The Narrative Has Shifted: Take Advantage of it

Your allegations of intentional misdeeds, fabricated documents and forgeries have new life now that the SEC is hot on the trail of the wrongdoers in a very public way. As the news sinks in more and more Judges, lawyers and experts and forensic analysts will see their role more as a commitment to justice than just helping out a homeowner in distress.

It just didn’t make sense that anyone would loan money in a deal where they knew there would be no payback. My allegations rang hollow to many people, who felt that despite the many distractions and defects contained in the paperwork behind the foreclosure glut, it was the borrowers who made the financial crisis happen. Now we see more and more people taking another look.

For those of us who serve the judicial branch of government, it is no longer a dance to delay the inevitable. It is, as it has always been, a confrontation with giant corporations whose reach into the corridors of powers enabled them to suck the life out of an ailing economy.

No society has ever persisted without a vibrant growing middle class. It will be a very long time before we succeed in reversing the damage wreaked by Goldman Sachs and other investment banking houses who acted without any sense of conscience, morality or even compliance with laws that society passed to enable their existence. But now, we have a chance. Let’s not waste this opportunity. Don’t let the pretender lenders get control of the narrative again.

The reality is that many, perhaps most loans were created according to specifications set by Wall Street, not by industry underwriting standards. The reality is that people were hired to lie and cheat and deceive homeowners into investing their homes into this salacious scheme. The reality is that the appraisals were false, and were given greater credibility by the reasonable borrower assumption that no lender would lend money on a bad deal where the property value was intentionally overstated, and that lenders would and did strive to comply with the requirements of the Truth in Lending Law, where the responsibility for appraisal verification, income verification, quality, viability, and affordability are BY LAW the responsibility of the Lender. Little did these hapless homeowners know, TILA was a joke to these players.

So now reality sets in. securities that were rated investment grade were junk and are worth far less than their sale price. Homes that were rated as high value were really still the same value as the market had shown before the flood of money and bird dogs looking for signatures on documents, even if the signatures were forged and even if the borrower was dead.

The finance system depends upon confidence. Confidence is based upon belief in the market values and practices in the marketplace. There is only one correction that is viable now. It is the simple recognition that neither the securities nor the properties they were based upon, had any new “value added.” It is the simple recognition that we had to accept when the NASDAQ that flew near 5,000 is really worth only 2,000, long after the boom and bust of that era. Any attempt to saddle the homeowners, the taxpayers or the investors with anything other than the reality of fair market value will undermine our financial system, and ultimately our future and the future of generations to come.

Funny Thing About Trust and Credibility

Editor’s Note: business seems more concrete and logical than say, religion. But the truth is that all of finance and the economy is based upon three things: (1) trust, (2) credibility and (3) belief.

Example: If you believed that the U.S. Dollar was going to be worthless (as has happened in our history) would you believe it is worth anything? Obviously not. would you take it for payment? Obviously not. Then why are we expecting any long-term solution to come out of our current policy of pretending that the banks did ANYTHING right? The world is waiting for an answer.

U.S> domestic and foreign policy is restricted by the resentment arising from the act of financial terrorism that was perpetrated by a select few on wall Street. Our financial sector continues to drag down the sparkling image of the the U.S. as the world’s engine of growth and democracy.

The second part is worse than the first. With median incomes continuing to decline the price of housing will also continue to decline. Wealth will continue to vanish — even amongst those who owns and rents property to others. If they can’t get a monthly rental equal to their payments, strategic defaults like Stuyvesant will become common place putting even more housing in disrepair.

The simple truth is that we continue to pretend. It is a fairy tale that we have enough money to buy our way out of this and a continuing lie for us to continue to allow companies, banks, lenders, pretender lenders and others report earnings and assets they don’t have. The “equity” is gone.

The value of the mortgage backed securities is, in my opinion, zero unless some fair system of distributing the wealth is worked out after clawing back all those illegal profits. double undisclosed yield spread premiums and collections on insurance where the beneficiary was not the one who had lost any money. Fair market valuation is the only answer across the board.

Only when we transparently report that some very big companies are actually broke and only when we return the bottom half of the country to some sort of normalcy will we have a foundation for recovery.

Will We Ever Again Trust Wall Street?

by Jason Zweig
Monday, February 8, 2010

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For many investors, the market’s turbulence hasn’t just destroyed wealth. It has shattered their faith in the financial system itself. Consider Philip Eberlin, 56 years old, who runs a woodwork-restoration business in Chicago Heights, Ill. Trading hot stocks a decade ago, Mr. Eberlin got burned on picks like Krispy Kreme and Tyco. In 2007 he got back into stocks, only to take another hit.

Having been burned twice in 10 years,” says Mr. Eberlin, he now has about 80% of his family’s assets   protected from the market” in certificates of deposit and fixed annuities. “I don’t have trust in Wall Street to help the small investor in any way, shape or form.” Mr. Eberlin isn’t alone. Late last year, Decision Research of Eugene, Ore., asked Americans how much they trusted bankers and other Wall Street leaders “to reduce the risk of the financial challenges the country is facing now.” On a scale of 1 to 5, with 1 meaning no trust at all, the rating averaged a paltry 1.7.

With such a loss of faith, how will companies be able to obtain the capital they need to expand? The foundations of the financial markets ultimately rest upon the confidence of mom-and-pop investors across the country.  But every investor has a fundamental need to believe that the world is just—that good people are ultimately rewarded, that bad people are eventually punished and that the system isn’t rigged to favor an undeserving few. This belief in a just world is partly delusional; most of us realize that nice guys often finish last. But this delusion makes short-term setbacks endurable. “A belief that the world is fair and predictable is necessary in order for people to delay gratification and to make investments that will pay off in the long run,” says James Olson, a psychologist at the University of Western Ontario.

So when bad things happen, “people often prefer to blame themselves rather than believe they live in a chaotic and unjust world,” says Dale Miller, a psychology professor at Stanford University.After tech stocks crashed in 2000-2001, for instance, many investors kicked themselves for taking foolish risks. This time around, however, many investors who followed the best advice were punished the worst. Someone who held a total-stock-market index fund lost more than 58% from October 2007 through March 2009 and remains 31% behind even after last year’s recovery.

These people can’t blame themselves; they did as they had been told. Meanwhile, they watched Wall Street firms parcel out billions in bonuses. I believe the old truths remain valid: Buying and holding a diversified stock portfolio still makes sense. Paradoxically, as fewer people cling to their faith in traditional stock investing, the future rewards from it are likely to grow greater. But that can take time. In 1952, two full decades after the Great Crash hit bottom, only 19% of wealthy Americans regarded stocks as the wisest investment choice, according to a Federal Reserve survey. Most investors thus sat out the great bull market of the 1950s, when stocks gained 19.4% annually.

How can faith be restored?  Wall Street firms need to be forthright in admitting their shortcomings. The more they protest their innocence, the more they make the typical investor feel that the financial world is unjust. The Pecora hearings, held in the U.S. Senate in the 1930s, served partly as a form of public expiation, in which Wall Street’s leaders apologized for their firms’ conduct. The Financial Crisis Inquiry Commission, formed by Congress in 2009 and now holding its own hearings, may help investors feel that Wall Street can own up to its mistakes. Finally, financial advisers need to be much less dogmatic and confident in their predictions. By admitting the extent of their own ignorance today, they would help prevent investors from feeling railroaded tomorrow.

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