Banks Hedging Their Bets on Wrongful Foreclosures

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

The need for continuing pressure on state and federal legislators who are relentlessly pursued by Bank lobbyists has never been greater.  Anyone who cares about the state of our economy and the state of our justice system needs to be writing and calling state and federal legislators as well as state and federal agencies to oppose these naked attempts to seal the deal against the homeowners.

Anyone who thinks that our falling bridges and decaying infrastructure is going to be fixed without fixing housing is dreaming. Both the tax revenue and the potential for private investment are severely diminished by the failure of this government and governments around the world to take actual control of the situation, return wealth to those from whom wealth was stolen, and recover taxes from those who have failed to report and pay taxes on transactions that were conducted in the United States but never reported in any detail as to the method utilized to create “off balance sheet” and “offshore” transactions.

Michigan homeowners in foreclosure would have less time to save, sell home under new proposal
http://www.mlive.com/politics/index.ssf/2013/05/michigan_homeowners_in_foreclo.html

In Michigan the proposal put forth by the banks would extend the time that borrowers could contest an impending foreclosure but shorten the time that borrowers could attack a wrongful foreclosure seeking monetary damages or to overturn the fraudulent auction sale awarded to a party who submitted a credit bid but who was not a creditor.  It is a tacit admission by the banks that they are doing well before a foreclosure judgment is entered but they are afraid of the consequences after the sale.

The fact that they were not a creditor obviously also brings in the issues of jurisdictional standing and whether they have any potential rights to initiate foreclosure. The confusion here is closed by rulings in many states which seem to indicate that almost anyone can initiate a foreclosure proceeding. The mistake made by both pro se litigants and attorneys for homeowners is that they concede the rest of the case once a decision is made that a non-creditor can initiate foreclosure proceedings.

In the initial phase of litigation those early motions will obviously have an effect on the momentum of the case in favor of either the banks or the borrowers. But the fact remains that if the party initiating the foreclosure was doing so in a representative capacity, or if they were doing so in their own name lacking any history or facts supporting their assertions of being a “holder” then the point needs to be made to the court that there is no creditor based upon any evidence in the court record who can submit a credit bid.

The court is presented then with the choice of either dismissing the case because of lack of jurisdiction over the subject matter and potentially lack of jurisdiction over the parties or entering a final order or judgment allowing the foreclosure to proceed but stipulating that the party conducting the auction may not accept a credit bid  in the absence of uncontested proof of payment, proof of loss and proof of ownership of the loan receivable. This step has less far been ignored in nearly all cases of foreclosure litigation throughout the country. It is time to invoke it.

The initiative in Michigan reflects the tacit admission of the banks that while they can still easily prevail in pre-judgment motions, they are highly vulnerable to enormous liabilities after the sale of the property at auction or at a closing table. The fact remains that they must show a canceled check, wire transfer receipts, ACH confirmation or check 21 confirmation in order to establish the loss;  in addition, they must show the same facts for each and every predecessor in the alleged securitization chain which we already know has been falsely presented.

 By hammering on the money trail, you will be educating the judge as to the difference between the actual transactions in which money was exchanged or in which consideration was exchanged and the paper  documents that refer to transactions which never actually occurred. Each transaction requires, for enforcement, and offer, acceptance and consideration. If you closely examine the documents used by the banks in the falsely presented securitization chain you might find an offer but you probably won’t find acceptance and you definitely won’t find consideration. The same holds true in the origination of the loan wherein the designated payee and secured party had nothing to do with the funding of the original loan. It is all smoke and mirrors.

The point needs to be made that if the judge is all fired up about whether or not the borrower made payments that the attorney representing the homeowner agrees that payments are an important issue which is why he is requiring the other side to present proof of their payments to creditors and their receipt of payments from parties other than the borrower. Your argument is obviously that either payments matter where they don’t. It should be pointed out to the judge that a double standard is being applied if the borrower’s payments are at issue but the so-called lenders’ payments and receipts are out of bounds. The point should also be made that rather than arguing about it, if there was no defect in the money trail and if there was therefore complete compliance between the money trail in the document trail, the party initiating foreclosure should be more than anxious to display the canceled check and end the debate.

JPMorgan exposed: Company found guilty of masterminding ‘manipulative schemes’
http://www.naturalnews.com/040481_JP_Morgan_Jamie_Dimon_too_big_to_fail.html

Wasted wealth – The ongoing foreclosure crisis that never had to happen – The Hill’s Congress Blog
http://thehill.com/blogs/congress-blog/economy-a-budget/301415-wasted-wealth–the-ongoing-foreclosure-crisis-that-never-had-to-happen

Negative Home Equity Still Plagues 13 Million Mortgage Loans
http://247wallst.com/2013/05/23/negative-home-equity-still-plagues-13-million-mortgage-loans/

Jon Stewart Tears Apart Obama, DOJ For Prosecuting Whistleblowers And Potheads But Not Bankers
http://www.mediaite.com/tv/jon-stewart-tears-apart-obama-doj-for-prosecuting-whistleblowers-and-potheads-but-not-bankers/

How Many People Have Lost Their Homes? US Home Foreclosures are Comparable to the Great Depression
http://www.globalresearch.ca/how-many-people-have-lost-their-homes-us-home-foreclosures-are-comparable-to-the-great-depression/5335430

As Of This Moment Ben Bernanke Own 30.5% Of The US Treasury Market… And Will Own All By 2018
http://www.zerohedge.com/news/2013-05-23/moment-ben-bernanke-own-305-us-treasury-market-and-will-own-all-2018

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.

mers-is-dead-can-be-sued-for-fraud-wa-supreme-court.html

Bribery or Business as Usual?

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Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical –But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


Student Loans Are The Next Major Crack in Our Finance

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Disclosure to Student Borrowers: www.nytimes.com/2012/04/08/opinion/sunday/disclosure-to-student-borrowers.html?_r=1&ref=todayspaper

Editor’s Comment: 

“We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to society.  In the Soviet Union the government ostensibly owned everything; in America the government is a vehicle for the banks to own everything.”—Neil F Garfield LivingLies.me

While the story below is far too kind to both Dimon and JPMorgan, it hits the bulls-eye on the current trends. And if we think that it will stop at student loans we are kidding ourselves or worse. The entire student loan mess, totaling more than $1 trillion now, was again caused by the false use of Securitzation, the abuse of government guaranteed loans, and the misinterpretation of the rules governing discharge ability of debt in bankruptcy.

First we had student loans in which the government provided financing so that our population would maintain its superior position of education, innovation and the brains of the world in getting technological and mechanical things to work right, work well and create new opportunities.

Then the banks moved in and said we will provide the loans. But there was a catch. Instead of the “private student” loan being low interest, it became a vehicle for raising rates to credit card levels — meaning the chance of anyone being able to repay the loan principal was correspondingly diminished by the increase in the payments of interest.

So the banks made sure that they couldn’t lose money by (a) selling off the debt in securitization packages and (b) passing along the government guarantee of the debt.  This was combined with the nondischargability of the debt in bankruptcy to the investors who purchased these seemingly high value high yielding bonds from noncapitalized entities that had absolutely no capacity to pay off the bonds.  The only way these issuers of student debt bonds could even hope to pay the interest or the principal was by using the investors’ own money, or by receiving the money from one of several sources — only one of which was the student borrower.

The fact that the banks managed to buy congressional support to insert themselves into the student loan process is stupid enough. But things got worse than that for the students, their families and the taxpayers. It’s as though the courts got stupid when these exotic forms of finance hit the market.

Here is the bottom line: students who took private loans were encouraged and sold on an aggressive basis to borrow money not only for tuition and books, but for housing and living expenses that could have been covered in part by part-time work. So, like the housing mess, Wall Street was aggressively selling money based upon eventual taxpayer bailouts.

Next, the banks, disregarding the reason for government guaranteed loans or exemption from discharge ability of student loan debt, elected to change the risk through securitization. Not only were the banks not on the hook, but they were once again betting on what they already knew — there was no way these loans were going to get repaid because the amount of the loans far exceeded the value of the potential jobs. In short, the same story as appraisal fraud of the homes, where the prices of homes and loans were artificially inflated while the values were declining at precipitous rate.

Like the housing fraud, the securitization was merely trick accounting without any real documentation or justification.  There are two final results that should happen but can’t because Congress is virtually owned by the banks. First, the guarantee should not apply if the risk intended to be protected is no longer present or has significantly changed. And second, with the guarantee gone, there is no reason to maintain the exemption by which student loans cannot be discharged in bankruptcy. Based on current law and cases, these are obvious conclusions that will be probably never happen. Instead, the banks will claim losses that are not their own, collect taxpayer guarantees or bailouts, and receive proceeds of insurance, credit default swaps and other credit enhancements.

Congratulations. We have created a world of finance in which it is more lucrative to lose money and get paid by the government, than to make money and contribute to the society for which these banks are allowed to exist ostensibly for the purpose of providing capital to a growing economy. So the economy is in the toilet and the government keeps paying the banks to slap us.

Did JPMorgan Pop The Student Loan Bubble?

Back in 2006, contrary to conventional wisdom, many financial professionals were well aware of the subprime bubble, and that the trajectory of home prices was unsustainable. However, because there was no way to know just when it would pop, few if any dared to bet against the herd (those who did, and did so early despite all odds, made greater than 100-1 returns). Fast forward to today, when the most comparable to subprime, cheap credit-induced bubble, is that of student loans (for extended literature on why the non-dischargeable student loan bubble will “create a generation of wage slavery” read this and much of the easily accessible literature on the topic elsewhere) which have now surpassed $1 trillion in notional. Yet oddly enough, just like in the case of the subprime bubble, so in the ongoing expansion of the credit bubble manifested in this case by student loans, we have an early warning that the party is almost over, coming from the most unexpected of sources: JPMorgan.

Recall that in October 2006, 5 months before New Century started the March 2007 collapsing dominoes that ultimately translated to the bursting of both the housing and credit bubbles several short months later, culminating with the failure of Bear, Lehman, AIG, The Reserve Fund, and the near end of capitalism ‘we know it’, it was JPMorgan who sounded a red alert, and proceeded to pull entirely out of the Subprime space. From Fortune, two weeks before the Lehman failure: “It was the second week of October 2006. William King, then J.P. Morgan’s chief of securitized products, was vacationing in Rwanda. One evening CEO Jamie Dimon tracked him down to fire a red alert. “Billy, I really want you to watch out for subprime!” Dimon’s voice crackled over King’s hotel phone. “We need to sell a lot of our positions. I’ve seen it before. This stuff could go up in smoke!” Dimon was right (as was Goldman, but that’s another story), while most of his competitors piled on into this latest ponzi scheme of epic greed, whose only resolution would be a wholesale taxpayer bailout. We all know how that chapter ended (or hasn’t – after all everyone is still demanding another $1 trillion from the Fed at least to get their S&P limit up fix, and then another, and another). And now, over 5 years later, history repeats itself: JPM is officially getting out of student loans. If history serves, what happens next will not be pretty.

American Banker brings us the full story:

U.S. Bancorp (USB) is pulling out of the private student loans market and JPMorgan Chase (JPM) is sharply reducing its lending, as banking regulators step up their scrutiny of the products.

JPMorgan Chase will limit student lending to existing customers starting in July, a bank spokesman told American Banker on Friday. The bank laid off 24 employees who make sales calls to colleges as part of its decision.

