The Rain in Spain May Start Falling Here

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Editor’s Comment:

It is typical politics. You know the problem and the cause but you do nothing about the cause. You don’t fix it because you view your job in government as justifying the perks you get from private companies rather than reason the government even exists — to provide for the protection and welfare of the citizens of that society. It seems that the government of each country has become an entity itself with an allegiance but to itself leaving the people with no government at all.

And the average man in the streets of Boston or Barcelona cannot be fooled or confused any longer. Hollande in France was elected precisely because the people wanted a change that would align the government with the people, by the people and for the people. The point is not whether the people are right or wrong. The point is that we would rather make our own mistakes than let politicians make them for us in order to line their own pockets with gold.

Understating foreclosures and evictions, over stating recovery of the housing Market, lying about economic prospects is simply not covering it any more. The fact is that housing prices have dropped to all time lows and are continuing to drop. The fact is that we would rather kick people out of their homes on fraudulent pretenses and pay for homeless sheltering than keep people in their homes. We have a government that is more concerned with the profits of banks than the feeding and housing of its population. 

When will it end? Maybe never. But if it changes it will be the result of an outraged populace and like so many times before in history, the new aristocracy will have learned nothing from history. The cycle repeats.

Spain Underplaying Bank Losses Faces Ireland Fate

By Yalman Onaran

Spain is underestimating potential losses by its banks, ignoring the cost of souring residential mortgages, as it seeks to avoid an international rescue like the one Ireland needed to shore up its financial system.

The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt. Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.

“How can you only talk about one type of real estate lending when more and more loans are going bad everywhere in the economy?” said Patrick Lee, a London-based analyst covering Spanish banks for Royal Bank of Canada. “Ireland managed to turn its situation around after recognizing losses much more aggressively and thus needed a bailout. I don’t see how Spain can do it without outside support.”

Double-Dip Recession

Spain, which yesterday took over Bankia SA, the nation’s third-largest lender, is mired in a double-dip recession that has driven unemployment above 24 percent and government borrowing costs to the highest level since the country adopted the euro. Investors are concerned that the Mediterranean nation, Europe’s fifth-largest economy with a banking system six times bigger than Ireland’s, may be too big to save.

In both countries, loans to real estate developers proved most toxic. Ireland funded a so-called bad bank to take much of that debt off lenders’ books, forcing writedowns of 58 percent. The government also required banks to raise capital to cover what was left behind, assuming expected losses of 7 percent for residential mortgages, 15 percent on the debt of small companies and 4 percent on that of larger corporations.

Spain’s banks face bigger risks than the government has acknowledged, even with lower default rates than Ireland experienced. If losses reach 5 percent of mortgages held by Spanish lenders, 8 percent of loans to small companies, 1.5 percent of those to larger firms and half the debt to developers, the cost will be about 250 billion euros. That’s three times the 86 billion euros Irish domestic banks bailed out by their government have lost as real estate prices tumbled.

Bankia Loans

Moody’s Investors Service, a credit-ratings firm, said it expects Spanish bank losses of as much as 306 billion euros. The Centre for European Policy Studies said the figure could be as high as 380 billion euros.

At the Bankia group, the lender formed in 2010 from a merger of seven savings banks, about half the 38 billion euros of real estate development loans held at the end of last year were classified as “doubtful” or at risk of becoming so, according to the company’s annual report. Bad loans across the Valencia-based group, which has the biggest Spanish asset base, reached 8.7 percent in December, and the firm renegotiated almost 10 billion euros of assets in 2011, about 5 percent of its loan book, to prevent them from defaulting.

The government, which came to power in December, announced yesterday that it will take control of Bankia with a 45 percent stake by converting 4.5 billion euros of preferred shares into ordinary stock. The central bank said the lender needs to present a stronger cleanup plan and “consider the contribution of public funds” to help with that.

Rajoy Measures

The Bank of Spain has lost its prestige for failing to supervise banks sufficiently, said Josep Duran i Lleida, leader of Catalan party Convergencia i Unio, which often backs Prime Minister Mariano Rajoy’s government. Governor Miguel Angel Fernandez Ordonez doesn’t need to resign at this point because his term expires in July, Duran said.

Rajoy has shied away from using public funds to shore up the banks, after his predecessor injected 15 billion euros into the financial system. He softened his position earlier this week following a report by the International Monetary Fund that said the country needs to clean up the balance sheets of “weak institutions quickly and adequately” and may need to use government funds to do so.

“The last thing I want to do is lend public money, as has been done in the past, but if it were necessary to get the credit to save the Spanish banking system, I wouldn’t renounce that,” Rajoy told radio station Onda Cero on May 7.

Santander, BBVA

Rajoy said he would announce new measures to bolster confidence in the banking system tomorrow, without giving details. He might ask banks to boost provisions by 30 billion euros, said a person with knowledge of the situation who asked not to be identified because the decision hadn’t been announced.

Spain’s two largest lenders, Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), earn most of their income outside the country and have assets in Latin America they can sell to raise cash if they need to bolster capital. In addition to Bankia, there are more than a dozen regional banks that are almost exclusively domestic and have few assets outside the country to sell to help plug losses.

In investor presentations, the Bank of Spain has said provisions for bad debt would cover losses of between 53 percent and 80 percent on loans for land, housing under construction and finished developments. An additional 30 billion euros would increase coverage to 56 percent of such loans, leaving nothing to absorb losses on 650 billion euros of home mortgages held by Spanish banks or 800 billion euros of company loans.

Housing Bubble

“Spain is constantly playing catch-up, so it’s always several steps behind,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy, a consulting firm in London specializing in sovereign-credit risk. “They should have gone down the Irish route, bit the bullet and taken on the losses. Every time they announce a small new measure, the goal posts have already moved because of deterioration in the economy.”

Without aggressive writedowns, Spanish banks can’t access market funding and the government can’t convince investors its lenders can survive a contracting economy, said Benjamin Hesse, who manages five financial-stock funds at Fidelity Investments in Boston, which has $1.6 trillion under management.

