Mandelman: If You Think the Meltdown Was the Fault of Homeowners, Think Again…


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If You Think the Meltdown Was the Fault of Homeowners, Think Again…

If you’re thinking that our economic crisis was in some way the fault of homeowners who couldn’t afford their mortgages, please consider the following:

At the end of 2007, there were roughly $1.4 trillion in sub-prime mortgages in this country.

If “irresponsible sub-prime borrowers,” caused the meltdown, then $1.4 trillion would have solved the problem in its entirety, right?  Because that’s all the sub-prime loans there were.

But, between the Federal Reserve, the FDIC and the Treasury over $13 trillion has been pumped into financial institutions to fix the “housing correction,” which is what Hank Paulson was still calling our economic collapse as of November of 2008.

At the end of 2008, there were $11.9 trillion worth of mortgages in this country.  So, with $13 trillion, the government could have paid off every single one… and still had a little over a trillion dollars left over.

But there’s a lot more to the economic problem than that, explains Nomi Prins, my new favorite financial uber-genius and author of “It takes a Pillage.” Wall Street had been playing the leverage game… somewhat like they did in the 1920s, I suppose… but on mega-steroids.  Leverage means borrowing on assets, and Wall Street banks were leveraged by 30:1, commercial banks by 10:1, not including their “off-the-balance-sheet” holdings, which could make their leverage ratio significantly higher in many cases.

So… in “Pillage,” Nomi Prins explains in terms anyone can understand that factoring in the leverage at 11:1, we’re looking at a $140 TRILLION economic problem… yes, you read that correctly… that’s trillion, with a ‘T’.  Our Wall Street bankers, through the abuse of the securitization process and excessive amounts of leverage, created a potential tab of $140 TRILLION for the people of this country to pick up.

Securitization is the process of packaging loans into securities that are then be sold to investors, called Asset Backed Securities (or ABS).  Inside a given ABS, you might find 10% real loans and 90% bonds backed by those real loans.  Or there could be only 5% real loans.  The mortgage payments we all make are used to make payments that flow through the securities and to the investors who then invest by buying pieces of the ABSs.

“It takes a Pillage” is a book that’s absolutely jam packed with “Aha!” and “OMG!” moments, but one shines above the rest… What caused the financial crisis were the securities, or the “bonds”… not the loans.

We’re talking about a system that took on $140 trillion in debt on the backs of just $1.4 trillion in real loans.  And it may be much more than $140 trillion, we don’t really know because we’ve allowed the market to remain unregulated.  The $1.4 trillion is based on leverage at 11:1.  It could very well be some multiple of that amount.

Issuers of ABSs, who were Wall Street’s investment banks earned about $300 billion for packaging and selling these “assets,” packaging the CDOs we’ve all heard about paid the best.  Who bought ABSs?  European and the global banks, insurance companies, and pension plans bought a whole lot of them.  And they bought them with borrowed money.

They bought them because Wall Street told them they were safe… triple A rated… and even better they could be insured with Credit Default Swaps, too!  What was not to love?

Hundreds of trillions in “structured assets”, ABSs, MBSs, CDOs, CDOs Squared, and of course synthetic CDOs, which are entirely, made up of credit default swaps, all deriving their value based on $1.4 trillion in mortgages.  All of those structured investments, once demand for them abruptly dried up, are what we came to know as “TOXIC ASSETS.”

Prins makes it very clear that toxic assets are not the same as defaulted sub-prime loans.  The fact is, Nomi says, that every single sub-prime loan in the country could have defaulted and all of the homes attached to those loans devalued to zero… neither of which happened… and the banks in this country would not have become insolvent… not even close.

The toxic assets lost their value starting in the summer of 2007, not because sub-prime loans defaulted, but because no one wanted to buy them anymore.  After Standard & Poors and Moody’s lowered their ratings on just 1% of the MBSs outstanding on July 10, 2007, investors no longer trusted the triple A ratings.  If some bonds were improperly rated, the thinking went, what about all the others?

