Unworthy Trusts

The simple fact is that the REMIC trusts do not exist in the real world. The parties named as trustees — e.g. US Bank, Deutsch, BONY/Mellon — are trust names that are used by permission through what is essentially a royalty agreement. If you are dealing with a trust then you are dealing with a ghost.

Discovery is the way to reveal the absence of any knowledge, activity or reports ever conducted, issued or published by the named Trustee on behalf of the “trust” or the alleged “beneficiaries.” Take deposition of officers of the named Trustee. Your opposition will try to insert a representative of the servicer. Don’t accept that.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult or check us out on www.lendinglies.com. Order a PDR BASIC to have us review and comment on your notice of TILA Rescission or similar document.
I provide advice and consultation to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM.
A few hundred dollars well spent is worth a lifetime of financial ruin.
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For purposes of clarity I am using US Bank as an example. It is the most common.
US Bank has NO information about the trust, the servicer or the account for the borrower. Thus the purpose of any deposition of any officer of US Bank should be solely to establish the absence of events and data that should otherwise be present.
This is why as counsel for the lender, lawyers will not recommend going forward with the refinancing. Your opposition is asking you to accept their word for the “fact” that they represent a creditor who is entitled to payment not just because there is paperwork indicating that, but because they are really owed the money.
Knowing the truth is a basis for establishing gaps and revealing it to the trier of fact but should NOT be a basis of making allegations that you will be required to prove. It’s a thin line and the lawyer needs to be aware of this division, or else you will end up with a burden of proof you cannot sustain and unanswered questions that prevent the closing of refinancing — unless the “source” of refinancing is from another player in the world of securitization.
The fact that securitization players would accept the paperwork is only testament to the willingness of all securitization players to engage in such conduct as to maintain an illusion of legitimacy. Other lenders rely on such conduct at their peril. Other lenders do not receive the reward from multiple resales of the same debt.
So in your inquiries to officers of US Bank you want to establish the following, in order to force the true creditor to come forward (if there is one):
    1. US Bank has no duties normally attributed to a trustee.
    2. The “US Bank” name is basically a royalty arrangement in which the name can be used but there is no further substance to its “role” as trustee.
    3. There is no bank account established or maintained by US Bank for the alleged Trust.
    4. US Bank has never received any money through any means in connection with the subject debt. The borrower’s payments to the servicer have never been received by US Bank on its own behalf, as conduit or as trustee for any trust.
    5. In prior foreclosures involving the same trust, US Bank did not receive the proceeds of the foreclosure sale.
    6. US Bank has no reason to expect that it would receive the proceeds of a foreclosure sale involving the subject debt.
    7. US Bank has no mechanism in place where the payment of money to satisfy the claimed debt would be actually deposited into a bank account for the trust that is controlled by US Bank.
    8. The beneficiaries of the trust do not receive any money from borrower payments, foreclosure sales, or prepayments, refinancing or any other monetary transactions. US Bank probably does not know if this is true or not. US Bank has nothing to do with what, if anything, the “beneficiaries” of the “trust” receive or don’t receive.
    9. US bank has no information regarding the identity of the beneficiaries of the “trust.”
    10. US Bank has no information regarding whether any party is a beneficiary of the “trust”.
    11. US Bank has no information regarding the existence of the trust other than the documents forwarded to it for purposes of the deposition.
    12. US Bank does not keep or maintain accounting records pertaining to the trust.
    13. US Bank does not keep or maintain any records or documents pertaining to the trust.
    14. US Bank does not issue reports to anyone regarding the trust or the subject debt, note or mortgage.
    15. US Bank does not include information relative to the business activity of the “trust” or the subject debt, note or mortgage in any report to any regulatory authority, Federal or State.
    16. Except for fee income, US Bank does not include information relative to the business activity of the “trust” or the subject debt, note or mortgage in any financial report published to the public or to any regulatory authority, Federal or State.
    17. There is no “trust officer” appointed by US Bank to actively manage the affairs of the “trust.”There is no “trust officer” appointed by US Bank to actively manage the affairs of the subject debt.
    18. US Bank neither accepts nor gives any instructions to anyone regarding the affairs of the “trust.”
    19. US Bank neither accepts not gives any instructions to anyone regarding the subject debt, note or mortgage.
    20. US Bank has no power to either accept or give instructions regarding the trust or the subject debt.

Keep in mind that there are experts who believe that the debt no longer exists, and that you are dealing with the ghost of a creditor and the ghost of a debt. This is because the debt was resold multiple times and redistributed to multiple parties (new investors) under the guise of different instruments in which the value of the instrument was ultimately derived not from the debt, in actuality, but from the marketplace where such isntruments are traded. This is an ornate interpretation that has the ring of truth when you examine what the banks did, but this theory will not likely be accepted by any court.

That theory explains why when appellate and trial courts asked the direct question of whether the creditor can be identified the answer was no. The response was that the courts stopped asking.
But the issue at hand is whether, pursuant to state law governing foreclosures, a creditor is before the court possessing a valid claim to collect on a debt. If there is, then that creditor is entitled to payment. If there is not, then the claimed “creditor” is not entitled to either payment or foreclosure. 


I’ve talked about this before. It is why we offer a Risk Analysis Report to Community Banks and Credit Unions. The report analyzes the potential risk of holding MBS instruments in lieu of Treasury Bonds. And it provides guidance to the bank on making new loans on property where there is a history of assignments, transfers and other indicia of claims of securitization.

The risks include but are not limited to

  1. MBS Instrument issued by New York common law trust that was never funded, and has no assets or expectation of same.
  2. MBS Instrument was issued by NY common law trust on a tranche that appeared safe but was tied by CDS to the most toxic tranche.
  3. Insurance paid to investment bank instead of investors
  4. Credit default swap proceeds paid to investment banks instead of investors
  5. Guarantees paid to investment banks after they have drained all value through excessive fees charged against the investor and the borrowers on loans.
  6. Tier 2 Yield Spread Premiums of as much as 50% of the investment amount.
  7. Intentional low underwriting standards to produce high nominal interest to justify the Tier 2 yield spread premium.
  8. Funding direct from investor funds while creating notes and mortgages that named other parties than the investors or the “trust.”
  9. Forcing foreclosure as the only option on people who could pay far more than the proceeds of foreclosure.
  10. Turning down modifications or settlements on the basis that the investor rejected it when in fact the investor knew nothing about it. This could result in actions against an investor that is charged with violations of federal law.
  11. Making loans on property with a history of “securitization” and realizing later that the intended mortgage lien was junior to other off record transactions in which previous satisfactions of mortgage or even foreclosure sales could be invalidated.

The problem, as these small financial institutions are just beginning to realize, is that the MBS instruments that were supposedly so safe, are not safe and may not be worth anything at all — especially if the trust that issued them was never funded by the investment bank who did the underwriting and sales of the MBS to relatively unsophisticated community banks and credit unions. In a word, these small institutions were sitting ducks and probably, knowing Wall Street the way I do, were lured into the most toxic of the “bonds.”

Unless these small banks get ahead of the curve they face intervention by the FDIC or other regulatory agencies because some part of their assets and required reserves might vanish. These small institutions, unlike the big ones that caused the problem, don’t have agreements with the Federal government to prop them up regardless of whether the bonds were real or worthless.

Most of the small banks and credit unions are carrying these assets at cost, which is to say 100 cents on the dollar when in fact it is doubtful they are worth even half that amount. The question is whether the bank or credit union is at risk and what they can do about it. There are several claims mechanisms that can employed for the bank that finds itself facing a write-off of catastrophic or damaging proportions.

The plain fact is that nearly everyone in government and law enforcement considers what happens to small banks to be “collateral damage,” unworthy of any effort to assist these institutions even though the government was complicit in the fraud that has resulted in jury verdicts, settlements, fines and sanctions totaling into the hundreds of billions of dollars.

This is a ticking time bomb for many institutions that put their money into higher yielding MBS instruments believing they were about as safe as US Treasury bonds. They were wrong but not because of any fault of anyone at the bank. They were lied to by experts who covered their lies with false promises of ratings, insurance, hedges and guarantees.