The official reason:

“The private student loan market is continuing to decline, so we decided to focus on Chase customers,” spokesman Thomas Kelly says.

Ah yes, focusing on customers, and providing liquidity no doubt, courtesy of Blythe Masters. Joking aside, what JPMorgan is explicitly telling us is that it can’t make money lending out to the one group of the population where demand for credit money is virtually infinite (after all 46% of America’s 16-24 year olds are out of a job: what else are they going to?), and furthermore, with debt being non-dischargable, this is about as safe a carry trade as any, even when faced with the prospect of bankruptcy. What JPM is implicitly saying, is that the party is over, and all private sector originators are hunkering down, in anticipation of the hammer falling. Or if they aren’t, they should be.

JPM is not alone:

Minneapolis-based U.S. Bank sent a letter to participating colleges and universities saying that it would no longer be accepting student loan applications as of March 29, a spokesman told American Banker on Friday.

“We are in fact exiting the private student lending business,” U.S. Bank spokesman Thomas Joyce said, adding that the bank’s business was too small to be worthwhile.

“The reasoning is we’re a very small player, less than 1.5% of market share,” Joyce adds. “It’s a very small business for the bank, and we’ve decided to make a strategic shift and move resources.”

Which, however, is not to say that there will be no source of student loans. On Friday alone we found out that in February the US government added another $11 billion in student debt to the Federal tally, a run-rate which is now well over $10 billion a month an accelerating: a rate of change which is almost as great as the increase in Apple market cap. So who will be left picking up the pieces? Why the Consumer Financial Protection Bureau, funded by none other than Ben Bernanke, and headed by the same Richard Cordray that Obama shoved into his spot over Republican protests, when taking advantage of a recessed Congress.

“What we are likely to see over the next few months is a lot of private education lenders rethinking the product, particularly if it appears that the CFPB is going to become more activist,” says Kevin Petrasic, a partner with law firm Paul Hastings.

“Historically there’s been a patchwork of regulation towards private student lenders,” he adds. “The CFPB allows for a more uniform and consistent approach and identification of the issues. It also provides a network, effectively a data-gathering base that is going to enable the agency to get all the stories that are out there.”

The CFPB recently began accepting student loan complaints on its website.

“I think there’s going to be a lot of emphasis and focus … in terms of what is deemed to be fair and what is over the line with collections and marketing,” Petrasic says, warning that “the challenge for the CFPB in this area is going to be trying to figure out how to set consumer protection standards without essentially eviscerating availability of the product.”

And with all private players stepping out very actively, it only leaves the government, with its extensive system of ‘checks and balances’, to hand out loans to America’s ever more destitute students, with the reckless abandon of a Wells Fargo NINJA-specialized loan officer in 2005. What will be hilarious in 2014, when taxpayers are fuming at the latest multi-trillion bailout, now that we know that $270 billion in student loans are at least 30 days delinquent which can only have one very sad ending, is that the government will have no evil banker scapegoats to blame loose lending standards on. And why would they: after all it is this administration’s sworn Keynesian duty to make every student a debt slave in perpetuity, but only after they buy a lifetime supply of iPads. Then again by 2014 we will have far greater problems (and for most in the administration, it will be “someone else’s problem”).

For now, our advice – just do what Jamie Dimon is doing: duck and hide for cover.

Oh, and if there is a cheap student loan synthetic short out there, which has the same upside potential as the ABX did in late 2006, please advise.

GOVERNMENT OFFICIALS NEGOTIATING (SELL-OUT!) WITH BANKS AND TAKING POLITICAL CONTRIBUTIONS SIMULTANEOUSLY

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EDITOR’S COMMENT: WHAT ARE THEY NEGOTIATING ABOUT AND WITH WHOM ARE THEY NEGOTIATING? This is theater in the most absurd. Our government is negotiating with the very people who have demonstrated that they must fabricate and forge documents in order to establish their authority to do anything. Even in hostage negotiations we don’t give as much as we are giving to the servicers. They have no authority.

By definition they don’t own the obligation which means the obligation of the borrower is not owed to them. They are not the authorized agent of the real owner of the obligation until the real owner is identified and says they give authority to the agent to negotiate on their behalf.

Those documents don’t exist because those facts don’t exist. The investors are not going to give the servicers anything. If they were going to do that it would have happened en masse and avoided lots of paperwork problems for the banks. If it were not for political contributions, thousands of people would be headed for jail cells.

Instead we are negotiating away the future of America — for what? All homeowners are affected by these negotiations because when the so called honest Joe Homeowner goes to sell his home he is going to be hopping mad that not only can’t he deliver marketable title, he now has nobody to sue because the government sold him out. AND he still can’t sell his house because there is no way to clear up title.

These negotiations are a farce because down the road, they will be meaningless except that they will have added time to the already corrupted title registries across the country.

Mortgage servicers spend millions on political contributions

Banks under scrutiny as housing crisis festers

Posted Aug 8, 2011, 2:55 pm

Michael Hudson & Aaron Mehta Center for Public Integrity

As the financial markets roil, one of the critical factors weighing down the U.S. economy is the flood of home foreclosures. Thursday’s crash underscores how difficult it will be for the economy to make significant strides while the housing market is still in tatters.

The pace of the housing market recovery may depend in part on the outcome of intense negotiations underway among state and federal authorities and the nation’s five largest mortgage servicers.

Government officials are negotiating with the firms — Bank of America, JP Morgan Chase & Co., Citigroup, Wells Fargo & Co. and Ally Financial Inc. — over allegations of widespread abuses in the foreclosure process. State attorneys general around the country have been investigating evidence that the big banks used falsified documentation to process foreclosures.

Four of the five companies under scrutiny—Bank of America, JP Morgan, Wells Fargo and Citigroup — are major donors for state and federal political campaigns. Between them, they have donated at least $8 million since the start of 2009 to candidates, party committees and other political action committees, according to an iWatch News analysis of campaign finance data.

(Ally Financial hasn’t given money during that period to campaigns under its current name or is previous name, General Motors Acceptance Corp., or GMAC).

The fate of foreclosure negotiations could go a long way toward determining where the housing market will go in the next few years.

Normally, the housing market plays a leading role in any economic recovery. But that hasn’t been the case in the aftermath of the U.S. financial crisis of 2008.

“It’s has been a negative factor in this recovery — or lack of recovery,” housing economist and consultant Michael Carliner said.

Generally, when interest rates go down, that spurs the mortgage and housing markets and helps move the economy in the right direction. But that hasn’t happened this time around, said Carliner, a former economist for the National Association of Home Builders. “We have lowest mortgage rates since the early 1950s and it’s not doing anything,” he said.

Interest rates on 30-year fixed rate mortgages averaged 4.39 percent for the week ending Aug. 4, according to a survey by mortgage giant Freddie Mac.

What’s holding back the housing market, Carliner said, is a glut of available homes for sale, due in part to overbuilding during the housing boom and to continuing foreclosure woes. An “excess inventory” of perhaps 2 million homes is making it hard for the housing market to get going again, he said.

The inventory of foreclosures continues to grow. In June, one out of every 583 housing units in the United States received a foreclosure notice, according to data provider Realty Trac. The numbers are even worse in the hardest hit markets, where housing prices climbed the fastest during the housing boom and fell the most when the housing crash came. In Nevada, one out of every 114 housing units was the subject of a foreclosure filing in June.

Investigations and negotiations over allegations of fraudulent foreclosure practices by big banks have helped slow down the foreclosure process, making it harder for the market to work through defaults and readjust, Carliner said.

He would like to see a deal between government officials and mortgage servicers that would pave the way to swifter foreclosures that would help put the foreclosure problem in the past. “If people haven’t paid their mortgages in two years, they shouldn’t be able to keep their house,” Carliner said.

Not everyone agrees.

Ira Rheingold, executive director of the National Association of Consumer Advocates, a consumer attorneys group, argues that any national settlement should be about keeping people in their homes. He wants a settlement that would require banks to reduce the amount of mortgage debt held by distressed homeowners.

Reducing their payments and overall debts would help keep them in their homes and reduce the number of foreclosures, he said. It would also provide a measure of justice, he said, for homeowners who were defrauded via bait-and-switch salesmanship, falsified documentation and other predatory tactics that were common during the mortgage frenzy of the past decade.

Rheingold acknowledges, though, that extracting large concessions from big banks will be a “tough slog.”

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The banks have high-powered legal talent and lobbyists on their side, and four of the top five mortgage services have given generously to state and federal political campaigns, according to an iWatch News analysis of election data provided by the subscription-only CQMoneyLine. 

  • Since the start of 2009, Bank of America has donated at least $3.2 million to candidates, party committees and other PACs. Among the top recipients was Rep. Jeb Hensarling (at least $17,500), a Texas Republican who is vice chairman of the House Financial Services Committee. Another Texan Republican, Randy Neugebauer , received at least $16,000 from the financial giant. Neugebauer also serves on the Financial Services Committee, and chairs the Subcommittee on Oversight and Investigations.
  • JPMorgan Chase has donated over $ 2.8 million to candidates, party committees and other PACs since the start of 2009. The firm has made donations to the Republican Governors Association (at least $50,000), the National Republican Senatorial Committee (at least $45,000) and the National Republican Congressional Committee (at least $45,000), the Democratic Governors Association (at least $25,000) and the Democratic Senatorial Campaign Committee (at least $15,000). The firm also donated at least $15,000 to the Blue Dog PAC, the fundraising arm of the Blue Dog Democrats who were vital to financial corporations when the Democrats controlled the House.
  • and ranking member on the financial services committee’s Subcommittee on Financial Institutions and Consumer Credit.
  • Wells Fargo gave over $1 million to candidates, party committees and other PACs since the start of 2009. Wells Fargo has given at least $45,000 each to the NRCC and NRSC and at least $30,000 each to the DSCC and DCCC. It also donated at least $17,000 to Rep. Ed Royce , a California Republican who serves on the Financial Services committee. Another top recipient was Democrat Carolyn Maloney of New York, the vice chair of the Joint Economic Committee
  • Citigroup has given $850,000 to candidates, party committees and other PACs since the start of 2009. Among its top individual recipients is Democrat Gregory Meeks of New York. Meeks, who sits on the House Committee on Financial Services, has received at least $10,000 from Citi. Another is Ohio Republican Rep. Pat Tiberi (at least $15,000), a member of the powerful Ways and Means committee. Tiberi is currently the Chairman of the Subcommittee on Select Revenue, which has jurisdiction over federal tax policy.

Related stories

More by Michael Hudson

Barofsky: HOW TARP FAILED HOMEOWNERS

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“The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.”


Where the Bailout Went Wrong

By NEIL M. BAROFSKY

Washington

TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.

But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed — I could only make recommendations to the Treasury Department.)

Meanwhile, the act’s goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.

That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.

Treasury Secretary Timothy Geithner has acknowledged that the program “won’t come close” to fulfilling its original expectations, that its incentives are not “powerful enough” and that the mortgage servicers are “still doing a terribly inadequate job.” But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury’s most specific Main Street promise will not be honored.

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

Neil M. Barofsky was the special inspector general for the Troubled Asset Relief Program from 2008 until today.

