FASB on Sham Transactions

See AU Section 332 Auditing Derivative Instruments, hedging Activities and Investment in Securities.
Every written instrument is by definition the memorialization of an event. Absent the event in the real world, the instrument is worthless at best and at worst fraudulent. This is derived from the my knowledge of generally accepted accounting principles (GAAP) as enunciated by the Financial Accounting Standards Board (FASB) supported by the American Institute of Certified Public Accountants (AICPA).
In any audit of bookkeeping and/or accounting records written instruments are the starting point for inquiry as to whether the documents represents a true and fair representation of an actual transaction. While the auditor may be aware of certain legal presumptions concerning the validity of a facially valid instrument, the auditor is tasked with testing all transactions including those that appear to possess the attributes of facial validity.
Specifically the audit process for alleged transactions relating to derivative securities (mortgage backed bonds, for example) goes further than standard auditing confirmation under the rules recognized as nationwide and binding. In large part because of the admissions or quasi admissions in settlements with government regulators, attorneys general and investors, it has become obvious that transactions that are related to activity in the derivative marketplace are subject to special scrutiny. Auditors are required to test the following, among other things:
  1. Occurrence. Transactions and events that have been recorded have occurred and pertain to the entity.
  2. Completeness. All transactions and events that should have been recorded have been recorded.
In the definition of the confirmation process required by auditors, it is clearly stated that a plan of confirmation is to be used. Facially valid documents are not excluded from the confirmation process. And as seen above, transactions relating to alleged securitization are subject to specific testing. The courts are out of their element in assessing the risk of fraudulent representation because the Courts’ inquiry generally starts and ends with the written instrument.
The Auditor wants to know if the transaction memorialized in that instrument actually took place and wants to see evidence to that effect — i.e., the money trail as represented by cash flow, balance sheet and income statements as well as the general ledger (and supporting documents, bank statements and receipts) of the entity that claims to have been a party to a transaction and now claims an asset as a result.
These sections are the beginning point for discovery and the foundation for objections when “business records” are proffered at trial as exceptions to the hearsay rule.
The big question is whether the transactions that are represented in court as loans or assignments or endorsement are actually reflected on the general ledger, bookkeeping records and accounting records of the party who was supposedly involved in any of those transactions is proffering false testimony or fabricated documents into evidence.
The answer is simple: based upon reliable sources the facts are that the big banks have produced a convoluted set records of loosely connected entities. One fact is clear: the acquisition of loans is generally not found in their records nor supported by any entry reflecting a financial transaction. The little originators and banks are generally buried after having gone out of business, but the ones that are left will show that most originated “loans” did not result in the flow of cash from the originator to the alleged borrower.
My recommendation is that foreclosure defense attorneys employ the use of CPA’s who have specific auditing experience and knowledge. The testimony of these experts might be invaluable to the discovery process and lead the opposing side to soften their approach.

The Banker That Used Bailout to Buy a Condo

Just a short note on this. Think about it. Why would he have taken the money and used it for a condo when he had to cover bank losses on mortgage loans that were in default?

Answer: the bank had no losses, so there was nothing to account for.

This money wasn’t income. It couldn’t be booked as capital contribution, but his use of it to buy a condo didn’t harm the bank one bit. Their balance sheet is unchanged.

My guess is that if he asked an attorney familiar with accounting for banks, he would have suggested that the bank use the money to buy something that can be capitalized on the balance sheet.

Otherwise the financial statements look cooked by the receipt of “bailout” money when there were no losses to bailout. There were no losses to bailout because his bank never assumed the risk of loss on the subject securitized loans.

His bank never advanced any funds for the loans. His bank never used its credit to fund the loans. His bank was most probably an originator who was paid for services rendered. What services? The service of acting as though they were the lender when they were not. My guess is that unless they get him on some technicality his prosecution and sentence, if any, will be light.

Banker Used Bailout Money To Buy Luxury Condo

Aztec Foreclosure Corp Antics Analyzed


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE


In California, OR, WA, CO (non judicial states) place an Automatic Stay one must file Bankruptcy “BK” which stops notice of defaults?
sadly allowing substitute trustee to act as robo-mill and includes bank attorneys who don’t have to reveal ‘security’ the mortgage note as collateral attached.