Spanish banks have “a 1.7 trillion-euro loan book, one of the world’s largest, and they haven’t even started marking it,” Hesse said. “The housing bubble was twice the size of the U.S. in terms of peak prices versus 1990 prices. It’s huge. And there’s no way out for Spain.”

Irish Losses

House prices in Spain more than doubled in a decade and have dropped 30 percent since the first quarter of 2008. U.S. homes, which also doubled in value, have lost 35 percent. Ireland’s have fallen 49 percent after quadrupling.

Ireland injected 63 billion euros into its banks to recapitalize them after shifting property-development loans to the National Asset Management Agency, or NAMA, and requiring other writedowns. That forced the country to seek 68 billion euros in financial aid from the European Union and the IMF.

The losses of bailed-out domestic banks in Ireland have reached 21 percent of their total loans. Spanish banks have reserved for 6 percent of their lending books.

“The upfront loss recognition Ireland forced on the banks helped build confidence,” said Edward Parker, London-based head of European sovereign-credit analysis at Fitch Ratings. “In contrast, Spain has had a constant trickle of bad news about its banks, which doesn’t instill confidence.”

Mortgage Defaults

Spain’s home-loan defaults were 2.7 percent in December, according to the Spanish mortgage association. Home prices are propped up and default rates underreported because banks don’t want to recognize losses, according to Borja Mateo, author of “The Truth About the Spanish Real Estate Market.” Developers are still building new houses around the country, even with 2 million vacant homes.

Ireland’s mortgage-default rate was about 7 percent in 2010, before the government pushed for writedowns, with an additional 5 percent being restructured, according to the Central Bank of Ireland. A year later, overdue and restructured home loans reached 18 percent. At the typical 40 percent recovery rate, Irish banks stand to lose 11 percent of their mortgage portfolios, more than the 7 percent assumed by the central bank in its stress tests. That has led to concern the government may need to inject more capital into the lenders.

‘The New Ireland’

Spain, like Ireland, can’t simply let its financial firms fail. Ireland tried to stick banks’ creditors with losses and was overruled by the EU, which said defaulting on senior debt would raise the specter of contagion and spook investors away from all European banks. Ireland did force subordinated bondholders to take about 15 billion euros of losses.

The EU was protecting German and French banks, among the biggest creditors to Irish lenders, said Marshall Auerback, global portfolio strategist for Madison Street Partners LLC, a Denver-based hedge fund.

“Spain will be the new Ireland,” Auerback said. “Germany is forcing once again the socialization of its banks’ losses in a periphery country and creating sovereign risk, just like it did with Ireland.”

Spanish government officials and bank executives have downplayed potential losses on home loans by pointing to the difference between U.S. and Spanish housing markets. In the U.S., a lender’s only option when a borrower defaults is to seize the house and settle for whatever it can get from a sale. The borrower owes nothing more in this system, called non- recourse lending.

‘More Pressure’

In Spain, a bank can go after other assets of the borrower, who remains on the hook for the debt no matter what the price of the house when sold. Still, the same extended liability didn’t stop the Irish from defaulting on home loans as the economy contracted, incomes fell and unemployment rose to 14 percent.

“As the economy deteriorates, the quality of assets is going to get worse,” said Daragh Quinn, an analyst at Nomura International in Madrid. “Corporate loans are probably going to be a bigger worry than mortgages, but losses will keep rising. Some of the larger banks, in particular BBVA and Santander, will be able to generate enough profits to absorb this deterioration, but other purely domestic ones could come under more pressure.”

Spain’s government has said it wants to find private-sector solutions. Among those being considered are plans to let lenders set up bad banks and to sell toxic assets to outside investors.

Correlation Risk

Those proposals won’t work because third-party investors would require bigger discounts on real estate assets than banks will be willing to offer, RBC’s Lee said.

Spanish banks face another risk, beyond souring loans: They have been buying government bonds in recent months. Holdings of Spanish sovereign debt by lenders based in the country jumped 32 percent to 231 billion euros in the four months ended in February, data from Spain’s treasury show.

That increases the correlation of risk between banks and the government. If Spain rescues its lenders, the public debt increases, threatening the sovereign’s solvency. When Greece restructured its debt, swapping bonds at a 50 percent discount, Greek banks lost billions of euros and had to be recapitalized by the state, which had to borrow more from the EU to do so.

In a scenario where Spain is forced to restructure its debt, even a 20 percent discount could spell almost 50 billion euros of additional losses for the country’s banks.

“Spain will have to turn to the EU for funds to solve its banking problem,” said Madison Street’s Auerback. “But there’s little money left after the other bailouts, so what will Spain get? That’s what worries everybody.”

28 Responses

  1. @enraged – thanks for the rickards deal. He does a bang up job on keeping it simple.

  2. Well. Can’t be done here yet. MERS concedes it holds title only to a thing, not the interest in the thing (and that’s a concept which defies
    law and logic imo, so just say it holds that title for public record purposes only). So, moving right along then, that’s all MERS, even if it did so legitimately, which it doesn’t (assignment is done by assignEE), may assign. It can’t assign an interest it doesn’t have. A “MERS” assignment assigns what? Only that which it holds, and in that regard, despite being called an assignment per se, it’s actually merely a quit claim of the title MERS alleged to hold to the thing. It doesn’t convey the real interest and it SURE AS HELL doesn’t transfer the note.
    Anyone who has lost a home by a “MERS” foreclose imo has these arguments if they are not lost to the statue of limitations or some such. One thing helpful to pull this off is MERS’ own testimony, etc. in MERS v. Nebraska Dept of Banking (scribd, etc) if your court will take judicial notice (must be ready to defend the court taking judicial notice) since therein MERS swore it had no interest in either the dot or the note.
    That alleged bs bs bs bs bs assignment of the note in the deeds of trust is not harmless. It was recited with intented reliance and imo malice, that being for you to lose your home. If you lost your home and didn’t litigate, then the principles of res judicata (“the thing decided”) should not apply.
    Would you have to explain why you didn’t fight before the f/c? I don’t know. Is there a statue of limitations on wrongful foreclosure, and is that what one would call a post-f/c suit? Call it something else and go for damages as opposed to the house? What attorney will weigh in on this very important question, even incognito? Anyone?
    I’m not an attorney, of course, so these are as always lay opinions and not legal advice. We all should be ‘seriously annoyed’ that the banksters set up an m.o. whereby groups of real estate buyers may buy up our homes at fire sale prices (they’re not even going to public sale many times), when that option or its kin was not available to the struggling homeowner. Those who can, not foreclosed on yet, in my lay opinion should be filing Notices of Irregularities or some such on their homes to retard alienation and to preserve your rights.