MORTGAGE BACKED SECURITIES: LEGAL COUNTERFEITING

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EDITOR’S NOTE: If you want to get the FEEL of what just happened in our world of finance and the ensuing effects on our economy, you might be better off reading a book like “Moneymakers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiters” (Penguin, $27.95), Ben Tarnoff. It might come as some surprise that proprietary issuance of currency was all the rage in this country and was used not only legally and illegally, but as an instrument of warfare. Ben Franklin and others saw the “moral hazard” of allowing for paper money because the paper had no intrinsic value — unlike the universal perception of gold or silver.

Eventually in 1862 the U.S. Government made government issued currency “legal tender” but there were so many loopholes that while it had an effect, it has yet to take hold 150 years later.

Banks issued their own Banknotes in early U.S. History and lately, for the past 20 years, they have returned to the same practice calling them derivatives, mortgages backed securities and other exotic names. The Bank Notes, as observed by many during that period had no value except that they supposedly DERIVED their value from the gold that the bank had on deposit. They were not the first “derivatives” but they were the most important up to that point in history.

In a 1996 article Alan Greenspan articulated the free market view that the value of those bank notes or proprietary currency would be resolved in a free market as people found out which banks were issuing more bank notes than they could support. In fact, he predicted that proprietary currency would take over as a the principal currency stock of the world — hardly a difficult prediction since it had already happened by the time he wrote that article.

Now for every monetary unit of value issued by any government in the world, the private sector has issued 12 units. In other words the proprietary currency volume is 12 times as big as the fiat currency — fueled largely by the use of derivatives that derived their value from credit instruments, most of which were loans that were supposedly backed by notes and mortgages and which now are like rare earths when it comes to producing one in the flesh.

In 1998, Congress passed and Clinton signed into law the death knell of the American economy. The law specifically excluded this proprietary currency from regulation of ANY sort from government. In short, they created a sovereign country out of the oligopoly that controlled Wall Street and hence the world of finance. Counterfeiters are usually put in jail. But certain types of counterfeiters have prospered as this article and the book it reviews shows clearly.

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Early America, Ripe for Counterfeiters

By NANCY F. KOEHN

NY Times

“THERE is properly no history; only biography,” Ralph Waldo Emerson wrote in 1841. In “Moneymakers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiters” (Penguin, $27.95), Ben Tarnoff lends ample credence to that notion. He shows how three con men were able to thrive in America’s early days because of a weak central government, an often-chaotic banking system, a turbulent economy and an entrepreneurial populace.

Few countries, Mr. Tarnoff writes, “have had as rich a counterfeiting history as America.” Creating fake currency, he states, “gave enterprising Americans from the colonial era onward a chance to get rich quick: to fulfill the promise of the American dream by making money, literally.”

Mr. Tarnoff, who graduated from Harvard in 2007 and has worked at Lapham’s Quarterly, focuses on the lives of three counterfeiters who lived in the 18th and 19th centuries. Taken together, he writes, these three biographies “tell the story of a country coming of age — from a patchwork of largely self-governing colonies to a loosely assembled union of states and, finally, to a single nation under firm federal control.”

The first subject of this rollicking good read is Owen Sullivan, an Irish immigrant who was born around 1720 and originally was a silversmith in Boston. In the seven years he was a counterfeiter, he built a loosely organized team called the Dover Money Club.

Like his partners, Sullivan was behind bars several times in the course of his career. Until his final arrest, however, these encounters with the law were small detours on an entrepreneurial journey in pre-industrial crime. When he was hanged in New York City in 1756, he claimed to have forged more than £25,000 worth of colonial money.

Sullivan capitalized on a number of prevailing conditions in the colonies: the collective thirst for liquidity to fuel a growing economy, the often unruly nature of the financial system, and scanty law enforcement.

Underlying these factors was a deep, abiding ambivalence about paper money. Many early Americans, like Benjamin Franklin, recognized the pressing need for paper money as a medium of exchange and a store of value in a world where specie like that made of gold and silver was in short supply.

At the same time, paper money made the economy more mercurial. Unlike precious metals that could be bought and sold as commodities, paper money had no intrinsic value; it could become worthless overnight. Paper money had other dangers, including a greater vulnerability to inflation. Cognizant of all this, the delegates to the Constitutional Convention in 1787 voted against giving the federal government explicit authority to print paper notes, coming down squarely “on the side of a hard currency under national control.”

But the demand for a ready medium of exchange and a recognized measure of value in the burgeoning American economy continued to outstrip the meager supply of precious metals in circulation.

By the early 1800s, paper money in the form of individual bank notes had returned in force. And with it came enterprising counterfeiters like David Lewis (1788-1820), who worked the rural counties of southwestern Pennsylvania forging notes and stirring up populist rage against financial elites.

Lewis became something of a popular hero, known for audacious jailbreaks and sporadic generosity toward strangers. Mr. Tarnoff argues that in the financial panic of 1819, crime acquired a certain status. “Not only was it a way for the dispossessed to make a living, but compared with the perfectly legal frauds perpetuated by the nation’s banks, lawbreaking seemed honest.” Lewis was apprehended for the last time after being shot in the arm and leg. He died from these injuries in a jail in central Pennsylvania.

Finally, Mr. Tarnoff recounts the story of Samuel Upham (1819-1885), a Philadelphia shopkeeper who, in 1862, began printing $5 Confederate notes, which he sold as “mementos of the Rebellion” for a cent each. Along the bottom of each note, he included a strip with the following lettering: “Fac-Simile Confederate Note — Sold Wholesale and Retail by S. C. Upham, 403 Chestnut Street, Philadelphia.”

Backed by heavy newspaper advertising, Upham’s souvenir notes became best sellers, and at some point he must have known that they were no longer being viewed as facsimiles, Mr. Tarnoff says. Borne by Union soldiers, they found their way into the Confederate money supply as counterfeits, and helped fuel rampant inflation and monetary disruption.

As the war progressed, Confederate authorities became convinced that Upham and others were part of a Union campaign to wage economic war on the South. There is no historical evidence that Abraham Lincoln or his administration was involved in such tactics.

But Upham and other moneymakers did play a de facto role in the Union war effort. As Lincoln and his Treasury head, Salmon Chase, understood all too well, the military prospects of either side owed much to the reliability of their respective money supplies. Without a stable, trustworthy form of liquidity, neither combatant could continue to wage war while sustaining its citizens.

Responding to this imperative, Congress in 1862 passed a law that, for the first time since the Revolutionary War, made money printed by the federal government legal tender. A year later, legislation set up federally chartered banks that printed a uniform national currency — making counterfeiting more difficult, though not impossible.

Mr. Tarnoff is an engaging writer who has a fine eye for detail and the relevance of larger, historical forces. But the book ignores a larger question, raised by its description of early American capitalism as an “evolving confidence game” that oscillated “between manic exuberance and total collapse”: Is there something in the speculative nature of the American character and the nation’s economic beginnings that continues to produce people like Bernard Madoff, as well as excessive volatility in the system itself?

Though this and similar questions are unanswered, they do not tarnish the power of the stories that Mr. Tarnoff so delightfully uses to teach us history.

Pardon Me! Here IT Is!–CONGRESSIONAL OVERSIGHT REPORT [MERS DISCUSSION]

Editor’s Comment: I picked this up from STOPFORECLOSUREFRAUD.com but you can get it directly if want to read it all. There are three points I wish to draw your attention to:

  1. The realization that we have a systemic title problem that is getting worse daily.
  2. Neither the media nor the legislators get it: they say that they don’t want to “de-legitimize MERS”. WARNING: THIS PRESUMES THAT IT IS LEGITIMATE NOW. It isn’t. First of all MERS disclaimed any financial or property interest as a condition to being named on the mortgage or deed of trust so it is not only a nominee, it is nothing. You might just as well have filled in Donald Duck. Second the use of a nominee with undisclosed principals violates truth in lending laws and defeats the purpose of recording interests in real property. BOTH MERS and the LOAN ORIGINATOR were shills, straw-men, for undisclosed people who could be changed at will. Thus anyone examining the title would be required to take the word of a private party with no actual knowledge as to who should be considered the mortgagee at any point of time, which could change from minute to minute. Third not only is it wrong in principle it is wrong in fact: the MERS database is an unsecured database and intentionally designed as such. ANYONE can get a user name and password and change the data and they do. I’ve seen it. One minute the underwriter is listed as the “owner” and the next minute it is the servicer, and the next minute it is the named Trustee of the pool. So the question is really simple: Is it worth creating title chaos for decades to come and maybe forever just to save the skins of some megabanks that are completely unnecessary and whose presence in the marketplace is destroying the American position of world leadership?
  3. The remedy that is being piloted around the country is that they are bringing the foreclosures in the name of the loan originator. They call that a “work-around.” You might call it a shell game. This is what happens when the people with the money control the microphone and the people with the knowledge are sent to Siberia. Let me make it simple: the loan originator either was or was not the lender. They were the lender if the money came from their capital resources available under regulation for lending. If the money was wired in from, say, Wells Fargo with whom the  “loan Originator” had no account, or it was a wired from ANY source other than the “loan originator” then the money used by the closing agent was the money of an undisclosed third party. That is called a table-funded loan. Under Regulation Z, table funded loans as a pattern of practice are presumptively predatory and subject to rescission and other remedies. A table funded loan is a loan in which the real lender is not disclosed depriving the borrower of knowing who  he/she is doing business with amongst other things and its illegal and it should be. By definition it means that the party named on the note and mortgage is NOT the creditor. So if their “work-around” is to sue in the name of the loan originator, then in discovery you find that payments were directed to parties other than the originator. Why would that be if they were the lender?

In short, this dog won’t hunt. There is no way to fix the mortgages, notes and obligations without the investors direct participation and without the borrower’s participation. The banks don’t want to do that because when the investors and borrowers compare notes they are going to find that what they thought was the biggest fraud on earth, is really tens times worse. The test is easy: if the loans were real and everything was legitimate, the  why would you need MERS or a mortgage originator who isn’t the lender? If this is just a technicality, then why can’t they just fix it by bringing everyone into the courtroom or the negotiating table? The answer is they can’t and they don’t want to because they too busy milking this until there is no juice left — then  they might say OK here, take it. It reminds me of an old Buddy Hackett joke about a duck. remind me to tell it to you when nobody else is listening.

