Fixing the Housing Market So It’s Safe to Buy or Hold

Reality in Iceland: prosecution and letting the chips fall to the table
August 27, 2012. Neil F Garfield. Mainstream media and in particular Krugman and Ritholz have echoes what Simon Johnson and I have been saying for years. It’s not a question of theory or ideology. It’s a question of reality.
Citizens of Iceland were not in the least bit interested whether the “conservatives” or the “liberals” had compelling ideological arguments. They wanted jobs, economic stability, and decent prospects and opportunities. Citizens of Iceland were not interested in the concept of change or even change in government.
They wanted their society fixed, after being used and thrown under the bus by Wall Street using Icelandic banks as a conduit for international exchange of derivatives that turned out to be worthless. The Banks tried throwing Iceland under the bus, but Icelanders defied the power and wealth of the world’s largest banks and executed simple policies that followed the advanced thinking and analysts all over the world, past, present and future.
Bill Clinton was asked by many how he managed to take an ailing economy and turn it into a booming source of innovation with giant government surpluses. His answer was “arithmetic.” When I was a security analyst and investment banker on Wall Street the primary theme was that before investment, underwriting, or performing any act or making any decisions we had to start at the beginning — the fundamentals. Money may be hard to define but it is easy to measure.
At the end of the day if you taken more real money than you have spent, then you have more money at the end of the month. If some thief steals from you, your wealth drops. If someone claims to own your property and doesn’t own it, your wealth remains unchanged — but Wall Street, bucking the obvious proof in Iceland, says otherwise.
Wall Street says they can “borrow” the identity of homeowners and use it to create the equivalent of bank notes that can be accepted as cash equivalents as long as they dress it up with triple A ratings, and insurance companies that cannot pay for the loss and wouldn’t even if they could because the offer to buy the credit default swap, the insurance and other hedge products were based upon blatantly false premises.
Iceland simply did arithmetic and they continue to do arithmetic. They are reducing household debt, letting creditors suffer the risk of loss that was part of their contracts but now they don’t like their contracts. In Iceland too, the Banks demanded bailout money to save the financial system. But Icelanders rejected that on both legal and moral grounds.
They were not going to reward the perpetrators of fraud tooth further detriment of their victims, they would prosecute them and punish them for breaking the key laws and premises of a stable society — accountability to and for the truth.
They were not going to further burden the victims of the crimes with taxes to reward the perpetrators and their counterparts, they were going to provide as much restitution of wealth as possible and necessary to stabilize an economy that was crashing.
The financial system did not crash and burn as Wall Street had sternly predicted to the Bush and Obama administrations in the U.S. With more than 7,000 smaller banks ready and waiting pick up the pieces. They did not debase their currency and their prospects by saddling future generations with the mistakes of remote greedy bankers. They took the money that existed and disregarded the fake money, the ” cash equivalents” created all over the world allowing the shadow banning system to collapse under it’s own worthless weight. Nothing bad happened.
What did happen is that Iceland now enjoys normal economic growth, sharply declining unemployment and underemployment and does not consider trading paper whose value is based upon false transactions to be part of a their GDP. Produce real goods and services while in the U.S. And other “advanced ” superpowers they have turned themselves into paper tigers. While financial services went from 16% of U.S. GDP before this mess, it now counts for half. Arithmetic: if those shadow banking transactions are worthless then our real GDP is 34% less than what we are reporting.
In Europe where they have their heads partially in our sand, they are trying to sit on two chairs with one ass. They too understand that nothing trumps reality but the people who run government here and abroad are simply making far too much money pretending that shadow money is real money. The real value of our stock indexes is around 7500 for DJIA.
The facts are that housing is still in the dumps even if some reports show “signs of life.” to allow Foreclosures to proceed when the creditor had an undocumented c,aim without any real mortgage lien is absurd, bit it is done everyday. It isn’t a matter of defective documents, it is a matter of no documents, while the banks stole the identities of the pensions funds and homeowners for their own personal Profit,  and buried the losses until they were done trading worthless paper. THEN they gave the “ownership” of the worthless paper and the loss to the investment funds that thought they had purchased them years ago under rules that were never followed by Wall Street.
The foreclosures must end because they are illegally based upon a chain of paper without any money transactions (consideration). The “completed” Foreclosures should be disallowed because the transactions on which they were based were void for lack of consideration wherein the signature of the homeowner was procured by fraudulent premises and promises.
The real money transactions should be documented and the real loan status should be disclosed so that homeowners and investors can come to reasonable settlements and modifications without regard to the consequences to Banks whose continuing fraud is causing the U. S. And Europe without applying basic emergency procedures to stop the bleeding.
The loans are not secured by perfected liens and the principal loan origination was outright theft from investor-lenders and homeowners. But they could be secured and people could pay for the real market value of the deal they were tricked into, if we simply go back and do the arithmetic — and play fair.

Iceland Did It Right … And Everyone Else Is Doing It Wrong
http://www.ritholtz.com/blog/2012/08/iceland-did-it-right-and-everyone-else-is-doing-it-wrong/

How to Use Lost Documents and Destroyed or Withheld Documents

Floyd Norris - Notions on High and Low Finance

EDITOR’S NOTE: Earth,the final frontier. Somewhere there are people who grasp the concept of reality. But to give credit where credit is due Floyd gives primary print space to contrary points of view. Even better, he shows his professionalism by asking the two questions (1) why would banks lose the note and (2) “what am I missing here?”