  3. You know, a servicer may have a pecuniary interest in SOMEthing, and this might be evident IF the servicer wanted to apprise the court of its guarantee to the investor. Course, the servicers don’t want to do that, do they, because then the court would know the note (which is the thing being argued) is not in default (since the payments are being made on the note by a third party – guarantor – the servicer -or master-servicer or FNMA or FHLMC (or even the more complicated default insurance IF the investor is the insured). If a servicer wants to nail someone for its payments being made under its own guarantee, that is another matter: it isn’t about the note and there is no collateral for that guarantee even if a court were to somehow find in favor of the servicer against the homeowner on the guarantee (which I seriously doubt since it was made voluntarily (“voluntary / assumed risk”) and the borrower had nothing to do with it).

    So if a servicer starts yakking interest by way of anything, one might start introducing the servicer’s guarantee to the ‘conversation’. In the absence of its written agreement with the noteowner, the servicer’s allegation about any of its rights whatsoever is just that – an allegation. It’s merely hearsay ,like when a svcr says its job includes foreclosing. Really? Let’s see it, the written form of that. Statute of frauds (agreements re: real estate must be in writing, abbreviated) should be helpful.

  4. Btw, one may certainly advance legal theories which are not in accord with that jurisdiction’s decisions. It’s just a bigger fight since one would have to be ready to argue why the old decision is flawed.
    Some courts, for instance, find that MERS is an appropriate beneficiary. That’s nice. But the rather huge leap to MERS’ ability to execute assignments is not there and certainly not supported. Plus, how many of those judges actually know how “MERS” operates: 1) that the principal (bankster) acts in the name of the (alleged) agent (MERS) and the (alleged) agent actually doesn’t do a damn thing 2) the assignment is executed by an employee of the assignee (or foreclosure mill) in the name of MERS at the command of his employer: the assignor and the assignee are the same party. (ALL assignments are done by order of the assignEE). Ask your court to decide by putting these questions squarely in its face: is this legit (jg: are you kidding me?) and is that yeahoo employee of the servicer or law firm / foreclosure mill a MERS’ officer (jg: are you kidding me?)

  5. @carie re tony’s 2011 comment:
    Kind of hard to figure. Why did the bank’s lawyer concede his client had no standing? Got me. Need the transcript, I guess. It doesn’t make sense that the bankster would concede standing and yet claim he has a right to move forward (foreclose). The bk court is one venue where the real party in interest rule is enforced. It’s Federal Rule of Procedure 17 (which may be, should be, being enforced in Fed court; I don’t know), as I recall and it’s 9017 in bk. Ohio’s Judge Boyko gave the first memorable decision regarding the rpii that I know of. (This is the case where the attorney infamously told the court “Judge, you just don’t understand how this works” – I think that was in bk court) The judge in ‘Tony’s case’ asked the bankster’s attorney if they could / would join the rpii, and the attorney said no. So the judge said then take a hike.
    The issue of standing is a jurisdictional one, which is a threshold issue.
    To make this even more fun, there is constitutional and prudential standing, and a complainant must have both. There are cases which address this out there and you can find them easily enough with a little work or just look up those words – constitutional standing and prudential standing. Only those actually aggrieved may cross the court’s threshold to seek redress for an injury – that’s why standing is called a threshold issue. Rule 17 says you must be that injured party; if not, the court has no jurisidiction to hear the complaint (because you really have no dog in the hunt, no horse in the race, whatever). If someone other than the injured comes calling in a Fed court, the court has no jurisidiction to listen to them. I cannot sue you for my friend’s injury or my neighbor’s. *The party who is not the rpii may join the injured party as a named defendant or plaintiff. Is federal rule 17 the (or at least a) reason one might prefer federal jurisdication to state? I don’t know.

    (*Now, that itself is kinda tweaked to me. I’ll get back to that if anyone is interested) When a party can’t or won’t join the rpii, there is generally an untoward reason:
    they don’t know who it is or their ducks are not in a row at all. A couple courts – rogue imo or aka bench law – have ruled that a servicer has standing by virtue of its ‘pecuniary interest’ in servicing fees to cross the court’s threshold. Bah humbug. First of all, the servicer as we now know is going to suffer no loss, given that the servicer takes its out of the investor monies: a svcr gets paid first.
    So, regardless of the forum one chooses for the fight, one must find out what is the bomb on that issue in that jurisdiction and be ready for it. The best way to do that imo is to read case law for that venue.
    Bottom line from the bench in Tony’s deal seems to be:
    Pretender, you may have the note, but it’s not yours to enforce. Best I can make of it from what’s available.

  6. Bankster’s “earnings” are actually not earnings but are a form of theft from savers, retirees, and others pursuant to the Federal Reserve’s zero interest rate policy.
    Resignation my A$$ JAIL Dimon !

  7. Monday, May 14, 2012
    Michael Olenick: WhaleMu – JP Morgan’s Next Surprise?

    Divine justice…?