Those small institutions who have opted to take the bank public, may face even worse problems with the SEC and shareholders if they don’t report properly on the balance sheet as it is effected by the downgrade of MBS securities. The problem is that most auditing firms are not familiar with the actual facts behind these securities and are likely a this point to disclaim any responsibility for the accounting that produces the financial statements of the bank.

I have seen this play out before. The big investment banks are going to throw the small institutions under the bus and call it unavoidable damage that isn’t their problem. despite the hard-headed insistence on autonomy and devotion to customer service at each bank, considerable thought should be given to banding together into associations that are not controlled by regional banks are are part of the problem and will most likely block any solution. Traditional community bank associations and traditional credit unions might not be the best place to go if you are looking to a real solution.

Community Banks and Credit Unions MUST protect themselves and make claims as fast as possible to stay ahead of the curve. They must be proactive in getting a credible report that will stand up in court, if necessary, and make claims for the balance. Current suits by investors are producing large returns for the lawyers and poor returns to the investors. Our entire team stands ready to assist small institutions achieve parity and restitution.


BLK | Thu, Nov 14

BlackRock with ETF push to smaller banks • The roughly 7K regional and community banks in the U.S. have securities portfolios totaling $1.5T, the majority of which is in MBS, putting them at a particularly high interest rate risk, and on the screens of regulators who would like to see banks diversify their holdings. • “This is going to be a multiple-year trend and dialogue,” says BlackRock’s (BLK) Jared Murphy who is overseeing the iSharesBonds ETFs campaign. • The funds come with an expense ratio of 0.1% and the holdings are designed to limit interest rate risk. BlackRock scored its first big sale in Q3 when a west coast regional invested $100M in one of the funds. • At issue are years of bank habits – when they want to reduce mortgage exposure, they typically turn to Treasurys. For more credit exposure, they habitually turn to municipal bonds. “Community bankers feel like they’re going to be the last in the food chain to know if there are any problems with a corporate issuer,” says a community bank consultant.

Full Story: http://seekingalpha.com/currents/post/1412712?source=ipadportfolioapp

Community Banks Prosper as MegaBanks Lose Customers


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Editor’s Comment: 

There are a lot of good reasons for the 10% defection rate at big banks — and the benefit flowing to smaller community and regional banks. The biggest reason appears to be a visceral dislike for the large banks and massive distrust over what these behemoths will do next. Add to that factor that it costs less to deal with community banks for the same service that the large banks have monopolised, and you barely have any reason at all to stay with the big banks.
All the services are now produced electronically and even the smallest banks have access to that. Add to that the personal factors of actually knowing your banker and the knowledge that deposits will be used for loans somewhere in your geographical region and now you also have a good reason to go to community banks and credit unions.
I would add one more — safety. The balance sheets of the big banks are bloated with non-existent or overstated assets and are missing huge liabilities reaching into the trillions to pay back those investors who bought $13 trillion in bogus mortgage bonds. But add to that mix, the facts that management of these mega banks have trillions parked off shore that the government wants to see repatriated PLUS the tacit deal in which the Federal Reserve agrees to lend at 0.25% in exchange for the big banks buying US Treasury debt at 3% and you can see why Washington is addicted to the toxic idea that they should still do business with, and therefore prop up these mega banks whose actual net worth is a tiny fraction of what has been reported. Eventually they must fall, which is another reason for not having your money there.

More customers leaving big banks

By Blake Ellis @CNNMoney 

NEW YORK (CNNMoney) — New fees and poor customer service have sparked an exodus among big bank customers, many of whom switched to smaller institutions last year.

The defection rate for large, regional and midsize banks averaged between 10% and 11.3% of customers last year, according to a J.D. Power and Associates’ survey of more than 5,000 customers who shopped for a new bank or account over the past 12 months. In 2010, the average defection rates ranged from 7.4% to 9.8%.

Meanwhile, small banks and credit unions lost only 0.9% of their customers on average last year — a significant decline from the 8.8% defection rate they saw in 2010.

These smaller institutions were also able to attract many of the customers who left the big banks. Over the course of last year, 10.3% of customers who shopped for a new bank landed at these smaller institutions — up from 8.1% in the prior year.

New and higher bank fees at the nation’s biggest banks led many customers to switch to smaller institutions over the past year, with about a third of customers at big banks reporting fees as the reason for looking elsewhere.

“When banks announce the implementation of new fees, public reaction can be quite volatile and result in customers voting with their feet,” said Michael Beird, director of the banking services practice at J.D. Power and Associates.

Community banks team up to fight the megabanks

Checking account fees have been on the rise at the nation’s biggest banks over the past year, and customer revolt against big banks really began to mount after Bank of America (BACFortune 500) proposed amonthly fee for debit card use last fall.

Even though the bank later backtracked on its decision, the announcement led to a nationwide, social media-fueled “Bank Transfer Day”, during which customers encouraged each other to dump their big banks for community banks and credit unions.

The report also found that many customers were already unhappy with the customer service at big banks, so when fees were announced or raised, there was even more of an incentive to switch institutions.

‘I dumped my bank!’

“Service experiences that fall below customer expectations are a powerful influencer that primes customers for switching once a subsequent event gives them a final reason to defect,” said Beird.

More than half of all customers who said fees were the main reason for switching banks also said they had received poor customer service at their prior bank, he said. To top of page



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EDITOR’S COMMENT: People are voting with their feet. The fact is that Credit Unions and Community Banks provide all the services that the average customer needs at a lower cost than the Mega banks. If this leads to decentralizing the power of the Mega Banks, it will change the landscape of finance and politics.

BOA and other large banks use their dominance in ATM services to attract customers. For twenty years I have labored to awaken the small bankers to the fact that the infrastructure already exists for the compete on the same playing field with the same services at lower cost to the customer and higher profit for the small financial institution.

We’ve seen the result of allowing the giants to grow and exercise their power over the marketplace and lawmaking and enforcement of laws. The latest revelations show that the small banks and credit unions were a far safer place to be than any of the banks “playing” in the securitization markets. Now that people are awakened to this risk, they have the opportunity to do something about it with their money and hopefully with their vote.

Local customers switching to credit unions for better service

See Entire Article in Yakima Herald Republic


Local customers switching to credit unions for better service
Carol Pimentel endorses a check at the Fifth Avenue branch of the Solarity Credit Union in Yakima on Tuesday, Jan. 3, 2012, as member services representative Kristie Therkelsen waits. Pimentel recently switched her bank account from the Bank of America to Solarity because she was unsatisfied with the Bank of America service.

YAKIMA, Wash. — After 14 years banking with Bank of America, Carol Pimental was ready for an alternative.

She didn’t like the five-day holds on her financial aid checks, having fees to keep a savings account or to receive printed bank statements, or the confusing changes that required hours of reading bank documentation.

She switched to Solarity Credit Union in Yakima three months ago.

Pimental was familiar with credit unions — her parents have banked with one for years — but her frustrations put her over the edge.

“I got tired of dealing with it,” said Pimental, a 41-year-old Yakima resident who is studying accounting at Yakima Valley Community College.

While the concept of credit unions — nonprofit, membership-driven financial institutions — dates back decades, the industry may look back at 2011 as the year that consumers nationwide took notice.

“Our efforts in raising awareness in credit unions have been extensive but only when consumers decide they want to look,” said David Bennett, a spokesman for the Northwest Credit Union Association (NCUA), a trade group of 168 credit unions in Washington and Oregon.

Indeed, many larger banks drew more ire from consumers in 2011 with an increasing number of fees for its products and services.

In September, several banks announced plans to charge a $5 monthly fee for debit cards. Most banks ultimately dropped such plans, but not before drawing a backlash from consumers.

Meanwhile, consumers and other groups, such as the Occupy movements nationwide, pushed consumers to leave big banks. In November, Kristen Christian, a Los Angeles business owner, organized Bank Transfer Day to encourage consumers to pull their money out of large banks and into credit unions and other locally owned financial institutions.

In Washington state, credit unions reported a collective gain of 1,430 new members, according to the NCUA.

According to the latest data, Washington saw a year-over-year gain of 121,339 members in 2010. Data for 2011 is not yet available, but Bennett expects that credit unions will easily surpass those numbers.

