Advice to Politicans: Run Against the Banks, not Foreclosures

GOOD CAMPAIGN SLOGANS:

“I will fight to bring the mega-banks under control”
” I will fight for reporting requirements that reveal insolvent banks before they threaten our financial system again.”
” I will fight for audits of reporting to identify exotic financial instruments that are cover-ups for PONZI schemes”

” I will fight to recover the losses that threaten the solvency of our retirement funds.”

I am Neil F Garfield, Esq., author and editor of Livinglies.wordpress.com, now approaching 8 million visits. In South Florida I was a Democratic political strategist and was invited to run for Congress, which I declined. I  would like to brin attention an issue that will help in the polls and the election: housing — without talking about housing. Talking about the banks.

Like most candidates, Candidates staying away from the issue of housing and the relationship of the housing crisis to the economy of the State of Arizona and the nation. The problem is that attacking foreclosure sounds to some voters that you are looking to give a free ride to people who don’t deserve it. It is easier and more effective to attack the banks generally and not the specific subject of foreclosures.

Candidates who have listened to my advice have followed this guidance: run against the banks, not foreclosure. Too many politicians are getting money from the banking lobby and making Wall Street off limits. People are still seething from the bailouts and tricks of “securitization” (which never actually happened) of defective, botched, mortgage closings. I am prepared to bring together hundreds of people in a free seminar at which Carmona is featured as the man who who understands the problem and the man who will fight to correct it. I have a big following.

The facts are that the defaults resulting in actual losses are still less than $2 trillion, but bailouts and purchases are now near $20 trillion (50% more than the principal of ALL mortgages); yet the federal government has failed to act on that because of the fear that if the shadow banking system collapses, it will bring the legitimate banking system with it.

This is not true. There are more than 7,000 community banks and credit unions who can easily pick up the functions of the mega banks thanks to the backbone of electronic funds transfer. All of these institutions are small enough to regulate using existing resources. Leaving insolvent mega-banks alone means that we either increase the regulatory budget geometrically or wait for the next, bigger collapse. 40% of the wealth of  America’s hardworking citizens and retirees was lost, but the question that is not being asked is where did it go?

The shadow system dwarfs the actual monetary system. The shadow system consisting of derivative contracts and insurance amounts to over $800 trillion in private contracts that are treated as cash equivalent. The actual amount of actual, real money issued by fiat by all countries across the globe is less than $80 trillion. Do the Math. But most of the $800 trillion is pure fiction that will not take one penny out of the economy of any nation, state or city, because they are offset by bets in the other direction. Yet the bets are counted cumulatively with the intention of holding a hammer over the heads of government agencies and officials — so their threat appears (shadow) than it really is.

Permitting the shadow banking to stay on the books without adequate reporting and transparency is an invitation to disaster. It is a disaster waiting to happen whenever it suits the banks to go after bailouts again. This is what is allowing the currently insolvent mega banks to show fictitious assets of their balance sheet and leave off $ trillions in liabilities resulting from their diversion of money from innocent investor-lenders and diversion of paperwork from those investors and the borrowers.

Next year, because of the reporting requirements currently allowed, pension benefits are going to get slashed against existing retirees. The “underfunded” status of these retirement funds has already been sent up as trial balloon. The follow up is “no money, no benefits” (or a reduction in benefits). Nobody wants to talk about that until the election is over. Jack Kennedy won the 19060 election because of a perceived missile gap. This is real. There is a gap between the money that should be in the economy and the investors who bought bogus mortgage bonds from REMICS trusts that never had the money or the loans. This gap will result in the inability of these funds to continue payments at current levels or require another federal bailout. Do your fact checking on underfunded retirement funds.

These insolvent banks are going to collapse — a prediction we have made through simple arithmetic, just as I did in 2007 when I predicted the banks that would fail, and the order in which they would fail.  People know it already and will not be surprised by a politician bringing up the fact that our economy is improving despite the downward pressure of sham transactions, sham assets and the non-disclosure of liabilities. A politician who brings the fight to Flake and other Republicans who have voted solidly with the banks, will strike a cord in even the most right wing “Conservative” republican.

