Unravelling UBS Derivative Bond Trading and Hedges Provide Details on Securitization Scam

“”Mr. Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler,” Ms. Wass said.”

Editor’s Comment: Just so there is no mistake about it, my opinion is that securitization never occurred and that all the paperwork was a cover-up for a complex PONZI scheme that ended like all all PONZI schemes —- when the money from new investments dries up, the scheme is over. I hold these truths to be self-evident and easily proven without speculation.

The failure of government to prosecute comes from two sources (a) conflicts of interests because of the revolving door for people who work at banks and then at regulators or vica versa and (b) because honest policy makers, unsophisticated in the ways of Wall Street truly believe that the collapse of bank of America, Chase, Citi, Wells et al would lead to a run on the banks and an end to our financial system and social network.

Bill Maher said it all last night when he “quipped” that our faith and belief in the almighty dollar exceeds any evidence of faith, belief or morality tied to a relationship with God. As long as that is true, prison populations will rise, drug lords to rise to greater wealth and power, and military-industrial complex (a warning from President Dwight Eisenhower) will control much of our spending and foreign policy. Today we add the threat of banks gone wild and the details of their sordid deals provide a road map for just how the supposed “securitization” of residential mortgages became real in the minds of millions and how it worked like a charm to cover up a common theft that rose so high that the consequences are still being felt as the theft continues right under the noses of regulators, law enforcement and law makers.

Behold the case of “Kweku M. Adoboli, a former UBS trader in London who faces four counts of fraud and false accounting in connection with a $2.3 billion loss at the Swiss bank.” Here in his own words and those who are prosecuting him, is the methods he used, the results he “achieved” and the plausible deniability that works so well on Wall Street to avoid criminal prosecution of the highest executives while they throw their soldiers under the bus.

This is a case that few people will notice unless they see articles like this one and it starts them thinking about how we got to this point where the entire housing market, consumer market and financial market is cornered by the decisions of common thieves who achieved power in ways no better than Scarface.

The man they are throwing under the bus (as opposed to leveraging him to get to higher and higher kingpins the way they do with drug lords) “doctored documents, invented profits and fabricated clients to cover up his rogue activities. Sasha Wass, the lead prosecutor, told a jury that Mr. Adoboli was motivated by greed and ego as he looked to increase his salary and status at the bank.”

One background comment here. Back when I was on Wall Street, the self-governing mechanism that worked most of the time was the fact that the firms were only allowed to be partnerships with no limitation on personal liability. When we allowed them to go public it was like opening the lion cage, because they could take whatever risks they wanted with the money of shareholders, clients or investors and pocket huge bonuses vastly exceeding the size of their prior partnership. Instead of partners at risk, we have management unhinged. It worked out for the people who rose to the top and many middle management folks who had never seen such salaries and bonuses in the history of Wall Street — all while median national income was flat, the economy was growing increasingly dependent on debt to create the appearance of commerce that would be counted in GDP measurements, and living expenses imposed on the middle class skyrocketed.

Fabrication of trades, documents and false accounting are and always have been a staple method of business. Wall Street institutionalized fraud as a custom and practice of the industry long before the mortgage meltdown, even preceding the dawn of the 20th century. What is different here is that for the last 30-40 years Wall Street has been dipping directly into the pockets of consumers and breaking laws that are already on the books, rules and regulations that have been in place since the Great depression that was also caused by Wall Street speculation, and generally treating consumers as trading pawns or garbage that could be viewed as collateral damage while Wall Street performed its function — to make money.

But Wall Street was not allowed into existence to MAKE money, it was allowed into existence to create liquidity which is another way of creating money not for themselves, which would be counterfeiting, but for others who are innovating, expanding and growing. With no effective referee on the playing field, the players went wild making up rules and even pretending they had played when they were out to lunch with the referees.

Wall Street began creating money for itself in 1983 with the full blessing of the Federal Reserve and the U.S. government. Instead of using it as an engine for national growth, they used to to create growth of salaries and bonuses for the people who worked there, thus siphoning out of the economy what should have been piped in — liquidity, money, investment and loans into a strong economy.

Follow the bread crumbs and you will arrive at the front door of every mega bank and discover that securitization was completely falsified, covered up and sold in a way that even today has an aura of legitimacy. It is taken as true (an assumption that is totally wrong) that Wall Street firms sliced and diced the loans and sold them to investors through investment pools variously referred to as pools, REMICs, Special Purpose Vehicles, Trusts and other names.

Not one of these “pools” ever had a bank account, an asset or a penny. They were all fictitious entities with whom Wall Street made fictitious trades, as a cover-up for taking much of the money from pension funds and making ti the money of the Wall Street firms through trading profits (selling bad loans — funded from investor money from outside the securitization chain —- to the investors at a profit), thus creating the endless stories about trading profits and losses that never were real. It was simple theft: out of the money advanced by investors, Wall Street put much of it in their own very deep pockets.