These days, it’s not unusual for Solarity Credit Union to get new members disgruntled by big banks.

But by no means is it a huge influx, said president and CEO Mina Worthington.

“We did receive some increases in select markets,” she said.

While consumers are fed up with the fees and service issues of larger banks, that doesn’t always result in action.

“It’s so complicated to switch that people just generally don’t move,” she said.

Still the positive attention gives credit unions leverage, whether it’s in gaining new customers or persuading legislators to not pass burdensome legislation, she said.

HAPO Community Credit Union has seen year-to-year increases of 10 percent to 20 percent in both deposits and loans in 2011, said Scott Mitchell, vice president of lending and chief lending officer for HAPO.

But the movement toward credit unions in the Yakima Valley may not be as obvious as other areas because many consumers already bank with credit unions or other locally owned financial institutions, he said.



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EDITOR’S COMMENT: With 7,000 community banks and credit unions, an electronic funds transfer infrastructure enabling even the smallest bank to provide wide access ATM, internet and other conveniences, you would think that the best insurance we have against financial collapse is to make certain that the small and medium sized banks make it through this crisis — especially since they didn’t cause the problem.

But just as MasterCard and Visa adopted policies that created preferred treatment to the megabanks and forced the smaller banks to pay for the same infrastructure that was being used against them in the “free market”, the FED has adopted policies that are window dressing meant to show fairness and neutrality when in fact the FED policies are squarely in the corner of mega banks who consistently use their power and influence over the payment networks and the federal reserve to raise barriers to entry just high enough to prevent meaningful competition.

So hundreds of banks were given access to the Fed Window, but unlike their megabank counterparts, they had to come up with REAL COLLATERAL instead of bogus mortgage bonds. This policy made absolutely certain that the small banks would not start lending ahead of the mega banks and start taking back market share. It also made certain that the small banks would not start growing at the expense of the megabank share of the market which is now placed somewhere around 70%.

Thus the very same people and institutions and caused the mess we are in, and who have created a title conflagration that might never be solved as long as we continue to keep ourselves blinded by the myth and spin coming from Wall Street and government, THOSE are the people who are essentially MAKING POLICY contrary to their lip service of preserving, maintaining and promoting a free market. In a free market, the small and medium sized banks would have been given a better chance to step up to the plate and take back market share after the horrible behavior of those who have dominated the marketplace for thirty years. In a free market, the resolution of the mortgage bond issue, derivatives, and synthetic collateralized debt obligation instruments like credit default swaps, would have been achieved without causing any pain to anyone other than the people who created the problem. Instead the pain is still spreading to all the citizens of our country and around the world.

Fed Help Kept Banks Afloat, Until It Didn’t


WASHINGTON — During the frenetic months of the financial crisis, the Federal Reserve stretched the limits of its legal authority by lending money to more than 100 banks that subsequently failed.

The loans through the so-called discount window transformed a little-used program for banks that run low on cash into a source of long-term financing for troubled institutions, some of which borrowed regularly from the Fed for more than a year.

The central bank took little risk in making the loans, protecting itself by demanding large amounts of collateral. But propping up failing banks can increase the eventual cleanup costs for the Federal Deposit Insurance Corporation because it keeps struggling banks afloat, allowing them to get even deeper in debt. It also can clog the arteries of the financial system, tying up money in banks that are no longer making new loans.

County Bank, the largest bank in Merced County, California, took a $4.8 million loan from the discount window in March 2008 after announcing the first annual loss in its 30-year history, news that prompted depositors to withdraw $52 million.

By the fall of 2008, the bank was borrowing regularly from the Fed, taking more than two dozen loans in amounts that peaked above $60 million. It continued borrowing until the day it failed, taking a final loan for $55 million on Friday, Feb. 6, 2009.

Thomas Hawker, the former chief executive, said that the loans helped keep the bank in business, providing needed cash as deposits dwindled. But he said that it was clear in retrospect that County Bank was dead on its feet the whole time, thanks to its once-lucrative focus on financing construction of new homes in the Central Valley of California.

“I think in most cases it is a lifeline that kind of provides a bridge to survival,” said Mr. Hawker, who left the bank in 2008. “In the case here, Merced County was ground zero for everything that could possibly have gone wrong with the economy.”

The discount window is a basic feature of the central bank’s original design, intended to mitigate bank runs and other cash squeezes. But access to it historically has been limited to healthy banks with short-term problems.

Those limits moved from custom to law in 1991, when Congress formally restricted the Fed’s ability to help failing banks. A Congressional investigation found that more than 300 banks that failed between 1985 and 1991 owed money to the Fed at the time of their failure. Critics said the Fed’s lending had increased the cost of those failures.

The central bank was chastened for a generation but in 2007, facing a new banking crisis, the Fed once again started to broaden access to the discount window. It reduced the cost of borrowing and started offering loans for longer terms of up to 30 days.

More than one thousand banks have taken advantage. A review of federal data, including records the Fed released last week, shows that at least 111 of those banks subsequently failed. Eight owed the Fed money on the day they failed, including Washington Mutual, the largest failed bank in American history.

The Fed has said that it complied fully with the law in all of its emergency loans, and that its actions, including lending from the discount window, were intended to limit the impact of the crisis.

Charles Calomiris, a finance professor at Columbia University who has studied discount window lending during previous crises, said the Fed had not released enough information for the public to determine whether some of the recipients were propped up inappropriately and should have been allowed to fail more quickly.

“Do we know whether the Fed did that? No, we don’t,” he said. “But the Fed has become more politicized than at any point in its history, and I do worry very much that a lot of Fed discount window lending may just be part of a political calculation.”

In some cases the Fed’s lending had clear benefits, whether or not the loans meant going beyond the mandate.

The F.D.I.C. almost always seizes banks on Friday evenings, so the new owners have two days before reopening. In some cases the Fed kept banks alive until the next Friday. The Bank of Clark County in Vancouver, Wash., took its first discount window loan on Monday, Jan. 12, 2009. It borrowed $8 million Monday, Tuesday and Wednesday, then $14 million on Thursday and Friday. Then the F.D.I.C. closed its doors.

In other cases, the Fed stopped lending to banks as the extent of their financial problems became clear. Alton Gilbert, a former official at the Federal Reserve Bank of St. Louis who wrote a widely cited study of the Fed’s discount window lending in the 1980s, said that few banks failed with Fed loans on their books during the recent crisis. The central bank often suspended lending several months before they failed.

Still, some experts said additional scrutiny was warranted for a subset of banks that received sustained support even though they faced clear problems.

The most frequent visitors at the window were three subsidiaries of FBOP, a bank holding company based in Oak Park, Ill.

Park National Bank in Chicago borrowed regularly from April 2008 until the day of its failure in October 2009, taking 129 loans in amounts that peaked at $345 million — the longest period of sustained support for any bank that failed during the crisis. Park used some of the money to finance the acquisition of assets from other banks, expanding its own balance sheet and potentially increasing the cost of its eventual failure. Bloomberg News first reported the details of the Fed’s discount window lending to the company.

Two other failed banks owned by FBOP also took more than 100 loans from the discount window, California National Bank of Los Angeles and Pacific National Bank of San Francisco, although both stopped borrowing several months before failing.

Marvin Goodfriend, a professor of economics at Carnegie Mellon University, said that such lending placed the Fed in the inappropriate position of deciding the fate of individual banks, choices that he said should be made by elected officials.

“What I think is the lesson from this is that the Congress needs to clarify the boundaries of independent Fed credit policy,” Professor Goodfriend said. “There should be a mechanism so that the Fed doesn’t have to make these decisions on behalf of taxpayers.”