I’ve read just about every book on the meltdown that’s been published in the last two years.  From “Too Big to Fail,” to more recently, “Crash of the Titans,” which is about Bank of America’s acquisition of Merrill Lynch, and “It takes a Pillage” filled in so many blanks for me I couldn’t possibly count them all.  Nomi is a very down to earth person too, and it makes reading her easy like Sunday morning.  She’s snarky at certain moments, but she delivers it straight most of the time so you won’t get distracted.

I read her book and was on the phone the following morning with my friend in New York, Danny Schechter, who produced the movie, “Plunder – The Crime of Our Time,” which is all about the housing meltdown and foreclosure crisis and if you haven’t see it yet, you really should order a copy on Amazon right away.  Nomi appeared in Danny’s film a, so I knew he could put me in touch with her, and she responded to my email right away.  (She’s even agreed to an interview, so look for a podcast coming soon, I hope.)

Nomi is smart… I mean scary smart.  Like, I’ve always been considered smart too… near the top of my various classes, 1380 SAT scores about a hundred years ago, if that means anything, but Nomi is so far off the charts that I can’t even believe it.  I don’t remember anyone like her in college or graduate school.  Talking to her is like talking to a walking encyclopedia of the financial history of the United States… but one that speaks English like the rest of us.

By the summer of 2006, the housing bubble had popped.  Greenspan had raised interest rates 17 times in a row by then.  But, starting on that July day during the summer of 2007, before most people had any idea what was happening, the bond/credit markets froze solid as money stopped moving… banks started hoarding cash and soon no one would be able to get a mortgage or refinance one… and housing prices started to fall fast.

After that, anyone that had bought a home during the preceding years found himself or herself increasingly underwater.  One couple I know, with an 850 credit score by the way, lost a home to foreclosure and filed for bankruptcy.  He was a very successful dentist and she a hospital administrator.  Their crime?  They got caught buying a home… and selling one at the worst moment in US history.

So, our government pumped $13 trillion into banks, financial institutions and others in this country since the fall of 2008.  We allowed just about any business that wanted to become a “Bank Holding Company,” so they could qualify for the federal bailout programs.  (As an example, did you know that American Express Travel Services became a BHC in order to receive $4 billion in taxpayer dollars?  Why? What do they do?  Arrange vacations for rich people?  Were “they too big to fail,” too?  Nomi covers it in “Pillage.”)

And today, the only mortgage lending in this country comes from the federal government… Fannie Mae, Freddie Mac and the FHA.  So, we’ve already nationalized mortgage lending in this country.  We had no choice but to do that because if we didn’t, there would be no mortgage lending in this country.  Citibank and Bank of America have been nationalized too… I know we don’t call them “nationalized,” but they ARE both nationalized.

(Citibank, for example, has been given over $400 billion in government loans and loan guarantees.  BofA has been received over $200 billion. We still guarantee Goldman Sachs bonds… meaning we are co-signing for their debt.  Want to see the numbers in detail, visit the “Reports” tab on… you won’t believe it.)

General Motors had to come to congress for a loan at the end of 2008… why?  Well, for one thing, in 2008, they missed their forecasts by 2.4 million cars… we couldn’t finance one so we couldn’t buy one.  And the bond market was broken, so they couldn’t issue bonds as they normal would.  We lost tens of thousands of jobs when they filed bankruptcy.

Unemployment started rising as we stopped spending.  And we entered a deflationary spiral… the same one we’re in today.  There’s no double dip, it’s the same “dip.  The reason they can say that the recession ended was because of the trillions we were pumping into the system.  Among other programs, the fed bought $1.5 trillion in mortgage-backed securities between 2009 and 2010, but that’s over now, and the downturn is back in the game.

We’re just about at the end of QE2 now, and we don’t have any more stimulus money to artificially stimulate our economic situation… so things are already returning to their downward slide.  Home values nationally have fallen 57 months in a row… and they’ve fallen faster and further than during the Great Depression.

The sooner we face the reality of the situation, the sooner we can start to rebuild our economy.  All we’ve done so far is pump money into insolvent financial institutions, while we’ve let the American middle class sink into an abyss from which we will not recover in my lifetime… and I’m turning 50 on Friday of this week.

You see… all that government spending, as we like to call it… is really US… we ARE the government… it’s OUR money the government is spending.  All those trillions are coming out of OUR pockets, and the pockets of our children and their children.  And a few hundred billion has gone into the pockets of our bankers in the form of bonuses… and no one even seems to care.

