British Government Getting Tough on Bankers

The Barclay Libor rigging scandal is apparently the straw that broke the Camel’s back in Great Britain. With various investigations of their co-conspirators in artificially creating moments in interest rates, the scam is unraveling. And in the balance, lies between $500 and $600 TRILLION dollars. How could that much money be effected when all the money in the world amounts to less than $70 Trillion? What the hell IS money anyway?

All these things are becoming less exotic and increasingly the subject of investigation, prosecution, conviction and sentencing in every place but the United States, where at this point in the savings and loan scandal of the 1980’s more than 800 people were already in jail. The British authorities are leading the way in Europe taking their cue from Iceland of all places, where prosecution of bankers has become the nation’s goal — bringing justice to the marketplace and bringing back certainty that those who play with the free Markets will be punished.

Iceland’s surge back to prosperity has been painful but they did it it because they forced the banks to accept “debt forgiveness” which is to say they merely forced the banks to admit that the debtors had been placed so far in debt with no assets or income to pay for the debt that it was
NOT going to get repaid anyway. That meant some of the assets on the balance sheets of the three biggest banks were worthless. Three banks failed and everyone held their breadth. Nothing bad happened. In fact the rest of the banking sector is prospering along with the rest of the Iceland economy.

In the U.S. Regulators and prosecutors seem to remain completely invested in the myth that bringing the banks and bankers to justice will bring down the entire financial system. It isn’t so and we know that because wherever the governments have cracked down on the financial services industry the economy got better — Iceland being only the latest example.

Back to the question: how could some reptilian behavior create more money than government allows and why is the government allowing it anyway? How could all the currency in the world be $70 trillion and the amount of money effected by the Barclay manipulation of Libor be ten times that amount, which is to to say ten times all the money the world? The answer is that it can’t. And the longer we pretend that it can, the longer and deeper will be the recession. The more we pretend that those exotic securities sitting in bank balance sheets are actually worth all that money, the longer we prolong the agony of the society that allows banks to exist. Those banks relying on fake assets should fail. It is that simple.

See Gretchen Morgenson’s article in the Sunday business section of the New York Times for a clear explanation of right and wrong and how the British are trying to get it right.

Arizona Supreme Court Hogan Case Holds that Note is Not required to Start Foreclosure

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the trustee owes the trustor a fiduciary duty, and may be held liable for conducting a trustee’s sale when the trustor is not in default. See Patton v. First Fed. Sav. & Loan Ass’n of Phoenix, 118 Ariz. 473, 476, 578 P.2d 152, 155 (1978).” Hogan Court

Editor’s Comment: Here is another example of lawyers arguing out of a lack of understanding of the securitization process and trying to compress an elephant into a rabbit hole. They lost, unsurprisingly.

If you loaned money to someone, you want the money repaid. You DON’T want to be told that because you don’t have the note you can never enforce the loan repayment. You CAN start enforcement and you must prove why you don’t have the note in a credible way so that the court has footprints leading right up to the point that you don’t have the note. But the point is that you can start without the note. 

The Supreme Court apparently understood this very well and they didn’t address the real issue because nobody brought it up. The issue before them was whether someone without the note could initiate the foreclosure process. Nobody mentioned whether the same party could submit a credit bid at the auction which is what I have been pounding upon for months on end now.

Apparently, right or wrong, the feeling of the courts is that there is a very light burden on the right to initiate a foreclosure whether it is judicial or non-judicial. It is very close to the burden of the party moving to lift stay in a bankruptcy procedure. Practically any colorable right gives the party enough to get the stay — because the theory goes — whether it is a lift stay or starting the ball rolling on a foreclosure there is plenty the borrower can do to  oppose the enforcement procedure. I don’t agree with either standard or burden of proof in the case of securitized mortgages but it is about time we got real about what gets traction in the courtroom and what doesn’t.

In the Hogan case the Court makes a pretty big deal out of the fact that Hogan didn’t allege that WAMU and Deutsch were not entitled to enforce the note. From the court’s perspective, they were saying to the AG and the borrowers, “look, you are admitting the debt and admitting this is the creditor, what do you want from us, a free pass?”