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“MAKE NO MISTAKE ABOUT IT, THE MEGA BANKS ARE PICKING UP STEAM CONTROLLING FINANCE, AND THUS CONTROLLING THE ECONOMY AND OUR FUTURE. We can only hope that the pattern of community banks and credit unions — filling in gaps left by the the large banks with the start-up of new bank — will offset the plan launched by the megabanks. It is a relentless push toward centralization of all banking functions and monopolizing the world of finance, controlling the purse strings of every man, woman and child for generations to come.” NEIL F GARFIELD, FORMER EDITOR OF SMARTBANKS NEWSLETTER FOR COMMUNITY BANKS AND CREDIT UNIONS

The entire economy is suffering because a few people on Wall Street are making sure the economy stifles — by refusing to to perform the task they are required to perform — providing easier, intelligent access to capital for innovation, new business start-ups, and expansion of existing small and medium sized businesses. The alternative is sitting right there in front of us but the people who can fix it are sitting on their hands. We don’t need more bank regulation at this point — that won’t save us (although it is a good idea to have a referee on the playing field) — we need the 7,000 banks and credit unions with 20,000+ branches all over the country to pick up the ball and run with it.

We have 7,000 community banks and credit unions here, unlike any other country. WHERE THE HELL ARE THEY? They have the exact same access to electronic and internet services at lower cost with the PRESENT ability to provide ALL the services a large bank can offer including free ATM use. They make better loans with lower default rates because the loan officer actually exists as a human being rather than a computer and has met the proposed borrower and the people who advise the borrower, including family, friends and professionals. The large banks could not be more despised than they are now by virtually everyone all over the world, including other bankers, central bankers and finance ministers.

Nothing new needs to be invented. The backbone (infrastructure) of payment processing, account processing, and money transfer is already there for the taking and protected by prior DOJ actions breaking up control of networks like MAC, NYCE, HONOR, VISA and MasterCard. There already exists associations of community banks and credit unions: WHAT ARE THEY DOING? THIS IS YOUR MOMENT TO SEIZE BACK MARKET SHARE IN A BIG WAY.

The whole issue of TBTF (Too Big To Fail) could be solved by free market forces if the smaller banks would take up the opportunity that is right in front of them. MidFirst Bank out of Oklahoma gets it — that bank is growing by leaps and bounds following this model. Others are doing it, but unless the industry as a whole adopts the mission of taking back market share, they will forever be dominated by the large banks who will dictate how much business goes to small banks and how much money they make.

While everyone is biting their nails hoping the next big failure of TBTF banks won’t hurt too much, the community bank presidents and boards should be making plans and launching them — using existing infrastructure to take back their local customers. Credit Unions who have taken the words “not for profit” a little too literally should be finally stepping forward and covering their overhead and putting money aside for reserves and loans that the large banks won’t give.



Until it closed its doors in December, the Ohio Savings Bank branch on North Moreland Boulevard was a neighborhood anchor in Cleveland, midway between the mansions of Shaker Heights and the ramshackle bungalows of the city’s east side. Now it sits boarded up, a victim not only of Cleveland’s economic troubles but also of a broader trend of bank branch closings that is falling more heavily on low- and moderate-income neighborhoods across the country.

In 2010, for the first time in 15 years, more bank branches closed than opened across the United States. An analysis of government data shows, however, that even as banks shut branches in poorer areas, they continued to expand in wealthier ones, despite decades of government regulations requiring financial institutions to meet the credit needs of poor and middle-class neighborhoods.

The number of bank branches fell to 98,517 in 2010, from 99,550 the previous year, a loss of nearly 1,000 locations, according to data compiled by the Federal Deposit Insurance Corporation.

Banks are expected to keep closing branches in the coming years, partly because of new technology and automation and partly because of the mortgage bust and the financial crisis of 2008. New regulations will also cut deeply into revenue, including restrictions on fees for overdraft protection — a major moneymaker on accounts aimed at lower-income customers. Yet the local branch remains a crucial part of the nation’s financial infrastructure, banking analysts say, even as more customers manage their accounts via the Internet and mobile phones.

“In a competitive environment, banks are cutting costs and closing branches, but there are social costs to that decision,” said Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve. “When a branch gets pulled out of a low- or moderate-income neighborhood, it’s not as if those needs go away.”

Mr. Williams and other observers express concern that the vacuum will be filled by so-called predatory lenders, including check-cashing centers, payday loan providers and pawnshops. The F.D.I.C. estimates that roughly 30 million American households either have no bank account or rely on these more expensive alternatives to traditional banking.

The most recent wave of closures gathered steam after the financial crisis in 2008, as banks of all sizes staggered under the weight of bad home loans. In some cases, banks with heavy exposure to risky mortgage debt simply cut branches as part of a broader restructuring. In other cases, banking companies merged and closed branches to consolidate.

Whatever the cause, there were sharp disparities in how the closures played out from 2008 to 2010, according to a detailed analysis by The New York Times of data from SNL Financial, an information provider for the banking industry. Using data culled from the Federal Deposit Insurance Corporation and ESRI, a private geographic information firm, SNL matched up the location of closed branches with census data from the surrounding neighborhood.

In low-income areas, where the median household income was below $25,000, and in moderate-income areas, where the medium household income was between $25,000 and $50,000, the number of branches declined by 396 between 2008 and 2010. In neighborhoods where household income was above $100,000, by contrast, 82 branches were added during the same period.

“You don’t have to be a statistician to see that there’s a dual financial system in America, one for essentially middle- and high-income consumers, and another one for the people that can least afford it,” said John Taylor, president of the National Community Reinvestment Coalition, a group that advocates for expanding financial services in underserved communities.

“In those neighborhoods, you won’t see bank branches,” he added. “You’ll see buildings that used to be banks, surrounded by payday lenders and check cashers that cropped up.”

Wayne A. Abernathy, an executive vice president of the American Bankers Association, disputed Mr. Taylor’s conclusion, as well as the significance of the data.

“You need to look at the context,” he said. “We’re looking at a pool of more than 95,000 branches, and we’ve had several hundred banks fail, so what would be surprising is if no branches had closed.”

The Community Reinvestment Act, signed into law more than three decades ago in an effort to combat discrimination and encourage banks to serve local communities, requires financial institutions to notify federal regulators of branch closings. But legal experts say the federal watchdogs that are supposed to enforce the law have been timid.

“The C.R.A. has been a financial Maginot Line — weakly defended and quickly overrun,” said Raymond H. Brescia, a professor at Albany Law School. What’s more, Mr. Brescia said, while closing branches violates the spirit of the law, if not the letter, he could not recall a single example in which a bank was cited by regulators under the C.R.A. for branch closures in recent years. “The C.R.A leaves banks a lot of leeway,” he said, “and regulators have not wielded their power with much force.”

Even as more customers turn to online banking, said Kathleen Engel, a law professor at Suffolk University in Boston, the presence of brick-and-mortar branches encourages “a culture of savings,” beginning with passbook accounts for children and visits to the local bank. “If we lose branch banking in low- and moderate-income neighborhoods, banks stop being central to the culture in those communities,” said Ms. Engel, author of a new book, “The Subprime Virus: Reckless Credit, Regulatory Failure and Next Steps.”

Among individual financial institutions, especially those hit hard by the mortgage mess, the differences between rich and poor communities were especially marked.

Regions Financial, based in Birmingham, Ala., had 107 fewer branches serving low- and moderate-income neighborhoods in 2010 than it did in 2008. The company, which has yet to repay $3.5 billion in federal bailout money, shuttered just one branch in a high-income neighborhood, according to SNL Financial.

At Zions Bancorporation, a Utah lender battered by losses on commercial real estate loans, branches in low- and moderate-income neighborhoods dropped by 24, compared with a decrease of just one branch in an upper-income area. It still owes the federal government $1.4 billion in bailout money. A spokesman for Zions said the branch closings reflected a strategic move to exit all supermarket locations as well as merger-related consolidation, rather than a withdrawal from particular neighborhoods.

A similar trend is evident at some larger institutions. Bank of America closed 25 branches in moderate-income areas and opened 14 in the richest areas, according to the SNL data. Citigroup, whose branch network is smaller than Bank of America’s, closed two branches in the poorest areas and opened three in the wealthiest.

The head of Citigroup’s global consumer business, Manuel Medina-Mora, made no secret of his bank’s intention to focus on the wealthy in the country, telling a Wall Street investor conference in November that “in retail banking, we will focus our growth in the emergent affluent and affluent segments in major cities — exactly in line with our global consumer banking strategy.”