And still, all that many people want to talk about is how some homeowner must have been living beyond their means and deserves to lose their home.  Don’t bail out irresponsible sub-prime homeowners, right?

Ridiculous.  We’ve been lied to.  This isn’t a question of wanting the government to take care of everything… they are ready taking care of everything, except the people, America’s middle class.  And we didn’t even ask for much… just a modified loan in order to remain in our homes.  Because millions losing homes benefits no one.

You’re already paying for bonuses at Citibank, Goldman Sachs, and American Express Travel Related Services… and if you can stomach doing that, you can find it in your heart to be in favor of your neighbor getting his loan modified, if for no other reason, so that you don’t lose your own ass in the next few years.  Because don’t kid yourself… none of us is getting out of this one unscathed.

The water is going down in the harbor, are we’re all going down with it.  And as long as we have housing prices falling and no middle class spending going on in this country, we’ll have no recovery… except maybe the recovery that they talk about on T.V. but no one can feel.  And how long do you think people are going to buy into that fairy tale being told by our politicians?

Arizona’s state senate passed a bill 28-2 that would have slowed the foreclosure and given people a chance to remain in their homes by forcing banks to follow the existing laws.  Then the banking lobby made it disappear over weekend.  Another similar amendment was to be proposed, but the banking lobby got that one too.  And last week lobbyist at a meeting of the Arizona Mortgage Lending Association bragged about his success killing the bills I refer to.  Bragged.

“It Takes a Pillage” makes it clear that we need to stop blaming our neighbors because he or she is struggling to keep the family home.  Borrowers didn’t cause this crisis, bankers caused it… but the borrowers are losing their homes while bankers get bigger and bigger bonuses?

Since when is an outcome like that what this country is all about?

There are a lot of great books I wish everyone in this country would read.  But, if you’ve already read other books about the meltdown, or even if you haven’t… whether it’s a starting place or one in a series, I can’t recommend reading “It Takes a Pillage” strongly enough.

What Nomi Prins has to tells us, needs to be heard.

I’ll go ahead and admit something.  I’ve read it once all the way through, and dozens of times in sections… then I bought it on iTunes and I listen to it most nights as I fall asleep… I know… I’m weird… but it’s that good.

(There’s a link below to NOMI’S SITE and then you can get to Amazon from there… and it’s now available in paperback, so it’s only $11.53!  For $11.53 you’ll be so much smarter about the meltdown, you’ll thank me.)

Mandelman out.







“No one takes Wall Street to task like Nomi Prins. But this book is far more than a pointed attack on how greed and bad regulation created a global economic meltdown-it also offers concrete prescriptions for how to prevent the next crisis. Let’s hope Washington is listening.”

James Ledbetter, Editor, The Big Money

“Nomi Prins has applied her unmatched expertise in Wall Street’s arcane methods of turning your money into their bonuses to mapping the recent crisis. In compelling, scathing prose, she shows how the key players escaped being brought to account, and kept their pet officials in power.”

John Dizard, The Financial Times


Some of Nomi’s Bio…

Before becoming a journalist, Nomi worked on Wall Street as a managing director at Goldman Sachs, and running the international analytics group at Bear Stearns in London.

Her writing has appeared in The New York Times, Fortune, Newsday, Mother Jones, The Daily Beast, Newsweek,, The Guardian UK, The Nation, The American Prospect, Alternet, LaVanguardia,  and other publications.

Nomi has appeared on numerous TV programs; internationally on BBC World, BBC and Russian TV,  and nationally on CNN, CNBC, MSNBC, ABC, CSPAN, Democracy Now, Fox and PBS. She has been featured on hundreds of radio shows globally including for CNNRadio, Marketplace, Air America, NPR, regional Pacifica stations, New Zealand, BBC, and Canadian Programming.