Should you wish to receive any further assistance on the economy, housing or Wall Street, I am available by email and my cell phone 954-494-6000. Do a few focus groups, as I have. Include people from all parts of the political spectrum and you will find that one are of universal agreements is that the banks are to blame for our crisis. And government has not failed to properly regulate, they have failed to collect taxes and fees that would go a long way to balancing local, state and federal budgets.

When the American electorate is awake, they are pretty smart. They are awake now and most of them are waiting to hear from someone who wants to deal with the improper reporting from the mega banks who are insolvent but pretending to contribute to the nations GDP and employment. Just try it out — stop people on the street at random. Politicians are missing a golden opportunity to trounce their opponents. The issue is hidden only because everyone is afraid of it and it appears too complex to explain. It can be boiled down to a few simple phrases:

“I will fight to bring the mega-banks under control”
” I will fight for reporting requirements that reveal insolvent banks before they threaten our financial system again.”
” I will fight for audits of reporting to identify exotic financial instruments that are cover-ups for PONZI schemes”

” I will fight to recover the losses that threaten the solvency of our retirement funds.”

Allocating Bailout to YOUR LOAN

Editor’s Note: Here is the problem. As I explained to a Judge last week, if Aunt Alice pays off my obligation then the fact that someone still has the note is irrelevant. The note is unenforceable and should be returned as paid. That is because the note is EVIDENCE of the obligation, it isn’t THE obligation. And by the way the note is only one portion of the evidence of the obligation in a securitized loan. Using the note as the only evidence in a securitized loan is like paying for groceries with sea shells. They were once currency in some places, but they don’t go very far anymore.

The obligation rises when the money is funded to the borrower and extinguished when the creditor receives payment — regardless of who they receive the payment from (pardon the grammar).

The Judge agreed. (He had no choice, it is basic black letter law that is irrefutable). But his answer was that Aunt Alice wasn’t in the room saying she had paid the obligation. Yes, I said, that is right. And the reason is that we don’t know the name of Aunt Alice, but only that she exists and that she paid. And the reason that we don’t know is that the opposing side who DOES know Aunt Alice, won’t give us the information, even though the attorney for the borrower has been asking for it formally and informally through discovery for 9 months.

I should mention here that it was a motion for lift stay which is the equivalent of a motion for summary judgment. While Judges have discretion about evidence, they can’t make it up. And while legal presumptions apply the burden on the moving party in a motion to lift stay is to remove any conceivable doubt that they are the creditor, that the obligation is correctly stated and to do so through competent witnesses and authenticated business records, documents, recorded and otherwise. All motions for lift stay should be denied frankly because of thee existence of multiple stakeholders and the existence of multiple claims. Unless the motion for lift stay is predicated on proceeding with a judicial foreclosure, the motion for lift stay is the equivalent of circumventing due process and the right to be heard on the merits.

But I was able to say that the the PSA called for credit default swaps to be completed by the cutoff date and that obviously they have been paid in whole or in part. And I was able to say that AMBAC definitely made payments on this pool, but that the opposing side refused to allocate them to this loan. Now we have the FED hiding the payments it made on these pools enabling the opposing side (pretender lenders) to claim that they would like to give us the information but the Federal reserve won’t let them because there is an agreement not to disclose for 10 years notwithstanding the freedom of information act.

So we have Aunt Alice, Uncle Fred, Mom and Dad all paying the creditor thus reducing the obligation to nothing but the servicer, who has no knowledge of those payments, won’t credit them against the obligation because the servicer is only counting the payments from the debtor. And so the pretender lenders come in and foreclose on properties where they know third party payments have been made but not allocated and claim the loan is in default when some or all of the loan has been repaid.