This is why you need real people with real knowledge and real reports that back up and give credibility to deny the debt, deny the default, deny that WAMU and/or Deutsch are creditors, plead payment and force WAMU and Deutsch to come forward with pleadings and proof. Instead WAMU and Deutsch skated by AGAIN because nobody followed the money. They followed the document trail which led them down that rabbit hole I was referencing above.

In order to deny everything without be frivolous, you need to have concrete reasons why you think the debt does not exist, the debt does not exist between the borrower and these pretender lenders, the debt was paid in full, and deny that the loan was NOT secured (i.e. that the mortgage lien was NOT perfected when filed).

For anyone to do that without feeling foolish you must UNDERSTAND how the securitization model AS PRACTICED turned the entire lending model on its head. Then everything makes sense, which is why I wrote the second volume which you can get by pressing the appropriate links shown above. But it isn’t just the book that will get you there. You need to give rise to material, relevant issues of fact that are in dispute. For that you need a credible report from a credible expert with real credentials and real experience and training.

I follow the money. In fact the new book has a section called “Show Me the Money”. To “believe” is taken from an ancient  language that means “to be willing”. I want you to believe that the debt that the “enforcers” doesn’t exist and never did. I want you to believe that the declarations contained in the note, mortgage (deed of trust), substitution of trustee etc. are all lies. But you can’t believe that unless you are willing to consider the the idea it might be true. That I might be right.

At every “Securitized” closing table there were two deals taking place — one perfectly real and the other perfectly unreal, fake and totally obfuscated. The deal everyone is litigating is the second one,  starting with the documents at closing and moving up the chain of securitization. Do you really think that some court is going to declare that everyone gets a free house because some i wasn’t dotted or t crossed on the back of the wrong piece of paper when you admit the debt, the default and the amount due?

It is the first deal that is real because THAT is the one with the money exchanging hands. The declarations contained in the note, mortgage and other documents all refer to money exchanging hands between the named payee and secured party on one side and the borrower on the other. The deal in those documents never happened. The REAL DEAL was that money from investor lenders was poured down a pipe through which the loans were funded. The parties at the closing table with the borrower had nothing to do with funding; acquiring, transferring the receivable, the obligation, note or the mortgage or deed of trust.

Every time you chase them down the rabbit hole of the document trail you miss the point. The REAL DEAL had no documents and couldn’t possibly be secured. And if you read the wording from the Hogan decision below you can see how even they would have considered the matter differently if the simple allegation been made that the borrower denied that WAMU and Deutsch had any right to enforce the note either as principals or as agents. They were not the creditor. But Hogan and its ilk are not over — yet.

There is still a matter to be determined as to whether the party who initiated the foreclosure is in fact a creditor under the statute and can therefore submit a credit bid in lieu of cash. THAT is where the rubber meets the road — where the cash is supposed to exchange hands. And THAT is where nearly all the foreclosures across the country fail. The failure of consideration means the sale did not take place. If the borrower was there or someone for him was there and bid a token amount of money it could be argued in many states that the other bid being ineligible as a credit bid, the only winning bidder is the one who offered cash.

————————————————————

Hogan argues that a deed of trust, like a mortgage, “may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation the mortgage secures.” Restatement (Third) of Prop.: Mortgages § 5.4(c) (1997); see Hill v. Favour, 52 Ariz. 561, 568-69, 84 P.2d 575, 578 (1938).

-6-
We agree. (e.s.) But Hogan has not alleged that WaMu and Deutsche Bank are not entitled to enforce the underlying note; rather, he alleges that they have the burden of demonstrating their rights before a non-judicial foreclosure may proceed. Nothing in the non-judicial foreclosure statutes, however, imposes such an obligation. See Mansour v. Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009) (citing A.R.S. § 33-807 and observing that “Arizona’s [non-]judicial foreclosure statutes . . . do not require presentation of the original note before commencing foreclosure proceedings”); In re Weisband, 427 B.R. 13, 22 (Bankr. D. Ariz. 2010) (stating that non-judicial foreclosures may be conducted under Arizona’s deed of trust statutes without presentation of the original note).

