$600 TRILLION IN SWAPS: WHO OWNS THE DEBT?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

REGISTER FOR CLE SEMINAR, HOMEOWNERS WELCOME

EDITOR’S ANALYSIS: Here is the problem: $600 TRILLION in swaps seems like a big number. It is. And it is only an estimate, so we can assume there is some variance. How big is it? Well the combined currency issued across the world by all governments is $50 TRILLION. So it doesn’t take a rocket scientist to know that there is 12 times the amount of the world’s currency sitting out there masquerading as securities based upon paper whose value is derived from some debt which is to be paid, you guessed it, in currency. 

A lot of the swaps might cancel each other out but we are still stuck with the fact that the securities affecting ownership, guarantee and payment of debt due from borrowers have virtually nothing to back them up — even if you used literally all the money in the world there would only be 8% coverage. And we know that a lot of these swaps have been exercised and triggered in the mortgage market — and that was what triggered the United States printing another few TRILLION dollars so the financial firms playing with these weapons of mass destruction could get paid 100 cents on the dollar instead of, at most, 8 cents.

Now if the 100% payment of the debt was triggered by the swap contracts and the swap contracts are 12 times all the currency in the world, it stands to reason that these synthetic derivatives represent the sale of the same debt 12 times over. One would think that once was enough, but not on Wall Street. One would also think that a third party paying off the debt would have some legal or equitable right to go after the original borrower on the debt, which is what the banks are saying in the foreclosures. BUT the swap contracts all have a provision that specifically waives any rights to the debt — which means they are paying to someone who will still own the debt. They are paid in full, perhaps 12 times over, but they still have the debt, or do they?

The originating parties to the swaps were NOT the investors who bought mortgage backed securities or mortgage bonds. That would make too much sense. No, the originating parties on the swap contracts were the brokers who sold the mortgage bonds — and sometimes sold the same load of toxic waste several items over by the use of swap contracts. In fact, that was the way they could be sure the pool would fail — by loading even the highest tier of the special purpose vehicle (trust) with swap contracts on the lowest tier (tranche). Being sure of something gives you an advantage to say the least. Making a “bet” on the failure of the pool, as a whole is like betting the sun will come up in the morning — if it doesn’t, who cares about anything?

So you have these bonds, derivatives on bonds, and bets on derivatives on bonds circulating in a swirl of hand written notes (literally) so nobody can keep track of them, which is LEGAL because Congress made it legal when it declared these instruments to neither securities nor insurance contracts in 1998. But back on earth where most of us live, we have some problems that just won’t go away. Besides the obvious fact that the vapor created by these financial firms is more than anything the world can sustain, it isn’t possible to know who actually “owns” the debt or whether some agency relationship arises as a result of the swap contracts or derivatives.

Wall Street’s answer to this problem is to go to court masquerading some entity as a pretender lender and portraying the situation as an ordinary loan transaction where the creditor is present. This in turn creates the presumption that the borrower must now satisfy the burden of proving that the debt was paid. In fact, it is the initial presumption that is incorrect and the clever way it is presented to Judges has led them to believe that the creditor exists because the debt MUST exist, when in fact it has most probably been extinguished several times over. By thus shifting the burden of proof to the borrower, who knows he borrowed money and knows he didn’t make the payment, EVERYONE assumes that the borrower is in trouble. Lawyers representing the borrowers on any loan that was securitized do their clients a disservice when they make that mistake.

Now Judges in trial and appellate courts and even courts of limited jurisdiction are beginning to see the light. By applying the simple principle embodied in the alignment of parties, the party seeking affirmative relief is the pretender lender, not the borrower.  By applying the rules of civil procedure, the pretender lender must make allegations that have hit a brick wall: that it is the lender or the successor to the lender. The simple factual problem faced by the pretender lender is that they never made the loan from their own funds nor did they ever buy the loan with their own funds. Their attempt at fabrication of documents to show loans transfers has also blown up i  their face and many lawyers can expect to be disciplined, sued civilly and even criminally for their participation in this scheme. PLAUSIBLE DENIABILITY IS DISSOLVING.

By applying the simplest and most basic of rules and laws, for the last 10 years or more, there has not been any actual creditor thus far, seeking to enforce any debt that was securitized, which in the case of consumer debt, is basically all of it. Consumers, homeowners, and their lawyers didn’t create this problem. Wall Street did. And the idea that in court they can shift the burden of paying for the mess or otherwise cleaning it up is preposterous. And the days of MAKING the consumers pay for it is equally preposterous because they have no more money or credit. Thus Wall Street has painted themselves into the proverbial corner and as this continues to unravel, the consequences of leveraging 40 times on an “asset” (that was overvalued to begin with, and never transferred into new ownership) are that the eventual collapse of empires on Wall Street is inevitable. The only question is when?

