Let them fall: AIG, AMBAC, Investment Banks

While my editorial opinion has been fairly obvious in these articles, I feel the need to express them directly.

The fundamental truth that is missed in the media and those in government and finance close to the microphones is that this did not start with the borrowers — it started with the investors who bought securities backed by non-existent mortgages and non-existent and/or non-negotiable notes.

The world credit market froze up not because of a some bad loans in the United States or a decline in property values, but because the paper — nearly all of it — was bad paper. It wasn’t bad risk management or even lack of regulation that caused the meltdown, it was the investment banking community’s boldness in violating every law, rule and regulation known to State and Federal regulators.

They forged documents, destroyed documents and “lost” documents, because to produce them would have been an admission of criminal fraud. The reason the credit markets have frozen up is that bankers, who will tolerate stupidity and bad judgment in each other, will not tolerate outright dishonesty and lying.

Investors will not come to the table to buy securities from the thieves who stole from them so recently. Paulson’s “bailout” package was ridiculous. He has no idea how to apply the money and rightfully so — the package was designed to help the thieves instead of the victims. The statement intended was that the U.S. government will not let the infrastructure fall. The statement was heard as a government that was owned and controlled by the thieves dipping into taxpayer money under cover of scare tactics. IT WAS A MESSAGE THAT SAYS THIS BEHAVIOR WILL BE TOLERATED IF IT IS BIG ENOUGH, AND THAT IT COULD HAPPEN AGAIN.

Free markets are free only when there is a referee who blows the whistles, issues penalties, and otherwise disciplines the players. Imagine a basketball, football or baseball game without any referees. Here the regulators were part of the scheme, as were all the participants, because they were creating money and keeping most of it. The fear that letting the big players go down will destroy the infrastructure is a myth and is causing policy decisions to be made that are just plain nonsense.

Like it or not, this was a case of selling securities under false pretenses, intentional misrepresentations, and cover-ups that were worthy of the arrogant Watergate and other scandals. There are thousands of banks, investment banks, and insurers who can step in to fill the void created by the collapse of the major players here who caused this and only by letting them fall can we send the signal to the world that the United States doesn’t tolerate such bad behavior and will let the consequences fall where they may.

There are tens of thousands of insurance policies covering errors and omission, title, and fiduciary responsibilities for the appraisers, mortgage brokers, and lenders that were party to this gigantic fraud. It’s a lawyer’s dream.

The selling of these securities defrauded millions of people, government entities, pension funds, hedge funds, mutual funds and companies who thought they were buying cash equivalent securities when in fact they were buying garbage.

Like it or not, millions of people were solicited into signing up for mortgages they didn’t need or want and where the terms frequently changed at closing. There was no precedent for banks not caring whether the loan worked or not. Everyone assumed that the underwriting departments would reject toxic waste loans. That they effectively closed their underwriting departments because they were not at risk and were paid a fee of around 2.5% to look the other way as they “rented” their charter to unscrupulous unregulated, unregistered players.

In addition to the investors, the victims here are the borrowers, cities and states who were fooled by the apparent increase in prices caused not by demand for homes or mortgages, but by supply of money that was illegally created.

The plain fact is that nearly ALL the paper is worthless, there are no mortgages, there are no notes, and there are no obligations. Nearly every homeowner who took a mortgage between 2001 and 2008 is entitled to have their home declared free and clear of any mortgage encumbrance or debt. That is why the paper is worthless. And in world finance the knowledge of that awesome fact has created doubt and suspicion about the rest of the credit market which is 100 times the size of the mortgage credit market. Nobody trusts anybody in risk management, rating of securities, appraisals, or representations. THAT CAN ONLY BE RESTORED BY COMPLETE TRANSPARENCY AND EASY WAYS TO CHECK THE VALUE AND QUALITY OF SECURITIES.

Over a year ago and several times since I have proposed a “bailout” that required no money from the Federal government, demonstrated our good intentions to make amends, and to restore the investors and borrowers, as much as possible, to their position before the Great Fraud of 2001-2008 took place.