———————AND SPEAKING OF  DEUTSCH BANK: READ THIS AS GRIST FOR THE ABOVE ANALYSIS——-

Disavowal by-DEUTSCHE-BANK-NATIONAL-TRUST-COMPANY-AS-TRUSTEE-NOTICE-TO-CERTIFICATE-HOLDERSForeclosure-Practice-Notice-10-25[1]

Pandemic Lying Admission: Deutsch Bank Up and Down the Fake Securitization Chain

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Editor’s Comment:

One problem with securitization in practice even under the academic model is the effect on potential enforcement of the obligation, even assuming that the “lender” is properly identified in the closing documents with the buyer of the loan product and the closing papers of the buyer of the mortgage bonds (and we’ll assume that the mortgage bonds are real and valid, as well as having been issued by a fully funded REMIC in which loans were properly assigned and transferred —- an assumption, as we have seen that is not true in the real world). Take this quote from the glossary at the back of this book and which in turn was taken from established authoritative sources used by bankers, securities firms and accountants:

cross guarantees and credit default swaps, synthetic collateralized asset obligations and other exotic equity and debt instruments, each of which promises the holder an incomplete interest in the original security instrument and the revenue flow starting with the alleged borrower and ending with various parties who receive said revenue, including but not limited to parties who are obligated to make payments for shortfalls of revenues.

Real Property Lawyers spot the problem immediately.

First question is when do these cross guarantees, CDS, Insurance, and other exotic instruments arise. If they are in existence at the time of the closing with the borrower homeowner then the note and mortgage are not properly drafted as to terms of repayment nor identity of the lender/creditor. This renders the note either unenforceable or requiring the admission of parole evidence in any action to either enforce against the borrower or enforce the cross obligations of the new cross creditors who supposedly are receiving not just rights to the receivable but to the actual note and the actual mortgage.

Hence even a truthful statement that the “Trustee” beings this foreclosure on behalf of the “trust” as creditor (assuming a Trust existed by law and that the Trustee, and beneficiaries and terms were clear) would be insufficient if any of these “credit enhancements” and other synthetic or exotic vehicles were in place. The Trustee on the Deed of Sale would be required to get an accounting from each of the entities that are parties or counterparties whose interest is effected by the foreclosure and who would be entitled to part of the receivable generated either by the foreclosure itself or the payment by counterparties who “bet wrong” on the mortgage pool.

The second question is whether some or any or all of these instruments came into existence or were actualized by a required transaction AFTER the closing with the homeowner borrower. It would seem that while the original note and mortgage (or Deed of Trust) might not be affected directly by these instruments, the enforcement mechanism would still be subject to the same issues as raised above when they were fully actualized and in existence at the time of the closing with the homeowner borrower.

Deutsch Bank was a central player in most of the securitized mortgages in a variety of ways including the exotic instruments referred to above. If there was any doubt about whether there existed pandemic lying and cheating, it was removed when the U.S. Attorney Civil Frauds Unit obtained admissions and a judgment for Deutsch to pay over $200 million resulting from intentional misrepresentations contained in various documents used with numerous entities and people up and down the fictitious securitization chain. Similar claims are brought against Citi (which settled so far for $215 million in February, 2012) Flagstar Bank FSB (which settled so far for $133 million in February 2012, and Allied Home Mortgage Corp, which is still pending. Even the most casual reader can see that the entire securitization model was distorted by fraud from one end (the investor lender) to the other (the homeowner borrower) and back again (the parties and counterparties in insurance, bailouts, credit default swaps, cross guarantees that violated the terms of every promissory note etc.

Manhattan U.S. Attorney Recovers $202.3 Million From Deutsche Bank And Mortgageit In Civil Fraud Case Alleging Reckless Mortgage Lending Practices And False Certifications To HUD