    By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

    In an admittedly strange twist of timing JP Morgan, the same JP Morgan that just announced a surprise $2 billion loss caused by the “London Whale,” became the first and only of 26 banks disclosing subprime investor data to flip me the digital bird, refusing access to the public loan-level performance data for their Washington Mutual loans. WaMu, one of the most reckless subprime lenders, was swallowed whole by JPM and they’re having serious indigestion.

    Nelson D. Schwartz and Jessica Silver-Greenberg of the New York Times verify that the purpose of the Chief Investment Office — the London Whale — is to offset risk caused by the Washington Mutual loans:

    Under Mr. Dimon’s leadership, the chief investment office — which was responsible for the outsize credit bet — was retooled to make larger bets with the bank’s money, a former employee said. Bank executives said the chief investment office expanded after JPMorgan Chase’s 2008 acquisition of Washington Mutual, which added riskier securities to the company’s portfolio. The idea behind the strategy was to offset that risk.

    It isn’t hard to figure out why JP Morgan doesn’t want anybody looking into and through their garbage. I have not been able to ascertain whether these reports are required under disclosure requirement Regulation AB (the law itself seems to say yes, but the experts I spoke to gave divergent readings). Whether they are or aren’t, JPM’s refusal — when everybody else cooperated speaks for itself.

    As those loans sour, and they continue to rot like a dead skunk on a hot July day, the bets needed to offset the losses are increasing. It looks like the bank, peering into that portfolio they refuse to share, is becoming more than a little bit desperate. Like a compulsive gambler after a multi-day bender resulting in crippling losses they decided to double down rather than walk away, leading to their current whale of a surprise and likely a mirror-image follow-up for the WaMu losses this was supposed to offset.

    For anybody who believes that JPM’s position is normal .. it isn’t. Twenty-six other banks quickly popped open the doors to their repositories, as they’re required to do. Perennial bad-boy Aurora Loan Services is the only other one that’s ignored my requests, though since it looks like they’ve sold their servicing operations the jury’s out whether their silence is purposeful or whether there’s nobody home on the other side of those requests.

    Like I said, I’m not sure whether these disclosures are exempt. There are certainly many marked private, but they seem to be overwhelmingly CDOs and similar more exotic or clearly closely held instruments. I’ve never seen an entire series of MBS from an issuer that is exempt: even a few stray WaMu deals that ended up in other repositories are open to the public.

    JP Morgan’s insistence that “[t]he site is maintained for JPMorgan Chase RMBS clients,” only, demanding that I include my JP Morgan Chase contact, may be legal but it is unprecedented. In context of their recent trading losses, the knowledge that those losses were to hedge against the WaMu losses, Dimon’s prior comments downplaying both losses, and strong analysis that the WaMu loans are some of the most impaired MBS it’s fair to conclude that JPM is hiding something in the basin of their loan outhouse.

    I’ve spent the past couple months holed away downloading MBS data in bulk to enable investors, analysts, academics, government agencies, or whoever else wants to inspect performance information and project losses for every subprime loan trust. When finished, this week hopefully, I’ll have a veritable ABS MRI machine that can peer into the true health of the housing and housing finance market. It’s harder than it sounds: one of those projects where software engineers emerge from their digital caves after months, bleary eyed and long past due for a haircut but holding game-changing technology.

    My database, which includes everything except WaMu loans thanks to Jamie, is finally almost finished. But even in preliminary form it is clear that the AAA-rated senior tranches — the ones that really were never supposed to take losses — are toast that’s burning worse by the day. Servicers, trustees, government officials have been doing anything to delay the inevitable losses but when people don’t pay their mortgages, and housing has declined by over 50% in many of their markets, there’s only so much accounting chicanery they can do: the money just isn’t there.

    My suspicious are more grounded than tin-hat delusions we’ve been hearing from the housing is hot again crowd. R&R Consulting, a well-regarded structured valuation expert I work closely with conducted a portfolio-wide analysis of undisclosed (“limbo”) losses on RMBS. In a special in-depth report dated February 2012, long before JPM told me piss-off when asking for access to the more granular WaMu loan-level data, they reported that WAMU had the highest limbo loss level–about $810 million—in just one transaction. Repeat: experienced analysts dug this out even without loan level data. It sounds likely that it won’t be long until Dimon reports another ten-figure surprise that I’m sure he’ll apologetically pawn off on the US taxpayer.

    For anybody asking “um — isn’t this over — didn’t all this fall apart back in 2008?” the answer is not really. That mega-meltdown was really a mini tremor caused by the lower and smaller tiers of these securities; last time junior visited to stir things up but this time papa’s walking down the street carrying a mean look and a big stick. That’s because the mezzanine level tranches of most bubble-era MBA are either gone or guaranteed to be gone — finally eaten up by current or pending losses — leaving the lower AAA tranches to take their place as the bearer of losses. This was never supposed to happen. Everybody knew that CDOs created from the lower tranches were risky, even if the ratings agencies said otherwise, but nobody thought the meltdown would last this long that the actual top tranches would be nicked. But the data couldn’t be clearer: those bottom level A-class tranches of yesterday are the new bottom level M-class tranches of yesterday.

    All this is surprising because these same MBS tranches have been on fire lately. Hedge funds bought them for very little when nobody wanted them — setting their own price — and now they’re selling them back at steep gains because housing is peachy again, never mind the enormous amount of shadow inventory. Hopefully the buyers of these same securities aren’t being set up, again, because nobody would be stupid enough to fall for that same trick, again. Hopefully.

    It is these lower tranches and other derivative products, which are by definition exponentially smaller than the more senior securities like the ones JPM is hiding (well, before the banks multiplied them several times over using credit default swaps) that blew up the world economy in 2008.

    I’m guessing that it is the inevitable meltdown of what remains of the AAAs (the amount outstanding has been reduced considerably by refis) that has been at the impetus for the housing cheerleaders. By refusing to move their foreclosures forward, then refusing to take title, then refusing to REO those homes, the trusts don’t have to recognize the losses because, ya’ know, the abandoned and dilapidated properties will magically double in value as long as we hold our breath and wish.