All that is required is an equity appreciation clause or instrument that writes down the mortgages back to real value (i.e., real proceeds from sale if the property were sold) and shares the increase in value that time always provides between the the investors and the borrowers — not the banks and investment banks. The latter already got paid several times over. The “notes” were evidence of obligations that had been satisfied several times over and unilaterally changed at the whim of thieves after the loan closing took place.




The government’s attempt to paper over this crisis is dangerous and wrong. It floods the market with even more new money when most of the money out there is declining in value daily. It creates the environment for hyperinflation that could go on for years. If you really want to stop the crisis the answer is to tell the truth and correct the REAL problems. Settling with homeowners with reasonable mortgage terms that they can afford and with equity appreciation clauses of secondary mortgages can restore some if not all of the value of the securities the investors bought and takes the U.S. government out of the business of being the investor of last resort.

Of course this is just my opinion and I can’t offer legal advice to anyone outside of Florida, so check with your local counsel, who probably knows nothing about securitization. My advice is legally without value in any other state so you must seel local lciensed counsel in order to comply with the laws of your state which prevent you from having access to lawyers who really could help.

18 Responses

  1. Who wrote the article “Let them Fall” – I need a florida attorney like this guy

    The Self-Inflicted Crisis: Paulson the Bungler

    Saturday, Nov 15, 2008

    Henry Paulson’s time at Treasury has been one pratfall after another. Even so,
    on Tuesday he managed to outdo himself. Paulson held a “surprise” press
    conference where he announced that the $700 billion Troubled Asset Relief
    Program (TARP) wouldn’t be used to buy troubled assets after all. Instead, the
    money will used to bail out insurance giant AIG, provide extra capital for the
    banks to hoard, and now (this is the new part) give money to “nonbank
    financial institutions, like insurers and specialty-finance companies” so they
    can lend to credit-worthy consumers. Isn’t that why we gave money to the

    Paulson’s announcement was like tossing a hand-grenade in a San-i-can; it blew
    the stock market to Kingdom come. Just minutes after the opening bell on the
    New York Stock Exchange (NYSE) stocks plummeted to new lows ending the session
    in a 400 point death-spiral. Wall Street doesn’t like uncertainty and
    Paulson’s sudden about-face sent jittery investors running for cover. The
    message to investors is clear, the government doesn’t have the foggiest idea
    of what it’s doing and is just grasping at straws.

    But Paulson’s no fool; he knew exactly what the reaction would be on Wall
    Street. He simply decided that blowing up the equities market was worth the
    price of reviving “securitization”–the transformation of loans into
    securities. You see, securitization is Wall Street’s Golden Goose. It’s the
    foundation block upon which structured finance and all its complex
    credit-enhancing derivatives rests. Keep in mind, that all these exotic,
    financially-engineered products–the CDOs, MBS, and CDS–were all created with
    one goal in mind; to maximize leverage with minimum capital so that profits
    can be skimmed off the top. That’s how Paulson managed to walk away from
    Goldman Sachs with hundreds of millions of dollars in his pockets. It’s a

    There’s a myth that credit is contracting because the banks won’t lend. But,
    in truth, total bank credit expanded by $575 billion over the past 10 weeks.
    The real problem is that the securitzation market remains frozen.

    So now Paulson wants to breathe new life into securitization by providing
    liquidity for nonbank financial institutions who get their money from the
    wholesale market. Of course, no one really knows how this will work since
    these operations are completely unregulated by the federal government. No
    worries; the charade will persist behind the dodgy claim that “it’s needed to
    get credit to the consumer”. Baloney. What the consumer needs job security and
    a pay-raise, not more debt. This is just more Paulson flim-flam.

    It was clear that the Treasury Secretary was concocting a new swindle a couple
    weeks ago when Fed chief Bernanke defended “securitzation” in a speech where
    he said:

    “The ability of financial intermediaries to sell the mortgages they originate
    into the broader capital market by means of the securitization process serves
    two important purposes: First, it provides originators much wider sources of
    funding than they could obtain through conventional sources, such as retail
    deposits; second, it substantially reduces the originator’s exposure to
    interest rate, credit, prepayment, and other risks associated with holding
    mortgages to maturity, thereby reducing the overall costs of providing
    mortgage credit.”

