CNBC: Dalio Raises Concerns About Social Unrest With Economic Crisis

Posted on September 21, 2012 by Neil Garfield

Editor’s Note: I don’t emphasize this point because  it wouldn’t change anyone’s mind. But the comparison Dalio put on the table is one with which I am familiar.

Nobody in Germany ever imagined that an extremist nut like Hitler could ever rise to power, that inflation would be going at 2500% per month and the economy would fall apart. Germany was strong — or so everyone thought. Now as he points out the neo Nazi party is having a resurgence in Greece where the economy is approaching the same free-fall as Germany in the 1930’s.

Unless we fix the housing crisis and the resulting inequality of wealth and income in this country, we are flirting with social chaos. And the fringe people will be delighted because it will show that they were right all along about the apocalyptic vision they have for this country.

Like Clinton has been saying, we are far passed the point where ideology even matters. It is a matter of whether we want to keep our society intact and under the same government that we started with. Remember that all “empires” eventually fall and each time they felt, the vast majority of people thought it could never happen.

ray-dalio-on-the-rise-of-hitler-2012-9

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Eating the Potato Stops the Game

Posted on June 29, 2012 by Neil Garfield

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“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said.  Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The Price of Inequality’. 

Editor’s Notes:  

The principle is so simple that it is hard to imagine why our national leaders and even the top 1% don’t get it. They continue to bully and intimidate the other 99% into near poverty in a form of economic slavery — and then expect the same people to support an economy that is 70% driven by consumer spending. This proves the assertion that you don’t have to be smart to have money and the corollary that even if you have money, it doesn’t make you smart.

There is simply no doubt amongst any historians or economists or even anthropologists that when income and wealth inequality gets too large, the society converts from being a world of opportunity to a world of slavery and crashes because while there is plenty of capital around to build  and make things, nobody has any money left to buy what the Holders of capital want to sell.

All ideological misrepresentations aside, there is an inescapable fact of history that the economy and the stock market tend to do better under the anti-business pro union administrations than they do under the pro-business anti union administrations. Look it up yourself. You can rationalize the facts but you can’t change them.

And again, the principle is so simple that even a young child gets it. It’s like the old game “Hot Potato.” It keeps going as long as the potato is hot and it gets passed around. The game abruptly ends if someone eats the potato. The 1% ate the potato and have closed their eyes to the consequences of their own actions. If you want money circulating making money for lots of people then make sure the people at  the bottom get a fair share of it by whatever means are necessary to get money into their hands. They spend every cent they get and they spend it with people, stores and companies that spend most of the money they get from the consumers. This makes rich people richer while at the same time maintaining a society is that is stable. Pushing money into the lower strata of the society is simply good business and good politics.

The United States and other countries have turned these simple principles and facts on their head. The result is stalled economies, crashing societies and arguments over ideology that is classically rearranging chairs on the deck of the Titanic. The ship is going down and all this needed is a little more air at the bottom so it won’t sink.

The massive theft of wealth from the middle class pushed those families down from middle class to lower classes. Debt was substituted for income which has been flat for more than 30 years. Exactly why is anyone surprised that the economy crashed when the borrowers couldn’t borrow any more money because they simply didn’t have the income to even make the first payment on the debt. The Banks answer we need more debt. It isn’t enough that their debt derivative instruments amount to ten times all the actual money in the world, they want more. Who do they think is going to pay this debt?

And where are the referees in this “game.” Why were they pulled of the playing field and why are they not swarming all over all the players making sure the play is fair? Oh right, that would be government regulation and everyone knows government regulation is a bad thing. So let’s get rid of all government regulation. Start with murder and work your way down. See where that gets you.

Banks Risk Distorting Our Democracy: Stiglitz

By Kathy Barnato

Under-regulated and over-powerful banks weaken the global economy and lead to higher inequality, Nobel prize-winning economist Joseph Stiglitz told CNBC.

Joseph Stiglitz
Franco Origlia | Getty Images
Joseph Stiglitz, the Nobel prize-winning economist and former chief economist at the World Bank.

Highlighting the Libor [cnbc explains] -fixingscandal that has hit UK banks Barclays[BARC-GB  162.85    -2.75  (-1.66%)   ] and Royal Bank of Scotland [RBS  6.771    0.171  (+2.59%)  ], Stiglitz said reforming financial markets was the single most pressing issue facing the global economy.

“A lot of inequality, especially at the top, does not come from people really making the size of the pie bigger, making our economy work better, it comes from what we call rent seeking, trying to seize a bigger slice of that pie through things that actually make our economy weaker,” Stiglitz told CNBC’s ‘Worldwide Exchange‘ on Friday.