    My mountain of data that shows loss severity in excess of 100-percent is not uncommon. When we look at the loans, compare similar loans from those who report them more honestly, multiply the average severity by pending reported and, um, overlooked foreclosures, then it becomes clear that the lowest rated AAA’s are toast. This reaffirms the report by R&R Consulting report that $175 billion of loan level losses had not been allocated to the trusts. Whoops!

    Jamie Dimon admitted his $2 billion loss “plays right into the hands of a bunch of pundits out there” on his conference call explaining his stinky. Dimon went on to call the losses “egregious” and “self-inflicted.” In light of the London Whale it is clear that when it comes to sky-high risk, like JPM’s WaMu exposure, the bank has adopted an advanced risk management strategy: telling researchers to piss off then hiding.

  8. @Pie,

    What’s on 7/2? I know about 7/4 in pittsburg but what is 7/2?

  9. @etolle

    It is ex-parte out by me, and it takes about 4-5 months for the judge to get around to it. I am hoping they come to their senses and settle, and I believe they will.

    @ carie yes your servicer is lying to you, and the NA, not the Trustee has the right to modify the terms, despite never being proeprly assigned into the pool.

    July 02, 2012 is a big day gang. This will seem minute.

    Mandelman is such a smart guy.

  10. Yeah. He should resign. In fact, he will… I just don’t know how much severance he’ll get, though. Like Ina Drew who “retired” with a hefty package and a couple of others who won’t need to work anymore a day of their life. File in “Justice in America”.

    Why J.P. Morgan’s Jamie Dimon Should Resign
    By James Rickards

    May 14, 2012 RSS Feed Print James Rickards is a hedge fund manager in New York City and the author of Currency Wars: The Making of the Next Global Crisis from Portfolio/Penguin. Follow him on Twitter: @JamesGRickards.

    Of all the tricks Wall Street uses to pull the wool over the eyes of regulators, Congress, and everyday Americans, none is more effective than the pretense that the strategies used in finance are so complicated that few outside the banking industry could possibly understand them. Wall Street CEOs ask to be treated like nuclear engineers and say “trust us” when it comes to the complexity of their tasks. In fact, no trust could be more misplaced and no claim to superior knowledge could be further from the truth.

    The $2 billion loss announced at J.P. Morgan last week is the latest example. Management, starting with CEO Jamie Dimon, would have the public believe that the loss was due to a complex hedging strategy involving hard-to-value instruments and embedded risk that eluded the best and brightest minds at the bank until it was too late.

    [Read the U.S. News debate: Should the Dodd-Frank Act Be Repealed?]

    This is nonsense. The trade was a simple bet on the difference, or “spread,” between the price of a group of bonds and an index based on those bonds. In theory, those two prices should be about the same. In practice, they may vary due to factors such as the relative liquidity of the bonds and the index. At a certain point, the J.P. Morgan trader, known as the “whale,” took a view that the index was expensive and the bonds were cheap. In effect, by selling the index and buying the bonds, the whale would own the spread. As the spread comes back to normal, the whale reaps enormous profits and finally unwinds the trade by selling what he bought and buying what he sold at better prices.

    The problems begin when the trade is done in huge size. Others in the market such as hedge funds smell blood. Instead of bringing the spread back to normal they begin to widen it by buying the index and selling the bonds. Whether this makes fundamental sense is irrelevant. What matters is that if they inflict enough pain on the whale in the form of daily mark-to-market losses, he will eventually have to get out of the trade by selling it back to the hedge funds. Sooner than later, the original spread will return to normal, but it will be too late for the whale.

    Jamie Dimon has been working around the clock to explain that this loss is not life threatening. He makes the point that the loss represents only part of J.P. Morgan’s earnings and that capital is not impaired. What he does not explain is that J.P. Morgan’s “earnings” are actually not earnings but are a form of theft from savers, retirees, and others pursuant to the Federal Reserve’s zero interest rate policy.

    [See a collection of political cartoons on the economy.]

    The Fed has engineered a massive wealth transfer from everyday Americans to large banks. They do this by holding interest rates near zero. Savers get nothing for their hard earned savings. However, banks get free money because they pay almost no interest. Banks then invest the money in Treasury notes and earn the difference. The Fed permits this to rebuild the capital of the banks. The Fed doesn’t mind hurting everyday Americans if they can prop up bank capital.

    Even if you favor Fed policy, it is unconscionable that the bank earnings derived from small savers should be squandered on a leveraged bet that a rookie trader could see was flawed. If the bet had worked out, the whale would probably already be shopping for a Lamborghini to buy with his bonus.

    Apart from the risk in the trade, a more fundamental question is why it was allowed in the first place? What purpose was served? No new loans were created. No new jobs were created. Absolutely nothing of value to society was derived from this trade. At best, it was a form of gambling for the whale and his colleagues. Next time they should go to Las Vegas and skip the drama.

    [Read the U.S. News debate: Has the Federal Reserve Overstepped its Mandate?]

    And please spare me the Kudlowesque lectures about “free market capitalism.” Banks don’t operate in the free market because their liabilities are guaranteed by the taxpayers. Banks are public utilities designed to make commercial loans and should have no more freedom to make derivatives bets than the Post Office.

    Banks are propped up by taxpayer guarantees and fatten their earnings at the expense of everyday American savers. Then they risk those earnings on bets that serve no purpose but to enrich the greedy executives who make them. When things go wrong those executives cry that markets are too complicated to manage. In fact, the bet is no more complicated than putting money on red at roulette. As a last resort, the executives hide behind the flag of free market capitalism when in fact they are the new welfare queens with government subsidies galore.

    The whole thing is a disgrace. If Jamie Dimon had an ounce of decency, he would resign now. Not because his acts were criminal, but because he presides over a corrupt institution that extracts wealth from the many and directs it to the few with no value added and not even a nod in the direction of the hard-working American victims of this scam.

