Is it my imagination, or does every week bring news of another financial scandal? No, it’s not my imagination.
First up: Peregrine Financial Group. This long-running fraud, which has apparently been going on almost as long as the Bernard Madoff Ponzi scheme, came to light when the firm’s founder and longtime chief executive, Russell Wasendorf Sr., tried to commit suicide a few weeks ago. (He failed.) Helpfully, he left a lengthy note that laid out what he had done. Peregrine, you see, is a commodities broker, and Wasendorf had been stealing the money that customers had on deposit with the firm. As you’ll no doubt recall from the very similar MF Global scandal, where $1.6 billion in supposedly segregated customer funds went missing as the firm careened toward bankruptcy, this is supposed to be the sin of sins for a commodities brokerage. Sinful it may be, but not all that difficult, it would appear.
As an early propagator of the allegation that JP Morgan Chase deliberately hastened the Lehman collapse, the Slog finds itself vindicated three years on by a successful regulator action against JPM, and contemporary documentation.
Around the time of the Lehman disaster, a senior insider at the firm relayed to me what seemed an astonishing allegation: that in the weeks prior to the eventual collapse, JP Morgan deliberately withheld huge monies owed to Lehman in order to make the bankruptcy a certainty from which they could benefit. I relayed this story to another contact the following year, and he not only corroborated the charge, he also said he was sure Barclays had done the same. The now disgraced Barclays CEO Bob Diamond took over Lehman in a fire sale only weeks later (using taxpayers’ money as a bridging loan to do it) and rapidly built up a commanding position for the division he then headed up, Barcap – the investment arm of the bank.
Now, more than three years later, regulators have penalised JPMorgan for actions tied to Lehman’s demise. The bank settled the Lehman matter and agreed to pay a fine of approximately $20 million. The action took place because of Morgan’s ‘questionable treatment of [Lehman] customer money’: regulators accused JPMorgan of withholding Lehman customer funds for nearly two weeks. So it had been true after all.
Much like the mortgage market, the market for private student loans has gone through a big boom and a messy bust. Some banks and lenders played fast and loose with student loans, aggressively marketing them to borrowers who couldn’t afford that amount of debt, according to a new government report.
“Borrowers who took out loans at the height of the boom are still suffering from those excesses,” said Consumer Financial Protection Bureau Director Richard Cordray in remarks to reporters on Thursday. The report, released jointly by the U.S. Department of Education and the CFPB, is the government’s first major study of the murky private student loan market, for which there has long been little regulation or reliable data.
American borrowers currently owe more than $150 billion in private student loans, according to the report. Default rates soared in the years since the financial crisis, and more than $8 billion in private loans are in default.
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