Rescission Returns in 3rd Circuit Opinion

Forbes has taken notice. There is a shift toward borrowers in mortgage litigation. The decision points back to the origination of the loan. This decision follows a similar decision in the 4th circuit. It all comes down to what actually happened at closing? And we don’t actually know if the decision to allow rescission indefinitely on second mortgages will extend to the first mortgage if it is all part of the same transaction. The result of rescission is that all payments of every kind must be returned to the borrower plus interest and attorney fees and potentially treble damages. All payments mean closing costs, fees, costs, expenses, principal interest, escrow and anything else. If the “lender” doesn’t do that the mortgage lien is expressly invalidated by operation of law, which is the same as being subject to a recorded satisfaction of mortgage. TILA is back!! — at least until the Supreme Court gets to weigh in on this ongoing dispute.

TILA requires only a clear statement and communication that the borrower wishes to rescind the transaction. The statute is clear that the burden shifts to the “lender” to either agree to rescission or sue to disqualify the rescission that must be supported by allegations and proof that the lender violated disclosure requirements at the time of origination of the loan. To be sure, there is a loophole created by the courts — that the rescinding borrower have the money to give back to the lender. But that is exactly what is going to cause the problem for Foreclosers. If the borrower can show some credible source of funds, the “lender” is screwed — because the lender is not the party who was named on the note and mortgage.

So the offer of the money will immediately cause an inquiry and discovery into the question who actually was the lender? We certainly don’t want to give the rescission money to the named party on the note and mortgage when the source of funds was a party with no legal relationship to the named “lender.” The facts will show that the mortgage lien was never perfected —and that therefore rescission under TILA is potentially unnecessary.

Either way, the debt turns up unsecured and can be discharged in bankruptcy. The problem for Wall Street is how they will explain to investors why the investors were not identified as the lenders in each closing. The answer is that Wall Street Banks wanted to use those loans as “assets” they could trade, insure, hedge and even sell contrary to the prospectus and PSA shown to pension Funds and other investors who advanced funds to investment banks as “payment” for mortgage bonds underwritten by those banks.

When the limelight is focused on the original closing, Pandora’s box will open for the bankers. It will show that they never used the money from investors to buy bonds issued by a REMIC trust. It will show the trusts to be unfunded. It will show the unfunded trusts never bought or funded the loans. It will show that the disclosure requirements and the reason for TILA (borrowers’ choices in the marketplace) were regularly violated.

That in turn will lead to the inquiry as to the balance of the loan that is now due. Rescission means giving back what you received. But what if, by operation of law, you have already given back some or all of the money? The investment banker will be hard pressed to describe itself as anything but the agent of the lender investors. As agent, it received payments from insurance, hedges and sales to the Federal Reserve. How will the Wall Street Banks explain why those payments should not be applied to reduce the account receivable of the investor lenders? How many times should the lender be paid on the same debt?

Remember that there is no issue of subrogation, contribution or other claims against the borrower here. They were expressly waived in the contracts for insurance and credit default swaps. Hence the payments should equitably be applied to the benefit of the investors whose money was used to start the false securitization scheme under false pretenses. Once the investors are paid or considered paid because their agents received the money from third party co-obligors, what is left for the borrowers to pay? Will the court order the borrower to pay “back” a lender who never made the loan?

Dreamli Zs 6:22pm Sep 28
http://www.forbes.com/sites/danielfisher/2013/02/07/court-decision-gives-borrowers-an-ace-in-the-hole-lenders-a-headache/
Court Decision Gives Lenders A Headache, Borrowers An Ace In The Hole
http://www.forbes.com
A court ruling gives borrowers an unlimited deadline for rescinding second mortgages

Unrhetorical Questions — Money, Lies and Accounting Records: Gander and Goose

Why are our courts routinely accepting allegations and documents from foreclosing banks that they would summarily throw out if the same allegations and documents came from borrowers?

 How can possession of an ALLONGE construed as ownership

of the debt without any other evidence being presented?

Why is the standard definition of “Allonge” ignored?

IF THE COURT IS USING THE TERMS OF “ALLONGE”, “ASSIGNMENT”AND “ENDORSEMENT” INTERCHANGEABLY, WHY DOES ALL THE LITERATURE ON LEGAL DEFINITION AND ELEMENTS SAY OTHERWISE? ARE WE MAKING A NEW UCC?

WHY ARE COURTS ALLOWING ENDORSEMENTS (SHOULD BE SPELLED “INDORSEMENT”) IN BLANK TO TRANSFER THE LOAN WHEN THE BASIS OF THE PROPONENT’S AUTHORITY TO FORECLOSE IS A DOCUMENT THAT FORBIDS ACCEPTANCE OF  ENDORSEMENTS IN BLANK?

