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EDITOR’S COMMENT: Here Goldman Sachs wins a case it surely should have lost. And the reason is the same thing that the borrowers are encountering. The middlemen (investment bankers and all their affiliates) are keeping vital information from the investors that would allow them to plead and prove their case. By keeping the borrowers and investors apart, the investment banks are succeeding at obscuring the truth and getting away with outright theft. The prejudice against the lowly borrower is keeping the investors from entertaining that their interests may be similar and virtually identical on many issues.

By combining forces investors and borrowers could effect a pincer action in which the investment banks had no where to hide. And this is the place for them to come together to do it. Just by comparing notes from both sides, they would each gain additional knowledge and proof of the reality behind the securitization scam. Like, for example, the fact that part of the money they advanced for mortgage bonds was never used for mortgage funding and was instead taken as fees and profits.

And for those high-priced lawyers who have missed the point, here it is: only the investor and the borrower can come into court with the WHOLE transaction and the documents to prove it. The investor received a bond and the borrower signed a note. Unless you connect those two different documents (each being “evidence” of the obligation), you don’t have a case against anyone. And without the homeowners there to affirm the transaction, all you have is some vague equitable right for restitution against people who defrauded you or people who could help you but are not being invited to the party.

It’s so obvious that it makes my head spin. If the real parties in interest — both ends of the spectrum that were defrauded — were to combine forces, the real facts would come out, and real solutions would emerge. Most homeowners would be glad to achieve a settlement or modification in which the investors recovered part of their money. Many channels would come into the market on those homes that are permanently abandoned if they knew that they were not in danger of losing title. And investors would (a) be able to account for the loss in actual dollars and cents (and sense) and (b) recover part of their loss from the homeowner sector and the rest from the the investment banks who are responsible for this mess.

How can investors not see that all the foreclosures are an exercise in defrauding investors? The property is being taken, for the most part lock stock and barrel by intermediaries who have no investment in the loan. This is happening because the investors have abandoned their claims for restitution and are seeking it solely from investment banks. granted, the investment banks should pay the lion’s share of the loss. But investors beware! You are not going to get past the goal line without homeowner help!

With the real parties in interest in the same courtroom, the servicers and the investment banks can be eliminated from the equation since they are using their powers (mostly fictional) to bar settlements that would be far more beneficial to investors than foreclosure. The train is pulling out of the station without you, investors, and at the end of the day someone is going to get a free house at YOUR expense — either borrowers, when the evidence starts being applied, or the servicers and other pretender lenders who serve in that capacity courtesy of your inaction!

Sept. 28 (Bloomberg) — Goldman Sachs Group Inc. won dismissal of a lawsuit brought by Landesbank Baden-Wuerttemberg over losses on $37 million in collateralized debt obligations.

U.S. District Judge William Pauley III in Manhattan ruled today that the bank didn’t sufficiently back up its claims against Goldman Sachs, which underwrote Davis Square, a CDO collateralized by residential mortgage-backed securities in 2006, and against Los Angeles-based TCW Asset Management Co., which manages collateral for asset-backed securities.

Goldman Sachs, based in New York, and TCW sold the Davis Square securities to institutional investors, marketing it as a $2 billion “High Grade Structured Product CDO” backed by investment-grade mortgage-backed securities, Pauley said in his opinion today. LBBW bought two notes totaling $37 million.

Pauley said about 79 percent of the mortgages underlying Davis Square were below prime and at an increased risk of default. He ruled that LBBW failed to allege specific facts to support its claims for fraud and unjust enrichment. He also said the bank was a sophisticated investor that accepted the risks of its investment.

LBBW, based in Stuttgart, Germany, sued in October 2010. The bank claimed that Goldman knew many of the mortgages didn’t conform to the requirements for inclusion in the CDO and that they were riskier than indicated in the Davis Square offering circular. The bank claimed Goldman Sachs also concealed the true risk of the mortgages from rating agencies, which gave Davis Square a triple-A rating.

A voice-mail message seeking comment on the ruling from LBBW’s press services department wasn’t immediately returned after regular business hours in Germany.

The case is Landesbank Baden-Wuerttemberg v. Goldman Sachs, 10-7549, U.S. District Court, Southern District of New York (Manhattan.)

–With assistance from Edvard Pettersson in Los Angeles and Patricia Hurtado in New York. Editors: Peter Blumberg, Michael Hytha

To contact the reporter on this story: Bob Van Voris in New York at

To contact the editor responsible for this story: Michael Hytha at

17 Responses

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  2. carie,

    Yes. Receivables is a current account for balance sheet accounting. Securitization removes the receivables from on to off balance sheet securities — securities must be backed from CURRENT cash flows.

    Payments from borrowers included here — except servicer can advance delinquent payments — and, in fact, is required to advance by PSA — until the servicer deems “non-collectible” — which is usually anytime after 90 to 180 days.

  3. And, ANONYMOUS—when you say “loan/note Current asset cash flows”, you are referring to the payments from borrowers—correct?

  4. @ jan, the gov isn’t suing on…., as a matter of fact, NO ONE is suing from the investor class on the “no notes transferred” theory. It would blow their entire world up to deep space. They understand well their need to stroll quietly passed the graveyard that has their names already inscribed on tombstones, with hopes of not disturbing the status quo too much. Their livelihood depends on not triggering mass awareness. Mum’s the word.