    This is nonsense. What it does is create the optimal environment for
    speculative leveraging, debt-pyramiding and massive profit-taking. But, that’s
    beside the point. The real issue is that securitization is dead already
    because Paulson and his ilk poisoned the well by adding subprime garbage and
    Alt As to the mix. Now investors are steering clear of any securities that
    bundle debt. It’s a confidence issue.

    According to the Wall Street Journal:

    “Banks and other finance companies making loans for autos, credit cards and
    college tuition are having virtually no success in selling those loans to
    other investors, a potent sign of just how tight credit markets remain.

    “The market for selling such loans — by packaging, or securitizing, them into
    bonds — had just one $500 million deal for all of October, according to
    Barclays Capital. That compares with $50.7 billion worth of deals made one
    year earlier, according to market-research firm Dealogic. The overall market
    for so-called asset-backed securitization is estimated at $2.5 trillion.”
    (Bond Woes Choke off some Credit to Consumers, Wall Street Journal, Robin
    $500 million is just 1 percent of $50 billion! Securitization will be dead for
    a decade or so; it was destroyed by lax lending standards and easy credit.
    Paulson and his fellows will have to find a new way to fleece gulible

    The TARP is most expensive boondoggle in history. No one even knows what the
    banks are doing with the money. There’s neither accountability nor
    transparency. As a result, investor confidence has deteriorated and stocks
    have continued to fall. No one trusts Paulson to do the right thing anymore;
    it’s that simple.

    The Treasury’s new Financial Stability Oversight Board has met four times, but
    they still can’t say how the banks are using the money. It’s a joke. Congress
    has been missing in action, too. They promised to create their own oversight
    board, but five weeks have passed and still nothing has happened. Apparently,
    the idea throwing $700 billion down rathole isn’t enough to prod Ms. Pelosi
    and her congressional cohorts into action. All that really matters to them is
    getting reelected and nuzzling ever-closer to the public trough.

    The TARP fiasco is not taking place in a vacuum either; the country is at the
    beginning of the deepest consumer-led recession in the last half century.
    Retail spending and automobile sales have been following the same grim
    flightpath as housing, while unemployment is at a 7 year high soaring to
    nearly 4 million. Household debt is at record levels of $14 trillion. The job
    market is steadily weakening while the consumer is more vulnerable than ever.
    Meanwhile, Paulson has dragged his feet on rewriting mortgages to slow
    foreclosures, stalled on providing another stimulus package, and diverted all
    the money from the $700 billion bailout to his friends in the financial
    industry. Not one dime has gone to a working man or woman. Paulson continues
    to play games while Rome burns even though, according to his colleague, former
    G-Sax chairman John Whitehead, the current downturn will be worse than the
    Great Depression.

    According to Reuters:

    “The economy faces a slump deeper than the Great Depression and a growing
    deficit threatens the credit of the United States itself, former Goldman Sachs
    chairman John Whitehead …