 I recently received a question from an old friend of mine who was a solicitor in Canada and who is frustrated with our court system that continues to assume the validity of loans that have already been thoroughly discredited. He has attempted on numerous occasions to get information through a qualified written request or a debt validation letter and has attempted to verify the authority of any party to whom he would address a request for modification of his loan in Florida. While chatting with him online I realized that this information might be of some value to attorneys and borrowers. The principal point of this article is the old expression “what is good for the goose is good for the gander.” For those of you who are unfamiliar with the old expression it means that there should be equality of treatment, all other things being equal. In mortgage litigation is apparent that when an allegation is made or a proffer is made through counsel rather than the introduction of evidence, the courts continue to function from both a misconception and  misapplication of the Rules of Court and the rules of evidence.

 When the case involves one institution against another, the same arguments that are summarily  rejected when they are advanced by a borrower are given considerable traction because the argument was advanced by a financial institution or financial player that identifies itself as a financial institution. In fact, a review of most cases reveals a much heavier burden on the party defending against the loss of their homestead than the party seeking to take it —  which is a complete reversal of the way our justice system is supposed to work.  The burden of proof in both judicial and nonjudicial states is constitutionally required to be on the party seeking affirmative relief and not on the party defending against it.

In the nonjudicial states, in my opinion, the courts are violating this basic constitutional requirement on a regular basis under circumstances where the party announcing a right to enforce a dubious deed of trust, collection on a dubious note, and therefore having the right to sell the property without judicial intervention despite the inability of the foreclosing entity to produce any evidence that it owns the debt, note, mortgage rights,  or even demonstrate a financial interest in the outcome of the foreclosure sale; to make matters worse the courts are allowing trustees on deeds of trust to be appointed or substituted even though they have a direct or indirect financial relationship with the alleged lender.

These trustees are accepting “credit bids” without any due diligence as to whether or not the party making the offer of the credit bid at auction is in fact the creditor who may submit such a credit bid according to the statutes governing involuntary auctions within that state.  In nonjudicial states the burden is put on the borrower to “make a case” and thus obtain a temporary restraining order preventing the sale of the property. This is absurd. These statutes governing nonjudicial sales were created at a time when the lender was easily identified, the borrower was easily identified, the chain of title was easily demonstrated, and the chain of money was also easily demonstrated. Today in the world of falsely securitized loans, the courts have maintain a ministerial attitude despite the fact that 96% of all loans are subject to competing claims by false creditors. The borrower is forced to defend against allegations that were never made but are presumed in a court of law. If anything is a violation of the due process requirements of the United States Constitution and the Constitution of most of the individual states of the union, this must be it.

 In the judicial states,  the problem is even more egregious because the same presumptions and assumptions are being used against borrowers as in the nonjudicial states. Thus in addition to being an unconstitutional application of an otherwise valid law, the judicial states are violating their own rules of civil procedure mandated by the Supreme Court of each such state (or to be more specific where the highest court is not called the Supreme Court, we could say the highest court in the state).  This is why I have strongly suggested for years that an action in mandamus be brought directly to the highest court in each state alleging that the laws and rules, as applied, violate constitutional standards and any natural sense of fairness.

 Here is the question posed by my Canadian friend:

(1)  The documents are phony documents (copies) produced by Ben Ezra Katz. It will cost me several thousand dollars to have a document expert evaluate the documents and then testify if they find them to be copies. At the beginning of this case, The Plaintiff’s attorney (Ben Ezra Katz associate) told the court (I do have a transcript) that they has found the ORIGINAL documents (note, mortgage, etc.) and that they had couriered the ORIGINAL documents to the clerk of Court. They did a Notice of Filing which on its’ face states ORIGINAL documents. I can not afford a document expert, however the AG in S. Florida has an open investigation into this case. Would I be out of line in requesting that they include this case per-se as part of their investigation and accordingly make a determination as to if or if not the subject documents which are on file with the clerk of court are originals or copies ??
(2)  The only nexus that Wells Fargo produces to establish themselves as a real party in interest is a hand filled out allonge (copy attached). Please note that the signer only signs as “assistant secretary” without further specifics. On the basis of what they provide it is virtually impossible to depose this person to determine if she actually did or did not sign this document, and if so what is her authority to do so.  I want to launch some sort of discovery that seeks to discover what else the Plaintiff has which would support the alleged allonge. Things such as any contracts, copies of any consideration, what was the consideration, who authorized the transaction, etc.  Do you have any suggestions in this regard. I bounced this off my attorney and I am not sure that we are on the same page. He wants to go to trial and have the proven phony documents as the main thrust. I agree with that, however I also would feel far better if we were able to cut them off at the knees as to standing such as the alleged allonge is part of the phony documents, and there are no documents that the Plaintiff can produce to support not only its’ authenticity, but its’ legitimate legal function. I do not like to have all of my eggs in one basket.

