Fed Orders Ally, BOA, Citi, JPM, Wells Fargo to Pay $766.5 Million in Sanctions


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SERVICE 520-405-1688

Unsound and Unsafe Processes and Practices in Residential Loans

Editor’s note: Once again we have an administrative finding and an admission by the BIG 5 that their servicing and practices are both unsafe and unsound. These are fines, not restitution. The Banks regard this as the price of doing business and the Federal Reserve System, led by the NY Fed, on which the likes of Jamie Dimon are Board members,  makes it look like they are doing something. But it is a long way to stretch these findings into conclusive proof that these unsafe and unsound practices apply to any particular loan.

On the other hand, it lends considerable support to the argument that the accounting is not complete, the documentation is neither complete nor does it conform to the full story — the reconciliation of money and practice with the requirements of the closing documents with the lender (investors), the requirements of the closing documents with the borrower (homeowner), the truth of the representations made in court by those seeking to foreclose, and the truth of how the money was funded and distributed, contrary to the chain of documents and the proffers made in Court by entities seeking to foreclose.

From the information we have at hand, if properly presented, the would-be forecloser should be forced in discovery to prove up the transactions that are described in assignments, substitutions of trustees and other documents. And in failing to prove the boiler plate recital “for value received” their case should collapse. The reference to transactions in which the loan was allegedly bought and sold are false in most cases, which means that there was no sale because nobody paid anything. It is the same with the auction wherein a credit bid is submitted by a non-creditor who cannot prove that they bear a risk of loss for non-payment of the loan.

Further, it probably is true that the forged, fabricated false documentation referred to in the Missouri indictment, are a cover-up for a more essential defect — that the loan origination documents lack full disclosure of the the identity of the real creditor, the fees and other compensation earned, and the actual terms of repayment to the creditor which are contained in the securitization documents, not the documents at the closing of escrow with the borrower.

The biggest cover-up is the amount due on the debt and the very existence of the declared default. With the servicer paying the creditor, the creditor is not in any position to declare a default regardless of whether the borrower made payments or not. The servicer, not being party to the mortgage has no rights to foreclose although they could allege that they have some right of restitution from the borrower, but since the servicer has no contract with the borrower, there is no basis for foreclosure.

Other payments to the creditor, or the agents of the creditor in the securitization chain by insurers, counterparties in credit default swap contracts and intermingling receipts and liabilities by cross collateralization within the pool are made with the express waiver of subrogation, which means they are making the payments but they waive any right to collect from the homeowner. Crediting these payments to the investors and the corresponding loan accounts would greatly reduce the debt due without any resort to “principal reduction” or “principal correction.” The legal principles are that the creditor is only entitled to be paid once and it is only the creditor who has the right to foreclose and submit a credit bid at auction.

A creditor who has already received a payment cannot demand the same payment again from the borrower. The strategy of the Banks is to claim ownership of the loan, auction the property and submit their own credit bid which is false. The strategy of the homeowners is to penetrate the veils of secrecy and obfuscation of the banks and show through the records or absence of records that the transactions claimed by the conduits in the securitization chain never were completed because no value was exchanged and to show that they are entitled to a full accounting of all money received by or on behalf of the creditor.

This information is especially important in exercising rights under HAMP and other debt relief and modification programs. Without a starting point in which the borrower knows the true balance of the debt, the borrower is left to guess or estimate or waive the amount of payments received by or on behalf of the creditor.

Unless and until the Court, or any of the regulatory authorities forces the creditors and the bank conduits to show all money received and all money paid out, with dates, payees and the purpose of the transaction, there is no right to pursue foreclosure. Trustees are breaching their statutory and common law duties by failing to exercise due diligence on this point especially since the information, like these sanctions and the prior Cease and Desist orders are already in the public domain.

Once the Court orders the bank or servicer to comply with the ordinary requirement to provide a FULL accounting, experience indicates that the cases will inevitably settle on favorable terms to the borrower. Failure of the Judge to grant such an order is an appealable order, that probably entitles the homeowner to obtain a review through interlocutory appeal.

Federal Reserve Board releases orders related to the previously announced monetary sanctions against five banking organizations

Release Date: February 13, 2012

For immediate release

The Federal Reserve Board on Monday released the orders related to the previously announced monetary sanctions against five banking organizations for unsafe and unsound processes and practices in residential mortgage loan servicing and processing. The Board reached an agreement in principle with these organizations for monetary sanctions totaling $766.5 million on February 9, 2012.


Ally Financial Inc. (PDF)
Bank of America Corporation (PDF)
Citigroup Inc. (PDF)
JPMorgan Chase & Co. (PDF)
Wells Fargo & Company (PDF)

For media inquiries, call 202-452-2955

SOURCE: http://www.federalreserve.gov

Reuters: Calls Mount to Break Up Bank of America


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Weakness of BOA Poses Threat to Entire System

Editor’s Comment: When I proposed it 4 years ago, it was dismissed as the ravings of a fringe lunatic. Now it’s mainstream. BOA, Citi, JPM et al are in no better shape than the banks that were allowed to fail. In fact, they are in worse shape than some of them and should be allowed to fail because they are not viable businesses and represent a large black hole through which taxpayer money, debt and revenue is poured with regularity.

Now leading groups of consumer advocates, academics and economists are calling for the dismantling of the megabanks, some for the reasons expressed here, and some because from a specific financial perspective — it is too dangerous to leave a tottering giant riddled with cancerous lesions to lead the financial markets. It makes no sense. A “run on the bank” is almost inevitable and when it happens the result will be catastrophic, the group says, and I agree with them.

See Full Story on Reuters

(Reuters) – A group of consumer advocates, academics and economists want to end “too-big-to-fail” banks, starting with Bank of America Corp.

The group, led by consumer advocacy organization Public Citizen, plans to file a petition with the Federal Reserve Board and other regulators on Wednesday asking them to carve the bank into simpler, safer pieces.

The Fed and the coalition of regulators known as the Financial Stability Oversight Council have the authority to take such action under the Dodd-Frank financial reform law passed in 2010, the group said.

Nearly two dozen professors and groups have joined the effort.

… the petition is a dramatic criticism of regulators who have so far done little to shrink giant banks after the 2007-2009 financial crisis.

“Bank of America currently poses a grave threat to U.S. financial stability by any reasonable definition of that phrase,” the 24-page petition said.

It said Bank of America, the nation’s second-largest bank, is too large and complex, and that its financial condition could deteriorate rapidly at any moment, potentially causing the market to lose confidence in the bank.

“An ensuing run on the bank could cause a devastating financial crisis,” the petition said.

David Arkush, director of Public Citizen’s Congress Watch division, said a lot of the group’s concerns apply to other large banks, but that Bank of America is the institution most exposed to the housing crisis.

“Regulators need to get ahead of this and act proactively to reform Bank of America,” Arkush said.

Bank of America has had a tough time emerging from the financial crisis, particularly because of mortgage losses tied to its 2008 Countrywide Financial purchase.

The bank’s stock slid 58 percent last year as investors expressed disappointment with the speed of a turnaround and fear about the bank’s ability to comply with new capital rules.

Bank of America, the Fed and the Treasury declined to comment on the planned petition.

Some community groups decided to pass on signing the entreaty. Janis Bowdler, an official with the National Council of La Raza, said the letter was distributed on a list-serve for a coalition called Americans for Financial Reform, but her group decided not to join up.

“I don’t want to downplay the concerns that were raised,” said Bowdler, “but for now, a strong housing market and cleaning up Countrywide is the priority for us.”

NCLR is a national Hispanic civil rights organization. It receives financial support from Bank of America.

The Center for Responsible Lending, which has been critical of banks for mortgage lending practices, has also declined to participate. CRL president Mike Calhoun declined comment.

Bank of America was one of the large banks that received a government bailout during the financial crisis. It paid back the $45 billion in 2009, but analysts say it still needs more capital to absorb mortgage-related losses and to meet new international standards.

(Reporting By Rick Rothacker; Additional reporting by Dave Clarke in Washington and David Henry in New York; Editing by Phil Berlowitz)




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EDITOR’S NOTE: for those of you who have read my incessant posts that the mega banks are broke, especially, BOA, the article below spells it out in simple arithmetic terms. BOA is selling at 40% of what it SAYS it has in book value. Citi is at 50%, Morgan Stanley, 60% etc. See for yourself.

Normally finding a stock whose value in the stock market is below book value is a possible signal to buy, but it also  can be a red flag. In this case it is giant red flags with trumpets blaring. My prediction is that BOA and Citi for sure are going to bite the dust shortly. They simply cannot sustain themselves because their assets are overstated and their liabilities are understated. Market analysts obviously agree since few, if any, have put out the word for people to buy these stocks.

The outcome seems inevitable from my point of view. BOA and Citi will collapse and be sold off in pieces. Notwithstanding the whole Too Big To Fail Hypothesis, the financial markets will probably react favorably when this happens. It is obvious that nobody believes the balance sheet at BOA and Citi and that the stock has already been discounted for the inevitable result.

The reason this is relevant to homeowners is that BOA and Citi account for a large percentage of all foreclosures. The overstated “assets” are actually derivatives that supposedly derive their value from home mortgages — which the bank neither owns nor has any other interest. As these facts seep out into our collective consciousness, it will be apparent that most BOA foreclosures are exercises in generating fees rather than collecting the balance due on loans that are unpaid. If the regulators do their job right, it will be apparent that the foreclosures were faked.

My advice is to keep your eye on these banks and see what comes out. Make requests under Freedom of Information and discovery that are directed at how they are accounting for loans they say they own, and for details of the transaction on each particular loan. You will most likely find that the bank has no loan receivable on that home loan you are researching. Armed with that information, if you get it, you can clearly make the argument that there was no transaction in which BOA became the owner of the loan, despite the appearance of paperwork to the contrary. When you drill down, you will see that BOA never bought those loans, never paid for them, and that the transfer documents and other documents are all fabrications behind which there is no actual transaction.

Why 2011 Was So Brutal for Big Banks

By Anand Chokkavelu, CFA | More Articles
December 17, 2011 | Comments (0)

As we approach the end of a tumultuous 2011, it’s time to look back on the year that was.

Few, if any, industries had a worse 2011 than the big banks. Check out the carnage (and remember that the S&P 500 was basically flat after factoring in dividends).

Bank Name

2011 Return

Price-to-Tangible Book Value

US Bancorp (NYSE: USB  ) (2.1%) 2.4
Wells Fargo (NYSE: WFC  ) (14.7%) 1.5
JPMorgan Chase (NYSE: JPM  ) (23.2%) 1.0
Morgan Stanley (NYSE: MS  ) (44.5%) 0.6
Citigroup (NYSE: C  ) (44.9%) 0.5
Goldman Sachs (NYSE: GS  ) (45.8%) 0.7
Bank of America (NYSE: BAC  ) (60.8%) 0.4

Source: S&P Capital IQ. Return includes dividends.

None of these seven largest U.S. banks is leaving 2011 unscathed. US Bancorp and Wells Fargo, the two least Wall Street-y banks, came closest.

To recap the news this year, pretty much every negative macroeconomic event batters the banking stocks because they’re players in so much of the economy, both domestic and foreign:

  • They’re all still recovering from the housing-bubble burst. When we hear about subprime lending, liar loans, derivatives run amok, poor documentation, and the need for better regulation, it’s largely this group.
  • In August, the U.S. lost its AAA debt rating while Congress played politics instead of fixing the budget. If you look at the stock charts for these banks, you can see the effect of this added friction and uncertainty.
  • European sovereign-debt problems become problems for U.S. banking stocks because (1) the global financial system is increasingly tied together and (2) investors are having a hard time determining exactly how much direct European exposure the largest banks have.
  • To expand on that last point, the U.S. financial crisis highlighted how opaque bank balance sheets can be (and how much stuff banks can hide off the balance sheet). This forces investors to assume the worst.