    “I think it would be worse than the depression,” Whitehead said. “We’re
    talking about reducing the credit of the United States of America, which is
    the backbone of the economic system. … I see nothing but large increases in
    the deficit, all of which are serving to decrease the credit standing of
    America. … I just want to get people thinking about this, and to realize this
    is a road to disaster. I’ve always been a positive person and optimistic, but
    I don’t see a solution here.”
    The first thing to realize is that it is not a matter of “fixing” the economy.
    The economy is fixing itself by purging the unsustainable debt from the
    system. That’s how markets work. Greenspan’s low interest rates created a
    subsidy for debt which–along with the alphabet soup of leveraged
    derivatives–buoyed the economy along on the biggest wave of speculative
    financing the world has ever seen. The distortions that were caused by the
    unprecedented credit expansion stimulated artificial demand that created the
    appearance of growth and prosperity but, in truth, was nothing more than an
    equity bubble. Now the bubble has popped and the financial system is returning
    to the mean. That means that credit will probably contract by 30 to 40 per
    cent putting us on the path to another Great Depression. Unless the government
    takes preventative action to get money into the hands of consumers and restore
    confidence, the nation will face widespread panic. That’s probably why all the
    voting machines and exit polls finally matched up with the election results in
    the 2008 presidential balloting for the first time in 8 years; because the
    ruling elites know that they need a popular executive to put in front of the
    cameras when they try to calm the crowds and keep the country from
    disintegrating into anarchy. It also explains the nervous smiles on the faces
    of the money-lenders and graybeards assembled on the stage behind Obama at his
    first press conference. The American establishment is placing all its hopes
    for economic survival on the narrow shoulders of their newest posterboy, Barak
    Obama.There’s more pain to come, but the suffering can be mitigated by sound
    decision-making and Keynesian policies. That means public work programs,
    bankruptcy reform, and extensions on unemployment. Paul Krugman recommends a
    stimulus package of $600 billion. That’s a good start, but it will take much
    more than that. And foreign investors will have to be confident in our choices
    or the sale of Treasurys will slip and the US will face a funding crisis. The
    Fed’s lending facilities have already loaned $2 trillion while the Treasury’s
    bailout is $700 billion. By the end of 2010, fiscal deficits will be nearly $2
    trillion and the total cost to the US taxpayer will be at least $5 trillion.
    That means rising interest rates, flagging growth and hard times ahead.
    The present financial crisis is a self-inflicted wound. It started at the
    Federal Reserve with their cynical neoliberal monetary policies. Any solution,
    that does not involve the dismantling of the Fed, is unacceptable.


  3. You should check your docs for all sort of violation of your rights as a borrower, also you should try to find a consumer advocate or civil rights attorney. They should become involved with the strategies presented to you inthis great blog. Hire a TILA audit firm, and fight the lenders. Very few modifications are including a reduction in principal.

    It is imperative to find a good law firm ar if you try to do it SOLO. Make sure you do the research and cover all your bases, if you play, you must play to will, you must make sure these crooks and thieves lose from the get go.

    Good Luck

    Just a thought, you must buoild your confidence, it has been beaten to a pulp, the lenders and thieves have been winning the emntal battle, do not let then win, you own that home and you should keep it that way.

  4. Ondrea,

    To the best of my knowledge, loan mods are being done. Also, it is possible to have a foreclosure or a sale at least temporarily set aside here in Calif. We have a nice little group of ten people thus far here in Calif from the blog. We all try and help each other out with exchange of info and ideas. Please email me directly, and I’d be glad to hook you up with them.

    San Diego, Calif

  5. Aside from the politics and finger pointing, which is not productive, what I want to know if anybody got a loan mod with reduction of princiapal to current housing values and reduction of interest with securitorized loans. from what I’ve read from all the info online, the language in formation of the Mortgage Back Securities forbids any loan alterations. So what is a person to do if there is foreclosure? It seesm the only defense/offenses(depending if your in a non judicial/judicial state) would be to argue the entity foreclosuring doesnt lack standing or possbily TILA violatons (if it appliies and usually it doesnt if it’s a 2nd) or RESPA violations. So, if the lenders can’t mod the loan supposedly, what’s the point then to file a complaint or afirmative defenses but just using delaying tactics before the ultimate happens anyway? would like an answer.

    I know some states have set aside foreclosure agree with the defense the foreclosing entitly lacks standing but its not common my state of CA.

  6. And of course now, we’re giving AIG even more money. Sure … why the hell not ??

    San Diego, Calif.

  7. We have started to change just that, people have to realize that you cannot just rely on politicians to run the show, that remote controlled mentality has to end.

    It is amazing how these lenders and foreclosure mills, start behaving once you have an attorney backing you up and not a mindless real estate agent or loan officer trying to play loss mitigator, selling you the hope of a resolution of your case by working within the lenders options, a real WINNER of a plan.

    We need to start taking our country back, it is time we start applying that good old document called THE CONSTITUTION. The lenders have lobbyist on the payroll and they wine and dine our judges and our representatives, we need to send a clear message that that is no longer appropriate and that we the people are to be respected and heard. We send a clear message this November 4th, we need to make sure we keep reclaiming our country, a government from the people, by the people and for the people. If we were an an election this expression would be considered SOCIALIST.