Comparisons for two other giants, Wells Fargo and JPMorgan Chase, are more difficult because of the addition of thousands of branches in all categories in 2008 as they absorbed Wachovia and Washington Mutual, both of which were pushed to the brink by mortgage losses. From 2009 to 2010, however, Wells closed 57 branches in low- and moderate-income neighborhoods, and shut 20 in upper-income census tracts.

JPMorgan Chase, which emerged from the turmoil of 2008 as the healthiest of the big banks, actually opened 11 branches in low- and moderate neighborhoods, while it closed one in the $100,000-plus communities.

A spokeswoman for Bank of America, Anne Pace, defended her company’s record, noting that more than one-third of its new branch openings in 2011 would be in low- and moderate-income communities.

Citigroup, Wells Fargo and Regions Financial disputed the statistics provided by SNL, arguing that the number of branches closed in low- and moderate-income neighborhoods was overstated. The three banks insisted they are committed to serving all customers and communities, regardless of the income level.

In Cleveland, the closing of the Ohio Savings branch in December was one more bit of fallout from the financial crisis, according to Chris Warren, the city’s chief of regional development.

A year earlier, New York Community Bancorp took over the assets of AmTrust Bank, now operating as Ohio Savings Bank in Ohio, after it was shut by the federal Office of Thrift Supervision. The F.D.I.C.’s deposit insurance fund took a $2 billion loss as a result of the closing. The North Moreland branch was the only one of Ohio Savings’ 29 branches in the state to close.

“This was their introduction of their approach to community investment in this city,” Mr. Warren said. “They closed down the only branch Ohio Savings had in a low-to-moderate-income, African-American neighborhood.”

A spokeswoman for New York Community Bank said the branch was closed only because the bank was unable to reach a new agreement on a lease. She said customers could choose other branches nearby, including an Ohio Savings branch 2.4 miles way.

That is little comfort to customers like Lucretia Clay, who manages a store nearby and lives within walking distance of the now-shuttered branch. “I’ve given that bank a lot of money over the years,” she said. “So they should be here in the community. I shouldn’t have to drive forever to go find them.”

Christopher Maag contributed reporting.

Wave of Voluntary Strategic Defaults Coming: 20% Under water

Editorial Comment: Actually the number is far higher. We compute it as around 45% when all is said and done. First of all there is consensus that property values are actually around 15% less than seller’s are asking. Second costs of selling the home makes up the rest, taking another 6-10% off the selling proceeds.

The break point where people go for “jingle mail” sending the keys back even if they are current is when that value is less than 75% of the principal due on the mortgage. In that sense, the 1/5 figure is right.

What has NOT been computed is what will happen if the growing trend toward strategic defaults (jingle mail) becomes a stampede. I think it will do just that — and further the trend will probably spread to other loans, especially those have been securitized like credit cards, auto loans, and student loans where the loan originator never advanced a penny toward the loan and just collected a large fee.

Investors and borrowers need to get together and work out the details, throwing the loss onto the “banksters” (Pecora term from 1930’s). Disinformation is being spread and believed. The creditors and the debtors are being intentionally blocked from knowing their relationship to each other. When they DO know, the ship will turn back over and start floating again — at the cost of those who perpetrated the largest fraud in human history.

There IS a way to work this out but not if the goal is to save the banks that created this mess. We have at least 7,000 other banks, TARP and other bailout money available, and an IT infrastructure that can be used today to provide the full range of services and conveniences that the “too big to fail” banks use to beat down the competition from community banks and credit unions.

Associations of community banks not controlled by large regional banks can play a pivotal role in this. Where the associations are controlled by the big banks like Florida bankers Association, the community bankers need to re-start their own association.


One-Fifth of U.S. Homeowners Owe More Than Properties Are Worth

By Daniel Taub

Feb. 10 (Bloomberg) — More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter as the number of houses and condominiums lost to foreclosure climbed to a record, according to Zillow.com.

In the fourth quarter, 21.4 percent of owners of mortgaged homes were underwater, up from 21 percent in the previous three months and down from 23 percent in the second quarter, the Seattle-based real estate data provider said today in a report. More than one in 1,000 homes were repossessed by lenders in December, the highest rate in Zillow data dating back to 2000.

Underwater homes are more likely lost to foreclosure because their owners have a harder time refinancing or selling when they get behind on loan payments. U.S. home values dropped 5 percent in the fourth quarter from a year earlier, the 12th straight quarter of year-over-year declines, Zillow said.

“While the next few months are likely to bring further home value declines in most markets, we do expect to see a national bottom in home prices by the middle of this year,” Zillow Chief Economist Stan Humphries said in a statement. “Thereafter, home values are likely to bounce along the bottom with real appreciation remaining negligible for some time.”

There were 2.82 million foreclosures in the U.S. last year, according to RealtyTrac Inc., the most since the data provider began compiling figures in 2005. The number may rise to 3 million in 2010, the Irvine, California-based company said last month.

Bank sales of foreclosed properties accounted for a fifth of all U.S. home sales in December, Zillow said. Such transactions made up 68 percent of sales in Merced, California; 64 percent in the Las Vegas area; and 62 percent in Modesto, California, the company said.

Almost 29 percent of homes sold in the U.S. went for less than their sellers originally paid for them, Zillow said.

The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties.

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: February 10, 2010 00:01 EST

Lies About Big Banks vs Small Banks

The break-up of the big banks combined with strengthening the community banks and credit union would create something much closer to a free market of 7,000 institutions than 4 institutions controlling the world’s currency.

Since the 1960’s the banking industry has been dominated by two main tiers of banking — the founding members of “associations” who sit on the board of electronic networks and then the peons who are all the rest of the banks. The number of founders is probably less than a dozen. The rest number around 7,000.

To give credit where credit is due, the leaders of this pack (when their numbers were higher before consolidation) came up with a pretty smart plan: create an electronic network that would enable their depositors to have access to their bank accounts all over the world — and force the vast majority of smaller banks to use that network and thus pay for the cost of the infrastructure.

The result was that community banks and credit unions were subjected to “rules” that did not allow them to conveniently access the network whereas the big fellows were able to advertise that you could get free access to your account with your ATM card anywhere.

Attempts by community banks and credit unions to use smaller ATM machines and push back on the big bank competitors resulted in draconian rules that put hundreds of firms out of business and severely restricted access to bank accounts unless you were a customer of a big bank. This in turn allowed the big banks to raise fees to absurd levels.

The cost of a an electronic transaction is less than 1 cent including settlement. Visa, MasterCard and others have instituted charges on the front end (surcharges) and back end (on your end of month statement where you might not notice) of somewhere around $6.00 per transaction if you use an ATM that is not branded with the big bank name.

This combined with two other developments — the allowance of interstate banking and the repeal of the Glass Steagel act giving investment bankers (risk takers) access to depository accounts at commercial banks (risk averse), resulted in complete domination of the marketplace by just a few banks.

The story goes that we need extra large banks because there are international companies that need extra large financing. Small banks can’t do that, they say and so big banks are a necessary evil.

It’s a lie. ATM Charges should be less than $2.00 at most including front and back end. Bank charges have skyrocketed despite the claim of scale economies in the large banks. And electronic transactions are only more convenient for large banks because they won’t let the networks give the same privileges to the small banks. It’s a classic case of antitrust waiting to happen.

But that was just the beginning. By changing the face of lending from the banker actually knowing its customer to never knowing its customer, the decision-making process on loans became increasingly remote. So they came up with an addictive form of gambling called FICO which is a convoluted score-system that requires you to be in debt in order to get a high enough score to borrow money when you need it.

Enter securitization. The risk-taking investment bankers quickly figured out a scheme wherein if they created underwriting standards that would produce non-performing loans, they could make a fortune and bleed the world dry of virtually all real money. They got the money from investors, other banks, governments and even individual investors by lying to them. But because the process of lending had become so decentralized they had the cover of plausible deniability and started creating “innovative products” under the ideological belief that the “free market” (which is anything but free) would regulate itself.

Here is the real story: Most small business and personal loans would be of far higher quality and produce far more impact on local, state and national economies if they were originated by local banks who met, knew, visited and verified the facts and the people. There is no rational business case for a lender in Chicago to be selling its services to a borrower in San Diego.