On the plus side, all the banks except Bank of America have been able to profit off cheap interest rates (thanks to the Fed) and high trading volume. That’s why you see some low P/E ratios in this group. But much of that profitability is fleeting, especially if regulations cramp their style.

But this is more a balance-sheet tale than an income-statement tale.

When you go down the table from best-performing to worst-performing, you see a rough order of the likelihood of exposure to shaky lending and derivatives. US Bank and Wells Fargo are mostly regular old banks. JPMorgan is a hybrid Main Street and Wall Street bank that weathered the crisis better than the remaining four largely because of the leadership of Jamie Dimon.

Bank of America and Citigroup are also hybrids, but they’ve been proving to be the weakest of the herd. Citi did it organically, while Bank of America had help with its Countrywide acquisition. You can see the fear in their tiny price-to-tangible-book values, both half what JPMorgan gets.

Meanwhile, Goldman and Morgan Stanley are the only two full-fledged Wall Street megabanks left.

I see value in this uncertainty. The market is definitely valuing these banks on fear. And a lot of it is justified. Investing in these banks (especially as you go down the list) takes a leap of faith that the balance sheets can’t be that bad. It may even require some faith that the government would bail them out again without destroying common shareholders if need be.

Investing in the largest banks isn’t for the faint of heart. Fortunately, there is an alternative if you like bank stocks. Smaller regional banks are generally a lot simpler. Like US Bank and Wells Fargo, they mostly stick to taking in deposits and lending. Smaller bank stocks are by no means easy to decipher, but they’re a heck of a lot more transparent than the Wall Street banks.

Fitch cuts Ratings on Goldman, Deutsche, five other large banks


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EDITOR’S COMMENT: Why would regulatory challenges be a threat to the financial viability of the Banks? answer: because the challenges they are talking about drive a stake though the heart of lies perpetuated by those Banks. the result is that they could be required to tell the truth. If they tell the truth, then they have a double whammy — (1) they don’t actually have the assets they report on their balance sheet which would immediately put them in violation of reserve requirements causing the immediate takeover and dissolution of those Banks and (2) they have a huge liability which is also not properly reflected on their balance sheet for damages and buybacks and potentially punitive damages for lying to investors and borrowers. Overstated assets and understated liabilities would place the Banks in negative net worth position and that would cause them to collapse.

This would actually be more of a change in our political system than in our financial system, notwithstanding the scare tactics of TBTF (too big to fail), which is nothing more than a living lie. Dissolution of the mega banks would shift Market power back to the more than 7,000 OTHER banks, and cut the amount of Bank money in politics by about 95% thus breaking the Bank oligopoly. A more decentralised Banking system would result in more intelligent loans being available to credit worthy start-ups and expansion of small businesses, who account for more than 70% of all U. S. Employment. Employment would rise because new jobs would be created. As more people went back to work, more taxes would be paid, thus giving Federal, State and local governments desperately needed tax revenue.

So overall the rating agencies are in agreement: the Mega Banks may be in for hard times. The only reason it isn’t a certainty is they don’t know if the public has the political will to kick the incumbents out of office and restore “order” to our political and economic system.

Fitch cuts Goldman, Deutsche, five other large banks
http://www.reuters.com/article/2011/12/16/us-banks-ratings-fitch-idUSTRE7BE2AO20111216?rpc=71&feedType=RSS&feedName=topNews <http://www.reuters.com/article/2011/12/16/us-banks-ratings-fitch-idUSTRE7BE2AO20111216?rpc=71&feedType=RSS&feedName=topNews>



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SEE 74051381-Judge-Rakoff-s-Ruling-in-S-E-C-v-Citigroup-Global-Markets




EDITORIAL COMMENT: Investors lost $700 million in one deal while Citi made $160 million. The loss to investors was intentional, knowing with full appreciation of the consequences. They weren’t acting as an intermediary bank or broker, they were just acting as a common grifter. The proposed settlement was $285 million with no admission of any of the facts supporting the case and no restitution — i.e., giving back the money they stole. Now multiply that deal 25,000 times and you get the full scale of the securitization scam that is ripping apart the economies of this nation and most nations of the world. The amount exceeds the gross national product of several countries combined including our own.

There is no greater threat to our national security than the power wielded by the Banks and what they are willing to do with that power. For many Americans the damage is already done — their lives destroyed by the exact same tactics deployed against “smarter” people who manage institutional investment funds. For the rest, the next waves are coming and those who thought they were immune from the crisis or affected only slightly are in for a rude awakening. The risk rises every day of an unruly explosion of anger unemployed and underemployed population that can’t afford to put a roof over their heads, eat decent food, and get proper medical care.

The answer from the SEC is that the Banks are too big to fight against. The Banks have greater resources. We have a trillion dollar military budget allegedly for national security but we have no money to assure domestic security and tranquility? The answer from the federal reserve is non-interest loans of $7 trillion to the same crooks that started the whole mess and stole the money, property and futures of every American and future generations. The answer from the U.S. Treasury has been direct infusion of money into the same institutions who cheated, lied, and stole money from the taxpayers, investors and homeowners.

In any ordinary case of fraud, restitution is the norm. Then come the penalties, civil and criminal. Let anyone of you do anything remotely similar to what the Banks did and you will end up in jail with most of your assets seized to make good on restitution. Look at Madoff and other cases where receivers and trustees were appointed to decide on how to divide the restitution payments and how to collect up the assets.

Changing the rules as a result of the size of the fraud is the rule of men, not the rule of law. If we are not a nation of laws then we are nothing more than a banana republic with dictators running the country. If the SEC is stating the policy of this country that it won’t enforce the laws against the Banks because they lack the resources to prosecute then the country has surrendered its sovereignty to the Banks. UBA, not USA.

Judge Rakoff is the lone voice in the wilderness of chicken-hearted Judges and lawyers who won’t go for the jugular to save their own country from banksters who have siphoned off the life-blood of the country and are now using our weakened condition against us. Look to history. This can only end up one way — a general strike or uprising of people who force change when they can’t eat anymore and can’t find a place to live. This isn’t a revisit to the Great Depression, it is a coup engineered by the Banks who have taken control of the country, its policies, and its direction.

President Obama needs to come out of his ivory tower and engage the Banks in a fight to the death, with or without the direct help of congress. There are enough laws, rules and regulations to enforce that will take care of the situation. The people know it, understand it and want it. If Obama won’t give the people what they want then he can kiss his second term good-bye.


“According to the S.E.C.’s Complaint, after Citigroup realized in early 2007 that the market for mortgage backed securities was beginning to weaken,    tigroup created a billion-dollar Fund (known as “Class v Funding IIIU) that allowed it to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the Fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact    tigroup had arranged to include in the portfolio a substantial percentage of negative    projected assets and had then taken a short position in those very assets it had helped select….

“…Citigroup knew in advance that it would be difficult to sell the Fund if Citigroup disclosed its intention to use it as a vehicle to unload
hand-picked set of negatively projected assets, see Stoker Complaint…

“…this would appear to be tantamount to an allegation of knowing and fraudulent intent (“scienter,” in the lingo of securities law)…

“Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if    fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

Editor’s Note: One more thing (although there are many others that could be added here): Why is it so hard for America to accept that the investors were defrauded in the same scheme that sold bogus financial products to homeowners who are now evicted out of their homes. Why are we picking up one end of the stick and not the other. Why are we blaming the victims on one end of the stick and blaming the banks on the other? Where is the case for fraud in the execution, fraud in the inducement, damages and restitution for homeowners?

It is a fair bet that virtually 100% of those who signed mortgage papers had no inkling that they were issuers of paper that would be used as securities, valued as securities and treated as securities and that therefore they would be liable not only as Payors under the so-called notes, but as issuers in a fraudulent securities issuance scheme about which they had neither knowledge nor even access to knowledge.

If you track the 51 cases so far in which the SEC found this type of fraud, you see the same pattern over and over again. By what standard of conduct that will guide us in the future as to our behavior, will we be able to look into the face of homeowners who were tricked into signing papers in loan derivatives that burgeoned from a selection of 4-5 in 1974 to 450 possible loan products in 2003? How can we justify blaming them and expect anything other than chaos in the marketplace as a result?

In a world where victims are “deadbeats” (if they are individuals) and thieves are the center piece in the halls of power, there are no standards that we can depend upon — just the expectation that some small group of people might tell us that what we had we don’t have anymore because they said so. Nothing could undermine confidence in the commercial markets than that — and yet the media, the government and big business and Banks are pursuing exactly that policy with an obvious end result undermining the very structure of our government, our society and our morality. Money has now made its own morality and is the alter at which we now worship above all else. Do we submit?



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HELLO IT’S ME, Citi c/o FEDERAL HOME LOAN CORP dba Fannie Mae in all matters related to Assumption of loans and Assignment of Loan – proper address for your Good-Bye Letter

CitiMortgage, Inc.
P.O. Box 183040
Columbus, OH 43218-3040
18 States: DE, DC, GA, IL, IN, KY, MD, MI, NJ, NY, NC, OH, PA, SC, TN, VA, WV, WI

CitiMortgage, Inc.
P.O. Box 689196
Des Moines, IA

CitiMortgage has two payment addresses for First Mortgage payments, depending on in which state the
property is located. Please refer to the following chart to determine the proper address for your Good-Bye

When sending loan payments for overnight delivery, use this address:
CitiMortgage, Inc.
Attn: Payment Mail Opening
4740 121st St
Urbandale, IA 50323-2402


DEPOSITORY TRUST CO as Indenture Trustee Purchaser of Note
Assigned Loans = Residential Mortgage Loans
Assignor: (National Banking Assoc as Indenture Trustee Seller Note)
Depositor:(Wiill be a shelf company c/o REMICs Purchaser & Seller)
Servicer: (Will be a shelf company Servicer of default)
USCo as Master Servicer: (Important: Not a Lender)
e.g. Aurora Loan Service not a lender presented now dba Aurora Bank FSB to get around this truth!
e.g.,CitiMortgage, Inc Home Mortgage
Loans Retail Servicer, PO BOX 8855 Springfield OH 45501 also
Insurance Center
CitiMortgage, Inc.
PO Box 7706
Springfiled OH

Assumption of Loans ‘originated by’ Citibank NA
First Mortgage Loans serviced by CitiMortgage Inc.
c/o citigroup.com

Certification of Completion of Repairs
©2008 CitiMortgage, Inc. CitiMortgage, Inc. d
citimortgage, lender, housing, mortgage Conditional Waiver of Lien
102 Rev. September 24, 2011 Page 102 – 1 of 5 O PERATIONS S UPPORT The Fulfillment Service team can …
operations, support, fulfillment, service, september
CitiMortgage Orientation Overview Rev 09-26-06
Special Programs ORIENTATION OVERVIEW CITIMORTGAGE, INC. 4000 Regent Blvd. Mail Code N3B-345 Irving, TX 75063 It is very important that mail code N3B-345 is included …
irving, 75063, important, included, regent
citimortgage inc reo
citimortgage inc phone number
citimortgage inc address
citimortgage inc isaoa
citimortgage inc ceo
citibank mortgage customer service number

CitiMortgage, Inc. Its Successors and/or Assigns CitiMortgage Loan # ______. P.O. Box 7706. Springfield, OH 45501. Combo Second Mortgages Hazard/Flood

Assist Correspondents loan information, suspense, purchase, wire, purchase advice, post funding reconcilation, underwriting scenarios. Correspondents should use Fulfillment Service Team to optimize business relationship with Cit.