Categorized | STOP FORECLOSURE FRAUD

If sufficiently widespread, these complications could have a substantial effect on the mortgage market, inasmuch as it would destabilize or delegitimize a system that has been embedded in the mortgage market and used by multiple participants, both government and private. Although it is impossible to say at present what the ultimate result of litigation on MERS will be, holdings adverse to MERS could have significant consequences to the market.

according to a report released by Standard & Poor.s, ¡°most¡± market participants believe that it may be possible to solve any MERS-related problems by taking the mortgage out of MERS and putting it in the mortgage owner’s name prior to initiating a foreclosure proceeding.58 According to one expert, the odds that the status of MERS will be settled quickly are low.59

CONGRESSIONAL OVERSIGHT REPORT [MERS DISCUSSION]

Posted on16 November 2010. Tags: , , , , , , ,

CONGRESSIONAL OVERSIGHT REPORT [MERS DISCUSSION]

NOVEMBER OVERSIGHT REPORT*

November 16, 2010
Examining the Consequences of Mortgage
Irregularities for Financial Stability and Foreclosure
Mitigation

*Submitted under Section 125(b)(1) of Title 1 of the Emergency Economic
Stabilization Act of 2008, Pub. L. No. 110-343

Excerpts beginning pg 19:

Various commentators have begun to ask whether the poor recordkeeping and error-filled
work exhibited in foreclosure proceedings, described above, is likely to have marked earlier
stages of the process as well. If so, the effect could be that rights were not properly transferred
during the securitization process such that title to the mortgage and the note might rest with
another party in the process other than the trust.44

iv. MERS

In addition to the concerns with the securitization process described above, a method
adopted by the mortgage securitization industry to track transfers of mortgage servicing rights
has come under question. A mortgage does not need to be recorded to be enforceable as between
the mortgagor and the mortgagee or subsequent transferee, but unless a mortgage is recorded, it
does not provide the mortgagee or its subsequent transferee with priority over subsequent
mortgagees or lien holders.4

During the housing boom, multiple rapid transfers of mortgages to facilitate securitization
made recordation of mortgages a more time-consuming, and expensive process than in the past.46
To alleviate the burden of recording every mortgage assignment, the mortgage securitization
industry created the Mortgage Electronic Registration Systems, Inc. (MERS), a company that
serves as the mortgagee of record in the county land records and runs a database that tracks
ownership and servicing rights of mortgage loans.47 MERS created a proxy or online registry
that would serve as the mortgagee of record, eliminating the need to prepare and record
subsequent transfers of servicing interests when they were transferred from one MERS member
to another.48 In essence, it attempted to create a paperless mortgage recording process overlying
the traditional, paper-intense mortgage tracking system, in which MERS would have standing to
initiate foreclosures.49

MERS experienced rapid growth during the housing boom. Since its inception in 1995,
66 million mortgages have been registered in the MERS system and 33 million MERS-registered
loans remain outstanding.50 During the summer of 2010, one expert estimated that MERS was
involved in 60 percent of mortgage loans originated in the United States.51

Widespread questions about the efficacy of the MERS model did not arise during the
boom, when home prices were escalating and the incidence of foreclosures was minimal.52 But
as foreclosures began to increase, and documentation irregularities surfaced in some cases and
raised questions about a wide range of legal issues, including the legality of foreclosure
proceedings in general,53 some litigants raised questions about the validity of MERS.54 There islimited case law to provide direction, but some state courts have rendered verdicts on the issue.
In Florida, for example, appellate courts have determined that MERS had standing to bring a
foreclosure proceeding.55 On the other hand, in Vermont, a court determined that MERS did not
have standing.56

In the absence of more guidance from state courts, it is difficult to ascertain the impact of
the use of MERS on the foreclosure process. The uncertainty is compounded by the fact that the
issue is rooted in state law and lies in the hands of 50 states. judges and legislatures. If states
adopt the Florida model, then the issue is likely to have a limited effect. However, if more states
adopt the Vermont model, then the issue may complicate the ability of various players in the
securitization process to enforce foreclosure liens.57 If sufficiently widespread, these
complications could have a substantial effect on the mortgage market, inasmuch as it would
destabilize or delegitimize a system that has been embedded in the mortgage market and used by
multiple participants, both government and private. Although it is impossible to say at present
what the ultimate result of litigation on MERS will be, holdings adverse to MERS could have
significant consequences to the market.

If courts do adopt the Vermont view, it is possible that the impact may be mitigated if
market participants devise a viable workaround. For example, according to a report released by
Standard & Poor.s, ¡°most¡± market participants believe that it may be possible to solve any
MERS-related problems by taking the mortgage out of MERS and putting it in the mortgage owner’s name prior to initiating a foreclosure proceeding.58 According to one expert, the odds
that the status of MERS will be settled quickly are low.59

FEDERAL NOTARY BILL ATTEMPTS TO GRANT FULL PARDON TO LENDER, NOTARIES, WITNESSES

FULL TEXT OF BILL

PRESIDENT OBAMA has headed for his desk a bill that would ratify the illegal practices revealed for the past three years on this blog and for the past three weeks and mainstream media. He might just as well issue Robo signed presidential pardons for the thousands of people involved in defrauding homeowners, investors and the entire judicial system. Send him a letter and tell him not to sign it.

Under the guise of simply reflecting changes in technology, the bill would force state and federal courts to recognize and accept the notarization from another state. This would be true even if the notary signed in blank. It would be true even if the witnesses were not present despite the recitation to the contrary signed by the notary. It would be true even if the main person signing the alleged document was not the person named as having signed the alleged document. It would be true even if the main person signing the alleged document was not present or identified by the notary. In other words under this new bill passed by both the House of Representatives and the Senate, both essentially bought and paid for by the financial services industry, all of the illegal, improper and criminal acts performed by the “lenders” (mainstream media insists on using this term even though it is not true) would be made legal. That sounds like a pardon to me, how about you?

If Pres. Obama signs this bill it will become law. At that point, more than half of the meritorious defenses of borrowers (homeowners) or petitioners in bankruptcy courts will go down the drain. The fact that this bill even got introduced without the mainstream media taking note is not really surprising considering the fact that mainstream media has failed to grasp the true  scope of this fraud which began with the first sale of a fake mortgage bond to an investor. A fake financial services product was marketed to investors who believed they were lenders and to homeowners who believed they were borrowers, both of whom were mere pawns in the Wall Street game. In fact they supplied the only two ingredients that Wall Street wanted —money from the lenders and a signature from the homeowners. The nature of the document was immaterial. Now that the foreclosures are obviously fake, lawmakers responsive to the demands of the financial services industry have quietly passed a bill in both houses of Congress that would allow the fraud to be ratified and the perpetrators to escape any accountability whatsoever.

If Pres. Obama signs this bill he will be condemning the victims of this fraud to bear the full cost of the losses. If Pres. Obama signs this bill he will be awarding the perpetrators of this fraud all of their winnings. In case anybody hasn’t been looking, another development which has been ignored by our mainstream media is that countries around the world are looking for an alternative reserve currency to replace the once almighty US dollar. The reason they are looking is because they no longer have confidence in a system that produced a Wall Street scheme which in essence depreciated the value and viability of currencies and economies all over the world.

If Pres. Obama signs this bill he will be giving a signal to the world that the United States will be more vigilant, more sophisticated and much more involved in enforcement of laws, rules and regulations already existing in the marketplace and upon which all investors, lenders, homeowners, borrowers and foreign governments had placed reasonable reliance and suffered to their detriment. The loss of our status as the issuer of the world’s reserve currency will have profound consequences on our nation, our citizens, our businesses, and the prospects for generations of Americans yet unborn.

Barney Frank, Alan Grayson, Corinne Brown Come Through With Sharply Worded Letter To FNMA

SERVICES YOU NEED

9.24.10 BARNEY FRANK LETTER-Letter-to-Fannie-on-Foreclosure-Fraud[1]

VIDEO FEED FROM TAMPA TV

In a blunt, no nonsense letter to Fannie Mae three congressional representatives including Barney Frank who has enormous clout, a shot heard round the country was heard. It wasn’t just a letter of inquiry or even at the level of complaint. It was an accusation and a demand that FNMA comply with law and stop employing foreclosure mills who violate the law in the name of the former government sponsored entity which is now wholly owned by the U.S. Government. We can expect similar action from congress and other agencies as the fog starts to lift and public officials come to realize what the rest of us have known for three years — the whole foreclosure mess is a fraud, should never have begun and the resulting horrific consequences on people’s lives could have and should have been avoided.

LABOR DAY ABYSS

EDITOR’s comment: Everyone seems to agree that nobody really knows the identity of the creditor in the millions of mortgage transactions that were created from 2001 to 2008. Yet the general consensus from the administration and the media is that these transactions should be enforced anyway. The idea of enforcing a transaction in which only one of the parties is known is enough to  make the authors of any of the major legal treatises turn over in their graves. It is so obviously ridiculous that one need not consult the United States Constitution on due process, nor any statute or case in common law. Nevertheless this elephant continues to sit in our living rooms claiming ownership of our home. Thus a fictional character is prevailing over the rights of real people owning real homes who were tricked into fraudulent loan products based inflated appraisals that created the reasonable assumption on the part of the borrower that the “experts” had verified the fair market value and validated the viability of the loan product.


Most people understand that these homeowners were victims of fraud more than they were borrowers of money for a legitimate transaction. These title twisting transactions continue to become increasingly convoluted as the “ownership” of the “loans” becomes increasingly blurred by a continuing process of transfers,  “sales,” auctions without creditors or bona fide bidders, and the continuation of the strategy of moving the goal post every time anyone wants to examine it.


In the article below the Obama administration is described as having exhausted all possible remedies and is now faced with the untenable choice of future homeowners versus current homeowners. This is delusional thinking based on business dogma. The “experts” are now all raising their voices in a growing chorus of “let the market collapse.” It is only natural for these so-called experts to suggest such a dark scenario.

Under the business dogma currently driving the limp choices being made by the administration and by Congress, a crash in home housing prices from current levels would produce the foundation for a bull market in housing prices that would be reduced to oversold levels. This so-called bull market could only be fueled by speculators who are sitting on piles of money. It certainly won’t be fueled by the average consumer whose median income is dropping, whose wealth has been drained through Wall Street speculation, whose savings do not exist, and whose credit has been exhausted. In short, this brilliant strategy of giving up on the housing market can only result in a further widening between those who have money and wealth and those who do not and now have no prospects.


I know that most people do not have the time to be students of history. But a little time spent on Google or Wikipedia will show you that no society in human history has ever been sustained on a status quo that excluded  an expanding and vibrant middle class, with abundant opportunities for improvement in the financial condition of anyone in any class of that society. There is an answer to this problem but it is being ignored for political reasons. We cannot instantly raise median income for tens of millions of people. We can and we should lay the foundation for abundant opportunities for improvement in their economic and social condition, but this will not solve the current situation.


The current situation is that we are sitting on the abyss. And it seems that the general consensus is to see no evil, hear no evil and therefore ignore the only realities that must be addressed. We cannot escape the fact that in our current situation our economy is driven by consumer spending. We cannot escape the fact that consumer spending cannot rise in the short term by an increase in median income. We cannot escape the fact that consumer spending can only rise by presenting the consumer with a proposition that is acceptable––one in which both real and apparent consumer wealth is increased. Unless the deal is real, the current lack of confidence in the economy, our society and our government will prevent any increase in consumer spending and therefore prevent any improvement in our current economic decline.


Consumers have made it clear that they do not trust the housing market, they will not accept a continuation of credit driven spending, and that they are alone in fending for themselves and future generations. Therefore the savings rates on what little money consumers are receiving as income are increasing at unprecedented rates. This money is not going to come out of savings and into the marketplace and a general rush towards spending that will revive the old consumer driven economy unless the basic and real concerns of consumers are directly addressed with reality and conviction. The perception (delusion) is that consumers are a bottomless well from which  infinite sums of money can be withdrawn by way of taxes, insurance, subsidies to big business, and a government that is primarily concerned with the appearance of stability on Wall Street rather than the reality of amends that need to be offered.


I am not a pundit. I am only seeking to apply common sense to a situation that seems to be wallowing in dogma, and political maneuvering. In my view they are arranging the deck chairs on the Titanic. In my view the worst is yet to come. In my view under the worst-case scenarios our way of life, our society, our economy and our government will be destabilized unless we open our eyes. It’s true that we don’t have a lot of tools left in the box. But then again we never did have a lot of tools in the box.