Virtually any loan, regardless of how large could be handled by expanding the functionality, which already exists, of the technology networks that transfer and settle electronic transactions.

Which means that a big huge borrower or a banker with a scheme like the mortgage meltdown scheme would be subjected to 7,000 banks reviewing the risk and probably getting outside knowledgeable consultants to evaluate the scheme. Syndication of loans is as old as lending. Take the big banks out of the equation and ask yourself, would the mortgage meltdown scheme have ever left the station if it was subjected to that kind of scrutiny?

The ONLY reason it worked is the LIVING LIE that bigger was better. The Department of Justice Antitrust division can fix this quickly simply by enforcing existing law. The break-up of the big banks combined with strengthening the community banks and credit union would create something much closer to a free market of 7,000 institutions than 4 institutions controlling the world’s currency.

For consumers this would mean lower bank fees. Most people pay over $200 per year in various bank fees without realizing it. It’s large undisclosed or simply added into your statement. Some people pay as high as thousands of dollars for “overdrafts” created by first imposing a fee that drains the account to zero and THEN presenting the checks for payment and paying them for a “modest” fee of $39.00.

Nothing is going to change though, unless people get riled up, throw the bums out and start over again. As long as Dimon and others effectively write the laws and make the rules the consumer is screwed, the taxpayer is left in a hole for generations, and investors will never trust the U.S. markets again.

Mortgage Meltdown Consequences


Mortgage Meltdown Consequences — New Money, Old Money and New Dynamics — 

Cashless ATM, “second chance bank accounts” and other services auger well for Small Banks and Credit Unions.


The simple fact is that there isn’t any small bank who can’t provide the same services to any type of customers that a large one can. And if States would start depositing their entitlement and other money and revenue into state chartered local community banks, they would regulate their own state and local economies by insuring that reinvestment through loans would be on the local level with local deposits and a return to common sense in lending. It would also score political points for anyone running for local or statewide office. 


News from the Bureau of Engraving and Printing in Washington D.C. (BEP) — they are going to change the size of the various denominations of U.S. currency. There are also changes coming to prevent the Supernote coming out of North Korea which uses the same paper and managed to get the same printing presses that the BEP uses. They have been flooding the market with counterfeit currency quite successfully and the trend seems to be on the increase although, according to government reports, if they can be believed, the problem is not yet a large one.


A clean-out of the ATM cash locations will start to occur when the new bills come out since 85% of the cash terminals in most portfolios are unprofitable anyway and the operators will not be inclined to spend more money on a new cash dispenser for a location that isn’t making money anyway. This will present a new opportunity for those who permit or operate Cashless ATM terminal locations (Community banks, Credit Unions and Independent Sales Organizations). 

Networks like NYCE, AFFN, American Express, COOP and CU24 that allow “scrip” terminals (A/k/a Cashless ATMs) will be the prime beneficiaries of this trend. Cirrus and PLus who merely look away are likely, especially now that they are public, to specifically encourage the use of Cashless ATM after years of “opposing” it on paper. 

Companies like SMARTBanks (which has long-dominated the world of cashless ATMs) are likely to become major players in financial services as their volume once again mushrooms and their offering of services continues to diversify. It seems that with every step, the financial institutions that seek to block the ability of the small bank or credit union competitor cause another event that eventually comes up and hits them in the face, like a rake stepped upon in the field. 

Add to that the availability of “second chance checking” for those who don’t qualify to open a regular checking account and overdraft privileges on these strictly electronic bank accounts, and you have a prescription for a resounding come-back of the small financial institution and the death-knell of the once mighty giant players. 


“Second chance checking” places the small financial institution squarely in the path of the giants (who are now otherwise occupied with saving their skins) seizing the opportunity to provide services to the “unbanked” or under-banked population. Overdraft privileges allows small institutions to partner with -non-predatory lending vendors and offer a smart and socially acceptable way of providing short-term emergency loans placing them squarely in the way of growth of Payday loans.


Adding to this are world events that certain increase the risk if not the certainty that the dominance of the U.S. dollar in world currency is coming to an end, and that with constant devaluation of the dollar and inflation, merchants are starting to demand other currencies. There is even a tendency in foreign markets that will be vastly exacerbated by the advent of the new money being printed — where older wrinkled dollars are being devalued on the spot in favor of newer, crisper ones. 


In short, the mortgage meltdown with its CDO/CMOs, (really financial derivative breakdown, including over $500 trillion in derivative issues over the years) which undermined the confidence in American financial markets, is likely to cause a not-so subtle shift in the willingness to accept U.S. currency for payment of non-tax debt. And dollar reserves held by central bankers around the world are likely to reflect this shift by lowering the amount of dollar reserves and increasing the reserves of other currencies, especially the Euro. 


In short, people going to an ATM will be looking for alternatives. Even if the twenty dollar bill is preserved as to size in order to save the cash dispensing ATM terminal, the level of distrust as tot he quality and buying power of that money is likely to cause something of a shift in consumer and merchant acceptance of old dollars or even the new dollars, causing merchants to keep more than one currency in their drawers — old U.S. currency, new U.S. Currency and probably the Euro. 


I might add that regulatory influence European Central Bank will be probably vastly increase with respect control of financial markets all over the world including the United States where we have always jealously guarded our sovereignty but now surrendered it to a few financial “wizards” who undermined the position of the U.S., in the world at the worst possible time in the worst possible way with the worst possible outcomes for many borrowers, lenders, underwriters, auditors, investment bankers, and investors. 


Even if the twenty dollar bill is kept the same size there will be a run to the teller windows of banks, the drawer of merchants, and anywhere else people can lay their hands on the new currency which appears more sound. After all, since we are not on any gold standard or other back-up to the value of currency, the ONLY thing maintaining the dollar’s value is the confidence people have in it. 


It therefore follows that most operators of Cash ATMs are going to experience either a drop in the use of the ATM or a complete end to their use if the size of the twenty dollar bill changes — until they install a new cash dispenser. But even if a new cash dispenser is installed, merchants, as in New York City and other parts of the country are encouraging payment with Euros. The current ATM electronic and mechanical infrastructure is not sell suited at present to handle multiple currencies or multiple denominations in different sizes.

The ONLY infrastructure available to handle the versatility of demand for “money” is the merchant’s cash drawer, which will not only inure to the benefit of the operators of cashless ATM machines, but to the benefit of the merchants themselves. It is ONLY by getting a receipt and going to a live cashier that the demands of the customer will be met, at least in the short-term. 

A clean-out of the ATM cash locations will start to occur when the new bills come out since 85% of the cash terminals in most portfolios are unprofitable anyway and the operators will not be inclined to spend more money on a new cash dispenser for a location that isn’t making money anyway. 

This will present a new opportunity for those who permit or operate Cashless ATM terminal locations. Networks like NYCE, AFFN, American Express, COOP and CU24 that allow “scrip” terminals (A/k/a Cashless ATMs) will be the prime beneficiaries of this trend. Cirrus and Plus who merely look away are likely, especially now that they are public, to specifically encourage the use of Cashless ATM after years of “opposing” it on paper. 

Companies like SMARTBanks which has dominated the world of cash ATMs are likely to become major players in financial services as their volume once again mushrooms. It seems that with every step, the financial institutions that seek to block the ability of the small bank or credit union competitor eventually comes up and hits them in the face, like a rake stepped upon in the field. 

With the large financial institutions all in some sort of trouble now and the fact that the small ones were barred from playing in the CDO world (and therefore face no write-offs or liability), the time is ripe for small banks and credit unions to reassert their superiority in numbers, customer service and their ability to field more ATM locations than their largest competitors. Cashless ATMs cost, even now, less than 1/3 of the smallest cash dispensing countertop Cash dispensing ATM and cost 5% of the operating costs of the cash dispensers. Things are changing.

The good news for the consumer is that their convenience fees will go down or be eliminated in greater numbers because of the number of small banks offering surcharge-free access to a growing number of what the NYCE network calls “Point of Banking (a/k/a Cashless ATM a/k/a scrip terminals). 