    But no it is very real is is the true nature of America, fair rules, fair treatment and fair judgment.

    The system is corrupt and our representatives have fallen pray to the influence of the all powerful banking lobby. Some court have confused the true nature of our carta magna and have also allowed themselves to be purchased by the false idols of the banking magnates.


    And I now will recognize the ranking member, the gentleman from Massachusetts, Mr. Frank.

    FRANK: Thank you, Mr. Chairman.

    I appreciate hearing from the two Cabinet secretaries, but I just say at the outset that before we move on any legislation, I would hope we would have some additional hearings. And in particular, I think it’s important that the variety of groups in our country who care about housing be invited, because that’s my major focus here, as it’s been during my service on this committee.

    I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government-sponsored enterprises that we’re talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We recently had an accounting problem with Freddie Mac that led to people being dismissed, as appears to be appropriate.

    I do not think at this point there is a problem with a threat to the treasury. I’m going to say, we have an interesting example of self-fulfilling prophecy.

    Some of the critics of Fannie Mae and Freddie Mac say that the problem is is the federal government is obligated to bail-out people who might lose money in connection with them.

    I do not believe that we have any such obligation. And as we said that it’s a self-fulfilling prophecy based on people. So let me make it clear: I’m a strong supporter of the role that Fannie Mae and Freddie Mac play in housing.

    But nobody who invested in them should come looking to me for a nickel, nor anybody else in the federal government.

    And if investors take some comfort and want to lend them a little money at less interest rates, because they like this center (ph) affiliation, good, because housing will benefit. But there is no guarantee, there’s no explicit guarantee,there’s no implicit guarantee, there’s no wink-and-nod guarantee. Invest and you’re on your own.

    I believe that we, as the federal government, have probably done to little, rather than too much, to push them to meet the goals of affordable housing, and they set reasonable goals.

    I worry, frankly, that there’s a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios.

    I think that’s a (OFF-MIKE) problem, the federal government doesn’t bail them out. But the more pressure there is there, then the less I think we see, in terms of affordable housing. I want Fannie Mae and Freddie Mac to continue with its government-sponsored enterprises, with some beneficial arrangements with the federal government, in return for which we get both the general lowering of housing costs and some specific attention to low-income housing.


    SEPTEMBER 25, 2003

    FRANK: I think this is a very important hearing. And I appreciate the Chairman’s willingness to have it under the auspices of the full committee.

    I joined this committee in 1981 because I am interested in housing. And I guess I wouldn’t want to boast about my accomplishments, because the situation regarding housing, particularly people who are of moderate and low income, has gotten worse during my tenure. I won’t accept the blame, but I clearly haven’t done a great deal of good.

    And it makes it all the more important that we use every tool that we do have to try improve the housing stock.

    And Fannie Mae and Freddie Mac are two of the very important tools that we have.

    And there are people I know who are critical of the arrangements that we have. I, frankly, welcome the fact that we have in Fannie Mae and Freddie Mac a means of bringing down housing costs that doesn’t put a hit on the federal budget.

    Essentially, there are people in the country who are prepared to lend money to Fannie Mae and Freddie Mac at less interest rates than they might get elsewhere. I thank those people for doing that. I must tell them that I hope they are not doing that on the assumption that if things go bad, I or my colleagues will bail them out. We will not.

    FRANK: Let me ask Mr. Gould and Mr. Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

    Mr. Raines? RAINES: No, sir.

    FRANK: Mr. Gould? GOULD: No, sir.


    October 6, 2004 Wednesday

    Ranking Member Frank?

    FRANK: Thank you, Mr. Chairman.

    First, I want to address a little history here. The committee here was well on the way to adopting legislation that would have enhanced the regulatory structure for Fannie Mae and Freddie Mac. In the Senate, in fact, the committee actually voted out a bill. There was some disagreement between the parties over I think a relatively minor section over receivership. I think that could have been worked out.

    I believe we were well on the way, the chairman and I and the staffs, to putting together a bill that would have enhanced the regulator and could have passed. What stopped progress on a new bill was the Bush administration’s determination to go beyond safety and soundness and into provisions that would have restricted the housing function.