A great fraud has been committed on American and foreign taxpayers and investors as well as American and foreign buyers of real estate, commercial and residential. The perpetrators of this great fraud were intermediaries between the people who had money and the people who didn’t. If an honest attempt was made to do the right thing, we would do more to improve the confidence of our own consumers as well as foreign investors than any of these of exotic and creative plans to shore up an economy based on illusion and delusion.


If we already know that the identity of the creditor is in doubt, then we already have a perfectly legitimate legal reason to stop foreclosures. If we already know that the prices that were used in many fraudulent loan transactions were not equal to any sustainable measure of fair market value and that neither the borrower nor the actual lender (investor) was aware of this misrepresentation, then we already have a perfectly legitimate and legal reason to restructure all the affected loans, especially since most of them are controlled through guarantees of federal agencies if not outright ownership by those federal agencies. If we already know that somebody probably exists who has actually lost money on these transactions, or some of them, then it shouldn’t be hard for them to come forward, provide the necessary accounting and proof of ownership, and be included in the restructuring of these mortgage loans.


What is stopping the use of common sense is that we are relying on the very intermediaries who caused the problem in the first place and who have everything to gain by a continuation of the foreclosures, by a continuation of the free fall in housing prices, by a continuation of the charade of modifications, and by the speculative bull market that is currently being constructed right under the nose of this administration. That bull market may have a temporary effect on the economy (or at least the indexes that  measure economic results) and of course the stock market, but in reality it is easy to see that such a bull market will only be another bubble which will cause more devastation and further undermine confidence in the American economy and the American government.

HERE IS WHAT A FAIR RESOLUTION WOULD LOOK LIKE:

  1. ALL HOMES ELIGIBLE (INCLUDING REO). Forget the blame game
  2. ALL MORTGAGE BONDS ELIGIBLE. Forget the blame game
  3. REGULATE SERVICING COMPANIES LIKE UTILITIES OR REPLACE THEM WITH COMPANIES THAT WILL DO THE JOB
  4. SUSPEND ALL FORECLOSURES, SALES, JUDICIAL AND NON-JUDICIAL. SUSPEND MORTGAGE PAYMENTS, ALL MORTGAGES 90 DAYS.
  5. OFFER INTEREST RATE ONLY RE-STRUCTURE TO HOMEOWNERS THAT REDUCES FIXED INTEREST RATE TO 2%
  6. OFFER PRINCIPAL REDUCTION TO 110% OF FAIR MARKET VALUE WITH 5% FIXED INTEREST RATE, TOGETHER WITH AN EQUITY APPRECIATION CLAUSE OF 20% FROM REDUCED PRINCIPAL.
  7. OFFER CERTIFICATION OF OWNERSHIP FROM FEDERAL AGENCY TO THE HOMEOWNER.
  8. CREATE FAST TRACK QUIET TITLE ACTIONS TO RESOLVE ALL TWISTED TITLE ISSUES RESULTING FROM SECURITIZED LOANS
  9. OFFER TO SERVICE THE NEW LOANS FOR INVESTORS WHO PROVE OWNERSHIP.
  10. CREATE CUT-OFF DATE: HOMEOWNERS WHO DON’T TAKE THE DEAL  EITHER STAY WITH EXISTING TITLE AND MORTGAGE SITUATION OR GO THROUGH FORECLOSURE. INVESTORS WHO DON’T TAKE THE DEAL EITHER STAY WITH EXISTING TITLE AND RECEIVABLE SITUATION OR SUE THEIR INVESTMENT BANKERS.

I KNOW. WHO HAS THE POWER TO DO THIS? OBAMA, THAT’S WHO. NO NEW REGULATIONS ARE REQUIRED. STATE AND FEDERAL LEGISLATION TO PUT A “CAP”ON THIS IS UNNECESSARY, BUT IF THEY WANT TO DO IT THEY COULD DO IT AFTERWARD. The immediate result is that the downward pressure on housing would vanish. The upward mobility of consumers would instantly appear. The confidence by consumers that the government cares more about them than the oligopoly of banks who appear to be running the country would soar, as would their spending. World-wide confidence in the American financial system would soar because they would see the end of illusion and delusion.

And let’s not forget that the American moral high-ground would be restored, which is the only real basis for the consent of the governed here and around the world.
—————–

Housing Woes Bring New Cry: Let Market Fall

By DAVID STREITFELD

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

When prices are lower, these experts argue, buyers will pour in, creating the elusive stability the government has spent billions upon billions trying to achieve.

“Housing needs to go back to reasonable levels,” said Anthony B. Sanders, a professor of real estate finance at George Mason University. “If we keep trying to stimulate the market, that’s the definition of insanity.”

The further the market descends, however, the more miserable one group — important both politically and economically — will be: the tens of millions of homeowners who have already seen their home values drop an average of 30 percent.

The poorer these owners feel, the less likely they will indulge in the sort of consumer spending the economy needs to recover. If they see an identical house down the street going for half what they owe, the temptation to default might be irresistible. That could make the market’s current malaise seem minor.

Caught in the middle is an administration that gambled on a recovery that is not happening.

“The administration made a bet that a rising economy would solve the housing problem and now they are out of chips,” said Howard Glaser, a former Clinton administration housing official with close ties to policy makers in the administration. “They are deeply worried and don’t really know what to do.”

That was clear last week, when the secretary of housing and urban development, Shaun Donovan, appeared to side with current homeowners, telling CNN the administration would “go everywhere we can” to make sure the slumping market recovers.

Mr. Donovan even opened the door to another housing tax credit like the one that expired last spring, which paid first-time buyers as much as $8,000 and buyers who were moving up $6,500. The cost to taxpayers was in the neighborhood of $30 billion, much of which went to people who would have bought anyway.

Administration press officers quickly backpedaled from Mr. Donovan’s comment, saying a revived credit was either highly unlikely or flat-out impossible. Mr. Donovan declined to be interviewed for this article. In a statement, a White House spokeswoman responded to questions about possible new stimulus measures by pointing to those already in the works.

“In the weeks ahead, we will focus on successfully getting off the ground programs we have recently announced,” the spokeswoman, Amy Brundage, said.

Among those initiatives are $3 billion to keep the unemployed from losing their homes and a refinancing program that will try to cut the mortgage balances of owners who owe more than their property is worth. A previous program with similar goals had limited success.

If last year’s tax credit was supposed to be a bridge over a rough patch, it ended with a glimpse of the abyss. The average home now takes more than a year to sell. Add in the homes that are foreclosed but not yet for sale and the total is greater still.

Builders are in even worse shape. Sales of new homes are lower than in the depths of the recession of the early 1980s, when mortgage rates were double what they are now, unemployment was pervasive and the gloom was at least as thick.

The deteriorating circumstances have given a new voice to the “do nothing” chorus, whose members think the era of trying to buy stability while hoping the market will catch fire — called “extend and pretend” or “delay and pray” — has run its course.

“We have had enough artificial support and need to let the free market do its thing,” said the housing analyst Ivy Zelman.

Michael L. Moskowitz, president of Equity Now, a direct mortgage lender that operates in New York and seven other states, also advocates letting the market fall. “Prices are still artificially high,” he said. “The government is discriminating against the renters who are able to buy at $200,000 but can’t at $250,000.”

A small decline in home prices might not make too much of a difference to a slack economy. But an unchecked drop of 10 percent or more might prove entirely discouraging to the millions of owners just hanging on, especially those who bought in the last few years under the impression that a turnaround had already begun.

The government is on the hook for many of these mortgages, another reason policy makers have been aggressively seeking stability. What helped support the market last year could now cause it to crumble.

Since 2006, the Federal Housing Administration has insured millions of low down payment loans. During the first two years, officials concede, the credit quality of the borrowers was too low.

With little at stake and a queasy economy, buyers bailed: nearly 12 percent were delinquent after a year. Last fall, F.H.A. cash reserves fell below the Congressionally mandated minimum, and the agency had to shore up its finances.

Government-backed loans in 2009 went to buyers with higher credit scores. Yet the percentage of first-year defaults was still 5 percent, according to data from the research firm CoreLogic.

“These are at-risk buyers,” said Sam Khater, a CoreLogic economist. “They have very little equity, and that’s the largest predictor of default.”

This is the risk policy makers face. “If home prices begin to fall again with any serious velocity, borrowers may stay away in such numbers that the market never recovers,” said Mr. Glaser, a consultant whose clients include the National Association of Realtors.

Those sorts of worries have a few people from the world of finance suggesting that the administration should do much more, not less.

William H. Gross, managing director at Pimco, a giant manager of bond funds, has proposed the government refinance at lower rates millions of mortgages it owns or insures. Such a bold action, Mr. Gross said in a recent speech, would “provide a crucial stimulus of $50 to $60 billion in consumption,” as well as increase housing prices.

The idea has gained little traction. Instead, there is a sense that, even with much more modest notions, government intervention is not the answer. The National Association of Realtors, the driving force behind the credit last year, is not calling for a new round of stimulus.

Some members of the National Association of Home Builders say a new credit of $25,000 would raise demand but their chances of getting this through Congress are nonexistent.

“Our members are saying that if we can’t get a very large tax credit — one that really brings people off the bench — why use our political capital at all?” said David Crowe, the chief economist for the home builders.

That might give the Obama administration permission to take the risk of doing nothing.

is it one of them or is it all of them? Mr. Cuomo, are you listening?

According to two EMC analysts, they were encouraged to just make up data like FICO scores if the lenders they purchased loans in bulk from wouldn’t get back to them promptly

Editors’ Note: With Bear Stearns “underwater” it is difficult to come up with scenario where there won’t be criminal charges brought against the bankers and traders who worked there. They are low-hanging fruit, easily made the scape goat and easily subject to inquiry since nobody has any allegiance to them. They have no reason to stay silent except for self-incrimination. If some are offered immunity they will sing like birds in the meadow.

On the other hand Cuomo is aiming for the wrong target and could end up losing his cases unless he aims right. If this report is correct, then Cuomo is looking for the the real criminal culprit in the ratings fraud. What is wrong with that approach is that he is attempting to single out ONE defendant out of a group. They ALL knew, as the article goes on to say, what they were doing with ratings, just as they all knew what was going on with property appraisals just as they all knew that there was no underwriting of the loans.

Underwriting, which was the process of verifying the loan data from soup to nuts was abandoned because the party initiating the loan had no dog in the race. They were using investor dollars to fund the loan. Their income was based upon closing the loan without regard to risk. In fact, as has now been acknowledged after three years of me harping on the subject, the more likely it was that the loan would fail, the higher the profit and fees to everyone.

In the world of securities, underwriting was once the product of verifying the facts and risks of an investment through “due diligence”. Like the home loans there was no due diligence underwriting. The object was to sell something that LOOKED good even though they knew the loss was a sure thing — something the investment bankers needed and wanted.

They wanted the investments to fail because they were selling it (securitizing specific loans, parts of loan pools and entire loan pools) into multiple SPV packages, effectively selling the same loans over and over again.

They were taking the yield spread caused by the lower rate the investors were willing to accept because they perceived the investment as being little or no risk. The loan interest charged to borrowers was much higher, sometimes by multiples. This causes a SPREAD, which means that in order to give the investors the dollar income they we re expecting, they could promise, based upon exhibits that were fabricated in part, that the investor would get the desired revenue.  But the income was coming from loans to borrowers at much higher “nominal” rates. In plain language they were able to invest only a portion of the investors money into funding mortgages that were guaranteed to fail. The rest of the money they kept for themselves. Each time they re-sold the security as described above, the entire proceeds were kept by the ivnestment banking house. As long as the pools failed, nobody would demand an accounting.