The bad news is only for the banking giants who will see their ATM fee income and monthly statements income decline as more and more people gravitate back to their local banks. As depositors move and loan business moves and decentralization takes hold of the marketplace, supplanting what was a government-sponsored hegemony of a handful of banks, the flimsy foundation on which the giant financial services business model was built will crack and crumble. 


Add to that the availability of “second chance checking” for those who don’t qualify to open a regular checking account and overdraft privileges on these strictly electronic bank accounts, and you have a prescription for a resounding come-back of the small financial institution and the death-knell of the once mighty giant players. 


All these services and more are now available to any financial institution to offer customers who walk in through their door, through the proliferation of third party vendors who are willing to set up, sell, monitor, score risk and even take the risk on these accounts. It is the dawning of a new age, where the syndication and derivative schemes of the old fashioned giants are replaced by a better market system for distribution of credit, wealth and prosperity. Free-market enthusiasts should be excited.


Mortgage Meltdown: People First, It’s Not the Numbers

A Few Tears and the Polls Were All Wrong

Maybe she was being tactical and maybe it was real. Maybe it was both. It doesn’t really matter. The results in New Hampshire underscore a serious flaw in the delivery of information to the American public and an even more serious flaw in the way we make decisions. Clinton’s narrow win over Obama proved one thing beyond all doubt: that people matter more than pundits. And the clear error of all the polls proves another thing without any doubt: that pollsters are measuring the wrong things. And the news organizations that spent so much airtime and print space reporting the polls proved one more thing: that they are giving out information which is false and misleading. 

Tactics and strategy are not nearly as important as character and judgment. Electability is not nearly so much a question of polls and analysis as it is the belief in the character and judgment of a candidate. Experience matters when people get information on that experience, not when buzz words are passed from pundit to pundit. What did the candidate do and how well did he or she do when they did it? 

This is completely congruent with the postings here on the mortgage meltdown and credit crisis. The asset bubble has burst (again), the losses are mounting, the sea of money has swamped our society and our economy creating vast changes in the demographics and standard of living for ordinary Americans. 

We are now left with our largest financial institutions on the ropes and the smallest ones — Community Banks and Credit Unions looking pretty good. The small financial institutions got locked out of the great credit scam, and thus lost nothing to stupid loans, sales of CDOs, and liability for potentially criminal behavior — all that was saved for the big institutions that grabbed market share with smoke and mirrors. 

Your deposits are probably safer in the small institution than they are in the large ones which will probably collapse.  In other countries where similar things have happened ALL the banks failed. Here because of the death grip that big business has on government and the “free” marketplace, they kept the goodies for themselves, and now face responsibility for the worst financial disaster in American History. Fortunately, they left out most of the small players. But the decline in asset values, devaluation of currency and hyperinflation building to a crescendo will have its effect on all financial institutions and all Americans.

How is a political contest related to the mortgage meltdown? For one thing, it would be nice if someone started introducing proposals that would help the people who are already getting the second or third reset on their mortgage payments, where their payments have skyrocketed from $1500 to $4,000 per month. More importantly, as we look beyond the “correction” (read that “crash”) of 2008, it should remind us that if we use data we should do so skeptically and cynically and as a second tier of making decisions. The first tier should be the character of the people we are dealing with. 

We measure FICO scores that reward people for going into debt and punish them for savings, we use the SAT and ACT that predict nothing of a student’s future performance, polls for figuring out who to follow in the political races, and government statistics which first report politically expedient data, second change the components in order to come out with the politically expedient result and third are adjusted later (after the desired effect has been obtained) to make our investment decisions. Do you see something wrong here?

Let’s rerun this using a different approach. Numbered or indexed scores are used so extensively now that both authority and accountability are removed from a person’s life who is a “decision-maker.” Let’s put authority and accountability back into the equation.

When we pick a depository institution to hold our money, do we interview them to find out where they loan money and to whom? Do we decide on whether that fits with our world view? When they make loans, is the loan officer prohibited from making a loan to someone of great character who has a wonderful history of payments — because of a low FICO score (let’s say caused by the fact that he paid off all his debts, cancelled his credit cards, and had several hits by companies looking for his credit score)? Is the loan officer coerced into making a loan to someone with a high FICO score because they have just the right history and numbers that move the score up, but just the wrong circumstances and character to pay off THIS loan?

Do you really want your life and the society we live in to be governed by indexes, data and numbers that are fixed to mislead us into making decisions that are catastrophic for us but great for the people in suits who look you square in the eye and tell you how great this deal is? If so, welcome to the biggest Ponzi scheme in history — the great Mortgage Meltdown. 

Mortgage Meltdown: How the Big Boys Control the Rules

Unfair Competition by Large Banks Created the Infrastructure for this Mess

A few people have asked: Why not do a story on the alternative to the cash-dispensing ATM? After considering the research, and seeing a connection with the mortgage meltdown crisis because this situation is the single greatest marketing tool used by  large financial institutions to decentralize banking deposits (sucking local deposits out of the places they were earned and placed for safe keeping and putting them all over the country, if not the world) and to attract banking customers away from their small local bank or credit union who can and does service their needs far better and far more safely than any large company could with its headquarters and decision makers located thousands of miles away.

If you look at this week’s Economist, you will find on Page 86 that countries in Africa (“third world?”) have discovered a far more elegant and inexpensive solution: The customer activated Point of Banking ATM. In fact, if you look hard enough you will find that more than 25,000 ATM’s are already running in this country. If we used that system as extensively here, crime would be reduced to zero at the site of an ATM, ATM fees paid by consumers would be slashed by at least 2/3, more locations and more convenient locations would provide ATM access, and local bankers and credit unions would start getting their share of the business stolen from them by the oppressive tactics used by large financial institutions to undermine the ability of the small financial institution to compete on a fair and level playing field. 

The Point of Banking ATM is what it sounds like. You perform any of the transactions that are currently available on those monstrosities you see attached to banks, in malls, or in large merchant locations. However instead of an “automated” (which frequently does not work) cash drawer and “vault” (which is fairly easy to penetrate), the customer must go to the cashier to receive their cash. Anonymity and embarrassment of NSF works the same way as all ATMs. But in 21 years of use all over the world there has not been a single criminal act against the user of such a machine, the merchant who maintains the store in his location, or the machine itself. Te concept was started by two ex-American Express managers who had been downsized out of their jobs in the 1980’s.

The standard ATM in this country quite successfully invites all sort of criminal behavior ranging from banging a customer on the head for the cash to using construction equipment to break the machine out of the wall. Only in the United States is the far smaller, far less expensive (in cost and operating expenses) Point of Banking terminal in “disfavor”. 

The reason is the usual — those who disfavor it, do so because it would increase competition, lower consumer fees for access to their money, require virtually no maintenance, require no increase in insurance, and require no extra cash on premises because the Point of Banking terminals produce an astonishing rate of 72% sales. In other words, for every $1 taken out of their account, they spend 72 cents of it on average. Thus the unfair hold that these large institutions and large merchants have over others offering or who would offer the same services, is stifled.

Thus competition generated by ATM convenience would be leveled out between small merchants and large ones if merchants could spend a few hundred dollars (there are even Independent Sales Organizations that will install them for free), and receive interchange revenue from the banking system as well as providing their customers with greater flexibility in their payment options and the convenience of going home both with the groceries (or whatever) PLUS the cash. and most of all, enable small banks to effectively compete against large banks.  

Like all ATM’s the Point of Banking terminal gives a receipt. With the cashless ATM the customer presents the receipt to the store operator or cashier and the customer receives his cash, less any purchases he made (if any). The merchants gets the withdrawal electronically deposited to his designated depository account at his choice of financial institution, just like the use of credit and debit transactions — but in this case the merchant makes money rather than loses it to fee charged to him by MasterCard, Visa, STAR etc.

The odd thing about all this is that the machine used to drive Cashless ATM machines is that not only is it readily available, it already exists (by the millions) in almost every merchant location, large and small. It is the exact same terminal you see in every merchant location that accepts credit and debit for payments. It is programmed over the phone to do ATM transactions instead of or in addition to the “Point of Sale” debit and credit. The card is swiped, the PIN inserted and the choices appear on screen as to what you want to do.