7 Responses

  1. Have all of you stopped paying your mortgage and your credit cards yet? Have you closed your accounts with large banks? It makes no sense to rehash what has been done over and over. What makes sense is to clean up that mess. The best way to do it is to force banks collapse and flock credit unions while fighting for the congressional refrom act of 2011, i.e., throw everyone out and start with people who are like us to represent us. People who know what it feels like to have no insurance, to pay into social security, to risk lay-offs and firing on a drop of a hat, who have children to put through school and mortgages to pay. People with honor, values, a sense of justice and faith in our system. People willing to ask the hard questions and investigate. People willing to take back what was stolen from all of us over generations to come.

    So long as we keep congress as it is, nothing will change. And so long as we keep congress as it is, we have no right to complain: we put them there. Time to take them out and start from scratch.

  2. I heard Mitt Romney saying something like “Wall Street is just like Main Street”. Thanks, Mitt. Now we know who’s side you’re on. Rotten mudderfuggers, all of them, I tell ya!

  3. did anybody here ever look at the Maiden Lane TARP asset list? half of that shit is Hilton Hotel CMBS trusts, and a big pile of Chicago REITs. the other half is Fannie, Freddie, and lots of swaps.

    “Yup, it’s those ‘subprime homeowners'”.

    my ass.

  4. “And we didn’t even ask for much… just a modified loan in order to remain in our homes. Because millions losing homes benefits no one.”



    “First, ‘certificate purchasers’ are the banks themselves (security underwriters) and they only purchase a “pro-rata” share to a “pool” of cash flows —- that is all — they are NOT the mortgagee/creditor (the trust is assigned the loans from which the pass-through cash flows are derived –it is the DEPOSITOR (subsidiary) that owns the collections rights (they are not mortgage loans) and the Trust itself. The “certificate purchasers” (the bank security underwriters (another subsidiary) themselves) then repackage the certificates to “pro-rata” cash flows into CDOs that are marketed to security investors — who are also never the mortgagee/creditor. According to all PSAs — there must be a documented valid sale of the “loans”, with supporting Mortgage Schedule to the Depositor in order for any Trust to be valid. There was never any valid sale of loans — and the loans were never actually loans — they were collection rights.
    Second, since the “loan” refinances (subprime/alt-a) and jumbo new purchases were non-compliant and non-performing manufactured defaults, no ‘funding’ at all was necessary (except for the cash-out for the loans). The warehouse lines of credit never actually transferred any actual cash for funding. These lines of credit were simply “credit lines” that the “Depositor” would provide to their correspondent lenders. Once the “loan” refinance origination was completed the Depositor would then reverse the “credit” owed by the correspondent (originator). This never involved any actual deposit of cash proceeds —- the “funding” payoff check is never “deposited” into any bank account. The check is routed to a security derivative clearing house — who then simply cancels the credit-line transaction.
    Third, it is not productive to state that since someone else was actually making payments on the “loan”, “albeit” not the borrower, that the loan is not in default. Courts do not care about this — they only care if the borrower is in default. However, if the actual party does not come forward claiming that the debt is owed to them, and the actual party cannot prove how they came to own the collection rights — borrower does not owe the debt to anyone. That party is never going to able to demonstrate that collection rights belong to them because they would have to divulge the above fraudulent process and that the “mortgage loan” from onset was not a mortgage but, instead, collection rights. This admission would also mean that the “debt” is unsecured and can be discharged in BK.
    Do not need to know the “processes” — subprime/alt-a/jumbo refinances (as nearly 100% were refinances) — were and are nothing more than a transfer of servicing rights to false collection rights. And, jumbo new purchases fit in the same category.
    This does not preclude QT challenge — all for it — just want most to understand — we are not challenging mortgage title — it never existed in the first place — we are challenging ANY title based on fraudulent loan (collection rights) assumption – and fraudulent mortgage title origination – to begin with.
    All is NOT as THEY would like it to appear to be. Far from it. If you call them a “mortgage” — when it is not a mortgage — they will try to find some way to hold accountable —-this is wrong – and it is FRAUD.
    Unsecured — name of the game. .
    Subprime/alt-a/jumbo — were not mortgages — they were transfers of collection rights (albeit — with escalated balance owed and egregious terms). Once the Note/loan — is charged off — no more mortgage — only collection rights survive.
    TARP Inspector General — Footnote 35 again — and again– and again.
    “Without the note, a mortgage is unenforceable, while without the mortgage, a note is simply an unsecured debt obligation, no different from credit card debt.”
    Securitiztion can be for any cash flows — but the security investors are NEVER the creditor. In the case of subprime/alt-a/jumbo securitization — there were no mortgage liens — the cash flow pass-through was only for pass-through of cash payments to collection rights. No mortgage lien – not mortgage — no pass-through of collection rights itself. Transfer of servicing rights only.
    The “investors” were the debt buyers that purchased the collection rights — period. The security investors were duped to believing that the cash pass-through was to valid mortgage liens. But, these security investors never were the lender, never were the creditor, and never were the mortgagee — because there was never any valid mortgages!!!!! And, security investors are NEVER the creditor.
    CDOs??? nothing more than derivatives from the false assets that the false securitizations were based upon to begin with!!!”