The investors might make claims for the losses but they were stuck with being tagged as qualified investors who should have known better, even if they were some small credit union who had no person on staff capable of performing verification or due diligence on the investment in mortgage-backed securities.

But fund managers (especially those  who received bonuses due to the higher returns they reported) were highly unlikely candidates to demand an accounting since they either had no clue or cared less as to what was REALLY done with the proceeds of their investment. AND then of course there are the fund managers who may or may not have overlooked, through negligence of intentionally, the quality of these investments. They may have received some sort of perks or kickback for investing in these dog-eared securities. Since the manager is in charge, he or she would be required to ask for things that they really don’t want to hear about.

The ratings companies were put in the exact same position as the the appraisers of the homes subject to mortgage. Play or die. Here is what we assisted you in coming up with a human and computer algorithm to arrive at the value of this investment. In securities, the value was expressed as AAA down to BBB and below. Here are the securities which we reverse engineered to fit that algorithm. Now give us the triple ratings as we agreed, take our fees which are higher now for your cooperation and don’t ask any questions. If someone did ask questions or raised alarms at the ratings agency or appraisal companies they were blacklisted.

So you tell me — is it one of them or is it all of them? Mr. Cuomo, are you listening? Contrary to the report below, this is no grey area. It is really very simple. Just because you have a pile of documentation doesn’t make it theft. Look at the result to determine the intent. That’s what you are supposed to do in Court.

More Corruption: Bear Stearns Falsified Information as Raters Shrugged

MAY 14 2010, 2:25 PM ET |  Comment

Made up FICO scores? Twenty-minute speed ratings to AAA? If government prosecutors like New York Attorney General Andrew Cuomo want answers to why the mortgage-backed securities market was so screwed up, they should talk to Matt Van Leeuwen from Bear Stearn’s servicing arm EMC.

Reports indicated on Thursday that Cuomo is pursuing a criminal investigation surrounding banks supplying bad information to rating agencies about the quality of the mortgages they signed off on. But so far he hasn’t been able to prove where in the chain of blame the due diligence for the ratings broke down.

What Cuomo needs to establish is: whose shoulders does it fall on to verify the information lenders were selling to investment banks about the quality of their loans? And who was ultimately responsible for the due diligence on the loans that created toxic mortgage securities that were at heart of our financial crisis?

False Information and the Grey Area

Employed during the go-go years of 2004-2006, and speaking in an interview taped by BlueChip Films for a documentary in final production called Confidence Game, Van Leeuwen sheds some light onto the shenanigans going on during the mortgage boom that might surprise even Cuomo. As a former mortgage analyst at Dallas-based EMC mortgage, which was wholly owned by Bear Stearns, he had first-hand experience working with Bear’s mortgage-backed securitization factory. EMC was the “third-party” firm Bear was using to vet the quality of loans that would purchase from banks like Countrywide and Wells Fargo.

Van Leeuwen says Bear traders pushed EMC analysts to get loan analysis done in only one to three days. That way, Bear could sell them off fast to eager investors and didn’t have carry the cost of holding these loans on their books.

According to two EMC analysts, they were encouraged to just make up data like FICO scores if the lenders they purchased loans in bulk from wouldn’t get back to them promptly. Every mortgage security Bear Stearns sold emanated out of EMC. The EMC analysts had the nitty-gritty loan-level data and knew better than anyone that the quality of loans began falling off a cliff in 2006. But as the cracks in lending standards were coming more evident the Bear traders in New York were pushing them to just get the data ready for the raters by any means necessary.

In another case, as more exotic loans were being created by lenders, the EMC analyst didn’t even know how to classify the documentation associated with the loan. This was a data point really important to the bonds ratings. When Bear would buy individual loans from lenders the EMC analyst said they couldn’t tell if it should be labeled a no-doc or full doc loan. Van Leeuwen explains, “I wasn’t allowed to make the decision for how to classify the documentation level of the loans. We’d call analysts in Bear’s New York office to get guidance.” Time was of the essence here. “So, a snap decision would be made up there (in NY) to code a documentation type without in-depth research of the lender’s documentation standards,” says Van Leeuwen.

Two EMC analysts said instead of spending time to go back to the lender and demand clarification, like if verification of income actually backed these loans, the executives at Bear would just make the loan type fit. Why? One EMC analyst explains, “from Bear’s perspective, we didn’t want to overpay for the loans, but we don’t want to waste the resources on deep investigation: that’s not how the company makes money. That’s not our competitive advantage — it eats into profits.”

Twenty Minutes for AAA

It’s easy to paint Bear as the only villain here — but what were the rating agencies thinking?

Susan Barnes of Standards and Poor’s testified before Congress last month saying banks like Bear were responsible for due diligence in the transactions described above: “For the system to function properly, the market must rely on participants to fulfill their roles and obligations to verify and validate information before they pass it on to others, including S&P.”

Yet, was it reasonable for agencies to stand behind ratings when due diligence was done by an affiliate of Bear? That’s like buying a car from a guy whose mechanic brother said it was great, and then finding out it was a lemon.

Equally amazing was how responsive the raters were even on the big deals. Van Leeuwen says, “The raters would provide a rating on a $1 billion security in 20-30 minutes.” Describing it as “a rubber stamp,” Van Leeuwen said that the ratings agencies slavish devotion to their computer models “was vital” because it allowed Bear to “cram mortgages through the process.”

The greatest asset Bear had in its quest to squeeze every ounce of profit from the mortgage-backed securities market was the methodology of the big ratings agencies. The bankers knew what kind of loan detail was needed to get that coveted AAA rating. After they prepped the rating agencies for what they ‘thought’ they loans would look like, they would buy loans in bulk, and then spend a day scrubbing them.

Bear’s decision to cut corners and to fail to take the time to make sure the raters got correct information about the quality of loans was big no-no. But rating bonds based on fast reactions, instead of thoughtful analysis and reliable due diligence, also might place some responsibility on the agencies’ shoulders.

GRETCHEN MORGENSON Takes the Lead in Media Coverage of Mortgage Meltdown in NY Times

NOW AVAILABLE ON KINDLE/AMAZON
Gretchen Gets It. The entire article is worth reading and even studying. If you get what she is saying, you can understand just how false this Waltz has been.

“The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.

Goldman Sachs, Merrill Lynch, Société Générale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices.

Ms. Tavakoli argues that Goldman should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books — and to do so before it begins showering bonuses on its taxpayer-protected employees.

According to an e-mail message that Goldman sent to the New York Fed at the time, Mr. Geithner talked about the article with Mr. Viniar, Goldman’s chief financial officer, before calling me. When Mr. Geithner called, he said that Goldman had no exposure to an A.I.G. collapse and that the article had left an incorrect impression about that. When I asked Mr. Geithner if he, as head of the regulatory agency overseeing Goldman, had closely examined the firm’s hedges, he said he had not.

Probing, in-depth analyses of regulatory responses to the financial meltdown are worth their weight in gold. Mr. Barofsky’s certainly is. Yet in its rush to put financial reforms into effect, Congress seems uninterested in investigating or grappling with truths contained in such reports — and until it does, our country’s economic and financial system will continue to be at risk.

November 22, 2009
Fair Game

Revisiting a Fed Waltz With A.I.G.

A RAY of sunlight broke through the Washington fog last week when Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program, published his office’s report on the government bailout last year of the American International Group.

It’s must reading for any taxpayer hoping to understand why the $182 billion “rescue” of what was once the world’s largest insurer still ranks as the most troubling episode of the financial disaster. And it couldn’t have come at a more pivotal moment.

Many in Washington want to give more regulatory power to the Federal Reserve Board, the banking regulator that orchestrated the A.I.G. bailout. Through this prism, the actions taken in the deal by Treasury Secretary Timothy F. Geithner, who was president of the Federal Reserve Bank of New York at the time, grow curiouser and curiouser.

Of special note in the report: the Fed failed to develop a workable rescue plan when A.I.G., swamped by demands that it pay off huge insurance contracts that it couldn’t make good on as the economy tanked, began to sink. The report takes the Fed to task as refusing to use its power and prestige to wrestle concessions from A.I.G.’s big, sophisticated and well-heeled trading partners when the government itself had to pay off the contracts.

The Fed, under Mr. Geithner’s direction, caved in to A.I.G.’s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Société Générale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices.

On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.

The report zaps Fed claims that identifying banks that benefited from taxpayer largess would have dire consequences. Fed officials had refused to disclose the identities of the counterparties or details of the payments, warning “that disclosure of the names would undermine A.I.G.’s stability, the privacy and business interests of the counterparties, and the stability of the markets,” the report said.

When the parties were named, “the sky did not fall,” the report said.

Finally, Mr. Barofsky pokes holes in arguments made repeatedly over the past 14 months by Goldman Sachs, A.I.G.’s largest trading partner and recipient of $12.9 billion in taxpayer money in the bailout, that it had faced no material risk in an A.I.G. default — that, in effect, had A.I.G. cratered, Goldman wouldn’t have suffered damage.

In short, there’s an awful lot jammed into this 36-page report.

Even before publishing this analysis, Mr. Barofsky had made a name for himself as one of the few truth tellers in Washington. While others estimate how much the taxpayer will make on various bailout programs, Mr. Barofsky has said that returns are extremely unlikely.

His office has also opened 65 cases to investigate potential fraud in various bailout programs. “When I first took office, I can’t tell you how many times I’d be having a sit-down and warning about potential fraud in the program and I would hear a response basically saying, ‘Oh, they’re bankers, and they wouldn’t put their reputations at risk by committing fraud,’ ” Mr. Barofsky told Bloomberg News a little over a week ago, adding: “I think we’ve done a good job of instilling a greater degree of skepticism that what comes from Wall Street isn’t necessarily the holy grail.”

Mr. Barofsky says the Fed failed to strong-arm the banks when it was negotiating payouts on the A.I.G. contracts. Rather than forcing the banks to accept a steep discount, or “haircut,” the Fed gave the banks $27 billion in taxpayer cash and allowed them to keep an additional $35 billion in collateral already posted by A.I.G. That amounted to about $62 billion for the contracts, which the report describes as “far above their market value at the time.”

Mr. Geithner, who oversaw those negotiations, said in an interview on Friday that the terms of the A.I.G. deal were the best he could get for taxpayers. He considered bailing out A.I.G. to be “offensive,’ he said, but deemed it necessary because a collapse would have undermined the financial system.

“We prevented A.I.G. from defaulting because our judgment was that the damage caused by failure would have been much more costly for the economy and the taxpayer,” Mr. Geithner said. “To most Americans, this looked like a deeply unfair outcome and they find it hard to see any direct benefit. But in fact, their savings are more valuable and secure today.”

The report said that while bailing out Goldman and other investment banks might not have been the intent behind the Fed’s A.I.G. rescue, it certainly was its effect. “By providing A.I.G. with the capital to make these payments, Federal Reserve officials provided A.I.G.’s counterparties with tens of billions of dollars they likely would have not otherwise received had A.I.G. gone into bankruptcy,” the report stated.