Thus the loan is not in default, but borrowers and their lawyers are conceding the default. DON’T CONCEDE ANYTHING. ALLEGE PAYMENT EVEN THOUGH IT DIDN’T COME FROM THE DEBTOR.

This is why you need to demand an accounting and perhaps the appointment of a receiver. Because if the servicer says they can’t get the information then the servicer is admitting they can’t do the job. So appoint an accountant or some other receiver to do the job with subpoena power from the court.

Practice Hint: If you let them take control of the narrative and talk about the note, you have already lost. The note is not the obligation. Your position is that part or all of the obligation has been paid, that you have an expert declaration computing those payments as close as  possible using what information has been released, published or otherwise available, and that the pretender lenders either refuse or failed to credit the debtor with payments from third party sources —- credit default swaps, insurance and other guarantees paid for out of the proceeds of the loan transaction, PLUS the federal bailout from TARP, TALF, Maiden Lane deals, and the Federal reserve.

The Judge may get stuck on the idea of giving a free house, but how many times is he going to require the obligation to be paid off before the homeowner gets credit for the issuance that was was paid for out of the proceeds of the borrowers transaction with the creditor?

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court

By Bob Ivry

April 14 (Bloomberg) — The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Regardless of whether the Fed appeals, the Clearing House will take the next legal step by asking for a review by the full appellate court, Saltzman, 49, said at his office in New York. If the ruling is unfavorable, the bank group will petition the Supreme Court, he said.

Joined Lawsuit

The 157-year-old, New York-based Clearing House Payments Co., which processes transactions among banks, is owned by its 20 members. They include Citigroup Inc., Bank of New York Mellon Corp., Deutsche Bank AG, HSBC Holdings Plc, PNC Financial Services Group Inc., UBS AG, U.S. Bancorp and Wells Fargo & Co.

The Clearing House Association, a lobbying group with the same members, joined the lawsuit in September 2009, after an initial ruling against the central bank in federal court in Manhattan.

The Fed is “reviewing the decision and considering our options,” said Fed spokesman David Skidmore in Washington. He had no comment on Saltzman’s plans.

Attorneys face a May 3 deadline to file their appeals.

“We’ll wait to see the motion papers,” said Thomas Golden, attorney for Bloomberg who is a partner at New York- based Willkie Farr & Gallagher LLP. “The judges’ decision was well-reasoned, and we doubt further appeals will yield a different result.”

Bloomberg sued in November 2008 under the U.S. Freedom of Information Act, after the Fed denied access to records of four Fed lending programs and a loan the central bank made in connection with New York-based JPMorgan Chase’s acquisition of Bear Stearns Cos. in March 2008.

231 Pages

The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA. The statute obliges federal agencies to make government documents available to the press and the public. The suit doesn’t seek money damages.

The Fed released lists on March 31 of assets it acquired in the 2008 bailout of Bear Stearns.

The New York Times Co., the Associated Press and Dow Jones & Co., publisher of the Wall Street Journal, are among media companies that have signed up as friends of the court in support of Bloomberg.

The Fed Board of Governors’ “refusal to disclose the names of borrowers renders public oversight of its actions impossible — it prevents any assessment of the effectiveness of the Board’s actions and conceals any collusion, corruption, fraud or abuse that might have occurred,” the news organizations said in a letter to the appeals panel.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: April 14, 2010 00:01 EDT

Mortgage Meltdown: Ignoring the Obvious=Avoiding the Solution

McCain’s Folly

The solution to the liquidity crisis continues to be a political agreement between government, business, borrowers and investors in which the obvious factors are directly addressed — overvaluation of home values, overvaluation of creditworthiness, and overvaluation of CMOs. Any plan which does not address those factors will merely be an attempt to sweep this one under a rug that isn’t big enough to hide the dust. All current plans are partial swings at a moving target, based upon the political points the author or speaker wishes to score rather than being based on the health, safety and welfare of the citizens of the United States of America.

 

The plain fact is that is the practically nobody in government anywhere knows, understands, or has developed any proficiency in developing an understanding of the economic world of their constituents. Upon cross-examination they would fold like a house of cards. 