Derivatives Firms Face New Capital Rules

By BEN PROTESS

Financial regulators proposed new rules on Wednesday that would require large derivatives trading firms to bolster their capital cushions, the latest attempt to reduce risk in the $600 trillion swaps market.

The rules, proposed by the Commodity Futures Trading Commission, are largely aimed at swaps dealers — brokerage firms, big energy trading shops and Wall Street bank subsidiaries that arrange derivatives deals. The plan also would apply to so-called major swaps participants, companies that are either highly leveraged or have huge positions in swaps contracts.

The agency’s commissioners voted 4 to 1 in favor of advancing the proposal to a 60-day public comment period, after which they must vote on a final version of the rules. Scott D. O’Malia, one of the agency’s two Republican commissioners, voted against the proposal.

The proposed rules are a result of the Dodd-Frank Act, the financial regulatory law enacted last year. The law mandated an overhaul of swaps trading, an unregulated industry that was at the center of the financial crisis.

The commission has already proposed rules that would require many swaps — a type of derivative contract that can be tied to the value of commodities, interest rates or mortgage securities — to be traded on regulated exchanges.

But for months, the commission had declined to say which types of swaps would face the new rules. On Wednesday, after months of deliberation, the commission said its swaps definition would include foreign currency options and foreign exchange swaps and forwards.

The commissioners voted 4 to 1 to propose the definition, which would exempt insurance products and consumer transactions like contracts to purchase home heating oil.

The commission’s separate proposal to build capital cushions in the derivatives industry could help prevent a repeat of the 2008 financial collapse, regulators say.

In the lead-up to the financial crisis, investors bought billions of dollars worth of credit default swaps as insurance policies on risky mortgage-backed securities. When the underlying mortgages soured, American International Group and other companies that sold the swaps lacked the capital to honor their agreements.

Under the commission’s new plan, those firms would have to put aside enough cash to cover unforeseen calamities. Regulators, until recently, had little authority to set any rules for the swaps market.

“Capital rules help protect commercial end-users and other market participants by requiring that dealers have sufficient capital to stand behind their obligations,” Gary Gensler, the commission chairman, said in a statement.

Still, there is no guarantee that enhanced capital levels will avert future disasters. And there is no magic capital number that regulators see as a cure-all; different firms will face different requirements.

Swaps dealers and major trading firms that are already registered with the commission as futures brokers would have to hold at least $20 million of adjusted net capital, on top of existing requirements.

Other firms that are subsidiaries of big banks would have to meet the same capital standards as the parent company, while storing away at least $20 million of Tier 1 capital.

Yet another set of firms would have to keep tangible net equity equal to $20 million, in addition to putting aside funds to cover market and credit risk.

The commission’s proposal covers more than 200 firms expected to register as swaps dealers and major swaps participants.

The commission also voted to reopen or extend the public comment period 30 days on its earlier rule proposals. The agency plans to finalize most Dodd-Frank rules by the fall.

26 Responses

  1. I KNOW THIS HAS A LESSON IN IT FOR US ALL.
    IT IS ‘DAVID V GOLIATH’…..WATCH THIS LITTLE GUY NOT BACK DOWN EVER!!

    http://www.pawnation.com/2011/04/26/duckling-scares-dog/

  2. It will all come crashing down, and things will be better then.
    Best to bankrupt the US Government, abolish the Federal Reserve, adopt some cool rules on banking and insurance. And start again.
    The states are in far better shape than the Federal Government, as they are unable to manufacture currency out of thin air.
    We could balance the budget, by selling off part of the 72% of the land mass of this country owned by the federal government,that includes a lot of desireable lakefront and oceanfront properties, that could be sold to US citizens on 10 or 20 year mortgages, that would spur construction of vacation homes and residencies.
    We can and should impose tariffs on goods from any country when our imbalance exceeds 60/40%

    Our currant system is going to fail. How we respond to it, is whats important.

  3. BSE

    Not the PSAs that were not executed — it was the Mortgage Loan Purchase/Repurchase Agreements that were not legally executed. These “agreements” supposedly were the documents that sold loans from originator to Depositor. This was necessary step in the chain. Not done. Could not go to any trust without valid sale to Depositor first.