As Goldman prepares to pay out nearly $17 billion in bonuses to its employees in one of its most profitable years ever, it is important that an authoritative, independent voice like Mr. Barofsky’s reminds us how the taxpayer bailout of A.I.G. benefited Goldman.

A Goldman spokesman, Lucas van Praag, said that Goldman believed “that a collapse of A.I.G. would have had a very disruptive effect on the financial system and that everyone benefited from the rescue of A.I.G.” Regarding his firm’s own dealings with A.I.G., Mr. van Praag said that Goldman believed that its “exposure was close to zero” because it insulated itself from a downturn in A.I.G.’s fortunes through hedges and collateral it had already received. (Goldman’s complete response is here.)

The inspector noted in his report that Goldman made several arguments for why it believed it was not materially at risk in an A.I.G. default, but he is skeptical of the firm’s reasoning.

So is Janet Tavakoli, an expert in derivatives at Tavakoli Structured Finance, a consulting firm. “On Sept. 16, 2008, David Viniar, Goldman’s chief financial officer, said that whatever the outcome at A.I.G., the direct impact of Goldman’s credit exposure would be immaterial,” she said. “That was false. The report states that if the New York Fed had negotiated concessions, Goldman would have suffered a loss.”

The report says that Goldman would have had difficulty collecting on the hedges it used to insulate itself from an A.I.G. default because everyone’s wallets would have been closing in a panic.

“The prices of the collateralized debt obligations against which Goldman bought protection from A.I.G. were in sickening free fall, and the cost of replacing A.I.G.’s protection would have been sky-high,” she said. “Goldman must have known this, because it underwrote some of those value-destroying C.D.O.’s.”

Ms. Tavakoli argues that Goldman should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books — and to do so before it begins showering bonuses on its taxpayer-protected employees.

“A.I.G., a sophisticated investor, foolishly took this risk,” she said. “But the U.S. taxpayer never agreed to be a victim of investments that should undergo a rigorous audit.”

Perhaps Mr. Barofsky will do that audit, and closely examine the securities that A.I.G. insured and that Wall Street titans like Goldman underwrote.

Goldman contends that it had a contractual right to the funds it received in the A.I.G. bailout and that the securities it returned to the government in the deal have increased in value.

For his part, Mr. Geithner disputed much of the inspector general’s findings. He also took issue with the conclusion that the Fed failed to develop a contingency plan for an A.I.G. rescue and largely depended on plans proffered by the banks themselves.

He said the report’s view that the Fed didn’t use its might to get better terms in the rescue was unfair. “This idea that we were unwilling to use leverage to get better terms misses the central reality of the situation — the choice we had was to let A.I.G. default or to prevent default,” he said. “We could not enforce haircuts without causing selective defaults and selective defaults would have brought down the company.”

Mr. Geithner also said that the “perception that this decision by the government, not my decision alone, was made to protect any individual investment bank is unfounded.”

Less than two weeks after the A.I.G. bailout, Mr. Geithner took the firm’s side when he criticized a Sept. 28, 2008, article in The New York Times that I wrote about the A.I.G. bailout. That article included Goldman’s statement that it wouldn’t have been affected by an A.I.G. collapse. Among other things, the article, like Mr. Barofsky’s report, questioned Goldman’s assertion.

According to an e-mail message that Goldman sent to the New York Fed at the time, Mr. Geithner talked about the article with Mr. Viniar, Goldman’s chief financial officer, before calling me. When Mr. Geithner called, he said that Goldman had no exposure to an A.I.G. collapse and that the article had left an incorrect impression about that. When I asked Mr. Geithner if he, as head of the regulatory agency overseeing Goldman, had closely examined the firm’s hedges, he said he had not.

Mr. Geithner told me on Friday that he spoke with Mr. Viniar that day to ensure that Goldman’s hedges were adequate. And, notwithstanding the inspector general’s findings, he said he still believes Goldman was hedged.

Probing, in-depth analyses of regulatory responses to the financial meltdown are worth their weight in gold. Mr. Barofsky’s certainly is. Yet in its rush to put financial reforms into effect, Congress seems uninterested in investigating or grappling with truths contained in such reports — and until it does, our country’s economic and financial system will continue to be at risk.

Mortgage Meltdown: Credit Crisis Spreads

 

Credit Crisis Over? — Not by a Long Shot

 

As you can imagine I get emails and comments from hundreds of people seeking help and whose houses are going into sale or foreclosure, most of whom are completely unaware that they have rights superior to the lender, if they can find someone to help them like www.repairyourloan.com

 

Lawyers won’t help you until you get the mortgage audit completed. It is then that you will know the extent of your claims and what you do to stop the foreclosure, the eviction or even extinguish the mortgage and release yourself from liability on the mortgage note. 

 

Here is an article which illustrates why you need to beware of both the government and the lenders. They are trying to give the impression that the credit crisis is (a) not as bad as people thought and (b) over. What they are really trying to do is pivot your attention away from the fact that the massive mortgage meltdown has caused a meltdown in all the credit markets. It has caused a massive meltdown in asset values for individuals, corporations and government entities. 

 

This is not the beginning of the end. It is, as Winston Churchill said in World War II “the end of the beginning.” We have years to go before this shakes out just in terms of education of the public. And we have decades to go to recover from this utter failure of government to do its job — to referee between those who know things and those who don’t. 

 

In the process the government, the corporations and the individuals owning houses or doing their jobs have all been smacked in the face, really hard and have snapped out of their wishful confidence in their government and in the “good faith” of a good faith estimate before closing on a loan.

 

Credit Crisis

Congress And The Credit Crisis

Joshua Zumbrun 05.14.08, 6:00 AM ET

 

Washington, D.C. – 

A congressional panel meets Tuesday morning looking to answer two big questions about the economy: Is the credit crisis over? And can anything be done to prevent another crisis in the future? 

 

To both questions, the answer is “No. And proceed with great caution.”

 

For the credit crisis, reasons for optimism are emerging. Monday morning, Federal Reserve Chairman Ben Bernanke outlined positive signs: confidence between banks has risen, the market for repurchase agreements of Treasury securities has improved, secondary markets even for troubled mortgage-backed securities have more liquidity than they did in May.

 

“These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal,” Bernanke cautioned. (See “Recovery: Are We There Yet?”)

 

Still, the battered housing market continues to drag. Data released Monday from the National Association of Realtors showed that home prices are still falling. In the first quarter of this year, the median home price dropped 7.7% from a year ago–the biggest decline in the 29 years NAR has compiled the prices.

 

The number of borrowers who owe more than their house is worth is still growing. Loan defaults and foreclosures are likely to continue, as will losses to the lenders. Foreclosures tend to drag down the prices of their entire neighborhoods. But even here, Lawrence Yun, chief economist of the National Association of Realtors, sees some signs of optimism: “Neighborhoods with little subprime exposure are holding on very well.” And at least banks are not originating new subprime loans.

 

Now for the second question: How to prevent risk in the future. That’s what makes Tuesday morning’s hearing significant. The early advice Congress receives could shape regulation of banks and the financial market for years or even decades. And, as Treasury Secretary Henry Paulson noted in proposing a series of regulatory reforms in March, “few, if any, will defend our current balkanized system as optimal.”

 

The March collapse of Bear Stearns exposed a weakness in the Gramm-Leach-Bliley Act, a 1999 law that removed the barriers between commercial banks, investment banks and insurance companies. The amount of systemic risk was not recognized until too late.

 

After Gramm-Leach-Bliley, banks and insurance companies were allowed to undertake the same activities, but they still answered to their old regulators. Five federal regulators oversee deposits, in addition to regulation from state governments. Futures and securities are regulated by separate agencies. Insurance regulation is spread across more than 50 regulators.

 

The result was a confused alphabet soup–SEC, CFTC, OCC, NCUA, FDIC–with muddled boundaries or, as SEC Chairman Christopher Cox described the result, “a statutory no-man’s land.”

 

But regulation presents pitfalls as well. It must be considered not in terms of more or less regulation but rather in terms of flexibility and efficiency. 

 

“In the wake of a bust, there is always a predictable series of political activities,” says Alex Pollock, former president of the Federal Home Loan Bank of Chicago, who will testify before the committee. “First, the search for the guilty; second, the fall of previously esteemed heroes; and third, legislation and increased regulation to ensure that ‘this will never happen again.’ But, with time, it always does happen again.”

 

The guilty have been identified as the twin bogeymen of the subprime underworld: “speculators” and “unscrupulous lenders,” enabled by banks unable to price risk and an irrational belief that home prices would always rise. The esteemed heroes have fallen: the collapse of Bear Stearns, disappointing results from Wall Street’s banks. Even Alan Greenspan has lost some of his luster.

 

The third act at the boom and bust theater is well under way. This week the Senate is ironing out its companion legislation to the House’s Foreclosure Prevention Act, which passed last week with a 266-154 margin. The president has indicated he would veto the bill’s current incarnation but could support a toned-down version. All that remains is the predictable regulatory overhaul and then a long wait for the inevitable cycle to begin in the future. 

 

 

Mortgage Meltdown: Congress Makes the Right Moves!

Today we have a bill pending that stops the meltdown. It is a courageous and creative step that protects all parties. It requires YOUR input, so pass this along to as many other people as you can. This is much more than a step in the right direction. It would be nice to see support from the presidential contenders as well.

Write your congressmen and women and get this thing passed. The Senate and House are standing on the line between mayhem and an orderly society and have taken the right steps. The rest is up to you.

It isn’t perfect, but the bill would do more to stem the tide of foreclosures, evictions and declining home prices than anything else on the table. It will protect your home equity, it will stabilize the economy, and it will give the U.S. dollar just the shot of confidence it needs to slow the rising threat of hyper-inflation.

Call and write your congressman/woman, call and write your senators, flood them with emails.

This is not about the morality of or ideology of whether it was more the fault of one group over another. This is about the practicality of holding our society together. Nothing is more important to the your lifestyle than this bill no matter who you are.

May 2, 2008

Mortgage Aid Plan Advances in House

WASHINGTON — The House Financial Services Committee pushed forward on Thursday with an aggressive effort to help troubled homeowners, approving legislation that would make up to $300 billion in federally insured loans available to refinance the mortgages of borrowers in danger of foreclosure.

With passage of the House bill virtually assured, debate over how best to address the downturn in housing shifts back to the Senate, where Democrats drafting a similar plan are struggling to overcome the reservations, if not outright opposition, of a more robust Republican minority.

President Bush has called on Congress to pass very specific legislation to update the operations of the Federal Housing Administration, to tighten regulation of the government-sponsored financiers Fannie Mae and Freddie Mac and to let state and local housing authorities use tax-exempt bonds to refinance bad loans. But he opposes the more expansive legislation pursued by Democrats.

The Financial Services Committee approved the bill 46 to 21, with 10 Republicans joining the Democrats in favor of it.

Representative Barney Frank, Democrat of Massachusetts and the chief author of the housing legislation, said Thursday that he hoped President Bush would sign the bill if it reached the White House as part of a wider package and it contained the legislation that Mr. Bush had demanded.

The Democrats’ legislation seeks to help homeowners by requiring lenders to reduce the principal balances for borrowers at risk of default. The bad loans, typically with high adjustable rates, would be refinanced into more affordable 30-year fixed-rate loans insured by the F.H.A.