‘substitute’ trustees file falsified documents as does the documented LPS/DOCX employees, just the employee may be a contractor such as Aztec Foreclosure Corp.

The falsified documents as required by the BK courts excludes the same transactions in judicial states just the ‘Trustee’ and Substitute Trustee don’t have to disclose the ‘name of the loan trust, trust fund, certificates, the ‘mortgage note’ as collateral attached inside and sliced and diced when sold to FREDDIE MAC and others Institutional Investors.

You are forced to fight harder under COTA and Accounting GAAP to reveal what is not recorded with county recorder. You are forced to fight pro pe and when 90 days in default of any amount, the SERVICER of the asset as a receivable – advances funds and tracks the debt they will claim when they liquidate your mortgage.
You are fighting with the ‘Servicer’ who has to advance funding to the ‘Master Servicer’ get it! The party before BK does not have legal standing and the CA Courts ignore? WHY?

Aztec Foreclosure Corp

Aztec Foreclosure Corporation is a full service foreclosure trustee concentrating its practice in the representation of mortgage lenders and other financial institutions in foreclosure of residential real estate collateral in the States of California and Nevada.

Aztec Foreclosure Corporation of Washington is a full service foreclosure trustee serving the State of Washington.

Who is Robbie Weaver Office Manager in CA and Elaine Malone Foreclosure Supervisor? Who is the ‘attorney’ providign due dilligence? Kelly D. Sutherland ‘Managing Attorney’ in state of Washington? Is she licensed to practice in CA?

Look at the 21 Pages of Completed RESALES of Properties!
Please take NOTICE that
THe ‘LIST’ 21 pages of sales REPORT generated by data extracted from databases in which somebody programmed the appearance of the data in a report form all CREATED BY A COMPUTER

WHO WAS AT THE SALE? WHAT ‘TRUSTEE’ SIGNED C/O …. generated 8/12/2011 @ 3:00:50 PM

Report Date 8/12/2011 (Note the report is generated bya computer from database) organized by Case#, Sale Date, Property Address, Bids in which then the ‘security’ identified. Get that information while you are in BK!

http :// www . aztectrustee . com / Reports / CAZ_WebCompSalesRpt . pdf

Aztec Foreclosure Corporation | Professional Foreclosure Trustee Serving California and Nevada

Aztec Foreclosure Corporation of Washington (Washington State only)

Aztec Foreclosure Corporation has the necessary experience working with lenders to protect their delinquent mortgage assets. Our tenured staff has assisted lenders in their default management department, providing unique insight and an ability to better communicate with our clients. Our knowledge and experience extends beyond the routine foreclosure process into the daily operations of the default management industry. Aztec Foreclosure Corporation of Washington provides the same services in the State of Washington.

Notice of Default – State of California
Upon receipt of the foreclosure referral package, the Notice of Default (“NOD”) is prepared and forwarded to the title company for recording along with the executed Declaration from the lender. Recoding of the NOD constitutes ‘first legal’ when recorded. Once recorded, a copy of the NOD and Declaration will be mailed to all parties to the Deed of Trust and parties having recorded a request for notice.

A Trustee Sale Guarantee (“TSG”) will be ordered from the title company and reviewed upon receipt that will disclose all parties entitled to notice, as well as any other encumbrances recorded against the Deed of Trust and reviewed for any possible defects which may exist that would prevent continuation of foreclosure. The one-month mailing notices are sent to any parties requiring notice.

Notice of Sale
A Notice of Sale (NOTS) will be recorded in the appropriate county and all parties requiring notice will be sent certified and regular mailings of the upcoming foreclosure sale date. The NOTS will be published for three successive weeks in a newspaper of general circulation for the city and county the property is located. A copy of the NOTS will be posted on the property itself and recorded in the county recorder’s office. The sale will be conducted at the time and place set forth on the NOTS.

Bidding instructions will be requested from the client and should be submitted to our office no later than 5 days before the scheduled sale date. Aztec will bid according to the client’s instructions. If there are no competitive bidders, the interest of the property will revert to the beneficiary. Third party bidders must outbid the beneficiary to obtain the property, and the sale proceeds are distributed in the order of priority, with the beneficiary being satisfied first.