National Client Services Team for Correspondents 800-967-2205 program parameters, pricing,.
Use National Client Services team to expand business relationship.
pre-purchase pricing
post-purchase pricing, purchase wire, purchase advise or post purchase reconcilation
Special Programs including BONDS, CalPERS or Verterans Land Board… 866-517-8329

Interested in becomming an approved Correspondent with Citi ?
Central Time

Please use the following addresses when submitting credit packages, underwriting suspense conditions, closed
loan files, and audit suspense conditions to Citi:
Citibank, N. A.
Attn: Correspondent Operations
1000 Technology Dr.
Mail Station 904
O’Fallon, MO 63368-2240
Web Address
The Correspondent web site address is: correspondent.citimortgage.com.
Correspondent Research Services
After Citi has purchased your loan, Correspondents may use the New Loan Reconciliation Transmittal in the
Exhibits Section and submit a written request with backup documentation to corrpurchadj@citi.com by fax to
866-527-1435. The Correspondent Research Services phone number (800) 967-2205, Option 2
 Borrowers with questions should contact Customer Service directly at (800) 283-7918.
Re-assignment Requests
To request a re-assignment back to the correspondent (after an initial assignment to Citi and Citi is NOT going
to purchase or service the loan), send written or emailed request to:
CitiMortgage, Inc
Document Processing – MS 321
Attention: Assignment Team
1000 Technology Drive
O’Fallon, MO 63368-2240
EMAIL: Assignment.Requests@citi.com
Please include a fully completed Assignment for Citi to execute and attach supporting back up documentation–
security instrument and/or recorded assignments. Provide your company name and the name and contact
numbers in the event there are questions.
Post-purchase Funds Reconciliation
Once Citi has purchased the mortgage loan and the Correspondent realizes they are holding excess funds that
must be applied to the customers account, Correspondents must complete Correspondent Transmittal Form
(Exhibit 42) detailing the specific fund application instructions. Once complete, the form, including funds, must
be sent to the following address:
CitiMortgage, Inc.
4740 121st Street
Urbandale, IA 50323
Attn: Exception Payments, MC 1156-7
Final Document / Trailing Documents
After Citi has purchased a loan from the Correspondent, all final recorded or trailing documents and final title
policies must be sent, as they are received but no later than 120 days after purchase to:
CitiMortgage, Inc
Attn: Document Processing, MS 321
1000 Technology Drive
O’Fallon, MO 63368-2240
An Outstanding Document Report is generated on a monthly basis and posted to the website at
correspondent.citimortgage.com. This report will keep you updated on final documents still outstanding.
Requests for return of recorded documents may be directed to the Document Processing address noted
above. Be sure to provide the Citi Loan Number and Property Address in your request.
Tax Bills/Tax Payments
After Citi has purchased a loan from the Correspondent, any tax billings or tax payments received on behalf of
borrower accounts should be sent to:
CitiMortgage, Inc.
Tax Department
P.O. Box 23689
Rochester, NY 14692Hazard Insurance Policies and Endorsement Letters
First Mortgage Transactions Second Mortgage Transactions
CitiMortgage, Inc., Its Successors and/or Assigns Citibank F.S.B., Its Successors and/or Assigns
Citi Loan # xxxxxxxx Citi Loan # xxxxxxx
P.O. Box 7706 P.O. Box 7807
Springfield, OH 45501 Springfield, Ohio 45501
Flood Insurance Policies and Endorsement Letters
CitiMortgage, Inc.
Its Successors and/or Assigns
Citi Loan # xxxxxxxx
P.O. Box 7706
Springfield, OH 45501
Private Mortgage Insurance Certificates and Endorsement Letters
CitiMortgage, Inc.
Its Successors and/or Assigns
Citi Loan # xxxxxxxx
P.O. Box 790057
St. Louis, MO 63179-0057
Client Administration
Any fees billed from the Client Administration Department, such as Early Payoffs, Early Payment Defaults, Pair
Offs, DU, etc. are posted on the web on the “Billing Fee” report page the first business day of each month. An
email is sent out advising fees have been updated to the web. Email questions regarding fees to:
Mailing Address to submit billing payments: Wire Instructions for billing payments:
Citi Correspondent Lending Bank Name: Citibank, NA
ATTN: Client Administration Dept Bank Address: 99 Garnsey Rd
1000 Technology Drive, MS 800 Pittsford, NY 14534
OFallon, MO 63368-2240 ABA#: 021000089
Account Name: Citibank, NA – Correspondent
Account #: 30792918
ATTN: Client Administration
CitiMortgage Customer Service
After Citi has purchased the loan, borrowers with questions should contact Customer Service directly. These
customer service phone number(s) may be provided to your borrower:
 First Mortgage and Fixed Rate Second Mortgages – (800) 283-7918
 Home Equity Lines of Credit (HELOC) – (800) 685-0935





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EDITOR’S COMMENT: Simon Johnson and Paul Krugman have consistently been right, so there is no reason to suspect they are wrong this time. The big banks are too big to manage, too big to regulate and too big for people to do business with them on a level playing field. The only logical answer, as with antitrust, is to break them up into smaller pieces and allow the different regulatory agencies that have jurisdiction over their multifaceted operations the room and resources to monitor these Goliaths.

A good place to start is Citigroup, which Obama ordered nationalized back in 2009 and was IGNORED by his own Secretary of the Treasury, Geithner. Obama was right and he should pursue this demand along with throwing Geithner back into the sea of sharks from which he came. Ignoring the warnings of world famous economists who have been consistently correct in describing and predicting the results of government policy and economics is essentially giving up our sovereignty and we may as well change the name from United States of America to United Banks of America.

We are currently propping up these failed institutions whose assets, profits and reputation have been plundered by management, lone of whom appears to have been at any risk of loss of money or their jobs. The cost is nothing less than our future. We need to take a close look at Iceland, where, of all places, the people stuck tot heir guns (so to speak) and forced a change in government and finance. The result was the miracle we pray for here in the United States.

The Media doesn’t report it, but there is shining example in an unlikely place now designated as the number one place in the world to vacation, and where climate change is warming up the country so that it is quite comfortable. By staying with the truth (the banks are broke) and prosecuting those who plundered our nation and their own banks, the rule of law, the value of the currency, and the ability to provide financing for the core of our economy — small and medium sized business and innovation — can be restored. Iceland proved it.

They insisted on taking control over the banks, breaking up the banks’ political power oligopoly, and restored social gains. They are not done yet, but they are far ahead of European nations whose economies are a wreck because they insist on pursuing policies that assist Banks instead of people.

Why Not Break Up Citigroup?



Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Earlier this week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, captured the growing political mood with regard to very large banks, observing, “I believe that too-big-to-fail banks are too dangerous to permit.”

Perspectives from expert contributors.

Market forces don’t work with the biggest banks at their current sizes, because they have great political power and receive almost unlimited, implicit subsidies in the form of protection against downside risks — particularly in times like these, with Europe’s financial situation looking precarious. Mr. Fisher added:

Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response. Then, creative destruction can work its wonders in the financial sector, just as it does elsewhere in our economy.

Mr. Fisher is a senior public official and also someone with a great deal of experience in financial markets, including running his own funds-management company. I increasingly meet leading figures in the financial sector who share Mr. Fisher’s views, at least in private.

What, then, is the case in favor of keeping mega-banks at their current scale? Vague assertions are sometimes made, but there is very little hard evidence and often a lack of candor on that side of the argument.

So it is refreshing to see Vikram Pandit, the chief executive of Citigroup, go on the record with The Banker magazine to at least explain how his bank will generate shareholder value. (Viewing the interview requires registration, however.)

Citi is one of the world’s largest banks. According to The Banker’s database, which includes data from the end of 2010, it had total assets of just under $2 trillion — putting it in the top 10 worldwide. Over all, The Banker places it as No. 4 in its “Top 1,000 World Ranking.” Citi is No. 39 on the Forbes list of the top 500 global companies, with total employment of 260,000.

Is there indication in Mr. Pandit’s vision that mega-banking will be good for the rest of us in the future? Don’t look for Citi to drive any kind of rethinking of the consumer market in the United States; Mr. Pandit just wants to downsize that part of his business.

The engines of growth, Mr. Pandit said, will be “the global transactions services business” and “emerging markets.”

Transaction services are important, but they do not require a very large balance sheet; these can equally well be performed by a network of small, nimble financial firms. Global commerce existed for centuries before banks built up risks that are large relative to their home economies.

And emerging markets are risky. Mr. Pandit is essentially betting that Citi can ride the cycle in those countries. Probably there will be relatively good profits for a number of years, and this will justify high compensation levels. But when the cycle turns against emerging markets, as it did in 1982, what happens?

In 1982, Citi had a large loan exposure in the emerging markets of the day — Latin America, and the Communist nations of Poland and Romania — and it was saved from insolvency by “regulatory forbearance,” meaning that the Federal Reserve and other regulators did not force it to recognize its losses. Citi was a relatively big bank at that time, but much smaller than it is today.

And its complex global operations are exactly what would make it very hard to put through orderly liquidation under Dodd-Frank. I argued here in March that there is no meaningful resolution authority for global banks; before and after that post I’ve taken this point up in private with senior officials in the United States and Europe responsible for handling the potential failure of such entities.

No one disagrees with my main point: we cannot handle the collapse of a bank like Citigroup in “orderly” fashion.

Jon Huntsman put mega-banks on the agenda for the Republican primaries, with a blistering commentary in The Wall Street Journal a few weeks ago: “Too Big to Fail Is Simply Too Big.”

Other contenders for the Republican nomination have followed his lead, including most recently Newt Gingrich. Whoever ends up going head to head with Mitt Romney is likely to make good use of this very theme — because Mr. Romney already has so much financial support from the top of Wall Street, it will be very hard for him to respond effectively.

Breaking up the biggest banks is not a fringe idea to be brushed off. Mr. Fisher is speaking for many people who work in financial services, who agree that the big banks are not good for the rest of us. Mr. Pandit’s interview just reinforces this point.

Any Republican candidates who say they are fiscally responsible must eventually confront this issue: What was the role of big banks in the enormous recession and consequent vast loss of tax revenue since 2008? Which sector poses clear and immediate danger to our fiscal accounts, looking forward — and in a way that is not yet scored properly in any budget assessment? As Mr. Fisher put it, rather graphically,

Perhaps the financial equivalent of irreversible lap-band or gastric bypass surgery is the only way to treat the pathology of financial obesity, contain the relentless expansion of these banks and downsize them to manageable proportions.

I suggest that Mr. Fisher could reasonably begin with Citigroup.


New Stress Tests Expanded to 31 Banks: Many Likely to Fail


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EDITOR’S NOTE: OK the last round of stress tests was a PR stunt to assure the world that the US finance system was not falling apart when in fact it was and did fall apart and we are dealing with the cover-up phase now. But there is a new round of stress tests that makes some real assumptions and makes real demands upon the Banks to fess up on their true financial condition. That is bad news for the major Banks, especially Citi and BOA, whose assets largely don’t exist.

Frankly I don’t expect BOA to last to the end of this year in its present form and by end of 2012, I don’t believe it will exist at all. Same for Citi. Both were given far too much leeway — in part because of the intransigence and insubordination of Geithner who ignored a direct order from the President to take over Citi long ago. Part related back to the Bush administration where some rough and tumble negotiations resulted in quick takeovers by BOA of Countrywide and Merrill Lynch, neither of which were anything better that a contagious disease.

So the claim that the regulators made them do it is not without merit. But that takes nothing away from the fact that the Banks, as they are currently constituted, are too big to manage, have too little capital to cover the heavy losses that are projected over the next few  years, and really don’t have much going for them in terms of conventional banking activity. Breaking them up into smaller pieces and dividing up the remains into bite size pieces for smaller regional banks with a resolution authority to handle the assets that are claimed to exist, is really the only way to handle this, stop the housing crisis, stop the foreclosure crisis and bring economic recovery back through the return of lending to the average Joe who wants to start or expand his business.

More Vigorous Stress Test for Banks



There’s good and bad news in the Federal Reserve’s decision to expand the scope of its annual stress test of the nation’s top banks. Given the deteriorating economic picture, submitting the 31 largest lenders to even more scrutiny than in the previous two years makes sense. So does putting the European exposures of the top six banks under the microscope. But the Fed’s latest move will leave many on both sides of the Atlantic unhappy.