  11. JPMorgan Chase Has Lost $20 Billion On Its Bad Trade, Taking Into Account Share Price
    The Huffington Post | By Mark Gongloff Posted: 05/14/2012 12:01 pm Updated: 05/14/2012 12:21 pm

    Specialist Peter Giacchi, center, calls out prices as he works at the post that handles JPMorgan on the floor of the New York Stock Exchange, Friday, May 11. The bank’s share price has tumbled following its announcement of a $2 billion trading loss. By now you may have heard that JPMorgan Chase lost $2 billion on a bad trade. Multiply that by 10, and you’re starting to get a better idea of how much it has really lost.

    That’s because the share price of the biggest U.S. bank by assets has tumbled by more than 11 percent since it announced the trading loss, shaving about $17.5 billion from its market value. JPMorgan shares were down another 2 percent on Monday, following a 9 percent tumble on Friday.

    Shareholders aren’t necessarily upset about the $2 billion loss itself. The bank has lost more money than that at different times in other businesses, the New York Times reminded us this morning, without causing much of a ruckus. Though the loss could grow to $4 billion or more, by some estimates, that’s still a far cry from the $90 billion or so in revenue the bank has raked in over the past year.

    The real worry for investors is the damage the episode has done to JPMorgan’s previously sterling reputation for managing its risks, the increasing heat of the water around CEO Jamie Dimon and — maybe most importantly — the fact that this debacle comes at the worst possible time for the bank, regulation-wise.

    JPMorgan’s huge goof makes it more likely that regulators will slap fetters on all the big banks when it comes to trading with their own money. The murky markets for credit derivatives, which JPMorgan invented, could be exposed to a little more sunlight, which always seems to make bank profitability wither.

    Such regulations could have helped save JPMorgan from its current embarrassment, but they could also make it less likely the bank will be able to win a big jackpot on further gambling binges.

    Meanwhile, the debacle also shines a light on the fact that there are still big, lumbering banks out there that are a constant threat to tip over and crush the entire U.S. economy. That will lead to more calls to break up the big banks, to take away the government’s implied backing for them, or at least make regulators more determined to force them to hold more capital against future losses. All of that will make it harder and more expensive for the banks to do business. As Peter Cohan pointed out at Forbes, further credit-rating downgrades like the one Fitch Ratings delivered last week could also add to the bank’s cost of doing business.

    Considering all this, the bank and its shareholders might end up finding that this episode has destroyed a lot more than just $20 billion.

    I want my money back.

  12. Latest news (NPR): Chase $ 2 billion loss is turning into a… $20 billion loss! And they haven’t even reimbursed our tax dollars yet! So, I guess those bailouts were actual gifts. Are we stupid or what?

    Dismantle them all!

  13. It’s time to get out of the International Banking community, no more IMF, no more World Bank. Force the International Bankers (Federal Reserve) out of this country and coin real money ie United States Treasury Notes. JFK was doing just that when the magic bullet removed him from office. It’s just a small group of individuals controlling this entire mess and removing them from power would solve the World’s Financial mess. It’s going to take a coop to be successful. We can only pray, soon!

  14. All we’ve ever wanted was understand why we are in the kind of doodoo we all are in, through NO FAULT or own. And see a few mass cheaters removed from society. Jamie boy is sick and tired of the American people “resenting” success (his, I guess).

    Well, a few chosen words from mandelman. My grandma used to say: “It shouldn’t be legal to be that nasty for someone who’s already that dishonest!”

    Jamie Dimon tells Meet the Press he thinks we’re resenting “success.” He’s wrong.

    This past week, JPMorgan Chase CEO Jamie Dimon announced that his bank lost $2 billion trading credit default swaps. It was destined to become a major news story, and sure enough everyone and their cousin wrote about it from every conceivable angle, the consensus being that the loss exemplifies the need for Dodd-Frank, the Volker Rule, and even Glass-Steagall type legislation.

    So, no surprise there, right? I mean, JPMorgan Chase losing $2 billion in a little over a month betting on credit default swaps is pretty much why U.S. taxpayers ended up having to pump trillions into TBTF banks just a few years ago.

    Dimon was quoted as having said that just because his bank had been stupid, it didn’t mean that all the other banks would be equally stupid. But, see… it sort of does, right? That’s why the sort of risk we’re talking about is termed, “systemic,” right? That’s why all the Wall Street banks became insolvent at the same time, right?

    The simple fact is that if JPMorgan Chase is being an idiot in it’s proprietary trading strategies, history shows us that chances are overwhelmingly that the other bankers are going to be idiots too. Maybe not on the same day; okay fine. But, within a matter of weeks or certainly months… for sure.

    Oh, I know Wells Fargo will deny having done whatever it is that the other idiots have done, whenever bets go bad, but then we’ll soon find out that they were lying and not only did the same thing, but they did it to an even greater degree than the other morons du jour of the financial aristocracy.

    The story of Dimon’s $2 billion loss got so big that Jamie even showed up to issue a mea culpa, Sunday morning on this week’s “Meet the Press.” Among other things, he said…

    “This is a stupid thing that we should never have done, but we’re still going to earn a lot of money this quarter, so it isn’t like the company is jeopardized. We hurt ourselves and our credibility, yes – and that you’ve got to fully expect and pay the price for that.”

    A billion here and a billion there…

    The point that JPMorgan Chase is going to “earn” a lot of money this quarter is not only completely irrelevant, but it highlights another part of the problem we’re having with our mega-banks.

    For one thing, and I can’t believe I even have to say this, losing $2 billion in a quarter at any corporation is supposed to be a significant problem. If it’s not, then the corporation is gouging its customers with the expectation that it will need a multi-billion cushion to make up for its tendency to lose billions through stupidity at any given moment.

    And for another thing, saying that this time around the stupidity isn’t going to jeopardize JPMorgan Chase’s future solvency, is not the point.