    What is powerful here are not Fannie Mae and Freddie Mac, but the interests of a majority of the members of this committee in housing at two levels. First of all, in housing in the conventional market, is very important, and the continuance of Fannie Mae and Freddie Mac are important to that. We also have a subset of issues involving affordable housing, and those are very important to many of us.

    What derailed the legislation was an insistence by the Bush administration on going beyond safety and soundness and giving the regulators, for example, particular power to say, “Well, they’re going beyond their charter in housing; they should not do these new products.” There were specific issues here that transcended safety and soundness or went under it, but the administration was seeking powers that were not related to safety and soundness.

    If they were to have dropped that, we would have a law already signed and in place, because on the question of safety and soundness regulation, there has not been a significant dispute.

    Mr. Bachus?

    BACHUS: I thank the chairman.

    First of all, chairman, there have been several remarks made that we would have addressed these issues had it not been for the Bush administration. It is my recollection that the Bush administration actually urged this committee and this Congress to take strong action and that at that time that was in the sort of post-Freddie Mac. At that time, many of the Democratic members accused the Bush administration of going on a witch hunt against Fannie Mae of saying that things were right at Fannie Mae, and that OFHEO was doing a wonderful job, and that there was sufficient regulation, that this was simply to accuse the Bush administration of wrong motives.

    It was actually a combination of those in the Senate that did not want to take action, and members of this committee that disagreed with the Bush administration. One thing the Bush administration was concerned about is the new products that Fannie was offering, and they wanted Treasury to approve those new products. It is my recollection that the minority members almost to a person resisted those reforms.

    I do think, and I commend Mr. Frank. Mr. Frank actually had it right and more accurately when he said the Bush administration wanted to go further than this committee. I think that is absolutely true. And now all of a sudden, some of the things that the Bush administration wanted to do it seemed like they would have been very prudent things to have done.

    So to try to, a month before an election, to try to somehow create a smokescreen that the Bush administration had done something wrong would be inaccurate and would not be factual. Of course, it probably is not surprising either.


    Now I recognize the gentleman from Massachusetts, the ranking member, Mr. Frank?

    FRANK: There are three sets of concerns that have been brought out with regard to the government-sponsored enterprises, and I will talk particularly Fannie Mae and Freddie Mac.

    But there are two other agendas at stake here. One is the notion that it is inappropriate for the federal government to interfere with the allocate of functions of the capital market. I believe this partly motivates Mr. Greenspan.

    There is obviously a very respectable, intellectual tradition that says: The market knows all, the market is smart and government is dumb — to quote a former majority leader from Texas, a former majority leader from Texas, a current former majority leader from Texas — and he said the markets are smart and the government is dumb.

    And the view is that Fannie Mae and Freddie Mac, with a particular set of legislative and executive arrangements, biases capital allocation towards housing. And there are people who want to stop that. I very much disagree with that.

    There are also competitors. There are organizations of people who compete or resent the fact that Fannie Mae and Freddie Mac can borrow money more cheaply than others, because of a perception in the market that we’re going to bail them out. I am not going to bail them out, and if they want to lend money to Fannie and Freddie cheaper, that’s their judgment. Don’t come to me if it doesn’t work out.

    MARKETPLACE MORNING REPORT SHOW: Marketplace Morning Report 6:50 AM EST SYND May 26, 2005 Thursday

    HEADLINE: House committee gives green light to legislation that would tighten regulation of Fannie Mae and Freddie Mac


    KAI RYSSDAL, anchor:

    A new framework for Fannie and Fred.

    Announcer: The MARKETPLACE MORNING REPORT is produced in association with the University of Southern California.

    RYSSDAL: From American Public Media in Los Angeles, I’m Kai Ryssdal.

    A House committee has given the green light to legislation that would tighten regulation of mortgage giants Fannie Mae and Freddie Mac.

    Conspicuously absent from the bill, though, was something both the White House and Federal Reserve Chairman Alan Greenspan have been calling for: sharply limiting how large those companies’ holdings can be. Fannie Mae, you might have heard, is an underwriter of this program.