Start with the United States angle. The Fed is expanding its stress test beyond the 19 largest banks to include another 12 with $50 billion of assets or more, including Discover Financial as well as the United States subsidiaries of several foreign banks like HSBC. Considering that several midsize banks landed in trouble in the last crisis, bringing them into the fold is overdue.

The Fed is making all 31 banks run some pretty depressing numbers through their models: an 8 percent contraction in the gross domestic product, the Dow Jones industrial average collapsing to 5,700 points by the middle of next year, and an unemployment rate rising above 13 percent by 2013. The six largest banks must demonstrate they can also withstand a euro zone crash that whacks European governments and financial institutions.

The test probably means few, if any, banks will be allowed to raise dividends or buy back more stock next year. Instead, they will have to hang onto their capital. And the test ought to make it much harder to cast aspersions on the creditworthiness of any bank that passes.

But the process will take time. Banks have until January to file their results and, based on this year’s exercise, results aren’t likely to be known until April. By that time, the United States and European crises that the Fed imagines could be under way. Pity the bank that is told to raise capital in such an environment.

Meanwhile, Europe looks set to suffer even more. American banks are already reining in their exposure to the euro zone. But the mere fact that the Fed is increasing scrutiny of their exposures could accelerate the withdrawal. That increases the risk that the stress possibilities become reality.

A Troubled Haven

By the standards of the euro zone, Germany is still a haven. But as the overall area keeps looking less safe, investors are starting to notice that, for all its strengths, Germany does lie within it.

On Wednesday, a German government bond offering was badly undersubscribed; bids were accepted for only 61 percent of the 6 billion euro issue. The norm is more like 90 percent.

The bonds that were sold yielded 1.98 percent, still comfortably low as far the government is concerned. But that was 0.1 of a percentage point more than the day’s low, and yields climbed another 0.09 percentage points later. By afternoon, the German paper, or bunds as they are known, yielded 0.24 percentage points more than comparable United States debt. Just a week ago, the gap was similar but in the opposite direction.

This is far from a sign of total panic. Even so, the trend is hard to deny and easy to explain. Investors are taking money out of the euro zone. The European Central Bank reported that non-euro area investors were net sellers of 52 billion euros of member government bonds in the third quarter, having bought 130 billion euros’ worth in the second. German bunds may be the safest European holdings, but as fear mounts they too begin to look unnecessarily risky.

The objective of shunning everything euro related is to stay out of the way of a possible euro collapse. Never mind that the exodus makes that collapse more likely: when investors want out, they run first and ask questions later. And Germany would suffer from a splintering of the euro. While the country would eventually be an economic success with its own currency, a disorderly euro breakup would trash both the financial system and the export business of the zone’s leading creditor and exporter.

European authorities have already missed many opportunities to calm investors down with relatively mild measures. One remaining possible move, resisted so far by Berlin, is for the euro zone to guarantee bonds issued by member nations. Even that would, in theory, dilute Germany’s strong credit a bit. But a disintegration of the euro zone would be far worse. The weak bund auction is a signal for the region’s politicians and central bankers to stop squabbling.

For more independent financial commentary and analysis, visit www.breakingviews.com.





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EDITOR’S COMMENT: It’s a game to them and life to the rest of us. They have power and they are using it regardless of law, ethics, morality or simple common sense. This homeowner made her payments on time, but as soon as Citi entered the picture, they were headed for foreclosure. Why? Because they want the property. Citi and others are looking to become the largest property owners in the nation without spending a dime on loans.

This is not a mistake where the right hand doesn’t know what the left hand is doing. The Banks are in the foreclosure business — regardless of their right to foreclose and regardless of who takes the loss. A close examination of the securitization chain here will show that Citi never bought the loan, never put a dime in the deal and has no loss from anything resembling a loan receivable account.

Citi is getting paid in every way conceivable —including from the borrower and still taking the house on December 2. They claimed huge losses for which the Federal Reserve window and TARP was opened up to them paying them 100 cents on the dollar. They downgraded the pools and received AIG or AMBAC money,  proceeds from credit default swaps and other credit enhancements. Just how many times does this obligation need to be paid in full before we stop the foreclosures?

And here is the real bulletin. When the dust clears after litigation, this lady is going to be entitled to restoration of possession and title to her home. When she gets it, title will be cleared of all other transactions that were recorded and she will probably be awarded damages, maybe treble damages as well. And some investor buying cheap homes is going to have a total loss, with no home and a claim against Citi that will be contested because of disclaimers in the closing paperwork with the investor. When the investor turns to the title insurance carrier it will be the same story.

As investors realize the high risk they are taking, they will recede from the market or work out conditional deals where they don’t take title and get the right to rent the property. These conditional deals are springing up all over the country as savvy people, understanding the securitization and title mess, pick up easy money renting property that doesn’t belong to them based upon deals with the homeowner who gets a payment equivalent to cash for keys. Some deals allow the homeowner to get back the house if the investor wins in litigation against the bank.

Check with an attorney licensed in the jurisdiction in which your property is located before taking any action based upon information on this blog.

Whistleblower: Despite payments, a foreclosure threat

  • Article by: RANDY FURST , Star Tribune

A banker says Nancy Gosselin made the mortgage payments on her St. Louis Park house, but CitiMortgage seems determined to foreclose.


CitiMortgage is planning to auction Nancy Gosselin’s house at a sheriff’s sale next month, based on its claim that she missed a payment in 2009. The Minnesota attorney general’s office has intervened, but says it can’t get a straight answer from the lender.

Nancy Gosselin cannot understand why CitiMortgage is about to foreclose on her St. Louis Park house. Neither can her local banker or the Minnesota attorney general.

At the heart of the dispute is a single monthly payment of $584 that CitiMorgage says she failed to make more than two years ago, according to the attorney general’s office. Gosselin says she made all her payments. A loan officer at Bremer Bank agrees. The attorney general’s office, which says it can’t get a straight answer from CitiMortgage, has urged the mortgage giant to stop the foreclosure and work out a deal.

But the fallout from the alleged missed payment has been a series of cascading late fees and penalties and refused payments that has culminated in CitiMortgage’s threat to auction Gosselin’s home at a sheriff’s sale Dec. 2

“I did nothing wrong. This is very frustrating,” said Gosselin, standing on the sidewalk last week in front of her house on Xenwood Avenue S.

Gosselin gave CitiMortgage permission to discuss her case with Whistleblower. But Mark Rodgers, director of Citi public affairs in New York, declined to do so “due to privacy considerations.”

“Generally, if an account is in the foreclosure process, we cannot accept less than the full amount needed to bring the account current, unless a work-out plan is developed,” he said. “We encourage customers in such situations to get in touch with us directly to see what options may be available to them.”

She tried. For nearly two years she repeatedly wrote CitiMortgage memos arguing that the company was mistaken in its late fees. CitiMortgage never budged.

Stephan O’Connor, a loan officer at Bremer Bank, reviewed Gosselin’s records and disputed CitiMortgage’s claims, writing that Gosselin “has provided all of the proof that her payments were made and made on time.”

Gosselin, a receptionist at Sela Roofing, spent her childhood in the house. It became hers, after her mother’s death, when she bought out her sister’s interest. She’s lived there for more than 20 years.

In 2005, she refinanced the house with an $84,100, 20-year mortgage from Bremer Bank, which then sold the mortgage to CitiMortgage. In 2009, she filed for bankruptcy, facing an assortment of debts, but continued making mortgage payments.

After the alleged missed payment in 2009, the company began piling on late fees, penalties and attorney fees that have swelled to more than $2,500. The firm has refused to accept Gosselin’s past six mortgage payments, so it says she now owes more than $6,000.

On Thursday, William Gosiger, who works in Attorney General Lori Swanson’s consumer services division, wrote a letter to CitiMortgage that “this office does not believe that Ms. Gosselin’s home should be foreclosed upon due to a problem that resulted from one allegedly missed mortgage payment.”

“We have dealt with nine different staffers at CitiMortgage and the right hand doesn’t seem to know what the left hand is doing,” said Ben Wogsland, an attorney general’s spokesman. “We have sent five or six letters to CitiMortgage. We have had only one substantive written response. This is consistent with a lot of consumers’ complaints about mortgage lenders being unresponsive.”

Whistleblower asked two local lawyers with expertise on foreclosure to review Gosselin’s records.

Nick Slade, a Minneapolis attorney, said it appears that after she filed for bankruptcy, CitiMortgage shifted her payments to a different department, which would explain why her checks were recorded by the company weeks after she sent them.

“Even though she thought she was making a full month’s payment, the late fees were paid first [by CitiMortgage] and she became further and further in arrears,” he said. “The whole thing just started snowballing. … It really shows how broken the mortgage system is.”

Jane Holzer, an attorney with the nonprofit Foreclosure Relief Law Project in St. Paul, said: “It looks like she made all her payments. She may have a dispute with CitiMortgage about whether she owes late fees. But late fees shouldn’t triple or quadruple what she owes. … It shouldn’t justify a foreclosure.”

Randy Furst • 612-673-4224



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EDITOR’S NOTE: 4 years ago, I spoke with some people in the big SEC auditing firms that give “clean” letters to public companies stating that the financial statements are a fair representation of the financial condition and operations during the period covered by the statements. Those of us who studied auditing, or like me who have taught auditing, know that those clean statements have not been true for decades, including most notably the absence of a caveat regarding the viability of the companies that were engaged in questionable and in some cases unfathomable transactions involving exotic financial instruments. If Alan Greenspan couldn’t understand it, then how could the auditor write a letter like that for JPM, Citi, BOA, Wells Fargo, Chase, et al?

Like the false appraisals by a rating agencies for these exotic instruments, and like the false appraisals coming from lenders who hired appraisers to “come in” at the necessary fair market value of the underlying property in order to close the deal so they could quickly take their fees and toss the risk onto investors and homeowners, the absence of the auditors screams out for justice. What would have happened if the auditors said flat out that the viability of these megabanks was in question in the event these exotic instruments imploded,, and that there was no way for them to accurately confirm the value that management had placed on them nor anyway to confirm that they were tier 1, 2 or 3 assets?

The question answers itself. Without a clean letter, the companies would have been forced into a policy of reporting that was transparent which, after all, is the reason for the audit — so the investors, prospective investors and customers and vendors of the company can accurately assess their risk in doing business with these megabanks. What would have happened? We all know. If the statements showed what we know today to have been the truth all along, the entire securitization illusion would have collapsed even as it began, and the Great Recession would never have occurred, the housing market would never have gone thorough the gyration that now effect virtually 100% of all Americans, directly or indirectly, and the life-styles and in some cases the lives of depressed people who took the lives of their families and then themselves would never have in the history books or on the media — because they would have been non-existent.


Troubled Audit Opinions


On one side is an assessment of a company with a clean audit opinion from the Toronto office of Ernst & Young, and with bonds rated just below investment grade by Standard & Poor’s and Moody’s. It has raised billions in capital markets.

On the other is an investment research firm using the name Muddy Waters Research. It says the company, the Sino-Forest Corporation, is a fraud, and that its shares are worthless.

As this is written, there is no definitive answer as to who is right. But the initial reaction of the markets seemed to be that they had more trust in the short-seller — a company whose Web site gives no address — than in the auditor’s opinion.

The shares, traded in Toronto, lost more than 70 percent of their value in two days, shaving $3 billion off its valuation. Bond prices also plunged. Prices had to fall sharply before speculators could be found who were willing to bet that the financial statements really did, in the boilerplate words of the auditor’s letter, “present fairly, in all material respects, the financial position of Sino-Forest Corporation.”