    The point is, what will happen when the bank’s stupidity and obvious addiction to gambling does threaten to jeopardize the bank’s solvency. What happens then?

    Does the bank file bankruptcy? Does the FDIC take it over, fire the executives, clean it up and re-sell it to the private sector? Or, does it just mean that the U.S. taxpayer is forced to bail out the bank once again because it’s deemed too big to fail? Because as long as it’s the latter… that’s the point.

    Dimon also commented on the things he said a few weeks ago during a conference call, when he referred to the danger of what ultimately happened as being “a tempest in a teapot,” which is an idiom that refers to a small thing that’s been blown out of proportion. On “Meet the Press,” Dimon said…

    “So first of all, I was dead wrong when I said that. I obviously didn’t know because I never would have said that. And one of the reasons we came public was because we wanted to say, ‘You know what, we told you something that was completely wrong a mere four weeks ago.’”

    Yes, and that’s also the point, is it not? Like all human beings, even the CEO of JPMorgan Chase can simply be wrong. And the American taxpayer doesn’t want to be on the hook for however many billions wrong he or she is from time to time because what happened here that cost the bank $2 billion didn’t have anything to do with commercial banking. So, there’s no reason in the world for us to be involved.

    If we weren’t involved… if we could be sure that we weren’t going to be on the hook for the bank’s insolvency, then we wouldn’t care about any of this. JPMorgan Chase could place multi-billion bets on which side of a room a fly will land on for all we would care. We’d gladly sit on the sidelines and cheer as the bank gambled hundreds of billions on the derivatives of derivatives of derivatives. We’d even go pay-per-view, like the ultimate poker challenge.

    We like gamblers and big bets… we’re just to wimpy to be involved in making them ourselves. Besides, we never seem to get to participate in the upside of these things, only the downside.

    Success-haters hurt our recovery…

    Lastly, Dimon said something during his interview that really got my goat. Basically, he said that he’s sick of Americans being resentful of “success,” that “attacks on successful people,” were somehow harming our economic recovery. And I have to say something about that because it’s just out of control ridiculous.

    Americans are absolutely NOT resentful of success, in fact, we adore success… worship it, even. In fact, success is like… our favorite thing in the whole world. We’re success junkies.

    In truth, we don’t resent failure either. What we do resent is failure that comes as a result of irresponsible gambling in entirely unregulated environments and for which we have no choice but to pick up the tab. That, we most definitely resent, at the very least. We actually hate that with the white-hot intensity of a thousand suns.

    We also resent that JPMorgan Chase was bailed out by taxpayers in 2008 and 2009, and continues to be allowed to profit based on a slew of special loan programs and accounting accommodations, while simultaneously foreclosing at will on homeowners who are only in their current situation because of Wall Street’s unregulated gambling addiction, appalling lack of judgment, and non-existent risk management systems.

    Oh, and admittedly we’re not exactly nuts over Jamie’s $20.8 million in compensation for 2010 either, I suppose. In 2010, his compensation went up by 1500 percent increase over the $1.3 million he was paid in 2009, if I’ve got my numbers right… and I do. That’s one heck of a raise, I’d say. What in the world did he do in 2010 that justified a 1500 percent raise?

    (According to Reuters, he did quite a bit better than that in 2010, cashing in options and grants awarded during previous years for a grand total of $42 million that year. And that same year his compensation also included $421458 in “moving expenses,” which would make total sense had he relocated from Chicago to the Uhuru Peak of Mount Kilimanjaro maybe.)

    And all of that is to say nothing about the $35.8 million he received in 2008, the year he piloted his ship directly into the rocks and sunk it, were it not for the largesse of the U.S. taxpayer. That was certainly a “successful year,” right Mr. Dimon?

    You see, it’s not because we resent success that we give Jamie Dimon such a hard time, it’s because these days, we have a hard time viewing Dimon as “a success.”

    Now, maybe if he would disclose his bank’s credit default swap counterparty positions, and off-balance sheet transactions, and conformed to GAAP accounting principals for valuing assets and recognizing losses… maybe then…

    Or, maybe if his bank modified mortgages that were NPV positive even if it required a principal forbearance or, God forbid, a reduction, because keeping people in homes under these circumstances is simply the right thing to do. Or, maybe if he just supported some sort of reasonable plan to handle things better than they’ve been handled to-date for America’s homeowners…

    I’m sure then, we’d see Jamie Dimon as a major success, and wouldn’t care so much how much money he made…

    Ya’ think?

    Mandelman out.


    The big 7/4/12 rally is scheduled but The99 are very, very short on funds. They have booked the Convention Center but are $50,000 short to pay for the speakers.

    Please help however way you can. Every little bit you send helps.

  16. Every other person interviewed on NPR since yesterday has been advocating Dimon’s removal. Not yet at the neutering of his offsprings but having the arrogant sonomabitch (as my Italian neighbor says) taken out is already a start. Confiscate all his possessions and start redistribuiting to the investors.

    Pressure Builds On Jamie Dimon: Seven And A Half Things To Know
    The Huffington Post | By Mark Gongloff Posted: 05/14/2012 7:57 am Updated: 05/14/2012 12:19 pm

    JPMorgan Chase CEO Jamie Dimon. Thing One: Dimon Agonistes: Whom the gods would destroy, they first make mad. Or bankers. Or both.

    JPMorgan Chase and its CEO Jamie Dimon are increasingly under siege as a result of their own insane hubris. The bank built up massive risks in an office designed to hedge risk, resulting in a $2 billion trading loss — one that will likely grow larger — all while its chief Jamie Dimon bragged that he didn’t need the oversight of regulators. Now Dimon has lost, at the very least, his position as the most influential banker in America and may have ended up subjecting his entire industry to more of the regulation he hates.