  4. LEAPFROG—

    Thanks, I guess I’ll just (reluctantly), put a check in the mail to the debt collector…one more month… Somehow feels like throwing money away, though…
    I check realtytrac every day, and so far only lists my house as “pre-foreclosure”…NOD was filed, but no sale date because of loan mod negotiations ongoing…BUT, I don’t trust ANYONE with regards to all this, so I even went down to my recorders office to check out what was there…Looked okay—no assignments—the latest was a NOD with various “Trustees” listed (with MERS as the “go between”), NONE of which is listed on my Deed of Trust…my servicer said Deutsche Bank is the actual creditor…yeah, right!

    To be continued…

  5. Carrie: Maybe you should play the mod game and see what happens with it. I played it IN GOOD FAITH. I had no idea about pretender-lenders, MERS or anything else. All I wanted was a completed mod. However, they bankster strung me along & had no intention of giving me a mod. That’s just one more cause of action against them now. It is important that you pay attention to the foreclosure “clock” here in CA and plan your strategy accordingly. If you intend to file BK, you probably want to do it before the NOD. However, there are other strategies where that might be too soon. Everyone’s situation is unique. Do what is best for you. I would interview more than one attorney, as I stated in my other post. I don’t know what yours means by “there is no precedent” and no way to fight anything until there is. Doesn’t make sense to me. Sounds like maybe he doesn’t understand adversary proceedings and challenging a pretender-lender claim.

  6. THANK YOU ANONYMOUS AND LEAPFROG!!

    Desperate times call for desperate measures…
    Our income is minuscule at this point, so I’m sure we qualify for C 7.
    My kids grew up in this house, and for a million reasons, we don’t want to leave.
    I fought like HELL to get a “loan mod”, and am now in a “trial payment plan”—just a way for them to see how much they can squeeze out of us…
    IndyMac is a debt collector, so I’m paying a debt collector on an essentially “phantom loan” that has been paid off—which is what I’m gathering from this site…
    So, my question now is, do I keep paying a debt collector, or do I let them try to foreclose and fight it in court, or do I file for BK right now—which I had been putting off anyway—, and see what I can do with that?
    I talked to an attorney last week, and he said he can’t do anything for me until there is some “precedent making” decision in the California courts regarding this mess.
    So, I’m in a weird limbo, wondering if I should put my second “trial payment” in the mail today…to a debt collector.

  7. @ Carrie: Please do NOT file BK on your own. There are way too many traps/complications for the unwary and inexperienced. BK court is also somewhat of a crony club & they discriminate against the pro se. Hate to say it, but its true. You get ONE SHOT at keeping your home and ONE SHOT at getting a successful BK, in most cases, make it count and don’t blow it. When you look for an attorney find one who is comfortable filing adversary proceedings, because this will probably be the way to go. Each situation is unique, but whatever you do, do not go through a bankruptcy “mill,” which is basically a low-quality assembly-line one-size-fits-all IF (big if) your goal is to save your home. Read every article Max Gardner has ever written and educate yourself on various strategies within BK. Interview several attorneys before making your selection. We interviewed 5. Three of them said a CH7 could not be done, that our income was too high. That was a warning sign that these people did not know what they were doing. The trustee did challenge our CH7, but in the end found it to be acceptable. Our lawyer had the skill and knowledge to vet all of this out ahead of time with a retired trustee that he employees, who runs the figures and situations and makes a determination of the outcome. While its not 100% accurate all of the time, at least you know what you are up against and the likely outcome. Our attorney is also enjoys being in the courtroom/trial and I consider that a good sign in an AP situation. He consults with other attorneys who perform the work that would tie him up and not let him go to trial, but I think that’s a great thing. They like doing what they do and he likes doing what he does – so I get the benefit of several experts contributing/weighing in on my case. Its not cheap to do an AP against the pretender-lender and it seems like the delays are agonizing, but we will get there eventually. While we don’t like paying month-after-month with no result, time is actually on our side as more and more fraud by the pretender-lenders is exposed. We figure we’d be paying rent anyway somewhere, meanwhile we live here and duke it out.

  8. ANONYMOUS

    What if the PSA was not signed nor executed ? and What if they use substitute trustee to foreclose ?
    Why and How do they get away with this?
    Please comment

  9. Most often Deutsche Bank is the trustee — not the servicer. In cases where the trust is named as plaintiff — ABC trustee for “certificate holders” to XYZ trust — they are the named plaintiff — not the servicer. But, it is actually the servicer that is proceeding against you. If goes to trial — the servicer will have difficulty getting a witness for the trustee because — as Ian states — . “the Trusts in many cases have absolutely no idea that a foreclosure is being brought in their names.”