If there was a fraud, there is no doubt that Ernst & Young will be sued, and there is even less doubt that it will deny responsibility. After all, its letter did make clear that management was responsible for the internal controls needed to assure the statements are “free from material misstatement, whether due to fraud or error.”

To the auditing industry, the fact that investors tend to blame auditors when frauds go undetected reflects unrealistic expectations, not bad work by the auditors. The rules say auditors are supposed to have a “healthy degree of skepticism,” but not to detect all frauds.

“There is a significant expectations gap between what various stakeholders believe auditors do or should do in detecting fraud, and what audit networks are actually capable of doing, at the prices that companies or investors are willing to pay for audits,” stated a position paper issued in 2006 by the chief executives of the six largest audit networks.

Note that last part. They suggested that if investors were really worried about fraud, they should consider paying more for a “forensic audit” that would have a better — but not guaranteed — chance of spotting fraud. Don’t like our work? Pay us more.

There is no doubt that some companies are easier to audit than others, and that Sino-Forest falls on the harder side. While it has headquarters in Toronto and Hong Kong, its operations are — or at least are claimed to be — spread out over much of China. The company says it manages nearly two million acres in forest plantations across China. Muddy Waters says that is a lie, and that its actual operations are much smaller.

Investors trying to decide whether to believe the Muddy Waters report, with its detailed assertion that the company’s claims are contradicted by Chinese records, would love to know just what Ernst did to check. What records did it inspect? Which tree plantations did it visit? Who did the work? Was it people from Ernst’s Toronto office, which signed the report, or people from a Chinese affiliate? How many auditors did the work, over what period of time?

Ernst’s audit opinion does not say, which is no surprise. Virtually every audit opinion in the world says almost the same thing, with no details about the company being audited. Auditors are paid millions of dollars to produce a report that no one thinks is worth reading.

On June 21, the Public Company Accounting Oversight Board, which regulates auditors in the United States, plans to ask for public comments on whether to require auditors to do more and say more.

One idea the board is expected to consider is requiring auditors to disclose more about what they did, and did not, do. Ideally, auditors would point to things that they could not audit. There are a lot of them now, and sometimes they are crucial.

“The foundation” of the Sino-Forest fraud, stated the Muddy Waters report, “is its convoluted structure whereby it runs much of its revenues through ‘authorized intermediaries.’ ” Those organizations supposedly process tax payments owed to China on wood production, the report said, thereby assuring the company “leaves its auditors far less of a paper trail.”

Auditors could be called upon to specify where they thought fraud was most likely in a given company or industry, and what they did to confront the risk. Investors could have a chance then of comparing the work of differing audit firms, as one firm disclosed it had checked something other auditors did not mention.

If an audit was expected to call attention to possibly critical information that was not available to the auditors, perhaps there might be pressure from investors on companies to make that information available. In any case, investors could better understand what the auditors knew — and did not know — in reaching their conclusions.

The problems with audits now go well beyond questions of fraud. A critical element for many banks is the valuation of securities that trade infrequently, if at all. There may be a wide range of possible estimates, and the auditor now must simply conclude the estimates are within that range. If so, it signs off.

To make things worse, the estimates may have come not from the company being audited, whose work the auditor can examine, but from a pricing service that views its models as proprietary, making them virtually impossible to audit. That fact is something investors should know, but now do not.

Nor do auditors disclose information about how reasonable an estimate is. In some cases, a wide range might be defensible, and investors have no way to know whether a company was particularly conservative or aggressive in its estimates. The oversight board may consider asking that companies disclose what they deem to be the range of reasonable estimates, and why they chose the one they did. Then the auditors could comment on that.

If auditors enforced some consistency on ranges, then financial statements of different companies might be more comparable, even though they chose different estimates.

The accounting oversight board is also expected to ask if it is time to end the “one grade fits all” audit model, in which every company is deemed to “fairly” present its results. Perhaps a second grade could be added, like “presents adequately,” for companies that push the envelope but do not violate the rules.

In addition, auditors could be called upon to discuss the risks the company was taking. They could also be asked to call attention to some of the most critical disclosures in the footnotes, something that French auditors already do.

If much of that happened, audit opinions could become a lot more interesting to read. Investors might actually learn something, and they might be able to form opinions about differences in audit firms.

Another long-overdue change would be to have the lead partner on an audit sign the opinion in the annual report. Now, the firm signs, and investors have no way of knowing who was responsible. If an audit signed by a certain partner later blew up, that could be devastating to his or her career if investors shied away from any companies whose audits he later signed. Would that make auditors more careful? Perhaps.

This week, as the controversy over Sino-Forest raged, Canadian regulators began an investigation and the company indignantly defended itself. “I have spent 17 years building Sino-Forest and I can promise investors we are not guilty of the charges levied against us,” said Allen Chan, the chairman. “Our financial statements have been audited by Ernst & Young a leading international audit firm….”

Its board appointed a special committee of three directors, all Canadians who served on the company’s audit committee and including a former Ernst partner, to investigate. The committee hired PricewaterhouseCoopers, another member of the Big Four.

Investors seemed confused. After the plunge of last week, the shares bounced around on extremely heavy volume this week. They rose a bit on Thursday to 5.15 Canadian dollars ($5.26), but were still down 72 percent from the price of 18.21 Canadian dollars just before the charges were aired last week.

Moody’s said it will review its ratings and “seek to assess the veracity of the claims” made by Muddy Waters. It gave details of what it would check.

But Ernst was mute, unwilling to either defend its work or discuss how it had reached its now-questioned conclusion that the financial statements “present fairly” the company’s condition. Investors who relied on the audit will just have to wait.

“It would be inappropriate to make any comment while the work of the special committee is ongoing,” said Amanda Olliver, a spokeswoman for the audit firm in Toronto. “In any event,” she added, “our professional obligations prevent us from speaking about client matters.”

MegaBanks Lose Ground on Ratings of Their Own Companies


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“Everyone is cognizant of the fact that the banks will end up back in the lap of the government should there be a problem,” said Daniel Alpert, managing partner at Westwood Capital LLC, a New York-based investment bank. “What the ratings agency is saying here is that if we had another problem in the next six to 12 months, it’s unlikely the government will once again unilaterally protect bondholders. It’s politically untenable.” Alpert said he holds a small stake in Citigroup.



EDITOR’S NOTE: I’m sorry. I can’t resist saying I told you so. The ankle biting begins as that the battle for survival and staying out of jail has just begun. It will be months or even years before the battle to win the “sacrifice your former friends” game is over. The entire illusion of securitization could not have been achieved without the apparent rubber stamp of genuine approval from what appeared to be independent third parties. With the appraisers and rating agencies in the bag, Wall Street was able to pull off the largest heist in history.

And speaking of history, when is it going to dawn on the Obama administration that they may not look so good in the light of history.  For all their good intent, and for all their concern about not disrupting the markets any more, historians will look back on this time and say he could have turned it around by simply telling the truth to the American People, to wit: the mortgages are fake, the mortgage bonds are fake, the balance sheets are lies, the loans were lies, and the government is going to do everything in its power to return BOTH investors and homeowners to the position they were in before this great fraud began.

The lip service to “transparency” does not apparently reach all the way to the top. The administration is still running scared from the sky falling if they actually take down the banks. Instead, they are adopting a laissez faire stance (typically a Republican stance) and just like their Republican friends they are going to see this blow up in their faces. Intentionally taking the banks down is FAR better than just letting them collapse one night or over a weekend. Obama is wasting an opportunity not just for saving the country from decades of heartache while we keep the balloon inflated with nothing but hot air, but for his own campaign where he could show decisiveness and action, now that we already know the megabanks are in fact going to fail miserably.

BofA, Citigroup Among Banks That May Be Lowered by Moody’s

By Donal Griffin and Dakin Campbell – Jun 2, 2011

Bank of America Corp. (BAC), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) may be downgraded by Moody’s Investors Service as the rating firm reviews whether the government will limit its support of the largest financial firms.

Ever since the financial crisis, ratings for the banks have been boosted by an assumption that the U.S. would provide extra support if the lenders got into trouble again, the ratings firm said in a statement today. A review by Moody’s will “focus on whether these ratings should be adjusted to remove this unusual uplift and include only pre-crisis levels of government support.”

Investors have regarded the banks as too big to fail after they received government aid in 2008 to keep the financial system from collapsing. Lawmakers have since overhauled regulations and passed the Dodd-Frank legislation to avoid a repeat of bailouts that aided firms including Charlotte, North Carolina-based Bank of America, which received $45 billion.

“Everyone is cognizant of the fact that the banks will end up back in the lap of the government should there be a problem,” said Daniel Alpert, managing partner at Westwood Capital LLC, a New York-based investment bank. “What the ratings agency is saying here is that if we had another problem in the next six to 12 months, it’s unlikely the government will once again unilaterally protect bondholders. It’s politically untenable.” Alpert said he holds a small stake in Citigroup.

Building a Cushion

Bank of America, Citigroup and San Francisco-based Wells Fargo have raised funds from private investors to repay U.S. aid and have been building capital to guard against further declines in housing prices. Moody’s rates Citigroup’s senior unsecured debt at A3, and assigns a rating of A2 to Bank of America and A1 to Wells Fargo. A1 is the fifth-highest of 10 investment-grade ratings and A2 is sixth.

Citigroup welcomes the reassessment of its rating, Chief Financial Officer John Gerspach said in an e-mailed statement, calling his bank one of the best-capitalized financial institutions in the industry. At Bank of America, “our stand- alone rating should be higher given the progress that we’ve made to strengthen our balance sheet, improve our capital and liquidity and reduce our risk profile,” said Jerry Dubrowski, a spokesman for the lender.

Mary Eshet, a spokeswoman for Wells Fargo, said Moody’s review is consistent with its statements from as far back as a year ago and that the bank’s unsupported ratings remain among the strongest in the industry.

Credit-Default Swaps

Credit-default swaps on Citigroup rose 7 basis points to 135.4 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Bank of America’s swaps increased 6.7 basis points to 155.5 basis points.

Wells Fargo’s swaps rose 4.3 basis points to 89 basis points, according to CMA. A rising price indicates more doubt on the part of investors about whether a debtor will meet its obligations.

Moody’s will assess improvements in Bank of America’s and Citigroup’s financial strength, and “this may temper the extent of any ratings downgrades that could result from its review of these firms’ unusual level of systemic support,” the ratings firm said.

In March, under expanded powers granted by Dodd-Frank, the Federal Deposit Insurance Corp. laid out a framework for priority payment of creditors and procedures for filing claims in liquidations of large, complex firms. Congress sought the liquidation authority after the September 2008 bankruptcy of Lehman Brothers Holdings Inc. deepened the credit crisis and highlighted the ties among the largest financial firms.

Liquidation Authority

The move to establish an orderly process for winding down firms was “key” to Moody’s review, Robert Young, managing director with the ratings firm, said in a phone interview.

“Post-Dodd Frank, you evaluate willingness and ability to reduce support or impose losses on creditors,” Young said. “Clearly the intent of the government is to not provide support.” The government’s liquidation authority wouldn’t work as of right now, so Moody’s isn’t prepared to discount government support entirely, he said.

Bank of America and Citigroup “have sizable residential mortgage exposures,” Moody’s said. “Their credit costs could therefore spike if the U.S. economy were to contract again. Further, they continue to face litigation costs related to faulty foreclosure practices.”

Collateral Damage

Downgrades could weaken the banks’ liquidity, limit access to credit markets and pressure businesses that rely on trading revenue, according to regulatory filings. A downgrade by one level at all rating firms could cost Bank of America $1.2 billion for collateral posting and termination payments tied to derivatives and trading agreements, the bank said.

Citigroup said a one-grade reduction of senior and short- term ratings could result in the loss of $8.7 billion in commercial paper funding and $500 million in derivative triggers and margin requirements, and Wells Fargo said it would have been required to post collateral of $1.1 billion as of March 31 had downgrades below investment grade triggered provisions in derivative contracts.