Yet in an odd irony (redundant, I know) it is true that all economics is actually political and that all political decisions result in economic consequences. Hence we have put ourselves in the hands of a bunch of people, most of whom lack either the intelligence or the motivation to know what they are doing, and who are responding to the “information” given to them by their staff which gets most of its information from lobbyists, and the resulting legislation is passed without ANYONE ever reading it. 

Senator McCain is unfortunately one of the offenders for lack of actually reading the printed word. He reads nothing. He gets summaries orally on the run, and that is why he makes so many mistakes in his speeches. He spends no time in analysis or contemplation, not that he isn’t capable of it. He just doesn’t do it. And in our political world he has proven by getting the Republican nomination, that you don’t actually need actual policies in mind that serve as stepping stones to a better future — you just need votes, endorsements and money (not necessarily in that order).

In an effort to score political points, John McCain, presumably with the advice and counsel of prehistoric economic advisers, hawks the idiotic notion that government regulation is a bad thing in and of itself. Economists from all sides of the political spectrum admit that is wrong. Without a referee in the “free market place” we would all return to slavery or the dark ages of serfdom. We have recently gone too far in that direction, a fact which is obvious to about 80% of the American citizenry and even to young adults who ordinarily don’t even think of such things. The necessity of a referee (i.e., government) is completely unknown to McCain either in concept or reality. John McCain is decidedly not an idiot — but like most of his colleagues, he acts like one.

He said yesterday which much fanfare that it is not government’s job to bail out people, big or small. True enough — and it certainly plays well to those who blame the victims, as long as they are small victims rather than big companies whose stock is publicly held. 

According to the founding documents of this country, which are the Supreme Law of the land, it is government’s business to protect the health, safety and welfare of its citizens; and that means doing something to stop the current financial bleeding and slowing the American and worldwide tailspin that is destroying the paycheck of most American citizens increasingly each day, as the U.S. dollar reaches lower into the abyss and the price of gas now approaches 25% of the net paycheck of many workers. 

Bailout is one of the tools on the table and it is a good short-term and very small part of a total solution. The actual solution to the present crisis can only be reached through political consensus which thus far has not been the subject, much the less the focal point of discussions in the current emergency. To that end only Obama (and recently endorsed by Clinton) has proposed establishing an emergency commission not unlike the 911 Commission. 

A major bailout to everyone will only put the dollar, and thus the purchasing power of each citizen in further jeopardy. That is why Obama is right about limiting the resources applied to the bailout part of the equation. Stopping the foreclosures and evictions through political consensus is also a urgent requirement. Again Obama is right on the approach of consensus but probably wrong in his opposition to the 90 day freeze on foreclosures and evictions proposed by Clinton. 

We need some breathing space to show the world we are still in control here and that we understand the root problem — which is that prices became artificially inflated by high pressure sales tactics getting people to sign mortgage documents that could be sold to satisfy the last group of deals that were sold on terms that were impossible to sustain on their own. 

No bailout at all is government failing to do what it is there for — to referee between competing groups and interests and intervene when it gets out of hand.  

McCain is advocating (or more specifically parroting) the economics and the politics that got us into this mess. We had a Federal Reserve with no power to monitor or regulate the creation of money supply by the private sector. Paulson announced today he wants to change that and expand the Fed’s authority to acknowledge the obvious fact that investment banks have been creating more money supply than all the central banks put together. As a result, worldwide money supply from derivative security sales skyrocketed beyond the imaginable, with some estimates putting it at as much as $500 trillion.

 

That is why we keep saying here that the answer to the crisis lies in political consensus — as Obama preaches, and not in ideological fixed constructs like McCain and Clinton promote for political points. Paulson’s proposals will be helpful 30 years from now. Partisan solutions produce partisan fights resulting in gridlock. Americans need action now. Obama’s proposals should be looked at far more closely, and used as a point of discussion. We need help today, this minute.

 

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