They covered it up with fictitious or bad loans whose funding required much less money than the funding on a real loan using standard underwriting procedures based upon the premise of repayment. Here the premise was nonpayment and Wall Street made sure that was what happened — even if the loans were current.

“Mr. Adoboli took pains to evade internal controls. According to prosecutors, the former UBS trader, who focused on a plain-vanilla version of derivatives trading, falsified trades valued from $5 million to $20 million. Mr. Adoboli even created separate accounts, which he called his umbrella, to hide the profits and losses of his unauthorized activities. In 2009, the so-called umbrella held $30 million, according to the prosecution.”

In the real world of business people whoa re CEO of a large organization or said to have known or should have known” about bad or illegal practices. In the world of finance such statements are never made, and instead of sitting in prison, people like Jamie Dimon sits on the board of the New York Federal Reserve board.

If you liked the crash of 2007-2009 you are going to love what happens next. The ONLY hope we have is your use of voting power and putting practical understandable policies into place by electing those who are not bought off by the banks.

September 14, 2012, 3:59 pm <!– — Updated: 6:59 pm –>

Ex-UBS Trader Is Accused of Gambling in a Big Loss

By MARK SCOTT

LONDON – Fictitious trading and brazen gambling by a single individual could have brought down the Swiss financial giant UBS, a British prosecutor said on Friday at the trial of a former bank employee accused of causing a multibillion-dollar trading loss.

That thesis is at the heart of the case against Kweku M. Adoboli, a former UBS trader in London who faces four counts of fraud and false accounting in connection with a $2.3 billion loss at the Swiss bank. He has pleaded not guilty to the charges.

In their opening statement, prosecutors portrayed Mr. Adoboli as a freewheeling trader who doctored documents, invented profits and fabricated clients to cover up his rogue activities. Sasha Wass, the lead prosecutor, told a jury that Mr. Adoboli was motivated by greed and ego as he looked to increase his salary and status at the bank.

At one point, the former UBS trader had $12 billion on the line, according to prosecutors. Those activities, they claimed, threatened the bank’s health.

“The scale of Mr. Adoboli’s gambling was so large and unchecked, he could quite easily have approached and even exceeded the limits of the bank’s resources,” Ms. Wass said in the Southwark Crown Court. “He was a gamble or two away from destroying Switzerland’s largest bank for his own benefit.”

Prosecutors previewed their case before a packed courtroom in central London. During the nearly five hours of opening statements, Mr. Adoboli, in a gray suit and purple tie, sat quietly, surrounded by lawyers, while several of his friends listened in the courtroom.

If convicted, Mr. Adoboli could face up to 10 years in prison.

The case has been a black eye for UBS. After discovering the trading loss, Oswald J. Grübel, who had been hired to lead a turnaround at the bank, stepped down as chief executive. The co-chiefs of global equities, the division where the loss occurred, also subsequently left UBS.

On Friday, prosecutors claimed Mr. Adoboli took pains to evade internal controls. According to prosecutors, the former UBS trader, who focused on a plain-vanilla version of derivatives trading, falsified trades valued from $5 million to $20 million. Mr. Adoboli even created separate accounts, which he called his umbrella, to hide the profits and losses of his unauthorized activities. In 2009, the so-called umbrella held $30 million, according to the prosecution.

At first, the tactics paid off. The former trader had earned a combined $90 million profit for both UBS and its clients by May 2011, prosecutors said. Mr. Adoboli’s salary rose tenfold, to £350,000 ($569,000) from 2006 to 2010, according to the prosecution.

Despite the early gains, Mr. Adoboli’s trades started to go bad in the summer of 2011 as the world’s financial markets grappled with the European debt crisis.

By June, the former trader had exceeded his trading limit by $1 billion after creating a series of fictitious trades, the prosecution said. His investments had risen to $5 billion as of August, and Mr. Adoboli posted a $1.8 billion loss on the activity, which he also hid through false accounting, Ms. Wass contended.

The unauthorized trades left the Swiss bank at risk. In an internal investigation, UBS found that the reported risk of Mr. Adoboli’s activity totaled $1.5 million by mid-September 2011, according to prosecutors. In reality, the financial risk stood at $8.1 billion.

“Mr. Adoboli had ceased to act as a professional investment banker and had begun to approach his work as a naked gambler,” Ms. Wass said.

Last August, risk managers at UBS began to ask questions about his positions. William Steward, an accountant at the firm, challenged Mr. Adoboli several times about discrepancies in his trades, Ms. Wass said.
After the bank raised further concerns, Mr. Adoboli walked out of UBS last Sept. 14 and wrote an e-mail to Mr. Steward that the prosecution referred to as a “bombshell e-mail.” In the note, Mr. Adoboli said his recent trades had not been hedged, leaving the bank exposed to potential multibillion-dollar losses. Ms. Wass said that in the e-mail, the former UBS trader initially said he had acted alone, though he later claimed that some of his colleagues were aware of his actions.