“We would not be surprised to see a one-notch downgrade in Citi and possibly a two notch downgrade in Bank of America’s published senior ratings,” said David Havens, managing director of credit trading at Nomura Holdings Inc., in an e-mail. “This is because Citi has a notch less support, and seems to have less current issues (read: mortgages) than Bank of America.”

Bank of America advanced 5 cents to $11.29 at 4 p.m. in New York Stock Exchange composite trading, leaving it down 15 percent this year. Citigroup gained 36 cents to $40.01, also with a 15 percent drop year to date. Wells Fargo rose 22 cents to $27.16; it’s down 12 percent since Dec. 31.

Bank of New York Mellon Corp. (BK) had the outlook on its debt lowered to “negative” from “stable,” Moody’s said. That brings it in line with other financial firms benefiting from the assumption of government support, including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), all based in New York.

To contact the reporter on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Another Failed Bank: 45th this Year — MegaBank Failure on the Way


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Fortune has examined dozens of court records that corroborate the
employee’s testimony. And if Countrywide’s mortgage securitizations
systematically failed as it appears they did, Bank of America’s
potential liability dwarfs its shareholder equity, as the
Congressional Oversight Panel points out.

Field is referencing Countrywide v. Kemp, and the sworn testimony of
Linda DeMartini, a top official at BofA. She acknowledged on the
record in a deposition that Countrywide never conveyed the mortgages
to the trusts, and that Countrywide notes “weren’t endorsed except on
a case-by-case basis generally long after securitization ostensibly
occurred.” This would mean that the mortgage-backed securities
composed of Countrywide loans are, in fact, non-mortgage-backed
securities. And Field did the grunt work of looking at the court
records, which back up DeMartini’s claim. None of the 104 Countrywide
notes she looked at in two New York counties were endorsed originally.
Read the whole story, it’s a good one.  [cont’d.]

EDITOR’S NOTE: 45 BANKS HAVE BEEN SEIZED BY THE FDIC. BUT THAT IS ONLY 1% OF THE STORY. THE REST OF THE STORY IS THAT ANY BANK HOLDING “MORTGAGE-BASED ASSETS” HAS ALREADY FAILED BUT IT ISN’T DECLARED. And with the Federal Reserve getting ready to raise reserve requirements, the situation is going to get worse for the MegaBanks until their auditors can’t stand the suspense any more.

Just as the GDP is misstated by the reports of the megabanks with their trading activity being the largest source of “revenue” and the trading being a cover for repatriating money stolen during the mortgage meltdown, the illusion of activity, revenue and profits is being dispelled by questions among auditors as to how to treat the mortgage-based assets. The auditing firms stand to lose a lot if they don’t  take action in a way that  shields them from potential liability. When these Mega Banks finally tumble, they will take the auditing firms and potentially others with them.

By my reckoning and the analysis offered by others who are recognized experts, BOA, Citi, Chase, Morgan, Wells Fargo and others are already failed banks. A large part of their balance sheet is based upon assets that do not exist, never existed, and cannot be brought to life, much less onto a balance sheet as a true asset. Title analysis and securitization analysis shows clearly that each closing of each of more than 80 million residential real estate transactions shows the following, for each loan that was claimed to be part of a securitized transaction:

  1. The party identified as “lender,” “mortgagee”, or beneficiary was either a non-lending institution or an institution who could have loaned the money but didn’t. The pattern of conduct was table-funded transactions, which according to the Truth in Lending Act and Reg Z are presumptively predatory loans. They are considered predatory because by depriving the borrower of important information concerning the identity of the actual lender/creditor, the borrower was prevented from knowing facts that went into the decision about whether to execute the documents. It was fraud in the inducement. The failure to disclose the table-funded nature of the transaction, hidden fees paid to the party identified as the originating lender were withheld from the disclosure statements given to the borrower. Thus, by not knowing who he/she was dealing with and by not knowing about all the extra fees distributed in the feeding frenzy, the borrower was not alerted to the fact that excessive fees were being paid to everyone concerned, including the mortgage broker and the appraiser. Failing to know this, the borrower was unaware that by shopping further, the truth about the price of the loan, the loan appraisal, and the viability of the loan were not only withheld from the borrower, but were used against him/her. This in turn gives rise to rights of rescission which have been often declared by the borrower but ignored by the servicer and the securitizers, as well as causes of action for fraud that could easily exceed the nominal balance of the mortgage stated on the closing documents.
  2. Each documented transaction then creates an unresolvable defect: the party identified on the closing documents was neither the source of funding nor the creditor in any sense of the word. They were acting in most cases as an unregistered unregulated mortgage broker and straw-man for an undisclosed creditor. The effect of this is that the note names a payee based upon a loan from that payee that the payee never funded. The note therefore while appearing real on its face is actually a nullity (void) because it describes a transaction that never in fact took place. Like wise, the mortgage purports to secure the named lender for collection of the balance due on the note. The balance due under the note is zero because the transaction described never took place. While it is possible to reconstitute the mortgage and maybe even the note, it would take a lawsuit filed in a court of competent jurisdiction, in which the Plaintiff pleads and proves a case that there was a scrivener’s error in the identification of the lender and payee. This is why the notes were never actually transferred and why it is necessary for the Banks to fabricate and forge documents to make it appear that their was a transfer of the note and mortgage when the underlying transaction did not exist. While the courts have largely fallen for this ploy, more and more Judges are realizing that the paperwork does not add up.
  3. Each monetary transaction dubbed “mortgage loan”  is undocumented and unsecured. The investor-lender was the source of funds and either the investors lenders should have been described, as they are now, as “certificate holders” (a euphemism because the certificates were never issued either) or if the pool was actually created and a trustee or manager appointed as authorized agent, the Trustee or agent should have been named as a payee on a note and the secured party on a mortgage. The presence and identity of the presumed creditor was already known (but withheld from borrower)  at closing, although possibly not known by the title agent or escrow agent. The proper parties were not named in the closing documentation and even if they were, the money trail shows that the funds taken from the investor were not used in the manner expected or desired by the investor, with special emphasis on those instances in which the investment bank took as much as 50% or more of the investor funds and claimed them as profits, which were secreted off-shore, and which are gradually being repatriated  to create the illusion of trading profits when in fact the profits are not real nor legal. The absence of documentation for the actual monetary transaction means that none of these transaction are secured.
  4. While the true source of the funds for the loan were the investor-lenders, the only documentation received by the true creditors was executed by parties other than the homeowner-borrower. Those documents refer to the documented transaction with the straw-man lender and not the actual monetary transaction. Hence the investor-lender does not have a signed note, mortgage or any agreement with the homeowner-borrower. In all cases in which a different agreement with different parties is attempted to be used as evidence of the obligation, the case fails. Thus the assets claimed by any alleged “owner” of the mortgage documentation are worthless because the documents describe a transaction that is fictitious while those same documents scrupulously avoid describing the real transaction. 
  5. While every state has a procedure to correct, modify or reform documentation that is prepared in error, the facts show that these documents were intentionally prepared with defects. The party to bring such an action to straighten out the paperwork is the investor-lender or the authorized agent who brings such a lawsuit naming the disclosed principal(s) for whom the action is filed. 
  6. The investor lenders have chosen NOT to file such actions and NOT to pursue the homeowners for collection. There are economic and legal reasons for the investors avoiding any attempt to collect from the homeowners. The economic reason is that the best the investor can hope for is that out of the money that was advanced by the investor only part was used to fund mortgages, and the only part of the advance that could ever be claimed against a homeowner is not the larger amount advanced to the investment banker but the smaller amount advanced to the homeowner or on the homeowner’s behalf. Thus in order to make the claim and recover theoretically in full, the investor would have to name BOTH the homeowner and the securitizers (including the investment banks, whom the investors ARE suing for payment in full) to reach all the potential claims for all the money advanced. The investors in short have elected their remedy and have sued the investment bank. The second economic reason for the investors’ decision to not pursue the homeowner is that they are looking at collateral  that was overstated at the time of closing, and now obviously showing its true value at a fraction of the amount that was funded for the loan, which fraction is lower than the amount allocatable as advanced by the investor for making the loan. Thus for every $1 originally advanced to the investment bank, the investor is, for the most part, looking at a maximum recovery of at best 30 cents. But by suing the investment bank, the investor gets the benefit of claiming 100 cents on the dollar because it includes all money advanced to the securitizers, whether deployed for mortgage funding or not, and incorporates the appraisal fraud at closing.
  7. The legal reason why the investors do not want to pursue homeowners, is that they would be “owning” the homeowners’ affirmative defenses and counterclaims which if fully adjudicated could easily exceed the balance due under the loan, which is unsecured as described above. 
  8. Since none of the securitizers were the actual source of funding for any of the loans, the only theoretical asset they hold is a mortgage bond they are holding because they got stuck with it before they could sell it off to unsuspecting clients. But the mortgage bond is based upon (a) a transaction that did not exist (see above) and (b) even if the transaction did exist, the transfer into the pool never occurred, thus rendering the mortgage bond worthless or less than worthless if the bond was subject to tranche counterparty indebtedness. 

Hence the asset on the books of the securitizers related to mortgage “interests” is an illusion. And the failure of the auditors to make a statement regarding the questionable nature of these assets is actionable. But more importantly, the assets claimed on the securitizers balance sheets constitutes a large portion of their total assets. Wipe those out and the bank is suddenly smaller and out of compliance with the reserve requirements of the Federal Reserve and any other agency regulating the activities of a lending institution. Unless they suddenly repatriate the hidden fees from the mortgage meltdown which I estimate to be around $2 trillion, the bank is in the state of undeclared failure. And if they do repatriate the money all at once, they will have a lot of questions to answer including why they needed a bailout.

Failed Bank Tally Reaches 45 in 2011


WASHINGTON (AP) — Regulators on Friday shut a small bank in South Carolina, the 45th bank failure this year.

The Federal Deposit Insurance Corporation seized Atlantic Bank and Trust, based in Charleston, S.C., with $208.2 million in assets and $191.6 million in deposits. First Citizens Bank and Trust, based in Columbia, S.C., agreed to assume its assets and deposits.

The F.D.I.C. and First Citizens Bank agreed to share losses on $141.8 million of Atlantic Bank’s assets. The bank’s failure is expected to cost the deposit insurance fund $36.4 million.


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EDITOR’S NOTE: At the end of the day, everybody knows everything. Goldman is losing its grip on the narrative. You can’t fool all the people all the time. If the pools were empty and the mortgage bonds were bogus, then any balance sheet carrying loans or securities based upon the illusion of securitization will need a major adjustment. If the loans were bad to begin with, if the appraisals and ratings were false, if the documentation of the loans described a fictitious transaction, then the real transaction remains undocumented, unsecured and probably unenforceable. Reports of income and assets by the banks would be greatly exaggerated while reports of their demise may still be wishful thinking, it is looking more and more likely every day.

Goldman No Longer Laps the Field


Goldman Sachs has lost its luster. The firm earned a best-in-class reputation for its history of profitability and navigating upheaval. But it seems less assured lately. In fact, Goldman is in danger of looking downright average.

It’s not the first time. Goldman has been sent reeling by shocks, from Penn Central’s bankruptcy in 1970 to Russia’s default in 1998. But the Goldman advantage comes from an ability not only to climb off the canvas but to thrive in the face of adversity.

Today’s investors are expressing doubt, or at least not giving the firm led by Lloyd C. Blankfein the benefit of it. Over the last decade, Goldman’s shares have outperformed those of the biggest American banks, including JPMorgan Chase and Morgan Stanley, as well as the Standard & Poor’s 500-stock index. But they have tumbled 16 percent this year, lagging rivals and the broader market.