So why wouldn’t small merchants, community banks and credit unions demand access to Point of Banking? The reason it turns out is that the banking associations (or the “networks” as they are commonly called), have passed regulations either banning Point of Banking terminals or severely restricting their usefulness or their ability to generate revenue to anyone who installs one. It seems that to small fearful community bankers and credit unions and small merchants these behemoth data processing centers known as MasterCard and Visa, have taken on the aura of a quasi-governmental entity. 

Thus when the networks say the rules are changed, nobody challenges the rules because “you can’t fight city hall.” The networks have deftly positioned themselves as “city Hall” when in fact they are simply private data processing centers controlled by the largest banks in the country — and clearly doing so against the fair trade and practices statutes of every state, against the rules of the Federal Reserve and against the federal and state antitrust laws. The networks have gone even further by publishing information that associates the Point of Banking ATM with strip clubs, gambling prostitution and other vices, whereas the cash dispensing ATM the largest banks use, are genuine banking machines. it is the same tactic being employed in reverse by the ‘Community Association for responsible Lending” which is trying desperately to legitimize the practice of payday predatory lending charging interest upwards of 500% per year. 

The reason is simple. In economic terms it is called “barriers to entry.” There are 6,000 financial institutions in the Untied States alone. About 1% of these banks control the rules, and have in the recent mortgage meltdown, reduced the Federal Reserve to a whimpering ineffective vehicle for monetary policy. The 1% cannel all the fees, perks from deposits and the customers by offering conveniences that the small bank presumably cannot. 

The small bank or credit union cannot create a network of ATM locations that has convenient locations all over the its own marketing area, let alone the region, the country or foreign countries. But they could do so if they only had to pay a few hundred dollars per location and receive a revenue return on that investment. And the merchants whose daily foot traffic can’t justify the large ATM (with all its insurance, cash loading, armored car, security, maintenance and repair problems, not to mention its sheer size) could benefit along with the small friendly community banker or credit union that “installed” his ATM allowing him to put a sign in his window like “ATM 99 cents”, which is about one-third (1/3) the price charged by Bank of America and other banks at their ATM’s. 

Mortgage Meltdown: Credit Union and Community Banking is the Answer

Thank you all for your comments and suggestions. Very good thinking going on out there. The Garfield Handbooks will be completely ready to start downloading in about 3 weeks. I’ll keep you advised. We will be taking PayPal, Visa and MasterCard. Possibly American Express and Discover as well. We are presented with two issues that are sucking the economic and social life out of local areas and channelling the money into the hands of a few people. It is no accident that real estate in New York City is booming. That is where all our money went. And it won’t be any surprise when the market crashes there either — when it comes time to answer for what they did.In a fax and mail transmission to the governors, attorney generals, and local government officials of many states, combined with a cross country tour to meet with them, I am proposing plans for the establishment of two non-federal interstate agencies: The Interstate Finance Commission and the Interstate Currency Network. If we can get some traction on these programs, we can mitigate the dangerous, probably catastrophic effects of the credit crisis and mortgage meltdown on the local level. 

The first thing we have to do is freeze the entire legal process of foreclosures, with certain exceptions that have nothing to do with the predatory and deceptive practices employed to impoverish and enslave the middle class. 

The second thing we have to do is set up emergency regulations creating a new instrument that will replace the mortgage and note that currently exists on most homes that were purchased in the last 6-7 years. This instrument would provide for payments of interest and principle on a sliding scale, payments of utilities and other maintenance expenses of the home, and a commitment to remain in the home for at least 5 years. The instrument, technically dubbed a reverse negative adjustable rate collateralized debt obligation, would allow the lender or source of funds or holder of the risk to participate in the appreciation of the real estate on any amount of proceeds of sale or refinance over the original purchase price expressed in today’s U.S. dollars adjusted for an average of government indexed inflation and real inflation. 

The arrangement would last for a maximum of 10 years after which the deal would revert to the original contracts and instruments, with the right to enforce. The assumption here is that normal demand-pull will increase value and prices in real terms such that the actual value of the real estate is in excess of the original purchase price. This would eliminate write-offs for holders of CDO’s and an opportunity for everyone to recover their current paper losses. The program would be retroactive to January 1, 2007. No participant would be subject to criminal prosecution, civil claims or damages. (Amnesty program, because the perpetrators are participating in the solution).

The third thing is to set up new regulations providing for accountability and meaningful enforcement and penalties to lenders, title companies, mortgage brokers, appraisers, investment bankers and retail securities brokers for non- disclosure and participation in kickbacks, rebates or sharing in yield-spread premiums. as well as inflating prices and approving loans based upon the ability of the lender to earn a fee rather than the ability of the borrower to pay the loan.

The fourth thing is to enact emergency provisions that reduce the ability of credit card issuers to levy and enforce fees and usurious interest payments.

The fifth thing is to set up and order procedures that would enable community banks and credit unions to gain greater share of the market for deposits. Benefit programs for State and Federal Sources should be distributed into deposits to community banks and credit unions in a network that works much the same as present payment systems. Host computers could be established to to deliver benefits, but existing infrastructures of gateway, intercept and national network processing could easily handle this feature. Local money would be kept locally where it would be distributed. In addition, emergency enactment overriding the network prohibitions against use of terminals that emulate or duplicate ATM functions, such as Point of banking and Cashless ATM (dubbed ATM Scrip by some industry insiders) should allow local financial institutions to compete with larger institutions in providing convenient electronic access to cash for far lower costs. Current private network regulations require huge expenditures by community banks and credit unions to deploy ATAM technology which favors only the large institutions who lock out the small banks and credit unions from fairly competing with them.

Sixth allow small financial institutions to convert turnaway customers to prepaid cardholders. The logistics would be easy for any bank to do it. Allow outsourcing for program management and risk management vehicles. 

If a person does not qualify for a regular account, the FI could start one anyway. In the first permutation, they don’t give him the R&T, or the account number, and they don’t give him checks. They just give him a card. The account number is only known to the bank. If they want to include direct deposit, it might get a little more dicey but there is a digital field that identifies the transaction as check or EFT. The processor could simply deny all check transactions. In fact, the arrangement could be that that the employer gets the routing and transit and account number and the employee doesn’t. This could lead to further cross marketing products with the employer.

If the bank or a third party wishes to offer overdraft protection, this will require some technical changes but not much. The accounting for the overdraft and the automatic direct deposit repaying the loan can be handled by either an outsource provider or the bank’s processor. 

This gives the bank the opportunity to build relationships with both individuals and employers. Loans tend to become decentralized even they continue to use FICO, providing they emphasize face to face relationships which we all know reduce defaults. 

Later, when the portfolios are proven, an association could be formed that pools the risks of defaults and decreases the costs attendant to the creation, maintenance and expansion of the program. This association could be expanded into an EFT network and probably should be,  by simply making all participants automatic members of the network. 

On derivative security (distribution of risk) I would not throw out the baby with the bath water, although I certainly would not present it as an option at this time. But at some point, through CD’s that offer higher interest rates because of the higher profits in the local banks, or even an investment pool that is offered within each state, you satisfy the main purpose of decentralized banking — keeping deposits, loans, creation of money, and economic growth local. The argument that local economies had the life sucked out of them by big banks and big business is going to get a lot of traction right now even if there are some arguments against it.

By increasing revenues and decreasing risks, a rewards program could be established for saving on the issuance of prepaid cards. And local merchants could participate in a generic loyalty program associated with the local banks. Then of course we add the Cashless ATM, and we have a much more level playing field for competition between banks and credit unions and between small Financial institutions and large financial institutions. (By the way, in Nigeria and other parts of the world, the ATM Scrip ATM is the machine of choice, works very well, and the customers and merchants are very happy with it. See current issue of The Economist.)

The great likelihood is that the party is over for the credit card companies, the mortgage brokers, the appraisers, the construction lenders, the investment bankers and the retail brokerage companies. This plan, which requires very little tinkering with the technology currently in use is one step in the direction of recovering from the currency and inflation disaster that is already in process. 

More on the currency network in the next post.

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