“Although I had a couple of opportunities to unwind the long trade for a negligible loss, I did not move quickly enough,” Mr. Adoboli wrote to UBS executives. “I take full responsibility for my actions.”

After senior managers received the e-mail, they demanded Mr. Adoboli return to the London office to explain his actions.

In a series of meetings that lasted until the early morning of last Sept. 15, UBS executives peppered Mr. Adoboli with questions about his trades. During the discussions, the former trader admitted that he had first falsified records in 2008 after making a $400,000 trading loss, according to the prosecution. Mr. Adoboli said that he had concealed the losses in the hopes of recovering the money through future trades.

“The bank cannot be faulted for trusting him,” Ms. Wass said. “They respected him, and he abused their trust to cheat them for his own eventual gain.”

35 Responses

  1. I will right away snatch your rss as I can’t in finding your email subscription link or e-newsletter service. Do you’ve any?
    Please let me recognise so that I may subscribe.
    Thanks.

  2. The WORLD BANK/FED IS A CREDIT SYSTEM…NOT A MONETARY SYSTEM…CREDIT GIVES THE ILLUSION OF WEALTH…HOWEVER, WALL STREET OVERSOLD THEIR CREDIT WITH OUR SIGNATURES…THAT FRAUDULENTLY INFLATED THE VALUE OF EVERYTHING….WALL STREET CREATED A QUADRILLION DOLLARS IN DEBT. THEREFORE, ALL OF THEIR DEBT IS WORTH ZERO…THEY HAVE NO COLLATERAL BACKING UP THEIR DEBTS….THE FED IS BANKRUPT AND BANKRUPT INSTITUTIONS HAVE NO ASSETS….YOU CAN’T COLLECT ON SOMETHING THAT NEVER EXISTED. THAT IS CRIMINAL…

  3. SECURITIZATION SCAM? http://mail.aol.com/36962-112/aol-6/en-us/mail/DisplayMessage.aspx?ws_popup=true
    How about securitized rental income streams—–this has got to be the grandaddy of all cons to generate servicing fees. Most inefiicient conceivable property management system possible. servicers will not maintain–will immediately encounter a hedge of rules applicable to rentals that will come as complete surprise to these vulture servicers: every city has its own tenant code–tenant associations exist—where homeowner associations didnt—answer to any issue: pay rent into the court

    Wish homeowners had these protections dont we?

    huge embedded maintainance costs—-properties physicall spread—who will assess repais —repairmen?? gouging–kickbacks

    investors are going to be screwed royally—-people should hope they can be converted to a rental at a lower rate–like they might have bought the property for if their credit had been good enough–as citibank anyway

    then establish tenant assassociations with outside counsel—-learn the new rules–demand repairs

    “As they do in bonds backed by mortgages and other assets, banks would pool the rents of thousands of tenants living in the formerly foreclosed properties and sell to investors a promised return based on the income the homes produce.

    The sale of such a bond would help foreclosed-home investors like Waypoint pay back their lenders while raising funds they can use to buy more houses.

    A spokesman for Citigroup declined to comment.”

    I wouldnt say anything either—imagine what the PSA must look like–rules re rentals? imagine the misreresentations to investors–failure to cite risks and fees –this will be a huge legal fiasco

  4. + a word on “INVESTMENT BANKING”: http://www.youtube.com/watch?v=2RfVzDWS8R4

  5. Sorry Deb, but as you said: http://www.youtube.com/watch?v=zP7pgInSybI

  6. ….and its well documented that the socialistic personality wl initially do well in life but then around 40 to 60 will spiral down and self destruct. Per se ( how old is jame do we have to wait long )

  7. Yes guest ,
    As for land of the free Well that bears some thinking about . There’s that saying ” you can run but you can’t hide” exorcy when talking About ones self, can the perpetrators who caused all this ever find themselves- or honestly say ” I am responsible for my part in this” or do they waiver by saying well that’s. Just the way it is.

  8. Could it be…?

    And by the way… with China’s decision to trade in Yuan with all its partners comes a bigger even news: BRICS is now BRIICS. Indonesia just recently joined.

    Well, if a new world order allows me to eat everyday, not be forced vaccinated, not be forced to buy Monsanto, keep my house and have a decent job, I’m all for it.

    US probes major banks for money laundering: report

    By AFP
    09/16/2012 JP Morgan Chase and Bank of America are among several US banks under investigation for breaches that may have let money flow to terrorists or drug dealers, according to The New York Times.

    Officials told the newspaper they had launched one of the most aggressive crackdowns on money laundering in decades.

    Federal and state authorities are looking into the banks for their failure to monitor cash transactions through their branches that could have allowed the criminals to engage in money laundering, the paper reported on Saturday, citing several anonymous sources.

    Although the probe is not yet complete, regulators are close to taking action against JPMorgan, including a possible cease-and-desist order that would require the bank to fix any gaps in oversight, the Times said.

    Investigators are also looking into the activities of Bank of America and other Wall Street giants.

    JPMorgan was already in regulators’ crosshairs in 2011, accused of having violated US economic sanctions against Cuba and Iran.

    US authorities have recently blacklisted several large European banks and their US subsidiaries for illegally trading with the sanction-hit countries.

    British bank Standard Chartered, accused of having conducted illegal transactions with Iran, was forced to pay a $340 million fine in mid-August to avoid a Wall Street ban.

    And the US Federal Reserve and the Justice Department are also investigating the Royal Bank of Scotland for possible violations of the US sanctions against Iran, the Times previously reported.

  9. @Guest: re: “FDIC call report…”: good thoughts. I also think so.

  10. See naked capitalism blog – and listen to the interview with Matt Tiabbi and Yves Smith

  11. And yet, still a flicker of hope here and there. Hold on to those: the big picture isn’t very pretty.

    http://www.chicagotribune.com/business/sns-rt-us-foreclosures-courtcase-washingtonbre88d1of-20120914,0,6797058.story

    Virtually any foreclosed homeowner in the state in the past 15 years who feels they have been harmed in some way could file a consumer fraud suit.

    Bain: State court ruling deals blow to U.S. bank mortgage system
    “It’s going to be very easy for consumers to say they were harmed because it’s inherently misleading,” says Geoff Walsh, an attorney with the National Consumer Law Center. If consumers can’t identify who owns their loan, then they don’t know whom to negotiate with, and can’t even be certain of the legitimacy of the foreclosure.

  12. The only way something like this makes sense is if the administration’s intent is to keep favoring the banks. So far, no one has gone to jail and Barofsky clearly demonstrated how much thought went into the official description of foreclosed homeowners as “deadbeats”.

    @JG:

    I know you voted for Obama and believed him. So did I. As you, I resisted as long as I could concluding that he was not only not different but, in fact, worse than his predecessors. It is time to come to grips with reality. And make no mistakes: there is a reason for movements of HS military equipments nationwide. The writings have been on the wall for 4 years. We couldn’t read them: we wanted to trust. We no longer have that excuse.

    Foreclosure Victims Beware- Federal Agents ARE COMING AFTER YOU!
    September 15th, 2012 | Author: Matthew D. Weidner, Esq.

    The feds will not go after any of the masterminds of this ongoing financial crime spree. They will not go after any of the elected or appointed officials. They will not go after any of the banksters or forgers or ringleaders.

    BUT THE FEDS WILL COME AFTER AND PROSECUTE AMERICAN TAXPAYERS WHO DEFAULT ON THEIR MORTGAGES!

    “We are working with Fannie and Freddie to build a mechanism” to identify strategic defaulters, Wolfe said at a recent mortgage industry conference. So if you walked away from one property and bought another, chances are fairly good that the OIG is going to find you.

    If you conveniently left off the fact that you have an outstanding mortgage you failed to pay, or that you have a deficiency judgment against you for the difference between what you owe and what the house sold for at foreclosure, you’ve committed mortgage fraud.

    “Debts that haven’t been repaid don’t just go away,” said a Treasury Department official who asked not to be named. “It doesn’t matter whether it’s on your credit report or not.”

    If there is any indication that you falsified information on your new loan application, the OIG is “absolutely” going to refer you for criminal prosecution, Wolfe said. “We’re not just going to demand repayment,” he said.

    “We’re going to lock (people) up.”

    FORECLOSURE FRAUD

  13. I rest my case…

    Why Is The UPDATE…THE NDAA APPEAL….Federal Government Fighting So Hard To Drag Me Away And Send Me to A Secret Prison?
    September 15th, 2012 | Author: Matthew D. Weidner, Esq.

    Nothing Says, Land of The Free!

    Quite Like

    Indefinite Detention Without Trial!

    Have you heard of the NDAA? It was voted into law by US Senators and Representatives and quietly went into force on January 1, 2012, a day when all of Amerika was too busy nursing hangovers to realize the most staggering destruction of fundamental Constitutional rights occurred right under their drunken stupor noses.

    Section 1021- the dark side of terror.

    the most important thing to understand about the NDAA is the hotly contested Section 1021…that’s the section that the Obama administration specifically demanded be put into the legislation, that’s the section that was most litigated in the federal lawsuit and that’s the section that allows the feds to drag away an American citizen, hide him off in a secret prison and refuse to give him access to lawyers, judges, court system of any kind or any law at all….just POOF! and you’re gone….FOREVER.

    Now I know Obama probably doesn’t exactly have his sights on me…and I’m only using Obama because he’s the personification of the federal government…truth is I’d be even more terrified of Romney, but that’s a whole other story. I keep saying they’re out to get me just to make this whole terrifying legal argument very real. But when you read the actual Order issued by federal judge Forrest, pay attention to all the conversation and treatment given to reporters and people who are exercising their First Amendment rights…like me. People cannot just think, “Hey, who cares about that leftie journalist Chris Hedges, lock him up, torture him…who cares….ain’t me!” That’s the point…you’ve got to make it personal…vision very clearly that it’s YOU that they are exercising Section 1021 against….try that on…imagine that terror…feel it….live it.

    Go ahead, read the full opinion here

    Anywhoo…that 113 page opinion isn’t enough….the Obama administration will not back down. They will not accept the ruling of a damn federal judge….they are actually appealing her most thoughtful Order

    WELCOME TO AMERIKA 2012!

  14. Again, in light of what Neil Barofsky stated to Mandelman, the following makes absolute sense. From the onset, the decision was made to favor the banks at the expense of the country. It was intentional and deliberate. If it doesn’t cause a revolution, I don’t know what will. And don’t expect anything different regardless who is elected: Obama and Romney have proved to be on the side of the banks and will not hesitate to crush demonstrations, riots or any explosion of long-overdue rage.

    Saturday, September 15, 2012
    Marcy Wheeler: Lanny Breuer Admits That Economists Have Convinced Him Not to Indict Corporations

    Yves here. Marcy’s find reads like an account from an alternative reality. Unfortunately, it’s increasingly the one we live in.

    By Marcy Wheeler. Cross posted from emptywheel

    I’ve become increasingly convinced that DOJ’s head of Criminal Division, Lanny Breuer is the rotting cancer at the heart of a thoroughly discredited DOJ. Which is why I’m not surprised to see this speech he gave at the NYC Bar Association selling the “benefits” of Deferred Prosecution Agreements. (h/t Main Justice) He spends a lot of his speech claiming DPAs result in accountability.

    And, over the last decade, DPAs have become a mainstay of white collar criminal law enforcement.

    The result has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts. Companies now know that avoiding the disaster scenario of an indictment does not mean an escape from accountability. They know that they will be answerable even for conduct that in years past would have resulted in a declination. Companies also realize that if they want to avoid pleading guilty, or to convince us to forego bringing a case altogether, they must prove to us that they are serious about compliance. Our prosecutors are sophisticated. They know the difference between a real compliance program and a make-believe one. They know the difference between actual cooperation with a government investigation and make-believe cooperation. And they know the difference between a rogue employee and a rotten corporation.

    [snip]

    One of the reasons why deferred prosecution agreements are such a powerful tool is that, in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea: when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement. All of these components of DPAs are critical for accountability.

    But the real tell is when he confesses that he “sometimes–though … not always” let corporations off because a CEO or an economist scared him with threats of global markets failing if he held a corporation accountable by indicting it.

    To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. [my emphasis]

    None of this is surprising, of course. It has long been clear that Breuer’s Criminal Division often bows to the scare tactics of Breuer’s once and future client base. (In his speech, he boasts about how well DPAs and NPAs have worked with Morgan Stanley and Barclays, respectively.)

    It’s just so embarrassing that he went out in public and made this pathetic attempt to claim it all amounts to accountability.
    Read more at http://www.nakedcapitalism.com/2012/09/marcy-wheeler-lanny-breuer-admits-that-economists-have-convinced-him-not-to-indict-corporations.html#z5SgDu6zz1BQ6VzX.99

  15. This is it for us. People don’t realize the implications of the following for not only China and all its economic partners but especially for us.
    And Bernanke’s announcement of Wednesday is sealing the fate of this once-prosperous country. Our moribund economy cannot and will not return. We owe it to 40 yeaqrs of catering to the banks and systematically destroying our middle class.

    Dollar No Longer Primary Oil Currency
    As China Begins To Sell Oil Using Yuan

    http://www.examiner.com/article/dollar-no-longer-primary-oil-currency-as-china-begins-to-sell-oil-using-yuan

    Dollar no longer primary oil currency as China begins to sell oil using Yuan

    SEPTEMBER 12, 2012
    BY: KENNETH SCHORTGEN JR

    Oil Sources for China
    Credits: Courtesy of TIme, Facts Global Energy

    On Sept. 11, Pastor Lindsey Williams, former minister to the global oil companies during the building of the Alaskan pipeline, announced the most significant event to affect the U.S. dollar since its inception as a currency. For the first time since the 1970’s, when Henry Kissenger forged a trade agreement with the Royal house of Saud to sell oil using only U.S. dollars, China announced its intention to bypass the dollar for global oil customers and began selling the commodity using their own currency.

    Lindsey Williams: “The most significant day in the history of the American dollar, since its inception, happened on Thursday, Sept. 6. On that day, something took place that is going to affect your life, your family, your dinner table more than you can possibly imagine.”

    “On Thursday, Sept. 6… just a few days ago, China made the official announcement. China said on that day, our banking system is ready, all of our communication systems are ready, all of the transfer systems are ready, and as of that day, Thursday, Sept. 6, any nation in the world that wishes from this point on, to buy, sell, or trade crude oil, can do using the Chinese currency, not the American dollar. – Interview with Natty Bumpo on the Just Measures Radio network, Sept. 11.

  16. JG,

    You need to listen to Neil Barofsky’s interview by Mandelman. I posted the links to the podcast on the previous page. It’s long but well worth it. And it will explain to you how that entire racket was, by design, conceived to “foam the runway for the banks” (Geithner’s own expression to justify the intentional fiasco that HAMP, HARP and all other government programs have been thus far.

  17. JG,

    Bi design, there are almost never any foreclosure proceeds. As soon as a homeowner defaults, the servicers start piling up fees upon fees. in addition, they have costs associated with the foreclosure (appraisal, advertising, legal, etc.) Servicers have made it a point to blow up their alleged expenses to a point where, even if the house is sold, there is nothing left once their “expenses” have been paid. It is even more so in judicial states where they can blow their legal expenses as much as they please.

    As long as the house hasn’t been sold, servicers allege maintenance expenses, taxes and what not, once again to assure that there is absolutely no money to disburse.

    That’s why you will see houses originally valued at $300K being sold after foreclosure for as little as $20 or $30K: servicers only do what it takes for them to break even. If they were to make any profit, they would have a major headache with trying to find out who the investors are and who the trustee really is. By making sure there isn’t anything left after the sale, they spare themselves that headache. Disgusting? You bet! Actionable? Probably not, as long as the investors don’t balk and start suing. And since no one can trace the money back to them anyway, who’s going to sue? And on what grounds?

  18. @usedkarguy – If I got what you said, it means the investors did not buy the loans, were never meant to buy the loans (as I have thought) and therefore, the investors have no recourse against the homeowner. You said, I think, that a foreclosure ends any obligation of the pimp to the investors.( Okay, but what happens to the f/c proceeds? I’ve asked lots of times. No one seems to know.) And at the same time the jerk’s obligation ends to the investors, he is collecting some form of default insurance. He also taps fha, va, and any private mtg insurance the borrower had the privilege of paying for, and he probably does this without reference to (i.e. disclosure) his other default insurance. And somewhere underlying these facts is the fact that the loans were either not fully owned by the jerkies which precluded turning them into or selling derivatives nor could the loans be used again as cdo’s to the investors because the loans are already encumbered, and that encumberance includes a right of recourse against the borrower or could result in a right of recourse against the borrower by the someone else for some breach by the jerky.
    Funding loans with loc’s is as old as mud. So something changed. NG says the investor funds (doesn’t he?) were used for the warehouse lines and just not paid off and the loans were shuffled off to NY with that same liability, guess you’d call it, (I cannot in fact describe it) outstanding and put into (or not) trusts that didn’t know (or did) they’d funded them; either way, he says, as I get it, can’t do. Others believe the guy who funded the loan was never paid off. Yet others say the banks were allowed to create money, so if that’s true, when a loan was funded, the bank just created the money to fund it, so what’s to pay off? Pretty confusing.
    What matters to me right now is WHO has the right of recourse against the homeowner and why, and I don’t think it’s the investor. And I’m with ukg on that one; if there is a right of recourse remaining in this mess, it’s probably held by the same schlep who took any write-off. But then I say, what write-off? There isn’t one if that guy got cds and other insurance. Yes, confusing. Now throw in the true sale deal. But to keep up the charade it’s the investors, or because it’s easier, the secn trustee is the go-to guy for recourse against the borrower even if he doesn’t have it (remember those presumptions I always say courts are making – they gotta go, yesterday)

    Carie says on sub-prime refi’s, they falsely defaulted the existing loan.
    UKG says it’s foreclosure (right?) which ends the jerky’s liability to the
    investor, so if that’s true, what did the jerky do? Fake a foreclosure?

  19. JG,

    The securitization (or lack thereof) has been a bone of contention for many people for three years but, up until recently, it didn’t fly in most courts. Many people tried it after reading on sites such as this one that it was THE argument that would make or break the deal. What tnharry and I guarded people against was playing exclusively that card (which still today is extremely risky and many courts despite MSM finally getting it) at the expense of other more solid, true and tried arguments.

    Many have tried to play the securitization card denying having ever obtained a loan. That’s what pissed judges off and killed off many defense cases. Two wrongs don’t make a right.

    Anon has been fighting in court for over 10 years and is fortunate enough to have pro bono representation. It allows her to bring up arguments most people don’t have the luxury to use and it comes with certain risks (contempt of court, fines and the likes) few people can afford. in addition, she does have an MBA in finance and she understands the securitization process to a T. Again, few people in foreclosure have that luxury. The worst anyone can do is pick the most risky defenses and completely ignore Respa, Fila, Tila, Fdcpa, Ucc, etc. Because when all is said and done, those are the defenses that are more likely to prevail and have proved to bring the most success.

  20. @JG…
    You very astutely emphasize ..

    .”I don’t know why he (Paulson) is saying the govt owned the real estate.”

    A) Prior to the RTC and FIRREA legislation of Congress…
    Savings and Loans existed…
    those Local financial entities which made the home mortgage to the homeowner…within the S & L’s own ratio of permitted FIAT currency. (versus the repeal of Glass Steagel)

    Such fact is all OK….(absent the moral. “….” of the Wall Street bankers
    ….because the mortgagee, the S & L, actually was AND remained the legal…real party in interest vs., now who knows who the check for the monthly home payment mortgage should indicate as PAY TO THE ORDER OF……or if the payment is actually entetered on the homeowner’s payment records?

    B) Also..whole mortgages means that, at that point in time, there was not participating lenders …including thereafter,…. Trustees which purportedly represented investors under an INTENDTURED TRUST.

  21. Remember, the brick walls are there for a reason. The brick walls are not there to keep us out. The brick walls are there to give us a chance to show how badly we want someting. Because the brick walls are there to stop the people who don’t want it badly enough. They’re there to stop the other people.

  22. THE AMERICAN PEOPLE HAVE BEEN BETRAYED BY OUR GOVERNMENT! No doubt about it. Shamless power seeking and financial Physcopaths!

  23. De Marco maintains that upside down home owners are a moral hazard and principal reductions will not be allowed. But by use of his left hand, De Marco still let’s Wall Street buy stolen homes for pennies on the dollar. Congress has, No courage, No Honor, I have No Faith in this government until they jail DeMarco and his gang of thieves ! . .

  24. @johngault

    Well, in a nutshell—her “flat tire” was that she was in litigation, and did her own extensive research (over several years) when things weren’t making sense…her background is finance.
    Since I don’t really want to put my email up here again, I will find the info you seek and re-post.

  25. carie – give me yours. sorry. I told you I’d explain, and I don’t really need the proof, tho i’ll look at it; I just wanted to know what started anon down that path and apparently I’m never to know. What was her flat tire? Mine was seeing some outfit alleging to be a nominee of lenders and doing foreclosures in its name. Then I found the Boyko decision in Ohio and kept going.

  26. Yup. Unsecured debt. Everybody called me a nutcase when I said that here over a year ago…including tnharry.

  27. no true sale, no surrender of control. Originator surreptitiously used lines of credit for loans, never delivered them (mortgaged assets) to the Trustee (nor were they intended to be). The debt was collateralized with stock, not the houses. Now the “reference obligations”, tied to the CDO or CDOsquared, are controlled by the sponsor/servicer/originator, giving them the control they needed to deceive the market. There was no way the bonds could survive without the servicer crushing the borrowers with fees to force default and then collecting from counterparties, and ultimately the US Taxpayer. Foreclosure closes the book on these “putback” loans, enabling further collection of claims from insurers (unless you have put YOUR bond insurer on NOTICE for the FRAUD in your LOAN). Secured borrowing against non-existent assets is ENRON 101. Guest, Soliman illustrated this years ago. The issue goes right to the heart of the fraudulent debt collection that IS FraudClosure. Sans the assignment there is no clorable claim to title. They’re naked sellers of the unsecured debt. The trick is to find out WHO TOOK THE WRITEOFF?

    ” We–the financial institutions are clogged with illiquid loans, so what we need to do is quickly buy those loans. They won’t be giving us control of real estate, but this–we need to manage these assets and manage them quickly, and that, that is what we have in front of us today.”
    In other words, the debt (notes) have been extinguished, all that remains is the charade of fraudulent foreclosure to keep the myth alive…..the debt is unsecured.
    Not legal advice, just the rantings of an out-of-control Dago.

  28. FDIC call report says:

    “No party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to do so.

    “If a transfer of a portion of a financial asset does not meet the definition of a participating interest, both the lead lender transferring the nonqualifying participation and the party acquiring the nonqualifying participation must account for the transaction as a secured borrowing with a pledge of collateral.”

    I am a bit confused about how this applies in foreclosures. I would greatly appreciate input from anyone here who can simplify the FDIC report. I think this relates to Neil’s article, but I don’t understand much about the world of high finance.

    FDIC call reports have stated that the original lender’s involvement was secured borrowing and did not constitute a true sale. But don’t the PSAs governing the trust require that transfers of the security interest be by a true sale?. The purchaser would gain full control of the asset in a true sale, if the seller had full control of the asset. I think this is where the fraud falls apart, because the first indorser did not have full ownership (control) of the asset. The original lender’s level of participation was stated in a participation agreement, but was never disclosed to the maker of the note.

    The UCC states that the security interest attaches from a true sale. We know that the original lender received a fee or commission, so it had very limited control over the asset when it was assigned. The transferee can only take from the transferor what the transferor owned and transferee can enforce against the defaulted maker of the note only the amount of the transferee’s loss.

    The mortgage brokers or original “lenders” had a participation agreement with a purchaser, generally no more than five percent of the loan amount for its origination services. The FDIC says accounting for the loan should be categorized as secured borrowing, not a sale. Doesn’t this mean the foreclosures based on the full amount of the note have no foundation beginning at the first indorsement from the original lender?

