Optical Illusions and Cognitive Delusions Are the Foundations For Erroneous Decisions by Homeowners, Their Lawyers, and Judges

By the time most lawyers are retained to represent a homeowner, the homeowner has already created damage. The lawyer’s task is magnified by the need to first perform damage control before asserting claims and defenses. The bottom line is that homeowners lack credibility when they assert defenses that conflict with their own behavior and their own prior statements.

It was back in 2006 when I decided to do something about what the investment banks were doing in the lending marketplace. The biggest mistake I made was grossly underestimating the power of groupthink. Running a close second to that mistake, I grossly overestimated the ability and willingness of the public to overcome their ignorance of the methods and results of securitization.

My message was simple. There was no securitization of debt. Any claims regarding the right to administer, collect or enforce any debt in the context of securitization claims were false. By definition, securitization of debt requires sale of the debt. By definition, sale of the debt requires purchase of the debt, which is then reflected on accounting ledgers.

This simple scenario simply was not happening. But Wall Street was saying that it was happening because they needed to say that in order to claim a foundation for their claims of securitization of debt (false) and their ability to enforce.

None of it was true. [Not even for transactions that were initially conventional loans]. There has been no truth to this since the investment banks entered the lending marketplace for homeowners around 1995. But the investment banks were smart enough to employ the main tactics of every successful scheme: (1) develop a national narrative, (2) use false labels that are promoted into common usage and (3) get everyone involved addicted to the flow of money. Compare with OxyContin and Madoff.

It seems that the biggest obstacle to changing the trajectory of enforcement and Foreclosure had already been studied repeatedly by psychologists and sociologists around the world. We humans have an irrational belief in our own choices. The more ignorant we are, the more confident we tend to be in our abilities to handle a situation.

This phenomenon actually has a name: the Dunning-Kruger effect. Wall Street banks have actually weaponized this effect. It results in optical illusions and cognitive delusions in which the observer has complete confidence.

Both homeowners and institutional investors came to believe that transactions with homeowners could be described as mortgage loans, simply because the intent of the homeowners was to obtain a loan and the homeowners executed documents that are normally associated with the origination of a mortgage loan. One could say that this is an optical illusion that result in a cognitive delusion.

It is an illusion in most cases because the transaction was not intended to produce a business case for earning revenue or profit from the receipt of interest from homeowners. The business case for the apparent “lender” (false label) was strictly limited to the sale of securities. Without the sale of securities that simply would have been no transactions at all with homeowners.

Yes, they might have secured a conventional loan from someone else but a real lender would have had a stake in the viability of the loan, the payment of interest and the return of principal. A real lender would have an interest in using the lowest possible appraisal from the highest quality appraisers.

A real lender would not have offered money without any assertion or proof of income, assets, job, or any other possibility of making payments. A real lender would not have offered low payments just to close the deal followed by crushing payments that could never be paid.

And a real lender would not have accepted the skyrocketing prices of assets that were far above any standard metric for the valuation of assets. Home values reflect median income. Wall Street changed that metric to home values reflecting the availability of cash in transactions that were immediately damaging to homeowners.

Wall Street is not stupid. They have always understood that they could increase, pressure for a bubble and make money trading securities based upon rising prices. And they have always known that they could bet against the market, knowing it would crash.

And since the attributes of a loan transaction were irrelevant to the investment banks, they eliminated the essential role of a loan account or any account receivable that was due from the homeowner. This one feature enabled them to sell a virtual debt dozens of times without liability for the fraudulent sale of an actual debt more than once.

Continual use of labels has produced a level of groupthink that should be compared to concrete. Almost everyone except the labels of “trustee” “trust,” “servicer,” etc. as if those labels could be trusted as a description of a company that is claimed to be acting in a certain role. None of that is true either. Even the claim is an illusion because when you dig down you find that the company on the letterhead never made the claim — someone else produced the document or pleading.

And the biggest obstacle for homeowners, therefore, is their understandable lack of motivation into wading into a pool of terms and business models about which they know nothing.

It’s a problem because in the period between the origination of their false transaction and time of enforcement they have accepted, admitted and even used the same terms that were asserted by machines and remote persons who have only one goal in mind — make more money through foreclosure for profit rather than a foreclosure to reduce a nonexistent loan account.

It’s a missed opportunity because if there had been compliance with law, the investment banks would have been required to disclose their presence, indeed their dominance, in the origination of the homeowner transaction and to disclose the estimated revenue and profits that would be generated from the sale of securities. This is already the law, since the 1960s.

In turn, that would have resulted in homeowners bargaining for better terms including a bigger piece of the pie in exchange for accepting a virtual creditor instead of a real one. Homeowners were entitled to share in the revenue generated from the sale of securities because they were accepting a brand new risk — a virtual creditor with no risk of loss, whose interest was in selling securities (not a viable loan as required by the Federal Truth In Lending Act).

Early action by homeowners can create the foundation for both defenses and claims that are completely meritorious. But most homeowners are not motivated to even inquire into their rights or the status of the transaction that they called a “loan.”

By the time most lawyers are retained to represent a homeowner, the homeowner has already created damage. The lawyer’s task is magnified by the need to first perform damage control before asserting claims and defenses. The bottom line is that homeowners lack credibility when they assert defenses that conflict with their own behavior and their own prior statements.


Excellent post!
This is why a great target for subpoena and deposition is the “label’s” assigned “Risk Manager.” This party is often named in the PSA and is really the PMK, not the robo-witness who shows up on behalf of both the label and the trustee. It is the “Risk Manager” that instructs all parties to do what they do. The Risk Manager knows where the bodies are buried, and if not, the label will have a hard time explaining its rights to enforce anything and the harm it has suffered.

Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford.
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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.

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One Response

  1. The problem is that the government bailed-out the fraud for investors, but left homeowners to battle the fraud in court – on the very fraudulent documents that continue to circulate despite the investor bail-out – that the government knows are fraudulent – because they bailed-out the investors.

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