    If foreclosure plaintiff is the Servicer, the Servicer is not (most often) the real party/creditor — they must state on whose behalf they are acting. They will then name the Trust/Trustee — who is also not the real party/creditor since security investors are also not the creditor. If you challenge chain, transfer, assignment etc., the Servicer as plaintiff cannot testify to anything but payment history. Would need witness or affidavit from Trustee regarding the chain and mortgage collection rights whereabouts – and all documents — this is how Robo-signing fraud became rampant.

    Also, even if it can demonstrated by a Mortgage Schedule that loans was originally “earmarked” for transfer to a Trust, this does not mean loan stayed in the trust. And, default loans are removed from trust after servicer stops advancing payments. So- you would need the remittance ledger from Trustee – to show trustee is still receiving advance payments from Servicer.

    Mortgage Schedule should also be accompanied by a Mortgage Loan Purchase Agreement (which is also a Repurchase Agreement). Have not seen any MLPA that was actually legally executed
    — only says “intent” to sell.

    In addition, the chain of assignments and endorsements must follow the PSA. By PSA it is the Depositor that purchases loans from originator – and it is only the Depositor that can cause assignment/endorsement to the trust. By the PSA there is no Power of Attorney to trustee or servicer to cause assignment. Thus, really need affidavit/witness from the Depositor to testify. Since mortgages cannot be passed onto security investors — assignment/sale of mortgage stops with the Depositor — it is a Depositor owned trust.

    At this time, for the subprime trusts only , payments for current borrowers are not being transferred by servicer to trustee — neither would a payoff by refinance be transferred. And, if those in default suddenly won the lottery and could pay loan in full — neither would this payoff be directed to the trust/trustee.

    Foreclosure proceeds are not going to the Trust/Trustee — or servicer to the trust. None of these parties can be plaintiff in foreclosure actions – and cannot be stated current creditor in BK.
    .
    .

  10. Carie ,

    Just follow the link at the top of this page to http://www.luminaq.com/ ,, Neil runs it and it is very competitively priced..

  11. “What has been the effect of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), on motions to dismiss for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6)?

    Last month, the Federal Judicial Center released its report, Motions to Dismiss for Failure to State a Claim After Iqbal, which concluded…well, it depends on your perspective. Adam blogged about it here, and Howard Wasserman blogged about it over at PrawfsBlawg, leading to a spirited back-and-forth in the comments section. The Executive Summary concluded that…

    •Only in cases challenging mortgage loans on both federal and state law grounds did we find an increase in the rate of grants of motions to dismiss without leave to amend. Many of these cases were removed from state to federal court. This category of cases tripled in number during the relevant period in response to events in the housing market (see infrasection III.B.1). There is no reason to believe that the rate of dismissals without leave to amend would have been lower in 2006 had such cases existed then.”

    http://lawprofessors.typepad.com/civpro/2011/04/what-has-been-the-effect-ofbell-atlantic-corp-v-twombly-550-us-544-2007andashcroft-v-iqbal-129-s-ct-1937-2009-o.html

  12. Mary Cochrane, you wrote:

    You can purchase which trust you are in from Luminaqe – LivingLies article Which Trust are you in $3,000

    I don’t proclaim to speak for Luminaq, but I’m familiar with their products and know that they don’t charge but a fraction of what you state. If memory serves, a trust search is $195.00. But don’t hold me to that.

  13. TRUSTEE will be a national bank association with defined responsibilites. During Foreclouse the Attorney for Plaintiff represents SERVICER but the TRUSTEE is there – long arm reach – no first-hand knowledge of anything.

  14. carie, on April 27, 2011 at 6:56 pm

    Please don’t give up! Secure a Chain of Title audit! and a forensic audit. You can purchase which trust you are in from Luminaqe – LivingLies article Which Trust are you in $3,000

  15. Anonymous,

    So, I talked to my “IndyMac servicer” today:

    “Who is my actual creditor?”

    “Uh…Deutsche Bank”

    “Oh, can I pay them?”

    “No, no! You go through us, we’re the servicer!”

    “Oh, I thought you were a debt collector.”

    “Well, we are the servicer…”

    “So, why isn’t Deutsche Bank anywhere on my Deed of Trust, or the note? And where is my original promissory note?”