  5. I like this comment and thought to share.

    It’s from this article:;_ylt=Amn7BEPY4FPdm9GkKT5uufW7YWsA;_ylu=X3oDMTE1ZzU5a2o2BHBvcwM4BHNlYwN0b3BTdG9yaWVzBHNsawNiYW5rcnVwdGN5cmk-?mod=bb-budgeting&sec=topStories&pos=5&asset=&ccode=


    Article says… “gap between rates tied to “junk” bonds issued by risky companies and U.S. Treasurys continued to widen Thursday, to well above seven percentage points.”

    Seven point spread? Try a 15 to 30 point spread on credit cards.

    98% of us have been doomed since those in control intentionally pulled the plug on the world economy two years ago by bursting their self-manufactured housing bubble. And rather than kill us quickly and risk a revolution they have us hooked up to a slow bleed… and this is just one little part of how they continue to feed on our blood. But either way it looks like we are dead meat!

    It isn’t surprising that they want to do this… the “greed is God” crowd make it clear what their intentions are. What’s amazing is that the can actually get away with it right in front of our eyes… in public, on the evening news and in the halls of congress.

    When are we going to wake up and realize that “everything” is controlled by money on this planet right now… and that the rich, by definition, have all the money. Ergo… they have, can and will make any and/or all segments of the global economy move in any way they choose… up, down. sideways or in circles. They can bubble houses, stock markets, rice for the poor and gold… make them go up and down at will… and because they are in control they know when to sell long and short… money on both ends. The up/down fluctuation of all markets now is the action of a huge money pump… with each swing money is pumped into the pockets of those who create and control the swings.

    Same goes for inflation. Does anyone but me notice that we have both inflation and deflation going on simultaneously? Everything that the rich either own or eventually want to end up owning is deflating… house prices, shopping complexes, government facilities in bankruptcy. The price of everything that poor people want and need to survive is going up… rent for the houses that were stolen from us, gas, food, all kinds of insurance, healthcare, etc.

    And we’re all losing our jobs while those who still have jobs are working 80 hour weeks for less pay and no benefits. Our bridges, roads and infrastructure are falling apart at the same time that construction workers can’t find work. Does this make any sense at all. It makes perfect sense to the rich… too complicated to describe here. But trust me… the misery of 98% of us makes 2% of us obscenely wealthy… or it wouldn’t be happening or it would be stopped by those in control. Every penny 98% of us lose ends up in the pockets of the 2% of us who are in control and win. They’ve shouted at us what they’re about since Reagan… they’ve made greed a religion. Why are we surprised? It’s not like they made a secret of it.

    The “only” economic laws that are working right now are greed and control. And those laws aren’t even economic… they’re more along the lines of sick, wrong and evil. And until we take the power back from the greedy blastards among us their will be no safe havens for 98% of us and we will continue to be their slaves.

  6. Mortgage Fraud

    GMAC Mortgage, LLC
    Law Offices of David J. Stern

    Action Date: August 12, 2011
    Location: FT. Lauderdale, FL

    GMAC Mortgage, LLC filed counterclaims in a federal court lawsuit brought against GMAC by its former lawyers, The Law Offices of David J. Stern, P.A. (“Stern”). The case, No. 11-CV-61526, was filed in federal court in the Southern District of Florida, where Stern’s offices were located.