The sale may be postponed pursuant to the client’s instructions without an additional publication. The sale may be postponed up to a maximum of 365 days after the original sale date. After that a new publication will have to be set with a new sale date, mailings, etc.

There is a 3 month redemption period that must run from when the NOD is recorded before a foreclosure sale can be set. Effective June, 2009, CA implemented the CA Foreclosure Prevention Act which required an additional 90 days of redemption:

On February 20, 2009, Governor Schwarzenegger signed ABX2 7 and SBX2 7, which establish the California Foreclosure Prevention Act. The California Foreclosure Prevention Act modifies the foreclosure process to provide additional time for borrowers to work out loan modifications while providing an exemption for mortgage loan servicers that have implemented a comprehensive loan modification program. Civil Code Section 2923.52 requires an additional 90 day period beyond the period already provided before a Notice of Sale can be given in order to allow all parties to pursue a loan modification to prevent foreclosure of loans meeting certain criteria identified in that section.

A mortgage loan servicer who has implemented a comprehensive loan modification program may file an application for exemption from the provisions of Civil Code Section 2923.52. Approval of this application provides the mortgage loan servicer an exemption from the additional 90-day period before filing the Notice of Sale when foreclosing on real property as designated by this Section.

Upon expiration of redemption, sale, publication and posting dates will be set. The sale cannot be held until the expiration of 21 days from redemption.

The sale will be conducted at the time and place set forth on the NOTS. Aztec will bid according to the client’s instructions. If there are no competitive bidders, the interest of the property will revert to the beneficiary. Third party bidders must outbid the beneficiary to obtain the property, and the sale proceeds are distributed in the order of priority, with the beneficiary being satisfied first.

The sale may be postponed pursuant to the client’s instructions without an additional publication. The sale may be postponed up to three times at the request of the beneficiary, after which it will be necessary to republish a new sale date.

Conveyance & Final Title
After the foreclosure sale is conducted, a Trustee’s Deed Upon Sale is issued by Aztec conveying title to the successful bidder. If the property reverts to the beneficiary, it is sent for recording within a few days of the sale. If a third-party purchases the property, the unrecorded Trustee’s Deed will be sent to the address specified by that party.

If the property is to be conveyed to the Secretary of Housing & Urban Development (“HUD”) or Secretary of Veterans Affairs (“VA”), a Grant Deed from the beneficiary to the agency is sent to the client for execution prior to the sale.

After receipt of the Grant Deed, if it is a VA loan, the deed is sent for recording immediately. Aztec will order a title policy and forward it to VA within their required time line. If it is a HUD loan, Aztec will await instructions to record the deed to HUD. Prior to the deed recording, Aztec will obtain tax and lien information to verify if title is clear before recording the HUD deed. When all taxes and liens are cleared, with the client’s instructions, the deed is recorded. Once recorded, the title policy is obtained and forwarded to HUD within their required time line. The clients are given copies of the title polices and recorded deeds.

The only post-sale right of redemption occurs when an IRS tax lien is recorded against the property. Once the sale is held, the lien is extinguished, but the IRS retains a 120-day right of redemption. During this time frame, the IRS has the right to purchase the property.

Reinstatement and Payoff
The trustors, owners and junior lienholders have a statutory right to reinstate the loan up to five business days prior to the sale. The beneficiary may waive the five-day limit and accept reinstatement at any time prior to the sale. Reinstatement must be tendered in the amount of all sums due the lender plus all foreclosure fees, costs and any attorney’s fees and costs incurred.

Deficiency Judgment – State of California
The right to a deficiency judgment following the foreclosure sale is limited by anti-deficiency legislation. Under California Code of Civil Procedure Section 508b, there can be no deficiency judgment on foreclosure of a purchase-money mortgage or trust deed. Also, under Section 580d, one cannot seek a deficiency after a non-judicial foreclosure sale.

The anti-deficiency rule does make a distinction between vendors and third-party lenders. The vendor is precluded from seeking a deficiency judgment where his loan secures payment of the balance of the purchase price of real property. In respect to a third-party lender, the anti-deficiency rule applies only to a dwelling of not more than four families given to secure repayment of a loan that was used to pay all or part of the purchase price of such dwelling occupied entirely or in part by the purchaser.