    What the gov IS suing on is:

    “The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that “contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans.”

    So to date, everyone continues to ignore the huge dead elephant in the room that you refer to. But in reality, what they ARE suing on should be enough to cancel all of the bogus mortgages that underlie these “toxic” securities. It doesn’t take stretching the imagination to realize that we all bought houses with loans from the Love Canal Mortgage Bank.

  5. Friday 30 September 2011

    > “The investor received a bond, and the borrower signed a note.”

    Everyone knows about the note, but I have never seen anyone
    argue about a bond in any FC case.

    > “Unless you connect those two different documents,…you don’t
    > have a case against anyone.”

    I disagree with that conclusion, but explain how one would demand
    a non-investor plaintiff to produce “the investor’s bond” as evidence?

  6. jan,

    Not quite right — “The certificates replace the notes” — all that is done is that cash flows from loans are converted to certificates — converted to securities to pass-through cash flows. Does not replace the notes. Certificates/securities are derived from the loan/note Current asset cash flows.

  7. Carie

    Sort of like telling a lie with fingers crossed. One West Bank is a servicer – not the creditor. .

    The biggest lie comes from trying to attach derivatives and contracts to the original trust that claimed to pass-through current cash flows.

    Derivatives and contracts are not securities and are deregulated — no info available.

    Deregulation is the biggest problem homeowners have — liars are able to conceal. Servicers claim info is “private.”


    If someone is told that the “investor/owner” of your “loan” is One West Bank—what sort of lie is that?

  9. Isn’t the federal government filing a lawsuit against the banks for not transfering the notes to the pools? $192B. Just a couple weeks ago.
    Once they create the trust, they issue certificates to the investors. The certificates replace the notes. It’s like a stock certificate. If you bought stock in a company, you don’t get the product (ex. computers) along with your stock certificate. Nor do you get to take computers back if the stock goes down. You take a writeoff. The investors are getting a writeoff. But at the same time, the note was converted to a stock. The “lenders” really can’t produce it, because it was destroyed at the time of conversion. But they converted the mortgage, not the note, thereby separating the instruments. They must stay together. They held the notes out so they could collect on them too. Fraud! The securitization of the notes is illegal as they are selling unregistered securities. That is why since last year MERS has made changes to E-Rregister the notes. That way they can transfer, sell, move, manipulate, hide, the truth easier! Their goal is to have every note and mortgage electronicalyy registered, no paper trail. You think it’s a mess now, just wait! Corruption continues and the big boys escape again. Goldman Sachs runs the world, didn’t you know? That’s what a trader said on a video I saw today, talking to some English news interview. What do you expect when the fox minds the henhouse! I think it’s time for an investigation of wall street. We are the investors too, our names in “street names”.

  10. I’d be happy to show you the pictures of my dilapidated house, that the bank claimed was in “great shape” without having even inspected it, Mr. Sec. Investor!!! I’ve got all the documents, including a copy of the NOTE with an endorsement!!!

    If you want a borrower to help you sqeeze the middlemen, I’m your gal.
    WaMu/Chase fraud on a platter for your case! email me to plan our strategy;

    WaMu Pass Through Certificate Series 2004-AR-14
    If you bought this crap get in touch, for the evidence you need.

  11. carie

    “Security Investor” — and “investor” — are not the same thing. Servicer is NOT talking about a security investor.

    Someone could be an art investor — does not make them a security investor.

    That is the biggest confusion among some posters here — and the courts.

    Courts have miles to go to catch up to securitization. Remember Enron?? Defense attorneys “banked” on the courts — “not getting it.” Actually stated that!!!!!!

    But, courts are starting to get it — unfortunately, takes time.

  12. ANONYMOUS you say:

    “there is no foreclosure recovery for security investors.”

    And yet, the servicer says: “Your income is not acceptable to the investor” …and they deny a mod and foreclose…

    When are the courts going to wake up?

  13. The interesting thing about this investor case (Knights of Columbus v. Bank of New York Mellon, 651442-2011, New York State Supreme Court) is it brings up the non transfer of mortgages to trusts. “As a consequence, Plaintiff did not acquire residential mortgage-backed securities, but instead acquired securities backed by nothing at all”.

    It also gets into the resulitng IRS considerations, double taxation, robo signing, clouded title, illegal foreclosures, excessive marked up fees to borrowers and the consequences of that, force placed insurance, excessive servicer profits during default servicing, cost of maintaing empty homes ect. Many things you only hear about from people fighting for homeowners but using same issues from the point of view of the investors. Much about the PSA with explanation and quotes and articulated by the investors themselves. Discusses Master Servicer, Depositor ect.

  14. joann

    Long time ago spoke with attorneys for security investors — asked them what their damages are. And, did they subtract foreclosure proceeds recovery?? Answer — no — there is no foreclosure recovery for security investors.

  15. Clarify- it’s the amended complaint filed Aug 16 that brings up the mbs and homeowner issues that affect investors.

  16. Have tried to find investor lawsuits that bring up the issue of no mortgage in the mbs and that mention homeowners interests and investor interests in any context other than faulty underwriting. Only one found so far is Knights of Columbus v. Bank of New York Mellon, 651442-2011, New York State Supreme Court. It’s worth reading.

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