FOR IMMEDIATE RELEASE                  Thursday May 10, 2012

Preet Bharara, the United States Attorney for the Southern District of New York, Stuart F. Delery, the Acting Assistant Attorney General for the Civil Division of the U.S. Department of Justice, Helen Kanovsky, General Counsel of the U.S. Department of Housing and Urban Development (“HUD”), and David A. Montoya, Inspector General of HUD, announced today that the United States has settled a civil fraud lawsuit against DEUTSCHE BANK AG, DB STRUCTURED PRODUCTS, INC., DEUTSCHE BANK SECURITIES, INC. (collectively “DEUTSCHE BANK” or the “DEUTSCHE BANK defendants”) and MORTGAGEIT, INC. (“MORTGAGEIT”). The Government’s lawsuit, filed May 3, 2011, sought damages and civil penalties under the False Claims Act for repeated false certifications to HUD in connection with the residential mortgage origination practices of MORTGAGEIT, a wholly-owned subsidiary of DEUTSCHE BANK AG since 2007. The suit alleges approximately a decade of misconduct in connection with MORTGAGEIT’s participation in the Federal Housing Administration’s (“FHA’s”) Direct Endorsement Lender Program (“DEL program”), which delegates authority to participating private lenders to endorse mortgages for FHA insurance. Among other things, the suit accused the defendants of having submitted false certifications to HUD, including false certifications that MORTGAGEIT was originating mortgages in compliance with HUD rules when in fact it was not. In the settlement announced today, MORTGAGEIT and DEUTSCHE BANK admitted, acknowledged, and accepted responsibility for certain conduct alleged in the Complaint, including that, contrary to the representations in MORTGAGEIT’s annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations. MORTGAGEIT also admitted that it submitted certifications to HUD stating that certain loans were eligible for FHA mortgage insurance when in fact they were not; that FHA insured certain loans endorsed by MORTGAGEIT that were not eligible for FHA mortgage insurance; and that HUD consequently incurred losses when some of those MORTGAGEIT loans defaulted. The defendants also agreed to pay $202.3 million to the United States to resolve the Government’s claims for damages and penalties under the False Claims Act. The settlement was approved today by United States District Judge Lewis Kaplan.

Manhattan U.S. Attorney Preet Bharara stated: “MORTGAGEIT and DEUTSCHE BANK treated FHA insurance as free Government money to backstop lending practices that did not follow the rules. Participation in the Direct Endorsement Lender program comes with requirements that are not mere technicalities to be circumvented through subterfuge as these defendants did repeatedly over the course of a decade. Their failure to meet these requirements caused substantial losses to the Government – losses that could have and should have been avoided. In addition to their admissions of responsibility, Deutsche Bank and MortgageIT have agreed to pay damages in an amount that will significantly compensate HUD for the losses it incurred as a result of the defendants’ actions.”

Acting Assistant Attorney General Stuart F. Delery stated: “This is an important settlement for the United States, both in terms of obtaining substantial reimbursement for the FHA insurance fund for wrongfully incurred claims, and in obtaining the defendants’ acceptance of their role in the losses they caused to the taxpayers.”

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www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  1/45/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

HUD General Counsel Helen Kanovsky stated: “This case demonstrates that HUD has the ability to identify fraud patterns and work with our partners at the Department of Justice and U.S. Attorney’s Offices to pursue appropriate remedies. HUD would like to commend the work of the United States Attorney for the Southern District of New York in achieving this settlement, which is a substantial recovery for the FHA mortgage insurance fund. We look forward to continuing our joint efforts with the Department of Justice and the SDNY to combat mortgage fraud. The mortgage industry should take notice that we will not sit silently by if we detect abuses in our programs.”

HUD Inspector General David A. Montoya stated: “We expect every Direct Endorsement Lender to adhere to the highest level of integrity and accountability. When the combined efforts and attention of the Department of Justice, HUD, and HUD OIG are focused upon those who fail to exercise such integrity in connection with HUD programs, the end result will be both unpleasant and costly to the offending party.”

The following allegations are based on the Complaint and Amended Complaint (the “Complaint”) filed in Manhattan federal court by the Government in this case:

Between 1999 and 2009, MORTGAGEIT was a participant in the DEL program, a federal program administered by the FHA. As a Direct Endorsement Lender, MORTGAGEIT had the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD for the costs associated with the defaulted loan, which HUD must then pay. Under the DEL program, neither the FHA nor HUD reviews a loan before it is endorsed for FHA insurance. Direct Endorsement Lenders are therefore required to follow program rules designed to ensure that they are properly underwriting and endorsing mortgages for FHA insurance and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting. These requirements include maintaining a quality control program, pursuant to which the lender must fully review all loans that go into default within the first six payments, known as “early payment defaults.” Early payment defaults may be signs of problems in the underwriting process, and by reviewing early payment defaults, Direct Endorsement Lenders are able to monitor those problems, correct them, and report them to HUD. MORTGAGEIT failed to comply with these basic requirements.

