The Center for Public Integrity

One of the central unanswered questions of the financial crisis is whether bank executives knew fraud was rampant within their mortgage loans.

A Senate committee tomorrow will present evidence that in the case of Washington Mutual Bank, the largest bank failure in history, executives knew about the fraud - and in some cases failed to take much corrective action. By doing nothing, the bank could report higher profits and employees could earn higher bonuses.

So far no criminal charges have been brought against any senior executives as a direct result of the subprime meltdown. And today Sen. Carl Levin, the Michigan Democrat who will chair the hearing, sidestepped questions about whether Washington Mutual executives broke criminal laws.

But Levin’s committee has unearthed documents that show that in 2005, WaMu’s own internal investigation of two top-producing offices making loans in southern California found that fraud was out of control. At one office in Downey, Calif., 58 percent of mortgages were found to be fraudulent. At an office in Montebello, Calif., the rate was even higher: 83 percent.

Yet “no steps were taken to address the problems, and no investors who purchased loans originated by those offices were notified in 2005 of the loan problems,” Levin's Permanent Subcommittee on Investigations stated in a report released in advance of the hearing. (A summary of  the committee's findings are here)

Some problems persisted two years later. A follow-up internal review of the bank's Montebello operation, in 2007, still found a fraud rate of 62 percent.

For all of Goldman Sachs’ professed support for an overhaul of financial regulations, the megabank hasn’t exactly withdrawn its army of lobbyists. Far from wearing out its welcome, the firm is busier than ever safeguarding its interests while a Wall Street crackdown takes shape in Washington.

Goldman has an unrivaled and influential network of lobbyists, including about 50 people with close ties to Congress and past White Houses, a Huffington Post Investigative Fund analysis of lobbying and campaign records shows. The lobbyists are challenging reforms aimed at Goldman’s profit centers, including the trading of complex contracts known as derivatives. The Senate this week will continue debating proposed regulations of derivatives, which are blamed for fueling the financial crisis.

Perceptions of Goldman’s role in the crisis, along with a civil fraud case brought against the bank last month by the Securities and Exchange Commission, have already spurred predictions of a less dominant future. But all is not lost for Goldman, which still stands out as perhaps the most influential of the nation’s top six banks — a remarkable feat given a crowded field of well-connected institutions.

Goldman’s professional persuaders hail from 14 different lobbying firms, Senate lobbying records show. No other top bank — not JPMorgan Chase & Co., Bank of America, Morgan Stanley, Wells Fargo or Citigroup — has as many firms lobbying on its behalf. Goldman has hired nearly 40 lobbyists, all former government employees, to target financial reform alone, Senate disclosure records show.

These services have not come cheaply. Since the beginning of 2009, Goldman has spent nearly $6 million on lobbying, according to the nonpartisan Center for Responsive Politics. Only Citigroup and JPMorgan spent more.