    “Well, Deutsche Bank has your note, and MERS is authorized to be the beneficiary for Deutsche…”

    Blah blah blah…

    I REALLY don’t want to send in a second “trial plan payment” if I don’t have to…I would love to file BK (which I was planning on doing anyway), and just make it all go away—is this possible to do on my own? Or is the idea still too new for the attorneys and judges?

  16. ANONYMOUS- the Trusts in many cases have absolutely no idea that a foreclosure is being brought in their names. After all, a Trust is just a piece of paper sitting somewhere. It is not as if a Trust does anything. Just a figurehead to justify evasion of state and federal taxes under REIT and REMIC provisions, and that is only if in compliance with IRS rules regarding same. If the notes never made it into the trust in question, then all is illegal, but hard to glean that info, as loan level date has all but evaporated. But if we all keep digging, we will uncover the missing link.

  17. neidermeyer,

    Absolutely. But, trustee refuses to get involved — even though name is often in bold face on foreclosure complaints.

    See responses by trustees to NJ Order to Show Cause. Trustees want nothing to do with anything — put all on servicers. Only problem is — servicers have no personal knowledge as to chain, assignments, endorsements, transfers, mortgage schedule, repurchase, removal/swap out of collection rights, etc. etc. Servivcers can only testify as to payment history — which is likely in error anyway.

    So we need trustee testimony to the rest — including remittance ledgers. Just need judges to get this. NJ was very close to enforcement — which could have spilled over — but blew it.

  18. Le us see, there is only printing or backing capacity for only 50 trillion, if this pyramid collapses, which, it will soon enough, who will pay then???

    no one has access to these banksters Swiss accounts!

  19. What happens to all those people whom have deeded their homes in deeds in lieu of foreclosures to entities that went bankrupt, that never put their money at risk, that the note, albeit, fraudulent was shown in court and the borrowers lawyer charged an arm and a leg for foreclosure defense that never happened.

    I am so mad,

  20. FL Retirement System: Missing a few hundred billion, perhaps a trillion or more in bank losses.

    *but GS & JPM perform “outstanding.”

    Hmmmm….

    http://tawebster.wordpress.com/2011/04/27/florida-retirement-system-frs/

  21. ANONYMOUS ,

    The trustee *should* be expected to know who holds collection rights ,, do you know of any instance where this has been disclosed?

  22. “All will come a crashing — just a matter of time.”

    I hope so, Anonymous, and I hope its SOON!!!

  23. Quote — “No, the originating parties on the swap contracts were the brokers who sold the mortgage bonds.”

    Originating parties were the “investors” to the subordinate tranches — who were the only “investors” to fund the subprime loans – and simultaneously — “swap holders.” .

    Yes, some bets against — but it was the distressed debt buyers who “banked” on collection rights via swaps and/or direct sale to them. in fact, securities never change hands in swaps — instead – the “collection rights” are SWAPPED out of the trust — hence the word “SWAP.” And, because the securities never change hands — the foreclosure/distressed debt buyer mills believe that they are able to fraudulently state in court — that the current creditor is still the Trust!

    “Swapped Out” — that is what collection rights are about. Government is protector given huge amounts of distressed debt across the globe.

    Victims — those who were targeted — are considered “dispensable” in relation to the “betterment of the economy in general” – and the agenda of the distressed debt industry . The government’s “baby” is the distressed debt industry. Protects them as mother protects her child.

    All will come a crashing — just a matter of time.

    We have had enough of distressed debt buyer “investor” fraud.

  24. What is really sad is Geithner, Paulson, Bair and Bernake had to know this was going on. And if they didn’t – then they weren’t doing their job… so what did we pay them for?! Isn’t there a fiduciary duty to the public that pays their salaries to protect us?

    For starters Geithner Must Go! To order Bumper stickers:

    http://www.makestickers.com/customize.aspx?TID=6832&DN=110318045400&cid=jlu1lngmydb33ro3a0djxtwa&FP=True

  25. […] Source: Livinglies’s Weblog […]

  26. Well Summarized Neil!

    Your continuum is well appreciated amongst those of us that continue your work, carrying it forth in the courtrooms of America. In the last 3 years we have all learned so much. It all started here on this site!

    On behalf of at least 60 million homeowners… THANK YOU!

    /S/ Authorized Representative
    ALLAN HENNESSEY
    MortgageClaimCenter.com
    253-475-9000

Leave a Reply

%d bloggers like this: