Here is the Answer to Guilt About the “Free House” — the one the banks don’t want you thinking about.

Imagine we are in a new era, where disclosure was full and complete to investors and borrowers.

The deal pitched to investors is simple: the investment bank gets your money and uses it to buy debts, notes and mortgages. The purchased loans (including the debts) will be put into a portfolio and the investors grant ownership to a trust with the investors as beneficiaries. [Instead of the investment bank as beneficiary under a secret trust agreement.]

The investment bank promises to use its best efforts,  (1) to pay cash flow to investors equal to a specified interest rate, and (2) multiply the investment through issuance of complex derivatives.

The investment bank shares in the investment through administration fees and sharing in profits from the sale of complex derivative instruments whose value is based upon the certificates purchased by investors.

In the end, the investors receive the stated rate of return on their investment plus a return of 200% in capital gains. The investment bank earns profits in excess of 600% of the investment by investors.

So the investors get back whatever principal is paid on the loans plus 200% of their investment plus interest. Good deal.

Since all of this is disclosed in detail, there is no conceivable problem anyone could have in such an arrangement. Bravo to the investors and investment banks.

The pitch to borrowers is equally simple: the borrower gets a loan in a specified amount at a stated rate of interest subject to specific payment terms. The lender is the trust. In addition the borrower becomes an investor in their own loan in which the investment bank premises to use its best efforts to obtain profits such that borrowers could receive up to 200% of the loan over a period of time.

In the end, the borrowers receive 200% of their loan which is required to be allocated toward payment of interest and principal. The investment bank receives in excess of 600% of the loan amount which is different from the invested amount received from investors.

Since all of this is disclosed in detail, there is no conceivable problem anyone could have in such an arrangement. Bravo to the borrowers and the investment bank.

The entire plan generates 1200% of invested capital and 1600% of loan balances. Everybody pays tax on their gains. The plan is completely legal and doable as long as investors invest and borrowers borrow.

Nobody has a problem with that scenario except the investment banks who want to keep all of the excess gains derived from issuance, sale and trading in complex derivative instruments using money from investors and collateral from borrowers.

Investors get a free investment with profit. The borrowers ultimately get a free house and some profit. The free house doesn’t seem so outlandish, does it?

Everything I have described above is what is happening with three exceptions: there is no disclosure of excess profits from sales and trading in complex derivatives and neither investors nor borrowers share in a business plan that requires their investment of money and collateral. In addition virtually no taxes are paid on the gains. They don’t share because they didn’t know.

 

 

11 Responses

  1. All money laundering we don’t want to be a part of. We want our stolen houses back and restitution for all harm done before the next manufactured crash and bailout profiteering.

  2. […] via Here is the Answer to Guilt About the “Free House” — the one the banks don’t want you thinki… […]

  3. Bob G. maybe this will help. https://www.youtube.com/watch?v=-Kt0kT4gkD0

  4. Well of course there’s a problem. Securitization, as it’s designed, would have done a good job all by itself. But the Banks make their highest profits when there is dissension. They NEED dissenting parties. This last financial scandal wasn’t brought about by ignorant employees not doing their jobs. Instead, it was highly trained Professionals employing the techniques taught to them, again by more highly trained Professional Psychological Analyst’s who both had all decided their profits were worth more than the sanctity of any monetary system AND/OR the citizens of every country on the Planet. That being said, the problem lies in the fact that Banks NEED to go “to the Brink” before they can rape the Govt.’s and the People everywhere over a very short period of time… it’s the only way they can prove to themselves their own superiority. Design another system? They’ll just put their heads together and figure out a way, using fraud, dissemination of lies, obfuscation of truth, existing institutional ignorance (Legal Industry), existing Institutional Greed (Legal Industry again) and any other way their well paid Professional Psychologists can think of that can be used without incurring the wrath of the populace actually dragging them out of their offices and chopping off their heads.

  5. Specialized Loan Servicing. Are specialists at debt collecting and fraudclosing on UNSECURED debt. They are lowlife criminals. Nothing more. And getting away it …….. SO FAR.

  6. Specialized Loan Servicing. Are specialists at debt collecting and fraudclosing on UNSECURED debt. They are lowlife criminals. Nothing more. And getting away it ……….. SO FAR.

  7. I have to agree with Bob G and Ian here. This is not what occurred in practice. First of all, a “trust” is not a legal entity (unless they are incorporated). Second, title is not passed through to beneficial security investors — only current “cash” is passed through. Third, a fiduciary trustee is the legal holder. But these trustees “hold” nothing. Servicers hold everything — including for derivatives which are contracts – and not securities. If you have one of these non- bank Servicers, they are simply “debt collectors” for undisclosed debt buyer – who was, originally, the security underwriter – but not anymore. .

    We don’t know WHO is actually “cashing in” on current payments or foreclosures. All is kept in secret, despite TILA, RESPA, and FDCPA laws.

  8. Blowjob Bob C canned the Glass Steagall Act in 1999 and the doors to fraud was broken down – then ENRON ended “capitalism” – you cannot have capitalism without capital. Your “mortgage” is an investment contract, only you were not told! BoB G, it sure does not make any common law sense only when you learn the convoluted language of “legalese” does it work.

  9. That is what we are going to force the “Judge” to understand !!!

  10. I think that if this were the case, as far as the investors and borrowers are concerned , there would have been people lined up day and night to buy more houses and take out more mortgages. But as it turns out, as Neil so aptly put it, only the investment banks made these enormous gains. And are still making them.
    When entire tranches and pools of MBS lost up to 90% of their value, the investment banks made even more money via CDS, while the investors lost their money, and the borrowers had their homes foreclosed. All done with careful planning and implementation.

  11. sorry, but none of this makes any economic sense to me.

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