So here is my response and I invite you all to forward the article toFloyd and see what he says in response.

A note is cash equivalent. So why would anyone rip up cash? His question is not so far-fetched. It turns everything on its head to think of banks ripping up money. You have a $10 bill in your hand. Later when things are looking litigious, you rip it up. Why?

The answer Floyd — the only possible answer — is that there is greater risk in having the $10 bill than in keeping it. What circumstances would make the banks believe there wass more risk in cash equivalents than in throwing them out and pretending they had them?

Well, here’s a simple example. Suppose you took a Loan for $1000 after certifying through third parties (whom you control) and your own warraqnty that you had a $1,000 bill in your pocket. Yes, that would be the $10 bill in our example. Now the loan goes bad or the lender wants to actually see the bill. Which would you rather do (1) show the $10 bill and go to jail or (2) say you lost it or it was accidentally destroyed?

The THIING you are missing Floyd is that this was all based upon representations and not the real thing. Fraud was committed on BOTH the investors and the borowers who both purchased financial products predicated on the same assets which were intentionally   viability (investment grade, remember?) at an unsustainable value and which were represented to be of the highest quality when in fact the securitization chain all the way from investor to borrower was predominantly toxic.

What you are missing is that there were two HUGE financial incentives to perform in what appears to you and others as erratic: (1) the huge yield spread premium between the aggregating pool and the SPV pool (that’s right there are ALWAYS TWO POOLS NOT ONE) and (2) the geometric steroidal profit rained on the investment banks who created these pools by leveraging insurance 30-70 times over. In simple terms the investment banks (NOT THE INVESTORS) received $30-$70 for each $1 in the promissory note that was funded for the benefit of the homeowner.

In other words, it was ONLY through failure of the pool that a $300,000 note could (a) be paid off with over $9 million (even if it wasn’t in default) through credit default swaps that are insusrance but specifically excluded from official definitions of insurance or securities.

Borrowers are right when they demand the documents becuase it will lead to collapse of the “lender” side (actually pretender lender” because they simply steal the identity of the investor the same way the stole the identity of many borrowers in order to make the pool look good. They are looking for low-hanging fruit not cases where the deceit will be exposed. Or it will lead to a reasonable settlement that reflects true value and affordability wth normal underwriting standards applied.

Floyd this is not legalmumbo jumbo or some technical sleight of hand trick. NONE of these foreclosures are initiated by the creditor. All of these foreclosures are blatent in that they seek to steal the home wihtout having advanced ONE PENNY to anyone for funding or buying the obligation. 

December 4, 2009, 3:59 pm <!– — Updated: 5:42 pm –>Are Banks Losing Lots of Documents?

My column today has provoked a number of e-mail messages from readers saying — some politely, some not — that I failed to discover that the big problem is that banks are losing documents, over and over again.

“I have faxed/mailed every document requested, for a year now,” complained one troubled homeowner.

Another, who thinks I asked foxes to tell me about chickens, adds:

My employer came under S.E.C. investigation, early this year, resulting in multiple rounds of layoffs. As a result, I was forced — through no fault of my own — to reach out to Bank of America, phoning regularly since MAY, at least twice monthly and faxing copies after each call (the only delivery method they allow — for EACH and every earnings document this year). Between regular assertions that they “lost the copies” and outright, documented LIES that I did not call or fax, I am still struggling with them in DECEMBER!! I can assure you that I have complied promptly and completely with their every request — and I am certain I am not a limited statistic — as your column strongly implies.

Jean Braucher, a law professor at the University of Arizona, points me to a paper she wrote: “Fixing the Home Affordable Modification Program to Mitigate the Foreclosure Crisis.” She thinks the banks are far more culpable than I made it sound:

I think the major reason we are seeing so few permanent modifications may turn out to be that many servicers are losing documents or perhaps refusing to admit that they have documents. There have been many accounts of borrowers getting the runaround at the stage of trying to get a trial modification, and now I believe there is reason to suspect that pattern may be continuing at the stage of conversion from trial to permanent modification.

After reading your column, I posted a query on a listserv this morning to a group of bankruptcy lawyers, some of whom have had experience helping clients try to get HAMP modifications. I got back reports that lenders deny getting documents that have been sent 3 or 4 times. In short, I don’t think you had the full story in your column.

I think that the first thing that the administration needs to do is make sure that Freddie Mac, the compliance agency for HAMP, does a searching audit of the procedures servicers are using, including by talking to borrowers and housing counselors and lawyers for borrowers. I think this will turn up a lot of evidence, some of it concerning continuing lack of capacity to handle modifications but some of it also indicating unfair and deceptive practices and even fraud are occurring. Then the Federal Trade Commission needs to make an example of the worst offenders with some enforcement actions.

I have a couple of reactions.

First, I see no reason for the banks to purposefully lose the papers. What am I missing?

Second, a theory that banks can be clumsy and even incompetent deserves respect.

I am not sure to what extent lost documents are a major part of the problem, but I am now sure that many people think a lot of documents are vanishing.

Perhaps each bank should appoint someone to receive documents from people who think their documents have previously been lost, hand out receipts, and then be available to intervene if that bank’s bureaucracy claims the documents are lost. That person should be willing to take the documents in person, as well as by fax. (The banks have scanners to put the documents into their systems.)

If that solves a big part of the problem, great. But I suspect there are many other reasons that modifications are not becoming permanent.

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