    GMAC accuses Stern of gross legal malpractice, breach of contract, breach of fiduciary duty, violating Florida’s Deceptive and Unfair Trade Practice Act and Misrepresentation/Suppression. GMAC seeks unspecified compensatory and punitive damages.

    GMAC alleges that Stern:

    1. caused or permitted Stern employees to execute, witness and/or notarize assignments of mortgage that were back-dated;

    2. caused or permitted Stern’s employees to witness and/or notarize assignments of mortgages, affidavits of indebtedness and/or other affidavits on a daily basis prior to and without actually witnessing execution of the document by the person whose signature was to be witnessed and/or notarized;

    3. caused or permitted Stern’s employees to prepare and execute affidavits of indebtedness for submission to the foreclosure court that failed to follow appropriate professional practices and procedures;

    4. caused or permitted Stern’s employees to sign the name of another person on various foreclosure-related documents without any indication of that fact on the documents;

    5. charged GMAC substantial fees and costs for legal services that Stern knew or should have known fell below the minimum standard of professional care owed by Stern to GMAC; and

    6. committed acts or omissions that have subjected GMAC to claims, losses and liabilities of third-parties.

    Essentially, GMAC claims that Stern’s malpractice carrier should be held responsible for all of the allegedly fraudulent acts of Stern’s office manager, Cheryl Samons, and other Stern employees who signed mortgage assignments and affidavits to push through foreclosures at record-breaking speed.

    On July 27, 2011, Stern filed its Answer to these GMAC claims including the following:

    “ 9. GMACM’s claims are barred, in whole or in part, by the doctrine of unclean hands because of GMACM’s: breach of contract; failure to retain replacement counsel in a timely manner; signing inaccurate affidavits; affidavits that were not properly notarized; not confirming whether loan and mortgage documents were properly endorsed; assigned or in possession of the appropriate party; and other misconduct identified in the Consent Order entered on April 13, 2011 by Order of the Board of Governors of the Federal Reserve System and the FDIC, and because, to the extent DJSPA committed legal malpractice, which is expressly denied, any such malpractice was the result of GMACM’s own actions and/or instructions.”

    Homeowners and investors are lost in this battle of the giants. Tens of thousands of Florida homeowners lost their foreclosure cases because of the fraudulent documents produced by GMAC.

    These documents most certainly came from Stern, but they also came from GMAC’s own employees, including master-signer Jeffrey Stephan, and employees in many other major foreclosure mills used by GMAC. The Stern defense that “Everybody was doing it” is unfortunately true.

    An important question for homeowners and investors is whether GMAC has instructed its new lawyers to advise the Courts and homeowners of these findings.

    Malpractice insurance carriers throughout the country could not imagine a more ominous case. Copies of the Counterclaim and Answer are available in the Pleadings section of Fraud Digest.

  7. so if im reading this correctly, the mega banks owe 140 trillion dollars globally, while the homeowners who defaulted only owe roughly 1.4 trillion. hmmm, what this says to me is let the banks fall like dominos. the smaller banks and credit unions who kept their collective noses clean by largely avoiding this nonsense and acted responsibly could pick up this 1.4 trillion in debt, work out mods with borrowers and the economy could chug along at a decent pace. who would pay this 140 + trillion the failed banks would leave behind if we let them fail? it shouldnt be the u.s. taxpayer. it should be written off as a loss to all the greedy investors who thought they were making a killing on the backs of subprime borrowers. let them eat the loss. why should the government cover their losses? its not the governments, or the taxpayers problem. even if they foreclose and repo the 1.4 trillion in property they have claim to have, but as we know really dont, in todays market they would probably recoup half that if they were lucky, and after fees (auction, lawyers, etc) it would be cut to a 3rd or even half of that number meaning they can colllect roughly 2-400 million on 140 trillion in outstanding debts. seriously??? by all accounts, this article is dead on the money. if so lets lay out the statistical blame for this financial mess here… if the numbers are correct that means that “dead beat” homeowners are roughly .043% to blame while the “innocent victims” banks/wall street are 99.57% to blame based on the numbers layed out here. if all deliquent homeowners somehow coughed up what they owe the banks are still roughly 139 trillion in the hole. how is this the “dead beat” homeowners fault??

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