bad Due Diligence." Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, "[w]e are just burning money hiring them."
One of the ways that banks like Bear managed to convince investors to buy these bonds was by wrapping them in bond insurance through companies like Ambac, commonly known as “monoline” insurers. Investors who knew the bonds were insured were less worried about default.
Verschleiser, seeing that Bear had gotten firms like Ambac to insure its “sack of shit” bonds, saw here a new opportunity to make money. He first induced the monolines to insure the worthless bonds, then bet against the insurers! (Is it any wonder this guy ended up hired by Goldman, Sachs?) From the Atlantic story again:
Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he'd just made against stocks like Ambac. These e-mails show Verschleiser's trading desk bragging to firm leadership that he made $55 million off shorting insurers' stock in just three weeks.
So in essence, Verschleiser was triple-dipping. First he was selling worthless “sacks of shit” to investors, representing them as good investments. Then, he kept the money from the return sales of the wormy apples. And then, on top of that, he made money by betting against the insurers he was sticking with these toxic assets
Surely New York Attorney General Andrew Cuomo or the SEC or some other regulatory body stepped in to put handcuffs on this man until he could be tried for fraud?
As the NY Times reported April 14, 2011, not one major participant in the financial collapse of 2008 has been criminally prosecuted and sent to jail.
That holds for Jeffrey Verschleiser.
As Taibbi writes,
We all know what happened from there. Bear, Stearns went under, thanks in large part to insane schemes like Verschleiser’s, and all of us were forced to pick up at least part of the tab as the Fed spent billions subsidizing Bear’s emergency takeover by JP Morgan Chase. In subsequent litigation, Chase has steadfastly refused to buy back the bad mortgages dumped on investors by the likes of Verschleiser, and has even fought tooth and nail to prevent the information in the Ambac suit from being made public.
Ambac went into Chapter 11 bankruptcy in 2010 for a variety of reasons, some of which had nothing to do with its losses in deals like these. But certainly Ambac and other monoline insurers like MBIA suffered for having insured worthless mortgage bonds sold onto the market by the Verschleisers of the world. Ambac in its suit asserted that it paid out over $641 million in claims related to the bonds from the Bear deals.
With all of this, though, Verschleiser landed happily on his feet. He reportedly heads Goldman’s mortgage division now. And after cutting a mile-wide swath of losses through the American economy, helping destroy two venerable firms in Bear and Ambac, bilking the taxpayer for untold millions more (he is also named in a lawsuit filed by the Federal Housing Finance Agency for allegedly speeding bad loans onto securitization before they defaulted), Verschleiser is now living the contented life of a proud family man, renting out a 94-room hotel for three days for his daughter’s Bat Mitzvah.
Andrew Cuomo said this week there is a "crisis of accountability" in New York.
He was talking about the school system and was alleging that public school teachers are unaccountable because they refuse to be evaluated by a system that utilizes student test scores and a value-added measurement with a large margin of error and wide swings in findings from year to year.
Pointedly, he was NOT talking about a justice system that allows a Jeffrey Verschleiser to criminally triple-dip his way to a very wealthy and lucrative lifestyle with impunity.
Anyway, given that much of Verschleiser's questionable behavior is in writing, his case sure seems court-ready. But for whatever reason, he has not been indicted.
One can almost understand a regulator not wanting to take on the whole circular securitization scheme -- Bear lends money to corrupt mortgage firm, mortgage firm makes bad loans, Bear packages bad loans and sells to investors, then takes the proceeds and creates more bad loans -- because it is so complex and difficult to prove.
But in this case there are simple issues of fraud and theft that could be taken on without having to prosecute broader crimes related to securitization. But prosecutors, apparently, just blew those off. In the current environment, regulators even miss the layups.
And therein lies the REAL crisis in accountability in New York and the country at large.
Andrew Cuomo himself, along with the other regulators who let these crimes go largely uninvestigated and entirely unpunished, need to be held accountable, as do crooks like Jeffrey Verschleiser.