 And here is my response:

 You are most probably correct in your assessment of the situation. If they lied to the court and filed phony documents you should file motion for contempt. You should also file a motion for involuntary dismissal based on the fact that they have had plenty of time to either come up with the original documents or alleged facts to establish lost documents. The affidavit that must accompany the allegation of lost documents must be very specific as to the content of the documents and the path of the documents and it must the identify the person or records from which the allegations of fact are drawn. They must be able to state with certainty when they last had the original documents if they ever did have the original documents. If they didn’t ever have the original documents then an affidavit from them is meaningless. They have to establish the last party had physical custody of the original documents and establish the reason why they are missing. If they can’t do those things then their foreclosure should be dismissed. The more vague they are in explaining what happened to the original documentation the more likely it is that somebody else has the original documentation and may sue you again for recovery. So whatever it is that they allege should result in your motion to strike and motion to dismiss with prejudice. As far as the attorney general’s office you are correct that they ought to cooperate with you fully but probably incorrect in your assumption that they will do so.

I think you should make a point about the allonge being filled out by hand as being an obviously late in the game maneuver. You can also make a point about the “assistant Sec.” since that is not a real position in a corporation. Something as valuable as a note would be reviewed by a real official of the Corporation who would be able to answer questions as to how the note came into the possession of the bank (through interrogatories or requests for admission) and  what was paid and to whom for the possession and rights to the note, when that occurred and where the records are that show the payment and how Wells Fargo actually came into possession of the note or the rights to collect on the note. As you are probably aware the predecessor that is alleged to have originated the note or alleged to have had possession of the note must account for whether they provided the consideration for the note and what they did with it after the closing. If they say they provided consideration than they should have records showing a payment to the closing agent and if they received consideration from Wells Fargo they should have those records as well.

But the likelihood is that neither Option One nor Wells Fargo ever funded this mortgage which means that the note and mortgage lack consideration and neither one of them has any right to collect or foreclose.   In fact, since they are taking the position that the loan was not securitized and therefore that no securitization documents are relevant,  neither of them can take the position that they are representing the real party in interest as an authorized agent for the real lender.  And the reason you are seeing lawsuits especially by Wells Fargo in which it names itself as the foreclosing party is that the bank knows that Iit ignored and routinely violated essential and material provisions of the securitization documents including the prospectus and pooling and servicing agreement upon which investors relied when they gave money to an investment banker.

In that case, since you seek to modify the loan transaction and determine whether or not it is now or is potentially subject to  a valid mortgage, you should seek to enforce a request for information concerning the exact path of the money that was used to fund the mortgage. And you should request any documentation or records showing any guarantee, payment, right to payment, or anything else that would establish a loan to you where actual money exchanged hands between the declared lender and yourself. The likelihood is that the money was in a co-mingled account somewhere —  possibly Wells Fargo —  which came from investors whose names should have been on the closing and the closing documents.  Those investors are the actual creditors. Or at least they were the actual creditors at the time that the loan money showed up at the alleged “loan closing.” Since then, hundreds of settlements and lawsuits were resolved based upon the bank tacitly acknowledging that it took the money and used it for different purposes than those disclosed in the prospectus and pooling and servicing agreement. These settlements avoid the embarrassing proof problems of any institution since they not only ignored the securitization documents, more importantly, they chose to ignore all of the basic industry standards for the underwriting of a real estate loan because the parties who appeared to be underwriting the loan and funding the loan had absolutely no risk of loss and only had the incentive to close deals in exchange for sharing pornographic amounts of money that were identified as proprietary trading profits or fees.

And the reason why this is so important is that the mortgage lien could never be perfected in the absence of the legitimate creditor who had advanced actual money to the borrower or on behalf of the borrower. This basic truth undermines the industry and government claims about the $13 trillion in loans that still are alleged to exist (despite multiple payments from third parties in multiple resales, insurance contracts and contracts for credit default swaps). The abundant evidence in the public domain as well as the specific factual evidence in each case negates any allegation of ultimate facts upon which relief could be granted, to wit: the money came from third-party investors who are the only real creditors. The fact that the money went through intermediaries is no more important or relevant than the fact that you are a depository bank is intended to honor checks drawn on your account provided you have the funds available. The inescapable conclusion is that the investors were tricked into making unsecured loans to homeowners and that the entire foreclosure scandal that has consumed our nation for years is based on completely false premises.