Deficiency judgments may be obtained if the obligation is not subject to California Code of Civil Procedure, Section 580. These cases are outside the scope of this synopsis.

Eviction – State of California
The eviction process is initiated by serving the owners/trustors with a three-day Notice to Quit. All other occupants must be given a sixty-day Notice to Quit.
After the 3/60 day period has expired and if the property is still occupied, a Complaint for Unlawful Detainer is filed. The summons and complaint are sent for service upon all defendants. The requisite personal or substitute service of process may take up to two weeks. In cases where service cannot be effectuated, application is made to the court for permission to serve by posting and mailing the summons and complaint to the property.

Defendants have five days to answer the complaint after service, plus ten extra days if service was made by substitute service or posting and mailing. If the defendants do not respond timely, a default judgment is entered. If defendants file an answer and contest the action, a motion for summary judgment is filed and usually granted within two weeks. In those infrequent cases in which summary judgment is not granted, a trial date is requested. A judgment and writ for possession are submitted to the court within 48 hours of a trial, granting a motion for summary judgment or a default judgment is entered. The court is requested to forward the writ to the marshals for posting on the property. Processing of the writ and posting take approximately two weeks.

The defendants have five days to vacate after posting of the writ. The marshal then returns to the property to physically remove the occupants. The servicer must arrange to have a representative present to take possession and secure the property. The majority of eviction cases that are former owner occupied are completed within 60 to 75 days.



Washington Staff:

Kelly D. Sutherland
Managing Attorney
360.260.2253 ext 281

Leslie Seidman: Lighting Up a Dark Room at the FASB

Leslie F. Seidman
Chairman, FASB


You probably don’t know the name Seidman, much less  Leslie Seidman. But back in the 1960’s when the accounting rules were first being changed (causing Briloff to write the book Unaccountable Accounting), the Seidman accounting firm was one of the few who understood the significance and moral hazard of what was being laid at the foundation of required disclosure and certification of financial statements. Neither Seidman nor Briloff got the attention they deserved because they were bearing messages that nobody wanted to hear. The usual excuses of apparent “transparency” and facilitating free flow of capital and commerce were used to justify giving management the right to basically tell you what you wanted to hear if you were holding the stock or bond, or to induce you to buy if you were a prospective investor.

The eventual changes were monumental in scope, misleading in nature and essentially legitimized fraud on the securities exchanges, which had a catalytic effect on the fringe shadow markets where regulation was already spotty at best.

Now through a fluke of circumstance, Leslie Seidman has become chairman of the Financial Accounting Standards Board, and stands in a position similar to Elizabeth Warren, to change the way business is reported on Wall Street — a fact making many people nervous all over the world of finance. The FASB makes the rules on generally accepted accounting practices (GAAP). She has no incentive that we know of to do anything but the job to which she was appointed, without favoritism to Wall Street, business or anyone else. And she stands a good chance of re-appointment when her term runs out after the previous chairman suddenly stepped down.

This time there is a light at the end of the tunnel and it’s name is Seidman — a long-standing reputable name in the field of accounting. Let’s hope she is able to push through the reforms required to bring us back to days when we could actually know the condition of companies, cities, states and the federal government. Maybe we could even bring to light “selling forward” and price earnings ratios on “forward earnings”. The possibilities are endless. You may not know the name Leslie Seidman, but if the U.S. regains respect in the world of finance, it will be because of people like Seidman, Shapiro at the SEC, and Warren at the Consumer Protection Agency.


Leslie F. Seidman was named Chairman of the Financial Accounting Standards Board (FASB) by the Financial Accounting Foundation, effective December 23, 2010. She was originally appointed to the FASB in July 2003 and reappointed to a second term in July 2006.

As Chairman of the FASB, Ms. Seidman is responsible for managing the organization’s day-to-day activities and leading the Board’s efforts to develop high-quality financial reporting standards that result in decision-useful information for investors and other users of financial statements.

From 1994–1999, Ms. Seidman was a member of the FASB staff. She initially joined the organization as an Industry Fellow, after which she served as a Project Manager and as the Assistant Director of Research and Technical Activities. As Assistant Director, she supervised staff members dealing with implementation and practice issues, including the FASB’s Emerging Issues Task Force, and had liaison responsibilities for the Securities and Exchange Commission and the regulators of financial institutions.