    Maybe homeowners are being sued for the entire note amount by someone who might have assigned down the securitization chain its title to less than 5%.

    The FDIC call report is here:

    http://www.fdic.gov/news/news/inactivefinancial/2010/fil10011b.pdf

    The quote above is found at the top of page four.

  29. What happens on the other side of the pond stays on the other side of the pond. Adoboli faces criminals charges but we just gave Jamie boy $23 millions for a performance which, according to Fannie Mae, didn’t have to be “necessarily good”.

    Is that a great country or what?

  30. Caire you have my email send me a copy. Thanks. A judge in the state of Wa just told an attorney in court that the Bains V MERS En Banc case law is not significant in his court room. That tells me his court room is a crime scene. and he is committing treason and breach of oat of office.

  31. @johngault

    Please give me your email address so I can send you the information you asked about—about the proof of Fannie/Freddie false default (which I have posted before but I guess you never saw it)—apparently your old email address isn’t working because I sent you an email and you never responded…thanks.

  32. @steve – I don’t know what the point is there. They were “whole” loans because they weren’t allegedly sliced and diced with deriv interests sold. I don’t know why he is saying the govt owned the real estate. GNMA, FNMA, and FHLMC only owned foreclosures. As noteowning ‘mortgagees’, they had rights on conditions subsequent to
    own property thru foreclosure and only then. Why Paulson says buying these “illiquid” loans won’t give them control of real estate, got me. It sort of sticks out – don’t know what he is trying to justify.

    I am missing his point and I guess your’s. The govt agencies would be in the same positions they were in prior to sec’n if they bought those loans (but exactly from whom would they be buying them – seems to me that’s the 64b dollar question) with maybe one big exception: guarantees, if there were guarantees, and the agencies buying the loans accepted the guarantees as part of the purchase, assuming the loans weren’t sold multiple times, which probably wouldn’t have happened if assgts were executed and recorded.
    You know, those agencies were set up, at least ostensibly, to make for liquidity in the home lending business. If the deal weren’t working, if it were broken or breaking, it would be as a result of default numbers. Anytime there has been potential to have someone else take the hit, lenders have become more reckless. Knowing this, the agencies should have hired more spot auditors, but being in bed with the
    MBA, I guess they chose not to.
    So they all got together and decided to shuffle off the risk to some other folks instead of the alternative: tightening underwriting standards (and more spot audits). I remember having an idea about a way to further spread the risk myself (and therefore minimize to any one party or entity the hit), so it should be no surprise to me that others did as well. A lot of things could have been done differently to legitimately accomplish spreading the risk, like only selling whole loans and not derivatives, and I do believe that’s what investors thought they were buying (a group of whole loans) with rights of recourse (fooled by WS double speak). I don’t believe the investors have bought what they thought even if it were done not considering NG’s propositions. Is this what Obama referred to as immoral but not illegal
    (never minding momentarily the other bad acts, like loans designed to fail)?

    I’m too unsophisticated to know why WS et al did it that way in the first place (derivs), after the agencies and the mtg bankers rejected any idea to tighten underwriting standards, and we could talk a lot about that one, though it wouldn’t change anything that’s happened. But, apparently, once Wall Street saw the potential for gazillions, with the help of the MERS’ cover and the known unreliability of that system, egos took over and here we are.
    MERS HAS TO GO and any institution that is or can be perceived as
    too big to fail has to go with it. How can it be otherwise? Securitization has to go, also. They (MERS et al ) are trying to fine-tune (or is it just tune?) their equipment as we speak to allegedly 86 all the errors and bs the system enabled and accomodated which contributed to this mess (and they want an entirely, instead of partly, paperless process to boot). I shudder to think. So what can we do, really, to get rid of MERS, tbtf’s and securitization? Who is going to refuse to sign
    a MERS’ MOM? Why isn’t the occupy movement all over this? They seem to be attacking the symptoms instead of the problems.
    MERS HAS TO GO

  33. All….

    “in those days, there were whole loans”

    Tom Brokaw interviewed Secretary of Treasury Henry Paulson concerning the financial stress facing our county.

    Excerpts from MEET THE PRESS transcript – statements made by SECRETARY PAULSON on September 21, 2008…

    “What has gone on here is terrible, it’s unexcusable, and we need to deal with it. …–we have a problem in our capital markets that’s urgent to deal with”…….“a lot of people talk about the RTC. The RTC was set up after a broad group of savings and loans failed. And, in those days, there were whole loans, and the government owned the real estate, and you needed an agency to work out of the real estate. Here, we’re preventing failure. We–the financial institutions are clogged with illiquid loans, so what we need to do is quickly buy those loans. They won’t be giving us control of real estate, but this–we need to manage these assets and manage them quickly, and that, that is what we have in front of us today.”

  34. sorry WATCH OUT : NOT WHAT OUT

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