Your attorney could pose the question to the court in a way that would make it difficult for the court to rule against you. If the lender had agreed to make a loan provided you put up the property being financed PLUS additional collateral in the form of ownership of a valid mortgage on another piece of property,  would the court accept a handwritten allonge from you as the only evidence of ownership or the right to enforce the other mortgage? I think it is clear that neither the banks nor the court would accept the hand written instrument as sufficient evidence of ownership and right to collect payment if you presented the same instruments that they are presenting to the court.

PRACTICE HINT: In fact, you could ask the bank for their policy in connection with accepting its mortgages on other property as collateral for a business loan or for a loan on existing property or the closing on a new piece of property being acquired by the borrower. You could drill down on that policy by asking for the identification of the individual or committee that would decide whether or not a handwritten allonge would be sufficient or would satisfy them that they had  adequate collateral in the form of a mortgage on the first property and the pledge of a mortgage on a second piece of property.

The answer is self-evident. No bank or other lending institution or lending entity would loan money on the basis of a dubious self-serving allonge.  There would be no deal. If you sued them for not making the loan after the bank issued a letter of commitment (which by the way you should ask for both in relation to your own case and in relation to the template used by the bank in connection with the issuance of a letter of commitment), the bank would clearly prevail on the basis that you provided insufficient documentation to establish the additional collateral (your interest in the mortgage on another piece of property).

The bank’s position that it would not loan money on such a flimsy assertion of additional collateral would be both correct from the point of view of banking practice and sustained by any court has lacking sufficient documentation to establish ownership and the right to enforce. Your question to the court should be “if justice is blind, what difference does it make which side is using an unsupportable position?”

HSBC Hit with Foreclosure Suit; FHA’s $115 Billion Loss Scenario; Return of the Synthetic CDO?
http://www.americanbanker.com/bankthink/hsbc-hit-with-foreclosure-suit-fhas-115-billion-dollar-loss-scenario-1059622-1.html
Massachusetts foreclosures decline 79% as local laws stall the process
http://www.housingwire.com/news/2013/06/05/massachusetts-foreclosures-decline-79-local-laws-stall-process
———————————————–
Money from thin air? If the bank does not create currency or money then where does the money come from? Answer investor deposits into what they thought was an account for a REMIC trust. And if the money came from investors then the banks were intermediaries whether they took money on deposit, or they were the underwriter and seller of mortgage bonds issued from non existent entities, backed by non existent loans. And any money received by the banks should have been for benefit of the investors or the REMIC trust if the DID deposit the money into a trust or fiduciary account.Dan Kervick: Do Banks Create Money from Thin Air?
http://www.nakedcapitalism.com/2013/06/dan-kervick-do-banks-create-money-from-thin-air.html

Eric Holder Doctrine: Decriminalize Big Crimes

see also Guest Post: Why The Government Is Desperately Trying To Inflate A New Housing Bubble
http://www.zerohedge.com/news/2013-03-25/guest-post-why-government-desperately-trying-inflate-new-housing-bubble

The problem with the theory that criminal prosecution of the banks could have a negative effect on the world economies is that the banks have already had their effect on the world economy. Along with their own well-deserved hit to their reputations they took the U.S. reputation and probably the whole Eurozone with them.

Refusing to prosecute is like saying we should not prosecute organized crime — or even the same crimes committed by smaller institutions — because someone might get killed or jailed or swindled out of more money than they already lost.
Our rating has dropped by all accounts in all the rating services — a consequence of not getting our house in order and not controlling institutions whose importance is obviously parallel to that of a water or electric utility. And people are still losing wealth and homes, thus undermining any prospect of a true economic recovery.
Eric Holder’s logic is simply not sustainable and the people of Maryland are doing the best they can to keep criminal banks out of their state. We should all do that, and do what the State of New York came close to doing — revoking the license of criminal banks to ply their snake oil financial products within their state. Now that does something to protect the public and puts everyone on notice that doing business with criminal mega-banks is risky business no matter what the smiling bank representative tells you.
The biggest flaw in Holder’s so-called logic about the banks being too big to jail is that an important part of justice has been thwarted. In fraud cases the victim receives some restitution from a receiver appointed after the culprit’s assets are seized. That can’t happen as long as we avoid criminal prosecution. And until there is criminal prosecution judges will continue to think that borrowers are deadbeats instead of victims.
Investors is the fake mortgage backed bonds issued by empty REMIC trusts that were never funded and thus never entered into a transaction in which they acquired loans deserve restitution. Clawing back the money held in the Cayman’s, Cyprus and other places can never happen as long as criminal prosecution is avoided.
The trust we earned from world central bankers,investors and borrowers has been destroyed and that is what is causing economic problems all over the world. Nobody knows where to put their money or even what currency will ultimately survive. This uncertainty is undermining our claim to moral superiority across the board in matters of state as well as commercial activity. We have opened the door to allowing Chinese firms to take the lead, like Alibaba which has quietly become larger than Amazon and EBay combined and is on track to become the world’s first trillion dollar company.
If we truly want to survive and prosper we can show the world that we know how to do the right thing rather than become an accessory during and after the fact of a continuing crime that ranks as the greatest fraud in human history. When investors get a check from a court-appointed receiver in a criminal case, when we see bankers go to jail, and when the amount demanded from borrowers is reduced by payments to the banksters, THEN confidence will be restored along with wealth, investment and employment.
We are pursuing a going out of business strategy. By holding back on the basis of the Holder Doctrine we are confirming that we lost our moral high ground. Someone will fill that void and don’t think for a minute that the Chinese are not acutely aware of their opportunity.
Remember when we made fun of Japanese products as cheap unreliable imports? They fixed that, didn’t they. The Chinese are now spreading out creating new standards of morality in the marketplace such as not releasing money to an online seller until the buyer is satisfied.