    Mr. McCAIN. Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

    The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

    The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

    For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

    I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

    I urge my colleagues to support swift action on this GSE reform legislation.


    SHELBY: Senator Schumer?

    SCHUMER: Thank you, Mr. Chairman. And I join our ranking member, Senator Sarbanes, in thanking you for holding these extensive and timely hearings.

    First, I’d like to say that what I smell in the air is a campaign to virtually eliminate Fannie and Freddie. It’s been chosen at an opportune time because they both have regulatory and accounting problems. But many of those who are on this campaign have been out to disable Fannie and Freddie long before the regulatory problems appeared. They are in a sense behaving like opportunistic predators.

    And I think there are a whole lot of questions out there that the normally convincing Alan Greenspan really didn’t answer yesterday — or didn’t answer at least I think to the satisfaction of many of us — and there are a lot.

    SNOW: OK. Well, let me take the one that — number four on your list that seemed to be the heart of your concerns.

    It isn’t anybody’s preference that GSEs, quote, “make less money.” The preference is that they reflect less systemic risk to the housing market and to the larger financial system.

    From my point of view, Senator, that’s the heart of the reason why we’re meeting here today, it’s the heart of this legislation that’s being proposed. And this is…

    SCHUMER: Sir, are you talking about interest-rate risk?

    SNOW: No, I’m talking about the — well, take a minute and talk about this.

    The GSEs have, as reflected in the marketplace, paper that sells for the best spreads except U.S. treasuries, the best spreads, which reflects the market’s premium for that paper, saying it’s the very best paper except the best paper in the world, which is the U.S. treasuries.

    Now, that creates…

    SARBANES: I thought the president went somewhere yesterday and looked at these IOUs…

    SNOW: West Virginia.

    SARBANES: … and U.S. treasuries and cast doubt about their validity.

    SNOW: He cast not one iota of doubt. What he said was, they will be paid, but the question is, how will they be paid, from what financing source and at what burden to the fisc (ph) of the United States?

    But the GSEs have this lower borrowing ability. And they have used that over the course of the last decade and a half to accumulate a very, very large portfolio of assets unrelated to making the secondary market. Those are assets that have interest-rate risks to them. And in order to protect against those interest-rate risks, they have wisely engaged in massive hedging activities, derivative trading and hedging activities.

    SCHUMER: Is that any different than private sector banks and their hedging activities.

    SNOW: Senator, it’s different in this regard: They are playing off a sizable advantage which allows them to borrow at rates that are lower than those other institutions.

    JACKSON: I think, Mr. Chairman, if I can add…

    SHELBY: Go ahead.

    JACKSON: … to what Secretary Snow says — if we use just common sense terms, major banks can leverage 11 to 1 probably at the most. Fannie and Freddie, in some cases, are leveraging 50 to 1, 60 to 1. That’s clearly out of whack.

    SCHUMER: Would risk-based capital solve that?

    JACKSON: Absolutely. I think it surely would.

  9. Did you know that anybody could get a loan from Countrywide by just saying they were a friend of “ANGEL”? Well, “ANGEL” was any politician. Not just a friend of “ANGEL” but, that the person was aspiring to be an “ANGEL”. That didn’t come from Rush, but you people are so used to seeing things one way that is really sad.

  10. You don’t have to listen to Rush to realize it.

  11. Well … somebody certainly listens to Rush Limbaugh.

  12. IN re: What a coincidence that all this started in 2001, the very year Little Bush took office

    It wasn’t just Bush, thses laws were relaxed starting with clinton. Barney “PIG” Frank and Reed are Demorats and they run Fannie Mae. It normally takes a country a decade to realize what the previous administration did. All these laws Clinton left in office, we are still feeling. But, the drive by media will not report on it. You think since the Messiah has arrived that it would get better? think again and all you Bush haters until you sit down and realize the real problem, you will continue on assuming and/or listening to everything these drivebys will through at you. I am not defending bush but, I call it as I see it. The Messiah, on the other hand has worst things that are going to affect us even more but it doesn’t matter because him, the Demorats and the drivebys are only going to continue on blaming Bush even after he’s out of office. The Messiah might be a good candidate but the sad of it is that his own party will bring him down. The Messiah promised a new change, but, everybody around him are the same old scums that’s been here, the first ones that need to go is Pelosi “the Witch, “the PIG” and several others.