The new loans would be limited to no more than 90 percent of a property’s value, based on an updated appraisal. The government would retain a stake in any future sale of the property, worth 3 percent of the initial loan balance or 50 percent of net profit from a sale, whichever is greater.

Borrowers would have to demonstrate the ability to repay the new loan, and if they default, they will forfeit the property. Democrats say the plan could help as many as 1.5 million homeowners.

The Bush administration calls that goal unrealistic and says achieving it would require loosening underwriting rules that would put taxpayer money at too much risk. But the administration’s own effort to help troubled borrowers, called F.H.A. Secure, has so far aided only about 2,000 homeowners who were clearly behind in repaying their loans.

In an interview, Mr. Frank said that Republicans, including the president, understood that the government-sponsored lenders were playing an increasingly vital role in the stability of the economy and that they were now anxious to tighten regulation.

“Don’t underestimate the importance” of changes affecting Fannie Mae and Freddie Mac, he said.

As for the Senate, Mr. Frank said: “I am not going to guess.”

Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee, had been hoping to complete work next Tuesday on a bill that would incorporate the broad expansion of federally insured loans sought by Democrats with a Senate version of the legislation sought by the Bush administration. But aides said a committee vote would be delayed to at least Thursday or perhaps the following week.

In a statement on Thursday, Mr. Dodd said he hoped to reach a deal, even as some Senate Republicans said they remained uncertain.

“Our top priority right now should be helping people keep their homes,” Mr. Dodd said, praising the House committee’s vote. “This is another step in the right direction.”

He added: “I am committed to working on bipartisan legislation with my colleagues in the Senate banking committee to reduce foreclosures and restore liquidity to the mortgage market.”

A spokesman for Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, declined to comment.

Republican support for the Democrats’ plan has waned in recent days. Senator Mel Martinez, Republican of Florida and a member of the banking committee, who had previously advocated aggressive government action to stem foreclosures, this week said that he supported the more measured response favored by President Bush. Florida is one of the states hit hardest by foreclosures.

Mortgage Meltdown: New Treasury Blueprint for Greater Disaster

You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S. Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy. Some immediate thoughts about the reports on the new plan to be unveiled on Monday by Secretary Paulson:

  • There is being nothing being reported that indicates the plan seeks to help out anyone now: soften the meltdown, slow the foreclosures, stop the evictions, restore confidence in the financial markets, restore consumer confidence, restore balance sheets, increase liquidity without enlarging the money supply, reverse the slide of the dollar, or reverse the rising tide of inflation. It is all about future bubbles and busts which may or may not look like the one we have, the one before (.com bubble), or the one that is in process (foreign exchange and commodities).
  • There is nothing being reported that indicates the plan seeks to increase transparency for the public so that they are well-informed and educated about “new” financial products whose design is to create confusion through complexity and profit through back-doors that undermine the American Citizen, U.S. Economy, and U.S. foreign policy.
  • There is nothing being reported that indicates the plan seeks to enhance the fundamentals of our economic system, which is currently based upon profligate consumer spending, pressures to increase consumer debt, and steering citizens away from savings. It is interesting that the very same people who “ideologically” plead for less government and more personal responsibility are lining up behind a plan that institutionalizes to an even greater extent all the economic forces that prohibit or inhibit the ability to provide fro their own security and prosperity.
  • There is nothing being reported that the plan is willing to even address the current disparity of wealth, the current trend toward a deepening divide between a few people who have wealth and the rest who don’t. It is interesting that the very same people who plead for a free market economy line up behind a plan that would allow precedent to stand on socializing losses and expenses for big business, thus undermining entrepreneurship and innovation (the hall mark of all prior economic progress in the United States). 
  • While these people tell us that windfall profits are part of the game that will even out in the end, they give us plans that prevent leveling the playing field by covering losses with access to tax dollars, covering expenses by shifting the risk onto public programs, and covering deception by legalizing slight of hand reporting in which both the methods of business and the financial results are completely misstated (that would be “lying”) or even reversed converting actual losses to the company and damage to the society into reported profits, higher per share earnings, higher price earnings ratios, higher stock prices, and “benefits” of bringing new products and services to the downtrodden members of our society (like tricking them into signing papers to “buy” a house) enabling the lender to sell the paper at a profit without regard to the quality of the paper, thus tricking investors, undermining pensions, social services etc.)
  • What is being reported is more centralization of highly complex political and economic subjects into the hands even fewer people of dubious talent, leadership, training, education or creativity —thus decreasing the pool of available talent and decreasing the discourse on economic policies all contrary to the basic constitutional premise of checks and balances, division of power, prevention of tyranny and promoting policies for the health, wealth, safety, security, and benefit of United States citizens.
  • Centralization of banking and deregulation of banking has produced a boondoggle of problems that will take decades to reverse. There is no doubt that the Federal Reserve should have greater control over any process that creates “money” in the marketplace so that monetary policy will mean something. But it is the Federal reserve itself that needs re-structuring to provide for greater transparency, more checks and balances, and greater de-centralization of decision-making. The open-market committee is simply not set up to deal with today’s marketplace, today’s money, the prospect of a declining dollar and the possibility of a rising Euro in the United States. 
  • Centralization of banking has led to the flow of money away from where it is deposited into places that have no relationship to the depositors. Loans are made in foreign countries from deposits made in Springfield, Illinois. The depositors are deprived of the economic benefit of having that money loaned or invested in their locale, thus improving liquidity and growth prospects for those depositors and all the citizens of their town or city. With no safety net, the slightest ripple can and does cause blight to replace what were once vibrant or at least promising communities.
  • Centralization of banking has led to indexing of loans as the exclusive basis on which to grant them — replacing the old fashioned relationship of person to person. This has resulted in hyperventilating the prospects for fraudulent lending by lenders, the entire CMO/CDO market, and fraudulent borrowing by borrowers. JP Morgan was asked at a senate hearing 100 years ago what was the primary criteria, the essential quality for granting credit; his answer was that it was “character,”(not balance sheets, income statements or track record) which is exactly what is not part of the equation now with the total reliance on FICO scores, other computer algorythms etc. 
  • By removing “Character” from the equation we removed accountability. You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S.Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy.

Mortgage Meltdown: Paulson is wrong on bailout

Paulson’s comments yesterday were inappropriate. He just doesn’t get it. He is arguing for hitting the iceberg and then let the deadly water take care of the problem. The ship is the American economy. And the waters are a legal system that assumes, all things being equal, that the process of foreclosure, eviction and losses on CDO investments will eventually find a state of equilibrium from which the economy will rebound. He is wrong.

All things are not equal because of the scale of losses, the scope of the economic effects, and the deadly despair descending upon the American consumer in a consumer driven economy. Take away the spending of consumers, and the United States is a third world economy. Maybe it doesn’t need to be that way, but it is now. 

On the other hand he is right in one respect — that a bailout, using federal funds, will not alone solve the problem. More fiat funds pushed into a marketplace where the dollar is already declining in a virtual free fall will cause problems of its own — continuing devaluation of the U.S. dollar, other countries severing their currency ties with the dollar, a huge increase in U.S. debt, spiraling inflation at a level not seen before in our lifetimes, and a sea-change in life-style as virtual ghost towns dot the landscape consisting of abandoned homes. 

The answer is a combination of remedies and rewriting the rules so all things ARE equal. A relatively small Federal bailout along the lines of the Barney Frank proposal will provide some breathing room. 

Republicans and Democrats need to get together under the leadership of their standard bearers in this election year and refuse to pass any legislation for funding or otherwise until this credit crisis is addressed in an immediate comprehensive way. 

Federal and state agencies and judicial systems, should bend their rules as much as possible to provide a de facto moratorium on foreclosures and evictions — re- routing cases into mediation procedures and providing for mediation reports in 90 days before the cases can continue.

Attorney Generals of each state should intervene in each foreclosure case, basically alleging that the lender participated in a vast conspiracy to defraud the borrower and with reckless disregard to the damage their behavior would cause to the economy of the state and the nation, not to speak of cities in other countries who are now decreasing social services because the cash they thought they had evaporated with the diminution of value “Safe” “cash equivalent” CDO investments they thought they had. 

See the previous post, for details plans on remedial legislation which Congress and each of the states can pass to aggressively put down this crisis. If Federal authorities fail to act, then states, individually and collectively should encourage their state chartered banks to start issuing bank notes as an alternative to U.S. currency. Agreements with Forex and precious metals traders should be reached to back up these new currencies. A radical solution to a radical problem. Failure to act will leave every American citizen bereft except those who are already taking hedge positions in foreign exchange and precious metals and other commodities. 

WINDS OF WAR: Congress’ Lack of Patriotism

Our division of opinion on the Wars in Iraq, Afganistan and secret wars being conducted by our government has become so confused, with the assistance of an extremely lazy and under-resourced media, that real discourse leading to compromise and resolution of the issues has become our greatest challenge. In other words, we are not talking about the real issues. Instead we are talking from ideological mindsets and assumptions that do not permit facts or alternative possibilities to enter into our discussion.

We have lost our way, lost our moral leadership and standing, and are viewed with suspicion and fear around the world. We have a constitution but everybody on all sides of every issue wants to ignore its provisions. Lies about WMD, personal agendas, and ideological crusades are NOT the reason we are in Iraq without clearcut goals and missions. The reason the goalpost keeps moving is NOT the incompetence of the Bush administration. The reason is that we stopped following rules we all swear to when we pledge allegiance to the Flag or swear to protect the United States Constitution.

On War, the constitution is quite clear and nobody contests that. There are arguments that certain provisions are impractical or wrong — just like on issues like abortion, guns, etc.. But just as slavery was contained in our constitution and we all decided that it was wrong, we made sure that the whole concept of slavery and inferior races was prohibited by amending the consitution and taking it out. If you disagree with the constitution there are provisions available for amending it through the political process. In the meanwhile, in a nation of laws, whatever it says IS the law and anyone who suggests ignoring its provisions is attacking the foundation of our republic. Anyone who suggests changing it by amendment is acting as a true patriot whether you agree with him/her or not. Anyone who suggests or acts on ignoring the constitution is guilty of high crimes and misdemeanors.

Bush is not the culprit here. It was congress who ignored the constitution and acted accordingly. The Iraq resolution was a delegation of power to the president to declare war. He committed no act of treason by asking for the power. When Congress delegated that power to the President, they violated the very core, intent and express wording of the consitution, which provides that ONLY Congress may declare war and ONLY congress may vote to fund it to such extent as congress deems necessary. True a President who knowingly accepts powers not authorized by the consitution is acting wrongly,and equally true he shouldn’t have asked for it. But he didn’t actually do it, Congress did.

So now we have a war declared by the President (i.e., unauthorized) with congress voting to fund it (unauthroized because they never declared war in the first place), with virtually no oversight to determine what policies should be funded and what policies should be changed. Instead we are wasting our time blaming each other and pointing fingers at unpatriotic people who either support the war or are against it. It isn’t the people who are unpatriotic, it’s Congress.

Every congressman, every congresswoman, every Senator who voted for the Iraq war resolution committed an act of violence to our republic — not because the war itself was wrong or right but because they were giving the power to decide on the war to the one person the writers of the constitution did NOT want to see holding that power. If we really want to see the president holding the power to make and declare war then the constitution needs to be amended according to its own terms. I for one hope that such an amendment is never introduced or passed. But if it is, then we can expect more disgrace in the eyes of the world not so much for what we do, but for the way we did it.

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