In between her two tenures at the FASB, Ms. Seidman founded and managed a financial reporting consulting firm, serving corporations, accounting firms and other organizations. Prior to her Fellowship at the FASB, Ms. Seidman was a vice president in the accounting policies department of J.P. Morgan & Co. Inc., where she was responsible for establishing accounting policies for new financial products, particularly securities and derivatives, and analyzing and implementing new accounting standards. Ms. Seidman started her career at Arthur Young & Co. (now Ernst & Young, LLP), as a member of the audit staff, serving clients in the retail, publishing and venture capital industries.

A member of the AICPA, the American Women’s Society of CPAs, and the Institute of Management Accountants, Ms. Seidman earned an M.S. degree in accounting from New York University and a B.A. degree in English from Colgate University.



Lehman Execs and Auditors Face Civil and Criminal Inquiries and Lawsuits

This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.

EDITOR’S NOTE: Surprised? Other than the people who thought they would not get caught, who is surprised by the fact that upon close scrutiny Lehman’s books were cooked and Ernst and Young “auditors” went along with it? Ask any “Joe” or “Jane” in the street if they are surprised.

So a few scapegoats are going to jail in the usual perp walk while most of the “masterminds” walk away with taxpayer money jingling in their pocket, with homeowners being bounced from their homes, with the economy in a death spin, and while their wallets bursting with cash, are replaced with more wallets in more places with more pockets.

Let’s put it very simply: If the experts are surprised they are not experts. Or, if they are experts, they are co-conspirators. To paraphrase Brad in the survey workshops they were either stupid or just plain lying.

But I didn’t post this because I am angry and outraged over the behavior of Wall Street, regulators, congress and the Obama administration. The reason I write this is to highlight the fact that persistence pays off. What was unthinkable, crazy, conspiratorial 3 years ago when i first started writing on this subject is now being accepted as axiomatically true.

If you persist in challenging the pretender lenders and demanding that the real creditor step forward, if you persist in getting a full accounting from the creditor (investor) down to the the debtor (borrower, homeowner), then you will magnify your chances of prevailing against a fraudulent foreclosure. Nearly all of the foreclosures during the past 3 years were fraudulent. Millions of people are thinking of their old homestead while they probably still own it, even though they left or were evicted.

Get your facts together, get that forensic analysis, get an expert to declare the truth, and get a lawyer who either understands securitized mortgage loans or is willing to learn. And don’t stop, don’t give and don’t leave until the last option of the last move has been played — because it is only THEN that the other side will cave in and offer you a reasonable settlement. And even then you still need to go to court with a quiet title action because the people offering you the deal are NOT your creditor and don’t know the name(s) of your creditor much less represent them.

March 12, 2010

Findings on Lehman Take Even Experts by Surprise


For the year that it took the court-appointed examiner to complete his report on the demise of Lehman Brothers, officials from Wall Street to Washington were anticipating it as the definitive account of the largest bankruptcy in American history.

And the report did just that when it was unveiled on Thursday, riveting readers with the exhaustive detail contained in its nine volumes and 2,200 pages. Yet almost immediately, it raised a host of new questions.

Now government regulators have what some lawyers call a road map for further inquiry into former Lehman executives like Richard S. Fuld Jr. and the auditing firm Ernst & Young.

Whether the Justice Department and the Securities and Exchange Commission will actually pursue their own legal actions is unclear. But legal experts said on Friday that the examiner, Anton R. Valukas, had provided plenty of material for civil regulatory action at the least with his findings of “materially misleading” accounting and “actionable balance sheet manipulation.”

“It’s certainly not helpful to any of them,” Michael J. Missal, a partner at the law firm K&L Gates and the examiner in the bankruptcy case of New Century Financial, said of some individuals accused of impropriety in the report. “It certainly assists private litigants and probably increases the pressure on the government to take some kind of action here.”

Representatives for the S.E.C. and the United States attorneys offices in Manhattan and Brooklyn declined to comment.