One reason is Goldman’s struggle to get out of the headlines and clear its name in Washington even after last year’s record $550 million settlement with the Securities and Exchange Commission. The bank still faces the possibility the Justice Department will come after it or some of its people. Two analysts cut their ratings on Goldman’s stock last week for that reason.

Goldman’s gold-plated advisory business has been disappointing, too. For example, instead of its normal perch atop the United States merger rankings, nearly halfway through the year it ranks a dismal sixth, according to Thomson Reuters. That may help explain Monday’s reshuffle at the firm’s investment bank.

The company is not even so sure of itself anymore. Top executives told Barclays Capital last week that uncertainty about financial reform meant it could not stand by its long-term high-teens target for return on equity.

And while Goldman still commands a valuation premium to its largest rivals, it is trading at just 1.1 times book value. That implies it will barely cover its cost of capital. Five years ago, around the peak of the boom, Goldman fetched 2.6 times book, nearly twice JPMorgan’s multiple.

The advantage has shrunk to just 10 percent, only part of which can be put down to the compression associated with an industrywide bad patch.

Goldman and its supporters can argue the naysayers merely see the glass half empty. But to truly shine again, Goldman’s glass needs to be more than just half full.

Beware of Bubbles

It’s easy to make the parallel between today’s Internet stock frenzy and the bubble that popped a decade ago. But a comparison to the more damaging credit boom may be appropriate too. As they did amid dot-com mania, investors are taking big risks without clear rewards and signing their rights away.

The latest illustration comes courtesy of LinkedIn, the social network with a big following among those out of a job or looking for a new one. The company supersized the price of its initial public offering by 30 percent, giving the firm a potential value of as much as $4.3 billion when the I.P.O. prices, probably late on Wednesday.

At the top of the range, LinkedIn would fetch a valuation of 15 times trailing 12-month sales, or about 82 times earnings before interest, taxes, depreciation and amortization. Even assuming its growth trajectory continues over the next year, the I.P.O. would value LinkedIn at nine times future sales and nearly 70 times estimated Ebitda.

If LinkedIn’s chief executive, Jeff Weiner, can keep the company expanding at a similar pace for a few years, the company might grow into the value investors seem willing to accord it now. But that does not offer much upside and takes little account of LinkedIn’s risks, which are amply laid out in its prospectus.

LinkedIn’s debut also brings an extra frisson of danger that recalls the credit bubble that burst in 2008. Back then bondholders, in their headlong drive for yield, surrendered many of their covenants, the rules that determine what borrowers must or must not do. LinkedIn is asking investors to abdicate similar rights.

The shares the company is selling carry only a sliver of the voting power of Class B shares that LinkedIn founders, managers and staff own. This group will hold approximately 99.1 percent of the voting power after the I.P.O.

True, the mighty Google did a similar thing when it began to trade a few years after the dot-com bust. But LinkedIn is no Google. It may turn into another reminder that in bubbles investors give up too much today for the lure of riches tomorrow. 

For more independent financial commentary and analysis, visit www.breakingviews.com.




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“Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees,” he said. “Somebody’s got to do something about Wall Street. It is destroying the country.” — Gerald D. Hosier

EDITOR’S ANALYSIS: Open the newspaper on any given day and you see judgments, arbitration awards and settlements between Wall Street securitizers (pretender lenders) and the investor lenders who advanced the money that was pooled and used to fund gargantuan fees to Wall Street with the balance used to fund loans to homeowners who were borrowers.

So the question nobody wants to deal with because of competing ideological views is whether we do the math and apply normal rules of addition and subtraction or we leave the borrower hanging with a debt that has been paid several times over? It wasn’t the homeowners who created this mess and it sure seems to me that if there is going to be some collateral benefit out of unravelling this securitization scam (illusion) it ought to at least be shared with the homeowners.

SIMPLE MATH: Investor-lender puts up the money. Borrower gets SOME of that money as a loan (based on false pretenses, but we won’t go there now). The investor-lender gets its money back or settles the case. It seems obvious that the obligation from the homeowner MUST be proportionately reduced or eliminated when the creditor is repaid. The only exception would be if the payment to the investor-lender was a sale in which all rights were transferred to the payor — but that isn’t what is happening. Instead, it seems that the overwhelming majority of cases are ignoring the fact that the creditor has been paid and Judges, already confused by the whole notion of securitization, don’t seem to see the relevance.PAYMENT IS THE ULTIMATE DEFENSE TO ANY ACTION ON A LOAN. AND IF YOUR AUNT TILLIE WAS THE SOURCE OF THE PAYMENT INSTEAD OF YOU IT DOESN’T MEAN YOU STILL OWE THE MONEY.


A Crack in Wall Street’s Defenses


TWO individual investors just scored a remarkable win against Citigroup.

A few weeks ago, the pair was awarded a total of $54.1 million in a securities arbitration case against the Smith Barney unit of the company — the largest amount ever awarded to individuals in such a case, according to the Financial Industry Regulatory Authority.

This legal dust-up involved supposedly conservative municipal bond investments that Smith Barney had peddled to its wealthiest clients. The investments, which were big money-makers for Smith Barney, turned out to be anything but safe for the firm’s clients: various portfolios lost between half and three-quarters of their value during the financial crisis.

Arbitrators rarely, if ever, discuss such cases, and the materials turned over by both sides are kept under wraps. But the outsize award, which included $17 million in punitive damages, is not the only thing that is noteworthy. The arbitrators appeared to reject — resoundingly — three defenses that Wall Street often employs when clients sue:

No. 1: We didn’t blow up your portfolio. The financial crisis did.

No. 2: If you’re wealthy and sophisticated, you should have understood the risks.

And, No. 3, the most common defense of all: The prospectus warned that you could lose your shirt, so don’t come crying to us if you do.

The investors who prevailed here are Gerald D. Hosier, 69, a wildly successful intellectual-property lawyer, and Jerry Murdock Jr., 52, a prosperous venture capitalist. Mr. Hosier and a trust he set up for his adult children received $48 million. Mr. Murdock got about $6 million.

The men, neighbors in Aspen, Colo., suffered $27 million in out-of-pocket losses on their investments. The big clunker was a municipal bond arbitrage strategy that their Smith Barney broker had characterized as safe, according to the men’s complaint. The deal was supposedly designed to eke out more income than a simple portfolio of bonds would generate.

Not only did the men recover all their losses in the award, they also received damages. Mr. Hosier was awarded $15 million in punitive damages and $6.3 million in market-adjusted damages. The arbitrators also awarded $3 million for the men’s legal fees.

Alexander Samuelson, a Citigroup spokesman, said: “We are disappointed with the decision, which we believe is not supported by the facts or law.” He noted that the bank had won a number of arbitrations involving such leveraged municipal bond strategies and said that the bank was considering its legal options in this case.

Mr. Hosier invested in the bank’s municipal arbitrage strategy from 2002 through 2007. Requiring a minimum investment of $500,000, the deals employed the wonders of leverage, borrowing 8 to 10 times the value of the municipal bonds in an underlying portfolio to generate higher income. Calling the strategy conservative and ideal for investors’ safe money, Smith Barney sold the trusts to wealthy investors.

But Smith Barney and its brokers were the prime beneficiaries of the strategy, which generated fees not only on the money that had been borrowed to juice the returns but also through the life of the investment. Clients paid 0.35 percent annually on the portfolios, plus a fee of 20 percent of all income earned by the investors above a 5.5 percent threshold each year.

Smith Barney’s sales representatives kept 40 percent of the total fees paid by their investors, far exceeding what they would have earned selling ordinary municipal bonds. This arrangement encouraged Smith Barney to lever up the portfolios, Mr. Hosier’s lawyers argued, putting the interests of their clients and those of Smith Barney at odds.

Investors who bought these deals agreed to lock up their money for two years and had to pay a substantial fee if they redeemed their holdings during the next three years.

Mr. Hosier was the single biggest buyer of Smith Barney’s municipal arbitrage deals, with $26 million invested over time. But four different portfolios in which he invested raised almost $2 billion from all investors. All of the portfolios performed badly.

“Citigroup mismarketed this product to high-net-worth investors as an alternative to municipal bonds with a slightly higher return,” said Philip M. Aidikoff, a lawyer at Aidikoff, Uhl & Bakhtiari in Beverly Hills, Calif., who represented Mr. Hosier and Mr. Murdock. “Our clients never knowingly agreed to risk a significant loss of principal for a few extra points of interest.”

AS for Citigroup’s three defenses, Mr. Aidikoff, along with the co-counsel Steven B. Caruso, at Maddox, Hargett & Caruso in New York, demonstrated that municipal bonds did not suffer catastrophic losses during the period. This squelched the bank’s argument that the financial crisis did in the strategy.

Regarding their clients’ sophistication and wealth, the lawyers agreed that both men were comfortable taking risks in certain circumstances, but not with the money they had given to the bank. “Citigroup misled their wealthiest clients and then tried to blame them for relying on what they were told,” Mr. Caruso said.

Arguing that the risks were laid out in the prospectus also seems to have run into a stone wall. Mr. Hosier’s lawyers produced seven different notices on the topic published by Finra and its predecessor regulator since 1994, including a notice from 2009 that states: “Providing risk disclosure in a prospectus or product description does not cure otherwise deficient disclosure in sales material, even if such sales material is accompanied or preceded by the prospectus.”

Mr. Hosier’s victory is particularly noteworthy, given the nominal amounts typically extracted by regulators in cases against major banks. The punitive damages awarded to Mr. Hosier, for example, are more than triple the $4.45 million penalty levied against Wachovia Securities by the Securities and Exchange Commission this month in a suit that the S.E.C. settled with the bank. The S.E.C. accused the bank of selling about $10 million of mortgage-related securities to investors at above-market prices and at excessive markups. Wachovia, now part of Wells Fargo, neither admitted nor denied wrongdoing in the settlement.

The arbitrators in Mr. Hosier’s case seemed keen to hold Wall Street accountable. And his win against Citigroup does not appear to be an anomaly. Since April 2010, his lawyer, Mr. Aidikoff, has argued 16 other arbitrations involving the same type of investment. Mr. Aidikoff and the lawyers who assist him have won every one.

In an interview, Mr. Hosier said the experience had opened his eyes to the disturbing ways of Wall Street.

“Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees,” he said. “Somebody’s got to do something about Wall Street. It is destroying the country.” 

Citi Article —FORECLOSURE GONE WILD— Tells ALL: Use this MEMO to make your case



Submitted by Jon Lindeman, Esq. Florida

So with the chain of documentation now in question, and trustee ownership in question, here is one legal scenario, according to Prof. Levitin:

The mortgage is still owed, but there’s going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you’re stealing my money. You’re going to then have trusts that don’t have any assets that have been issuing securities that say they’re backed by a whole bunch of assets, and you’re going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they’re going to do, and you’re going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring.

Foreclosures Gone Wild

“Three Potential Outcomes — Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”

“Most mortgage trusts were set up as REMICs (Real Estate Mortgage Investment Conduits) which are special purpose vehicles used to pool mortgages. Under the IRS code, REMIC confers a special tax status in which the cash flows to the trust are not taxed. Investors in the trust pay taxes. The tax exempt nature is important. If the trusts were in fact to be taxed, the taxes would distort the yields required by investors.”

“To qualify as a REMIC under the IRS code and enjoy the beneficial tax treatment, the trust (1) must be passive and (2) cannot acquire any new assets 90 days following the trust’s creation.

“When a home with a mortgage on it is sold, the mortgage must be released at closing by the current mortgage owner before a new mortgage with title insurance is issued. If it is not known with certainty who owns the mortgage in question, it cannot be released. If the title company is not satisfied that there is a good release on the old mortgage, it will refuse to insure the new mortgage.