As the Complaint further alleges, MORTGAGEIT was also required to execute certifications for every mortgage loan that it endorsed for FHA insurance. Since 1999, MORTGAGEIT has endorsed more than 39,000 mortgages for FHA insurance, and FHA paid insurance claims on more than 3,200 mortgages, totaling more than $368 million, for mortgages endorsed for FHA insurance by MORTGAGEIT, including more than $58 million resulting from loans that defaulted after DEUTSCHE BANK AG acquired MORTGAGEIT in 2007.

As alleged in the Complaint, a portion of those losses was caused by the false statements that the defendants made to HUD to obtain FHA insurance on individual loans. Although MORTGAGEIT had certified that each of these loans was eligible for FHA insurance, it repeatedly submitted certifications that were knowingly or recklessly false. MORTGAGEIT failed to perform basic due diligence and repeatedly endorsed mortgage loans that were not eligible for FHA insurance.

The Complaint also alleges that MORTGAGEIT separately certified to HUD, on an annual basis, that it was in compliance with the rules governing its eligibility in the DEL program, including that it conduct a full review of all early payment defaults, as early payment defaults are indicators of mortgage fraud. Contrary to its certifications to HUD, MORTGAGEIT failed to implement a compliant quality control program, and failed to review all early payment defaults as required. In addition, the Complaint alleges that, after DEUTSCHE BANK acquired MORTGAGEIT in January 2007, DEUTSCHE BANK managed the quality control functions of the Direct Endorsement Lender business, and had its employees sign and submit MORTGAGEIT’s Direct Endorsement Lender annual certifications to HUD. Furthermore, by the end of 2007, MORTGAGEIT was not reviewing any early payment defaults on closed FHA-insured loans. Between 1999 and 2009, the FHA paid more than $92 million in FHA insurance claims for loans that defaulted within the first six payments.

***

Pursuant to the settlement, MORTGAGEIT and the DEUTSCHE BANK defendants will pay the United States $202.3 million within 30 days of the settlement.

As part of the settlement, the defendants admitted, acknowledged, and accepted responsibility for certain misconduct. Specifically,

MORTGAGEIT admitted, acknowledged, and accepted responsibility for the following:

www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  2/4

5/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

MORTGAGEIT failed to conform fully to HUD-FHA rules requiring Direct Endorsement Lenders to maintain a compliant quality control program;

MORTGAGEIT failed to conduct a full review of all early payment defaults on loans endorsed for FHA insurance;

Contrary to the representations in MORTGAGEIT’s annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations;

MORTGAGEIT endorsed for FHA mortgage insurance certain loans that did not meet all underwriting requirements contained in HUD’s handbooks and mortgagee letters, and therefore were not eligible for FHA mortgage insurance under the DEL program; and;

MORTGAGEIT submitted to HUD-FHA certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not; FHA insured certain loans endorsed by MORTGAGEIT that were not eligible for FHA mortgage insurance; and HUD consequently incurred losses when some of those MORTGAGEIT loans defaulted.

The DEUTSCHE BANK defendants admitted, acknowledged, and accepted responsibility for the fact that after MORTGAGEIT became a wholly-owned, indirect subsidiary of DB Structured Products, Inc and Deutsche Bank AG in January 2007:

The DEUTSCHE BANK defendants were in a position to know that the operations of MORTGAGEIT did not conform fully to all of HUD-FHA’s regulations, policies, and handbooks;

One or more of the annual certifications was signed by an individual who was also an officer of certain of the DEUTSCHE BANK defendants; and;

Contrary to the representations in MORTGAGEIT’s annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations.

***

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating financial fraud, including mortgage fraud.

To date, the Office’s Civil Frauds Unit has brought four civil fraud lawsuits against major lenders under the False Claims Act alleging reckless residential mortgage lending.

Three of the four cases have settled, and today’s settlement represents the third, and largest, settlement. On February 15, 2012, the Government settled its civil fraud lawsuit against CITIMORTGAGE, INC. for $158.3 million. On February 24, 2012, the Government settled its civil fraud suit against FLAGSTAR BANK, F.S.B. for $132.8 million. The Government’s lawsuit against ALLIED HOME MORTGAGE CORP. and two of its officers remains pending. With today’s settlement, the Government has achieved settlements totaling $493.4 million in the last three months. In each settlement, the defendants have admitted and accepted responsibility for certain conduct alleged in the Government’s Complaint.