It won’t be long before Chinese currency and currencies pegged to Chinese currency become the standard medium of value replacing western currencies, unless we change and start running a country that controls and disciplines its players domestically and on the world stage.

Money-laundering firm should get no welcome in Maryland
http://www.baltimoresun.com/news/opinion/oped/bs-ed-hsbc-20130325,0,1565911.story

Fed Lies and Sound Bites

The latest change in Fed policy sounds good. You get that warm fuzzy feeling that credit will loosen up and that things are getting better. But the fact remains, that this is ANOTHER transfer of the power to create money to the PRIVATE sector, it is another green light for PRIVATE TAXATION, and worst of all, it comes at a time when inflation is already running high and threatening to become worse than at any time in recent history.

Flooding the market with more dollars is simple: it reduces the value of those dollars. as the value goes down some businesses will appear to prosper, but when those business owners go to buy something, they will realize they lost profit even though their accountants report they made more. In nutshell, if it costs $25 to buy a loaf of bread or $15 to buy a gallon of gas, the fact that your sales went up won’t do you any good.

Beware the earnings figures from public reporting companies. There is no FASB directive that requires real disclosure of real earnings in constant currency. This will become painfully obvious as the next 12 months unfold.

THE FED
Fed expands auction, accepts wider collateral
NEW YORK (MarketWatch) — The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.
“In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures,” the Fed said in a statement.
The Fed took the move in an attempt to flood the market with supply and lower short-term lending rates, such as the London interbank offered rate, or Libor.
The U.S. central bank announced an increase, to $75 billion from $50 billion, in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility, beginning with the auction on May 5.
This increase will bring the amounts outstanding under the TAF to $150 billion.
The move to expand the TAF was widely anticipated because of strong demand for loans through the program.See full story.
“The program is now reaching a magnitude where it can play a significant role in plugging the gap between the remaining demand for unsecured term funding in the bank market and the latest decline in supply following the run on Bear Stearns,” wrote Lou Crandall, chief economist for Wrightson ICAP.
The expansion was “probably marginally disappointing because there was a widespread expectation … that the Fed would extend the term of at least some TAF auctions to three months,” wrote Stephen Stanley, chief economist for RBS Greenwich Capital.
The TAF, announced on Dec. 12, was followed in March by the creation of several other Fed lending programs targeted at different sectors of the credit markets.
All told, the Fed has now offered to lend up to $462 billion in cash and Treasurys to the markets, in addition to the nearly unlimited funds available through the discount window and the primary credit dealer facility.
The three-month Libor rate — a benchmark for lending between banks — was 2.78% on Thursday, well above the 2% federal funds rate. Crandall said extra supply from the Fed in the next three weeks should tighten the spread between the Libor and fed funds rates.
Deeper cooperation
The Federal Open Market Committee also has authorized further increases in its existing temporary currency-swap arrangements with the European Central Bank and the Swiss National Bank.
These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the European Central Bank and the Swiss National Bank, respectively, representing increases of $20 billion and $6 billion.
The FOMC also authorized an expansion of the collateral that can be pledged by bond dealers in the Fed’s Schedule 2 Term Securities Lending Facility auctions of Treasurys.
Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations.
Accepting asset-backed paper could help provide money to the student-loan market, Crandall noted. End of Story
Steve Goldstein is MarketWatch’s London bureau chief. Washington Bureau Chief Rex Nutting contributed to this report.

Bank Errors Abound and they all cost you money

Besides the obvious fraud, breach of duty and illegal disclosure of fees and interest that every lender made by participating in the mortgage meltdown, they continue to make conventional “errors” that can result in extra fees for them and compounding losses for you.