FORMS: Kentucky RICO Class Action v MERS, GMAC, DEUTSCH, Nationstar, Aurora, BAC, Citi, US Bank, LSR, DOCX, LPS, and attorneys


“To the judges throughout the Commonwealth and to the homeowners, the foreclosing Plaintiff, a servicing company or “Trust” entity appears to be a bank or lender.    This falsity is due to its name in the style of the case.    They are not banks or lenders to the loan.    They are not a beneficiaries under the loan.    They do not possess a Mortgage in the property.    They will never have a right to posses a mortgage in the property.    It would have been a more honest representation for the foreclosing entity to called itself something like “Billy Bob’s Bill Collectors,”

10.03.10KENTUCKY RICOClassActionComplaint

Salient allegations in very well written complaint, although I still have some doubts about whether they will get the class certified. Kentucky is a non-judicial state”

“Come the Representative Plaintiffs, by counsel, on behalf of themselves and others so situated as putative class members pursuant to Fed. R. Civ. P. 23.    and for their Class Action Complaint against the name Defendants and yet to be named Defendants, make their claim for treble and punitive damages, costs and attorneys fees under 18 U.S.C. 1962 and 1964, otherwise known as the “racketeer Influenced and Corrupt Organizations Act,” hereinafter (“RICO”) and for all violations of law heretofore claimed.

An ongoing criminal investigation has been in place in the state of Florida by both the Florida Attorney General and the Justice Department.    Upon information and belief, a parallel investigation is ongoing in the state of Kentucky and at least three other states.

Defendant Merscorp, Inc., is a foreign corporation created in or about 1998 by conspirators from the largest banks in the United States in order to undermine and eventually eviscerate long-standing principles of real property law, such as the requirement that any person or entity who seeks to foreclose upon a parcel of real property: 1) be in possession of the original note, 2) Have a publicly recorded mortage in the name of the party for whom the underlying debt is actually owed and who is the holder of the original Promissory Note with legally binding assignments, and 3) possess a written assignment giving he, she or it actual rights to the payments due from the borrower pursuant to both the mortgage and note.

MERS is unregistered and unlicensed to conduct mortgage lending or any other type of business in the Commonwealth of Kentucky and has been and continues to knowingly and intentionally illegally and fraudulently record mortgages and conduct business in Kentucky on a large scale and systematic fashion..

LSR Processing LLC, is a document processing company, based in the state of Ohio to generate loan and mortgage documents.    Upon information and belief it is owned by one or more of the partners of LSR law firm.    LSR Processing was created in order to facilitate the conspiratorial acts of the Defendants in relation to the creation of fraudulent Promissory Notes, Note Assignments, Affidavits and Mortgage Assignments LSR Processing has a pattern and practice of drafting missing mortgage and loan documents and in turn, having them executed by their own employees.

This case arises due to the fact that for the Class Plaintiff and the members of this putative class, their Mortgages and in some cases, the foreclosures that followed, were and will be based upon a mortgage and a note in the mortgage that are not held by the same entity or party and are based upon a mortgage that was flawed at the date of origination of the loan because Mortgage Electronic Registration Systems (“MERS”) was named as the beneficiary or nominee of the lender on the mortgage or an assignee and because the naming of MERS as the beneficiary was done for the purpose of deception, fraud, harming the borrower and the theft of revenue from in all one hundred (120) Kentucky Counties through the illegal avoidance of mortgage recording fees. (e.s.)

In the case where a foreclosure has been filed, the entity filing the foreclosure has no pecuniary in the mortgage loan.    The foreclosing entity is a third party.    The entity lacks standing, and most times, the capacity to foreclose.    The entity has no first hand knowledge of the loan, no authority to testify or file affidavits as to the validity of the loan documents or the existence of the loan. The entity has no legal authority to draft mortgage assignments relating to the loan.    The foreclosing entity and its agents regularly commit perjury in relation to their testimony.

The “lender,” on the original Promissory Note was not the lender. The originators of the loan immediately and simultaneously securitized the note.    The beneficial interest in the note was never in the lender.    MERS, acting as the mortgagee or mortgage assignee, was never intended to be the lender nor did it represent the true lender of the funds for the mortgage. The Servicer, like GMAC Mortgage, or some party has or is about to declare the default, is not in privity with the lender.    The true owner or beneficiary of the mortgage loan has not declared a default and usually no longer have an interest in the note. The Servicer is not in privity nor does it have the permission of the beneficial owners of the Note to file suit on their behalf.

The obligations reflected by the note allegedly secured by the MERS mortgage have been satisfied in whole or in part because the investors who furnished the funding for these loans have been paid to the degree that extinguishment of the debts has occurred with the result that there exists no obligations on which to base any foreclosure on the property owned by the Class Plaintiffs. Defendants have and will cloud the title and illegally collect payments and attempt to foreclose upon the property of the Plaintiffs when they do not have lawful rights to foreclose, are not holders in due course of the notes.
42.    Any mortgage loan with a Mortgage recorded in the name of MERS, is at most, an unsecured debt.    The only parties entitled to collect on the unsecured debt would be the holders in due and beneficial owners of the original Promissory Note.
43.    The loan agreements were predatory and the Defendants made false representations to the Class Plaintiffs which induced the Class Plaintiffs to enter into the loans and the Defendants knew the representations were false when they were made.

In these cases, the property could be foreclosed by default, sold and transferred without ANY real party in interest having ever come to Court and with out the name of the “Trust” or the owners of the mortgage loan, ever having been revealed. Many times the Servicer will fraudulently keep the proceeds of the foreclosure sale under the terms of a Pooling and Servicing Agreement as the “Trust” no longer exists or has been paid off.    The Court and the property owner will never know that the property was literally stolen.
52.    After the property is disposed of in foreclosure, the real owners of the mortgage loan are still free to come to Court and lay claim to the mortgage loan for a second time.    These parties who may actually be owed money on the loan are now also the victims of the illegal foreclosure.    The purchaser of the property in foreclosure has a bogus and clouded title, as well as all other unsuspecting buyers down the line.    Title Insurance would be impossible to write on the property.

Although the Plaintiffs attempting to foreclosure refer to themselves as “Trustees” of a “Trust,” the entities are not “Trustees” nor “Trusts” as defined by Kentucky law.    Neither are the entities registered as Business Trusts or Business Trustees as required by Kentucky law. In every case, where one of these MBS have come to a Kentucky Court the entity foreclosing lacked capacity sue to file suit in the State of Kentucky.    There is no “Trust Agreement” in existence.    The entity filing has utilized a Kentucky legal term it has no right to use for the sole purpose of misleading the Court.
55.    Although the “Trust” listed may be registered with the Securities and Exchange Commission (“SEC”) and the Internal Revenue Service (“IRS”) as a Real Estate Mortgage Investment Conduit (“REMIC”), more often than it is not properly registered in any state of the union as a Corporation, Business Trust, or any other type of corporate entity.    Therefore, the REMIC does not legally exist for purposes of capacity for filing a law suit in Kentucky or any other State.

The transfer of mortgage loans into the trust after the “cut off date” (in the example 2006), destroys the trust’s REMIC tax exempt status, and these “Trusts” (and potentially the financial entities who created them) would owe millions of dollars to the IRS and the Kentucky Revenue Cabinet as the income would be taxed at of one hundred percent (100%).
64.    Subsequent to the “cut off date” listed in the prospectus, whereby the mortgage notes and security for these notes had to be identified, and Note and Mortgages transferred,    and    thereafter, the pool is permanently closed to future transfers of mortgage assets.
65.    All Class members have mortgage loans which were recorded in the name of MERS and/or for which were attempted through a Mortgage Assignment to be transferred into a REMIC after that REMIC’s “cut off” and “closing dates.”
66.    In all cases, the lack of acquisition of the Class Members’ mortgage loans violates the prospectus presented to the investors and the IRS REMIC requirements.
67.    If an MBS Trust was audited by the IRS and was found to have violated any of the REMIC requirements, it would lose its REMIC status and all back taxes would be due and owing to the IRS as well as the state of Kentucky.    As previously stated, one hundred percent (100%) of the income will be taxed.

Citi to Try New Version of Cash for Keys

Editor’s Note: The decision about flight or fight is deeply personal and there is no right answer. The decision you make ought not be criticized by anyone. For those with the fight knocked out of them the prospect of taking on the giant banks in court is both daunting and dispiriting. So if that is where you are, and this Citi program comes your way, it might be acceptable to you. AT THE MOMENT, CITI IS SAYING YOU NEED TO BE 90 DAYS BEHIND IN YOUR PAYMENTS AND NOT HAVE A SECOND MORTGAGE. (A quick call to the holder of a second mortgage or the party claiming to be that holder could result in a double settlement since they are going to get wiped out anyway in a foreclosure. You can offer them pennies on the dollar or simply the chance to avoid litigation.)
Citi, faced with the prospects of increasing legal fees even if they were to “win” the foreclosure battle in court, along with the rising prospects of losing, is piloting a program where they will give you $1,000 and six months in your current residence — and then they take over your house by way of a deed in lieu of foreclosure, which you sign as part of a settlement. Make sure all terms of the settlement are actually in writing and signed by someone who is authorized to sign for Citi.
The deed is simply a grant of your ownership interest to Citi and frankly does little to “cure” the title defect caused by securitization. HOPEFULLY THAT WILL NEVER BE A PROBLEM TO YOU, EVEN THOUGH IT PROBABLY WILL BE CAUSE FOR LITIGATION OR OTHER CONFRONTATIONS BETWEEN PARTIES OTHER THAN YOU WHEN ALL OF THIS UNRAVELS.
The possibility remains that you will have deeded your house to Citi when in fact the mortgage loan was owed to another party or group (investors/creditors).
The possibility remains that you could still be pursued for the full amount of the loan by the REAL holder of the loan.
Yet in this topsy turvy world where up is down and left is right, the Citi program might just take you out of the madness and give you the new start. They apparently intend to offer to waive any claim they have for deficiency which in states where deficiency judgments are allowed at least gives you the arguable point that you gave the house to some party with “apparent” authority. And the hit on your FICO score is less than foreclosure or bankruptcy, under the proposed Citi plan.
In the six months, which can probably be extended through negotiation or other legal means, you can accumulate some cash from what otherwise would have been a rental or mortgage payment. Taken as a whole, even though I would say that you are probably dealing with a party who neither owns the loan nor has any REAL authority to offer you this plan, it probably fits the needs of many homeowners who are just one step away from walking away from their home anyway.
As always, at least consult a licensed real estate attorney or an attorney otherwise knowledgeable about securitized loans before you make your final decision or sign any documents. BEWARE OF HUCKSTERS WHO MIGHT SEIZE THIS ANNOUNCEMENT AS A MEANS TO GET YOU TO PART WITH YOUR MONEY. THERE IS NO NEED FOR A MIDDLEMAN IN THIS TYPE OF TRANSACTION.
February 24, 2010

Another Foreclosure Alternative


HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.

But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”

In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.

More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.

Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.

Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.

To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.

That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.

Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.

As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.

In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.

Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.

Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.

A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.

Banks may also end up with homes in better condition.

J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.

“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”

The Other Plot to Wreck America

“Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.”

Editor’s Note: Frank Rich, along with Gretchen Morgenstern (see Why All Earnings Are Not Equal) have been doing a fabulous job as the fourth estate in our society. Combined with the latest Mother Jones articles (see The REAL Bailout: $14 Trillion), the truth is not only coming out, it is becoming understandable.

Despite the complexity of the securitization chain applied to residential mortgage loans, it is now clear how and why Wall Street stole from investors, stole from homeowners and ran away with the money.

It is getting equally clear that the losses and the profits are illusory IF the companies that screwed the American citizens are held accountable for their actions. It is also clear that Paul Volcker, although marginalized by the the economic team in the Obama administration is speaking the truth. Obama would do well to take stock of what is REALLY happening out there because this time the country is far ahead of its leaders.

January 10, 2010 New York Times
Op-Ed Columnist

The Other Plot to Wreck America

THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.

What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.

The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.

It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.

He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.

As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave

Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.

Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.

If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all.

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