The Office’s Civil Frauds Unit is handling all three cases as part of its continuing investigation of reckless lending practices.

The Civil Frauds Unit works in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Mr. Bharara thanked HUD and HUD-OIG for their extraordinary assistance in this case. He also expressed his appreciation for the support of the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington, D.C.

www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  3/4

5/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

Assistant U.S. Attorneys Lara K. Eshkenazi, Pierre G. Armand, and Christopher B. Harwood are in charge of the case.

Occupy Wall Street Revolutionary?

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“Banks should not be servicers and they should not be pretending, much less allowed to make decisions on modifications of loans that were irresponsible, dead-beat proposals before any borrower signed for them.”  Neil F Garfield, www.livinglies.wordpress.com

EDITOR’S COMMENT: The good news is that the Occupy Wall Street Movement hit the front page and the editorial section with this op-ed piece from Nicholas Kristof. The bad news is that the act of demanding the truth has become a “revolutionary” act. How did that happen? — in the “land of the free” where the very first amendment allows freedom of assembly, freedom of speech and freedom of the press, which I guess has come to mean the freedom to sell out to big business and big banks.

Kristof is wrong when he says these protesters have no list of demands. Their list is a short list of getting the truth and forcing their government to hold the “banksters” accountable for performing acts that would land any common person in prison. Kristof misses the simplicity of the message. And he misses the simplicity of the solutions that are easily available to our financial system, our society and our standing around the world. If we start from the truth about what happened and account for the money, then we can start the process of reversing what has appeared to be irreversible damage.

It’s not like we have a choice. Either we let the banks have their way and leave them alone to continue the rape and pillage of countries around the world or we don’t. And we need to act while we still have the power to do so. If the banks get their way (and mind you I am only talking about a handful of powerful bankers, since the others were kept out of the “game” or even victimized by it), then we have the virtual certainty of a floundering housing market going further into the abyss dragging the economy, jobs and prospects for any recovery with it. And yes it IS that simple.

The alternative is simple: since we know that the investors had their purse stolen, and the homeowners were used as pawns in a vast game of economic brinkmanship where the “loans” were secretly paid off or settled, let’s get the banks out of the game. Banks should not be servicers and they should not be pretending, much less allowed to make decisions on modifications of loans that were irresponsible, dead-beat proposals before any borrower signed for them.

The opportunities must be created for people of good faith to enter into discussions to settle the matter — the real stakeholders (investors and homeowners). For those who blithely predict that no homeowner will enter into discussions for modifications if they think they can get a free house, my message is “DO THE MATH.” Millions of people have sought modification or settlement of issues with the servicers and banks whereas only 2-3% of those foreclosed upon  have litigated. People would rather settle than fight — they have already proved that.

And for those people who do not act in good faith there can be consequences. But even if collateral benefit arises from addressing this issue with integrity and honesty about how this mess was created, from a practical standpoint, which is better — letting the bankers keep their ill-gotten gains or letting a few people make a little extra money that will be pumped back into the economy as soon as it is received?

Nobody is saying the investors should bear the complete loss or that the homeowners should bear the complete loss — but that is what is happening under the Alice in Wonderland system we now witness: BOTH investors and homeowners have been burdened with the total loss. To make matters worse BOTH insurers AND taxpayers have been burdened with the total loss. So the total loss has been paid four times, so far and it is climbing. Now title insurers and probably rating agencies are going to bear some loss too. Who is collecting all this money? The mega banks and their puppet servicers and puppet trustees (known as SHAM TRUSTEES) are becoming the largest landowners in history and they are the largest holders of cash in the world.

In my world, if you steal a purse, you get caught, return what is recoverable and pay a penalty — loss of freedom. In the world of Wall Street finance, they get to keep the purse, use the ID to make other money, get paid by taxpayers for the loss of the purse, and they get to buy homes with worthless “debt” paper that doesn’t belong to them, which they found in the purse. Some people think this is OK. What is most interesting is the divergent views on this subject have converged geographically on “Wall Street.”

If holding a purse snatcher accountable is a revolutionary act, then count me in.