Whether it happens in your account or someone else’s account the costs are going to be paid, at least in part, by you. Many so-called errors are timing issues decided by policy makers at the bank. By not posting a deposit that they know is good, they can create an NSF situation, charge you an NSF fee for each incoming check and thus cause a deficit in an account that you thought you had in money in and where you should have had the money posted.

The bank creates an artificial NSF situation and then charges you. The burden shifts to you to fight with them. This compounds to more NSF fees and in some cases, we have seen those fees go into thousands of dollars. 

CONSUMER BANKING

Bank on mistakes

When banks make errors, consumers often pay — and costs can be steep

By Gail Liberman and Alan Lavine

Last update: 7:25 p.m. EDT April 28, 2008

 

PALM BEACH GARDENS, Fla. — The price tag of one recent bank error: At least $2 million. The bank mixed up the account of 49-year-old Benjamin Lovell with the account of a different person with the same name.

Lovell, accused of spending the money without notifying the bank of the mistake, faces a hearing Thursday in Brooklyn’s Kings County criminal court. The charge against him: Grand larceny. Lovell’s attorney argues that Lovell didn’t intend to steal, but believed he was entitled to the funds.

The case is just one example of the growing problem of bank errors. While most consumers likely won’t face charges of grand larceny, there may be other financial pitfalls in store for those who don’t carefully monitor the accuracy of bank transactions, including:

Steep, ricocheting bounced check fees — not only charged by your bank, but also by merchants — if a bank error leads to an overdrawn checking account.

Late fees and default interest rates on credit cards if credit card payments aren’t properly credited.

Undetected fraud.

The Office of the Comptroller of the Currency, regulator of national banks, said complaints of bank errors rose to 2,217 in 2007, a 10% rise from 2006. By contrast, total complaints rose 7% to 28,362. Of course, the data likely are limited to those customers who detected banks’ mistakes.

But how many errors go undetected by those who are too busy to check every detail of their account transactions? After careful scrutiny of her own accounts, one reader says she caught thousands of dollars in bank errors, including:

A check debit for $400 should have been a deposit.

A $3,000 credit card payment was applied to someone else’s account.

Despite an ATM withdrawal of $40, no cash actually was provided.

“These items were entirely in my responsibility to fix,” the reader complains. “The financial organizations provided little, if any, help, though it was their mistake and if I hadn’t pursued it, would not have recovered the money.”

More errors, or is it fraud?

Tomas Norton, a Princeton, N.J.-based fraud consultant, says the problem may not necessarily be more bank errors. (One sign that bank errors have been around for years lies in a comical “Beverly Hillbillies” video, dubbed “Before identity theft there were bank errors,” at CrazyAboutTV.com/video.)

Rather, more of those errors may be due to fraud, Norton says. That problem is compounded by the fact that it’s increasingly difficult to get bank errors fixed.

“The problem with the errors is that no matter how it occurs, whether it’s an error or deliberate, the bank is always protected,” Norton says.

“If your payment doesn’t get to the bank on time, even though there’s a plausible delay in the mail, they don’t take those excuses,” he says. With a credit card, not only could you lose your attractive 7.99% rate, but your account balance retroactively can be charged 31%!

Also, banks have come to view checking and savings account operations as ways to generate income, Norton says, so fees for customer missteps have escalated dramatically, and your bank may be less willing to quickly fix errors that trigger those fees. In addition, customers often must deal with frustratingly bureaucratic call centers.

Meanwhile, the time period for you to notify your bank of an error — often overlooked in deposit agreements — has been slashed. The latest deposit agreements give you only 60 days to notify your bank of an account error, Norton says. Fail to meet this deadline, and even though an error is your bank’s fault, the price tag for the mistake, including accompanying fees, could be yours.

“Billing disputes and error resolution” represented the top consumer complaint among the 4,451 filed with the FDIC in 2007. The same problem also led the 2007 roster of complaints at the Office of Thrift Supervision.

Protect your accounts

What can you do to avoid being a victim of bank-account errors?

Immediately reconcile your bank accounts when statements arrive. Check for all errors, including any unauthorized transactions. Monitor check endorsements, credit card transactions and electronic debits.

Consider checking your accounts between cycles, either online or by telephone.

If you detect fraud, immediately file a police report.

For all errors, including fraud, immediately notify your bank in writing by certified mail. Keep copies of your notice. For debit card or deposit account errors, call immediately. But also send the certified letter to a top officer of your bank. For credit cards, mail your notice to the “billing inquiries” address on your statement. Record times, dates, and names of all those with whom you speak.