    Over the weekend there were calls for Dimon’s removal, which for now still seems a distant prospect, through growing less unlikely by the day. Several others will be ceremonially tossed under the bus, of course. Ina Drew, the woman in charge of managing the bank’s risks, will leave soon, as will two others in the London office responsible for the loss, the Wall Street Journal and other outlets report. In fact, that entire London office could be at risk of losing their jobs, Bloomberg writes. But the responsibility for the risks they took may rest with Dimon himself, according to Bloomberg, which reports that he pushed the London office to take bigger risks.

    Update: Drew has indeed stepped down.

    Dimon was contrite on a “Meet the Press” appearance yesterday, but his constant denigration of regulations and regulators in the past could be coming back to haunt him now, writes Reuters

  17. Oops. Setting up my computer and all kinds of problems. That video can be found on, in the “articles” tab. Sorry about that.

  18. @Carie,

    You might be able to find some info on this video. It is about your players. I haven’t looked at it but it probably is worth watching and, who knows, you may even get a few names with whom you could associate and start a class.

    Worth spending a few minutes watching it.

  19. @John,

    “The people of the world know that something is seriously wrong, and all the smoke blowing, media controlled propaganda, legislative/judicial anarchy will not keep them from uncovering the truth.”

    That is only the first part of the equation. Once they have that truth, the people of the world will act on it. Then I believe it will blow. I’ve been saying it all along. It will have to blow. Trying to fix this mess piece meal without getting to the root of it is counterprouctive and a waste of time. What is needed at this juncture is a R-evolution. A 180 degree turn around. Evolution via the return to solid basis.

    It’s coming.

  20. @iwantmynpv

    So—obviously my servicer lied to me (in writing) when he wrote:

    “As the servicer of your loan, to the extent we received any payments the proceeds were properly accounted for to both you and the trustee, and the applicable amounts were remitted to the trustee.”


    “…your loan is part of a securitization, whereby we are bound by servicing and pooling agreements (rules) between us and the trustee…”

    Also—when I told the service that the mbs was closed BEFORE the substitution of trustee was created and recorded, he responded:

    “The securitized trust has not closed…the mbs (INDX 2006-AR19) remains an ongoing and existing entity…”

    The fact that he said the trust has “not closed” and that “applicable amounts were remitted to the trustee”—-means I have bald-faced lies in writing—correct?

    I want to sue the pants off them…I think if everyone started suing the servicers for all the money they’ve been giving them based on these lies—maybe things would really start moving…

    Comments, anyone? What kind of lawyer would be involved in this type of damages lawsuit?

  21. npv, was your case decided?

  22. I feel what is happening with the euro now will happen in all countries eventually that use fiat currency via the Rothschild’s banking system, ” Bank of England, The Federal Reserve, and other central banks around the world” and their manipulation of metals, energy and stock markets.
    The people of the world know that something is seriously wrong, and all the smoke blowing, media controlled propaganda, legislative/judicial anarchy will not keep them from uncovering the truth.
    Because we now have the Internet and the spreading of information “truth” is fast.
    As in the Soviet Union/Arab Spring revolutions, change can happen quickly.

  23. Well, the servicers are PRETENDING to have the “right to collect”…because the subprime “debt” started OUT as fraudulent false default debt…

  24. Carie, the servicer does have a right to collect through the default / collection tranche inside the pool. The problem is the servicers stopped making the P&I advance to the pool and are pursuing homeonwers through the collection account via the N.A.’s.

    More fluid….

  25. @anyone

    I am re-posting this comment from tony because I want to find out if this can help joann…please whomever can comment about this jurisdiction issue—we would be grateful (ie., can it work in CA, and how exactly to do it…):

    tony, on October 17, 2011 at 6:57 pm said:

    It is “unsecured” debt protected by smoke and mirrors. What makes it funny is that it isn’t even unsecured debt. Unsecured debt is when you at least owe someone money. These servicers are not even owed any money they just hoping they can get something from you.
    I was at a hearing the another day and the judge asked the “banks” lawyer does the servicer have standing? They said no, then she asked can they join the “real party in interest”? Lawyer said no, the judge shook his head and hoped that the pro se didn’t hear that.
    Of course the pro se did and he said can we end this case now, I think I won on the issue of standing and real party in interest plus lack of subject matter jurisdiction. Judge said yeah I think you did. Denied the banks (without prejudice of course). Then the judge asked for the so called note that they had. Lawyer said no, you can not get my note, how will I foreclose…he said you know it and I know it that’s not going to happen. Banks lawyer said but we have the note we should be able to move. Judge said you can’t even get past jurisdiction first, much less talk about notes.
    It was a funny case…after the case the judge closed out the rest of the docket he was so mad. So in short always bring up jurisdiction first before you even get to your other areas of defense.

  26. That’s not rain falling in Spain. That is the pre-ejaculatory fluid that immediately preceeds the banks dropping the “load” on the taxpayer.

    Sorry guys, I couldn’t resist. It was if the author invited me to add the humor to this sad situation.

  27. Spain, that is old news. France will announce they also need money within 60 days or they will default. The Euro is done and will be unwound beginning July 02, 2012.

    More important, Chase is now writing down its derivative lines, and just like UBS is using the scapegoat “rouge trader” excuse. If Dimon came right to the street and told the folks that they were writing down 2 billion in counter-party loss, the stcok would be decimated because the street would know he ha sanother 48 billion behind that. This is a balance sheet transaction and the DOJ should investigate immediately.

    We should be talking today about RES being dumped into BK by ALLY to wipe out certificate holders, and how this will effect synthetic swap parties. Will they be forced to accept 35 cents on the dollar with Ally collecting full UPB due to collection rights. Can some please put a tent over this circus! Inside the tent, us common spectators can at least buy some popcorn and watch the clowns start getting the jars of vaseline ready for the US taxpayers.

    Ra dun dun dunda da dunda dun da – a da da dun…

    Look mommy, the Jamie Dimon clown is making the Uncle Sam clown bend over… what’s he doing with that jar?

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