Royal Bank of Scotland to Pay $4.9 Billion for Its Sub-prime Mortgage Fraud
The Royal Bank of Scotland (RBS) has agreed to a $4.9 billion settlement to resolve federal civil claims that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities (RMBS) between 2005 and 2008.
The penalty is the largest imposed against a single company by the U.S. Department of Justice (DOJ) for financial crisis-era fraud.
According to the DOJ, RBS used RMBS to push the risk of the loans, and tens of billions of dollars in subsequent losses, onto unsuspecting investors across the world, including non-profits, retirement funds, and federally-insured financial institutions. As losses mounted, and after many mortgage lenders who originated those loans had gone out of business, RBS executives showed little regard for this misconduct and even made light of it.
RBS was just one player in the greatest fraud of all time that collectively siphoned trillions from investors by repackaging American junk mortgages as high grade investments.
The entire scam was made possible by George W. Bush, who pushed to make it much easier for those who didn't qualify for a mortgage and couldn't make payments to get loans with no money down. When state regulators tried to intervene the Bush administration blocked them so that the scam could continue. In swooped fly-by-night mortgage companies and big banks who gave loans to almost anyone then packaged the junk loans and got rating agencies like Mcgraw Hill's Standard and Poor's and Moody's to rate their RMBS garbage as grade A securities. Then Wall Street, knowing that the RMBS were really junk, sold them to on to large institutional investors. Many of those large investors also knew that they were spending their clients' money on junk.
Interest rates went up as defaults increased and then the housing bubble exploded and all those junk mortgages defaulted and the world economy crashed.
Wall Street got bailed out and years of almost unlimited free loans and the world has not been the same since.