October 1, 2011

The Bankers and the Revolutionaries

By

AFTER flying around the world this year to cover street protests from Cairo to Morocco, reporting on the latest “uprising” was easier: I took the subway.

The “Occupy Wall Street” movement has taken over a park in Manhattan’s financial district and turned it into a revolutionary camp. Hundreds of young people chant slogans against “banksters” or corporate tycoons. Occasionally, a few even pull off their clothes, which always draws news cameras.

“Occupy Wall Street” was initially treated as a joke, but after a couple of weeks it’s gaining traction. The crowds are still tiny by protest standards — mostly in the hundreds, swelling during periodic marches — but similar occupations are bubbling up in Chicago, San Francisco, Los Angeles and Washington. David Paterson, the former New York governor, dropped by, and labor unions are lending increasing support.

I tweeted that the protest reminded me a bit of Tahrir Square in Cairo, and that raised eyebrows. True, no bullets are whizzing around, and the movement won’t unseat any dictators. But there is the same cohort of alienated young people, and the same savvy use of Twitter and other social media to recruit more participants. Most of all, there’s a similar tide of youthful frustration with a political and economic system that protesters regard as broken, corrupt, unresponsive and unaccountable.

“This was absolutely inspired by Tahrir Square, by the Arab Spring movement,” said Tyler Combelic, 27, a Web designer from Brooklyn who is a spokesman for the occupiers. “Enough is enough!”

The protesters are dazzling in their Internet skills, and impressive in their organization. The square is divided into a reception area, a media zone, a medical clinic, a library and a cafeteria. The protesters’ Web site includes links allowing supporters anywhere in the world to go online and order pizzas (vegan preferred) from a local pizzeria that delivers them to the square.

In a tribute to the ingenuity of capitalism, the pizzeria quickly added a new item to its menu: the “OccuPie special.”

Where the movement falters is in its demands: It doesn’t really have any. The participants pursue causes that are sometimes quixotic — like the protester who calls for removing Andrew Jackson from the $20 bill because of his brutality to American Indians. So let me try to help.

I don’t share the antimarket sentiments of many of the protesters. Banks are invaluable institutions that, when functioning properly, move capital to its best use and raise living standards. But it’s also true that soaring leverage not only nurtured soaring bank profits in good years, but also soaring risks for the public in bad years.

In effect, the banks socialized risk and privatized profits. Securitizing mortgages, for example, made many bankers wealthy while ultimately leaving governments indebted and citizens homeless.

We’ve seen that inadequately regulated, too-big-to-fail banks can undermine the public interest rather than serve it — and in the last few years, banks got away with murder. It’s infuriating to see bankers who were rescued by taxpayers now moan about regulations intended to prevent the next bail-out. And it’s important that protesters spotlight rising inequality: does it feel right to anyone that the top 1 percent of Americans now possess a greater collective net worth than the entire bottom 90 percent?

So for those who want to channel their amorphous frustration into practical demands, here are several specific suggestions:

¶Impose a financial transactions tax. This would be a modest tax on financial trades, modeled on the suggestions of James Tobin, an American economist who won a Nobel Prize. The aim is in part to dampen speculative trading that creates dangerous volatility. Europe is moving toward a financial transactions tax, but the Obama administration is resisting — a reflection of its deference to Wall Street.

¶Close the “carried interest” and “founders’ stock” loopholes, which may be the most unconscionable tax breaks in America. They allow our wealthiest citizens to pay very low tax rates by pretending that their labor compensation is a capital gain.

¶Protect big banks from themselves. This means moving ahead with Basel III capital requirements and adopting the Volcker Rule to limit banks’ ability to engage in risky and speculative investments. Another sensible proposal, embraced by President Obama and a number of international experts, is the bank tax. This could be based on an institution’s size and leverage, so that bankers could pay for their cleanups — the finance equivalent of a pollution tax.

Much of the sloganeering at “Occupy Wall Street” is pretty silly — but so is the self-righteous sloganeering of Wall Street itself. And if a ragtag band of youthful protesters can help bring a dose of accountability and equity to our financial system, more power to them.

I invite you to comment on this column on my blog, On the Ground. Please also join me on Facebook and Google+, watch my YouTube videos and follow me on Twitter.

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