Stiglitz said he supported a “much stronger version” of current financial market regulation, with the sector forced to focus on its core purpose of providing credit. He said banks [.DJUSBK  194.95    3.81  (+1.99%)   ] should be told: “You can’t engage in these kinds of speculative activities, these non-transparent CDSs [cnbc explains] , these gambles on the market — they are not your business.”

He added that over-mighty banks not only distort the economy, but also distort politics. He said the 1999 repeal of the U.S. Glass–Steagall Act, which enforced the separation of investment bank activity from commercial bank activity, was due to lobbying by the financial sector.

“That was the influence of the banks again… They lost money on a lot of their real financial investments, but their political investments really paid off! Not for shareholders and bondholders, but for the bank managers, who have done very well in the last few years,” he said.

Without reform, both Europe and the global economy will be “weak” in five to 10 years’ time, said Stiglitz.

“If we continue on the current course, the financial system will not be serving the rest of our economy, the economy will be weak. Inequality will be greater, and we are paying a very high price for this inequality.

“We could have lower inequality, a more balanced financial system, and higher economic growth. But if we allow things to carry on the way they are, we are going to have not only an unbalanced economy, but unbalanced politics, with the financial sector really distorting both our economy and our democracy,” he said.

Stiglitz is a former chief economist of the World Bank, and won the Nobel Prize in 2001. He has recently written a new book, ‘The price of inequality’.

To view Joseph Stiglitz’s appearance on CNBC, click here

— By CNBC.com’s Katy Barnato

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Big Banks Accused of Short Sale Fraud

Posted on January 17, 2010 by Neil Garfield

Wall Street didn’t merely siphon off unearned money, wealth and guarantees from homeowners, bank depositors and taxpayers. They screwed up title on what appears to be more than 60 million transactions — so even refi’s might now have rendered the title to be uninsurable or unmarketable.

Big Banks Accused of Short Sale Fraud

No surprise here. Brad Keiser points out that many of the “intermediaries” or “pretender lenders” are actually owned by these big banks. So the servicers and others turn out to be owned and/or controlled by the big players. No surprise there either. But what is good about this article is that the noose is tightening around those necks that should be in a noose — extracting NEW fees and profits to the detriment of both homeowners and investors and to the detriment of the taxpayer.

The second point is that I don’t want to sound like a broken record but if you don’t get a satisfaction of the note and mortgage from the actual creditor what do you have? NOTHING except perhaps some equitable claim that the company executing the satisfaction was authorized by the creditors. The problem with that is that the creditors (investors, Uncle Sam or subsequent purchasers of mortgage backed securities don’t even KNOW the transaction occurred, much less see the proceeds.

So if your satisfaction of mortgage is invalid (for the same reason that the foreclosure was invalid, which might also include the mortgage or deed of trust being invalid) what is the result? I think the result is that the homeowner still owns the property, OR that the original mortgage is still an encumbrance, OR that the Note is not satisfied OR that the obligation still exists. Or all of those. If any one of those things are true then you have both a cloud on title and a defect in title rendering the title to the property unmarketable.

We’ve written in these pages about how this will end up. The “Toxic Title Problem” is highlighted in neon letters in these transactions. Down the road (and not so far in the future) the title insurers and potential buyers are not going to accept title without exceptions, which means at best that there will be a flood of quiet title suits filed (millions of them) and at worst, a complete standstill in the transfer of title on any house with a securitized note and encumbrance.

Wall Street didn’t merely siphon off unearned money, wealth and guarantees from homeowners, bank depositors and taxpayers. They screwed up title on what appears to be more than 60 million transactions — so even refi’s might now have rendered the title to be uninsurable or unmarketable.

Big Banks Accused of Short Sale Fraud

cnbc

On Friday January 15, 2010, 12:55 pm EST

Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.

I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he’s been receiving all kinds of questions and complaints about trouble with second lien holders.

As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.

That’s all legal.

But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.

“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”

(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).

I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, “That’s a red flag!”

Clearly illegal.

Brandt told me he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage (NYSE: c), JP Morgan Chase (NYSE: jpm), Bank of America (NYSE: bac) and other large banks.

Most agents wouldn’t go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”

Gentry says she has had the requests made three times and claims she lost one sale because of it.

“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”

JP Morgan Chase simply answered, “No Comment,” when I relayed the charge to their media representative.

Bank of America denied the practice to CNBC in a written statement:

“Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”

Citi ‘s reply was a bit more complicated:

“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”

“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.

I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.

The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”

I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they’d be very interested to see my story.

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