Use special care depositing checks or money orders. If they may be counterfeit, don’t deposit them until you call the issuing bank to verify authenticity.

Beware that if a deposit is erroneously credited to your account, the bank may freeze your account until it’s corrected. For more information on dealing with bank errors, visit this OCC page.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is “Quick Steps to Financial Stability” (Que/Penguin). You can contact them at www.moneycouple.com. 

Back to Glass Steagel

The reason the Federal Reserve is having so little effect is that virtually all of the “bad money” was created out of its reach. People create their own money in many types of transactions, and even if some portion goes through the Federal Reserve, for purposes of accounting between banks, the creation and existence of the “bad” money exists apart from any action taken or not taken by the Federal Reserve. Greenspan might have had it wrong, but he isn’t to blame for the actions of people who were operating outside the scope of his authority or responsibility.

The Glass Steagel Act kept banks and securities firms apart. The simple logic was that neither banks nor securities firms have any direct interest in serving or protecting the public. That can only be achieved by regulation from government. Put them together and you have a recipe for disaster. Banks and securities firms have as their primary goal to make money.  And if they get an idea to make a ton of it, no matter how stupid it is, (see Mortgage Meltdown), they will do it. Because in the end, the people who make these decisions do so in a bubble of their own — small wonder they create financial bubbles and crises.

If I agree to lend you $500,000 to buy a house worth $300,000, that is or was a perfectly legal transaction. It also is completely out of reach of the Fed.  If you in turn sign papers acquiring the house and I pay the seller the $500,000, the transaction goes through the Fed for accounting purposes in determining the balances at financial institutions. But it is not money created by the Fed nor is it subject to regulation by the Fed. The “money supply” was increased by $500,000 and all the Fed could do is see it but not touch it. Insiders know that $200,000 of “value” is completely fake, but this is carefully scripted to create “plausible deniability.”

If I sell shares in your loan to other people as “derivative mortgage-backed” securities, they sound like pretty good investments to most people and they buy it for perhaps $600,000. Again, money exchanged hands and all the Fed can do is watch.  And by the way the “money supply” was just increased by another $100,000 or $600,000 depending upon which theory of econometrics you subscribe to. Again only the insiders know that an additional $100,000 had been added to the completely fake valuation of the original transaction from which the mortgage backed security “derives” its value.

Here we had the perfect storm. The repeal of Glass Steagel which allowed financial institutions (regulated by the Fed) and securities firms (not regulated by the Fed) to become one institution provided they (the banks and securities firms) protect the public from scoundrels. This is akin to delegating the job of creating peace in the Middle East to Saddam Hussein.

Or if you like, it can be compared with the FDA and other agencies that have come under the direct influence and control of corporate America serving the profit motive, shoving aside the duty to serve and protect the people, leaving the citizenry with no protection.

Like the FDA, the law provided shields from the appearance of stupidity. In this case, even though banking and securities were under the roof of one house, it was OK as long as there was a chinese wall between the two functions. Right. I worked in both the banking and securities sectors. There is no wall but they all understand how to create plausible deniability.

The Fed alone is not going to stop the crash that is coming. But these behemoth two-headed monstrosities will probably be allowed to defer the crash with more funny money. This will compound the devaluation of the dollar but give the appearance, for a while, that everything is under control. Most people don’t remember what happened to the value of the dollar in the 1980’s. Few know or remember the 2500% inflation in Germany in one month. It doesn’t take much to crash because money is only an idea, a belief, a confidence in the system. If those ephemeral subjective perceptions of the public change, money is gone — all of it.

If we really want to allow the country to go into recession and not a crash we have to convince ourselves and convince people in other parts of the world that we are again a nations of laws, regulating currency, monetary policy, securities trading, in a sane reasonable manner. An economy based upon getting consumers to go deeper and deeper into debt buying things they don’t need and probably won’t want soon after purchase is not a valid premise.

Economic stimulus is a good thing in theory. But if it consists of getting more money into the hands of consumers and then pressuring them to part with it on objects of doubtful added value, then this plan is no better than the behemoth plan of creating more funny money to cover the old funny money.

The party is over. We are going to have to take the hit on our own nose to show that we are a stand-up crowd and not a rowdy group of criminal greedy myth-sellers. The fundamental premise driving the economy must include consumer spending only in relation to growth in other fundamental areas of commerce and society — innovation, production of products that people in other countries want, and the discovery of intellectual property that is useful in adding sustained value in the perception of consumers.

The answer is neither deregulation nor more regulation. It is changed regulation keeping the long-term viability of the country and its people as the top priority. Anything less will reduce the United States to a third world country that has adopted China as its lender of last resort — a country with no vested interest in doing anything other than using us for economic leverage, and who is now producing the control systems for our weapons, along with sponsoring the migration of Chinese nationals to the U.S. , while they build their own military capability at an alarming rate.

