FBI Official Kenneth Kaiser Comments on the Mortgage Crisis

"[T]he FBI is a law enforcement and intelligence agency, we are not banking regulators...In the end, most economists have attributed the crisis to very aggressive lending practices and too little risk management throughout the financial services industry."--Kenneth Kaiser, Assistant Director of the FBI's Criminal Investigative Division

Like everyone else, our media pundits don't really understand the mortgage crisis very well.

On 8-29-08, FBI official Kenneth Kaiser (pictured above) commented on an article published in the Los Angeles Times (8-25-08) that he felt mischaracterized the causes of the current mortgage crisis.

Mr. Kaiser, the Assistant Director of the FBI's Criminal Investigative Division, explained:

Your 8/25 story on the mortgage crisis ("FBI saw threat of mortgage crisis," L.A. Times, August 25, 2008) implied that if the FBI had made more arrests for mortgage fraud, the crisis could have been averted. To even suggest that is a cry for a lesson in both civics and basic economics.

The story's premise was built around a 2004 quote from an FBI official who said he was confident the FBI could prevent fraud from becoming a massive problem. In context, Assistant Director Chris Swecker meant he believed the FBI could stay focused on mortgage fraud to prevent fraud from becoming the major driver that would cause a collapse of credit in the housing market. We believe by a good measure, the Bureau did that.

The FBI's Criminal Division has arrested 1000 suspects and targeted 180 criminal enterprises since 2004. We targeted those lenders and buyers involved in multiple frauds or cases where the profits went to drug crews, gangs or organized crime. More investigations are ongoing. But the FBI is a law enforcement and intelligence agency, we are not banking regulators.

In the end, most economists have attributed the crisis to very aggressive lending practices and too little risk management throughout the financial services industry. As far as mortgage fraud was concerned, the FBI had the right intelligence and provided the right warnings to the industry, but fraud alone does not appear to be the straw that broke the mortgage camel's back.

In the boom and bust of the mortgage business, to suggest that making more arrests would have averted the mortgage crisis is to confuse the root cause with the side-effects. It is not a fair or realistic assessment.

Kenneth Kaiser

Assistant Director Criminal Investigative Division Federal Bureau of Investigation
(As posted on the Los Angeles Times website, August 29, 2008)

[See also the FBI Mortgage Fraud homepage]