  13. The solution below would work quite well if anyone in this government wanted a real solution!!

    Stabilize Home Mortgage Borrowers with Eminent Domain
    By Lauren E. Willis

    Eminent domain is the power of government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

    How would this work? Upon petition of the homeowners, the government would take primary residences at risk of foreclosure and then sell the homes back to the homeowners at current prices.

    Because just compensation in eminent domain is measured by the market value of the property, today’s fire-sale home prices would be a boon to this plan. Lenders and investors would receive the lesser of the mortgage balance or the amount paid by the government as just compensation. Unlike newly-invented securities and other financial instruments, homes have been appraised for a very long time and objective criteria can establish market value.

    For homeowners with mortgages that are underwater, the effect would mirror the debt reduction achieved when Congress nullified the gold clauses. Home values would bottom out quickly, and households looking to buy would see lower house prices.

    Families that can not afford a mortgage even with a balance reduced to market price will lose their homes, but will not have the additional burden of a foreclosure or bankruptcy on their credit histories.

    Eminent domain has the virtues of the Wall Street bailout plan without the vices.

    Financial firms and other investors could no longer delay realizing losses on their mortgage backed securities and similar financial assets, but simultaneously would bring in cash from mortgage prepayments. These payments would pump liquidity back into the financial system to be lent out again.

    Taxpayer money would not be spent paying Wall Street a speculative price for unmarketable financial instruments, but instead would pay market prices for houses. Investors would receive precisely what their investment contracts provided for in case of prepayments, rather than whatever they can convince their friends at the Treasury Department to dole out. Most importantly, the underlying mortgage debt overhang problem would be addressed.

  14. I filed Chap 7 one day before the sale of my home. I was broke , I tried to find free legal help but I was not successful. I called over 20 agencies and they sent me around and around like a ferry’s wheel. Thanks to these wonderful legal blogs I was inspired to
    start my guerilla warfare as a pro se .
    I filed my schedules and had my trustee meeting .I failed in stopping a release of stay from one of my original lenders. I knew that a Chap 7 would not save me as effective as a Chap 13. ..but I answered their requested release with my counter punch ..requesting proof that they had the original wet signature note .
    I told the judge that I suspected that the original note was sold in the securitization pipeline and needed original proof to support their claim.
    The rep .from my lender stated that the bank had not sold the note forward , and had the evidence .Before I could see the evidence ..the judge told me that this issue is not to be fixed in her court ,and gave the lender his release of stay. She said that my case is better suited at the circuit court. So that’s that.
    My next battle is at the circuit court . There I have to file a motion to reverse a summary judgement . I was not notified of that last meeting ,and since I did not get to defend myself , the uncontested photocopy note holder and the judge had passed judgement against me . Due process was missing here. I have found a free legal advocate group who will help me fight
    and process the motion. In one full day meeting in Aug.’08 the feeling I felt was that I was only delaying the final defeat. These attorneys are experts in the foreclosure defense tactics. As I learned more and more of Mr. Garfield defense’s .I sent them Neils Blog address, and explained to them the original note and other defenses . I have not spoken to them much since Aug. since the Chap 7 put a freeze on the foreclosure procedures. I’ll be needing them very soon in the weeks ahead , and I hope they have a learned about Mr.Garfield new strategies .
    Thank you Mr.Garfield for your blog and legal defenses..

  15. It’s sad we may have put foxes in charge of the hen house, yet again.

    Current Rolling Stone: http://www.rollingstone.com/politics/story/24012700/the_new_trough


  16. I say this in all sincerity, that it’s a shame people like Neil aren’t running things in Washington, as opposed to the absolute morons we’ve had in office the past eight years. What a coincidence that all this started in 2001, the very year Little Bush took office. No wonder this country has been run into the ground. The bailout ?? The blind leading the blind. The solution ? Unless we get some very smart people running things very soon, we’ll all be living thru the next great depression.

    San Diego, Calif

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