Something has to give folks. Is anyone out there listening?

Mortgage Meltdown: Right and Wrong and the Law


Mortgage Meltdown: Right and Wrong and the Law

Salmon Chase was part of the solution during the civil war when he made decisions and advised the President and lent his formidable name to plans that salvaged the currency of the young Republic, the economy of the nation, and the unity of a government experiment. Chase Bank bears his name. He was writing about slavery which he abhorred, but his words ring true on many subjects. His comments are completely congruent with JP Morgan when he told the Senate Finance Committee 100 years ago that no group of figures or facts on paper can match the importance of personal character. And character, Chase and Morgan would agree, was integrity and accountability: 

“Every law…so wrong and mean that it cannot be executed, or felt, if executed, to be oppressive and unjust,” said Chase, “tends to the overthrow of all law, by separating in the minds of the people, the idea of law from the idea of right.”

The real meltdown occurred when we accepted the notion that the workings of human society could be reduced to numbers and indexes. Accountability went out the window along with personal judgment when decisions were judged to be right or wrong based upon their congruency with accepted grades of performance which were averaged into scores. FICO scores encourage people to accumulate debt rather than savings. Cut up your credit card and you have just increased your debt to credit ratio making you a “higher risk.” Thus the industry gets what it wants — a system that encourages and coerces the population to accumulate credit, tempting them to use it regardless of the cost of the interest, and punishing the person who responsibility demonstrated a wish to use earned money rather than borrowed money.

We are stuck in this admixture somewhere between Gulliver’s World and an Orwellian loss of privacy and identity — while others are invited to freely steal our identities and use it to their own advantage. 

In a society run by business interests that have bought their way into the halls of power political power no other outcome is possible. This must be done with centralized banking and financial services because the decision-makers can never meet you. So as long as they stay within the artificial bounds of these scores, whether they are FICO, SAT, ACT, Moody’s ratings or S&P Ratings or the DJIA or an index fund, or anything else, the decision-maker has no personal responsibility for the outcome. In fact he too is punished if he strays from the boundaries of these markers. 

Hence, both borrower and lender are punished if they don’t play by the rules or laws set down by people who had no interest or accountability for the rights of American citizens. And thus the creation of rules and laws that are so “oppressive and unjust.” So here we are — stuck in a place where we know right from wrong but where laws are separated from the unalienable rights of Jefferson’s pen, and the natural knowledge of all human beings as to what is fair and just. 

It can be no surprise then that we have recreated slavery under the guise of a nation of laws, subject to a Constitution which guarantees our rights, and a government that ignores principles of our laws and smothers the pitiful sounds of distress of those who attempt to remind us the existence of the Constitution. 

Every banker will tell you, every lender knows, even if they are predatory payday lenders, that personal contact reduces the risk of default on a loan. When towns were small and branch banking was restricted, deposits and loans stayed local, while the banker who made the loans knew his customers and even visited them frequently. As social and economic relationships grew and deeper and wider, so did the favorable economic consequences to each locale where the people had great personal character.

Today, in some of the most unlikely places, like subSaharan Africa, banking is just so. Small areas, spreading all over through new technologies (they use their cell phones for banking and payments) and loans, where the default rate is zero despite social unrest,  political upheaval, and sometimes outright chaos and genocide. 

I ask a simple question: Why can “backward” “undeveloped” countries and their people create an expanding, profitable and low risk banking system when the supposedly mightiest country in the world cannot? And why do we all have the suspicion that when things get big enough, they will get complicated enough for big business to buy their way into the halls of power in more nations governed by “laws” and constitutions” and maybe even a “Bill of Rights?”

The answer is in the simple phrase “by the consent of the governed.” We pretend we are subject to the government while in fact it is the government that is subject to us. Government and business and Wall Street and bankers don’t get out of hand because of their conspiracies and bad human nature (although surely that exists). No, the real problem is you and me. When I failed to learn the details of a proposition before voting on it. When I failed to investigate who this person was that I was voting into office, and when I failed to speak out, assemble and insist that the press give us the real facts and numbers — not just the self serving announcements of government that the country is prosperous and we are safe. 

It’s time to get back into the driver’s seat. It is time to get involved the way everyone was involved in politics when this country opened for business. And it is time to do what is right and avoid what is wrong and not just talk about it. The laws will change when we stand up for our natural rights and make them change. Politicians will only be moved to do our bidding if the threat of their being thrown out of office is real. And real people that we really want to represent us in our republican form of government might be attracted to a job of satisfaction, recognition and stature.

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