While Mr. Fuld and other former top Lehman officials are already defendants in a number of civil lawsuits, the new discoveries by Mr. Valukas have taken even veteran observers by surprise. Chief among these was the revelation of a particularly aggressive accounting practice, known internally as Repo 105, that Mr. Valukas said helped the investment bank mask the true depths of its financial woes.

Examiners in bankruptcy cases are appointed by the Justice Department to investigate accusations of wrongdoing or misconduct. Their job is to determine whether creditors can recover more money in these cases, and their findings often serve as guides for more lawsuits and even regulatory action.

What examiners are not asked to do is play judge and jury. Though the report contains strong language — Mr. Valukas deems Mr. Fuld “at least grossly negligent” in his role overseeing Lehman — it stops short of accusing anyone of criminal conduct or of violating securities law.

Patricia Hynes, a lawyer for Mr. Fuld, said on Thursday that her client “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.” She did not return an e-mail seeking additional comment on Friday.

Mr. Valukas’s findings have stirred loud discussion among legal and accounting experts over the ways Lehman sought to improve its quarterly results months before it collapsed.

Over hundreds of pages, Mr. Valukas details the genesis of and the process behind Repo 105. Based on standard repurchase agreements — short-term loans commonly used by many firms for daily financing needs, in which borrowers temporarily exchange assets in return for cash up front — Lehman took a particularly aggressive accounting approach to these transactions.

Here, the investment bank used repos to temporarily park assets off its books to make its end-of-quarter debt levels look better than they did — while calling them sales instead of loans.

The accounting tactic, first used by Lehman in 2001, had one catch, according to Mr. Valukas: no American law firm would sign off on its use.

Enter Linklaters, a highly respected British law firm that gave Lehman the answer it wanted. So long as the repos were conducted in London through the bank’s European arm, and so long as the company took other cosmetic steps to make these transactions appear to be sales instead of financings, Linklaters determined that they would pass regulatory muster.

A spokeswoman for Linklaters said on Friday that the firm was not contacted by Mr. Valukas and that its legal opinions were not criticized in the examiner’s report as wrong or improper.

Lehman also had the backing of Ernst & Young, which certified the bank’s financial statements despite receiving warnings from a whistle-blower who said there were accounting improprieties. An Ernst & Young spokesman said on Thursday that the firm stood by its work for 2007, the last year it conducted an audit of Lehman’s financial results.

But Lynn E. Turner, a former chief accountant for the S.E.C., accused Ernst & Young of abdicating its responsibility to the audit committee of Lehman’s board by not presenting the concerns.

“This is pretty aggressive and pretty abusive. I don’t know how under GAAP this follows the rules whatsoever,” he said, referring to Generally Accepted Accounting Principles.

“That reeks of an auditor who, rather than being really truly independent, is beholden to management,” he said, adding that the S.E.C. and the Justice Department should follow up on Mr. Valukas’s findings.

Executives at other Wall Street banks professed surprise at Lehman’s accounting maneuvers. Goldman Sachs, Barclays Capital and other banks said on Friday they did not use repos to hide liabilities on their balance sheets.


From “Anonymous”

Editor’s Post: It’s always a pleasure to read something where someone actually knows what they are talking about. The following post was picked up from the comments. The key points that are relevant to the Qualified Written Request and Discovery are

1. In the shuffling of paperwork, where was a “true sale” of the pool , a portion of the pool or any of the alleged loan obligations?

2. This material doesn’t come from someone’s head. It comes from established rules from the Financial Accounting Standards Board, statutes and administrative rules.

3. If the “loan” doesn’t show up on the balance sheet of the entity making a claim it is an admission that they are not a creditor. This takes some digging. Individual loans are a rarely shown on any balance sheet. They are shown on the worksheets or the equivalent of the bookkeeping department and the accountant who prepared the financial statements. Deposing the accountant for the company in question might get you the information you need and make the other side pretty nervous that you are zeroing in on their game. Deposing the Treasurer or CFO might get you even more. In many cases these entities NEVER booked any loans. They ONLY showed fees on their income statement which means that they admit they only provided a service (to whom?) in passing the “loan” through as a conduit.

4. Timing of the “assignments.” Besides the obvious fabrications that have been discussed in these pages, if you actually demand and get the enabling documents you will find, most of the time, that the requirements have NOT been met for acceptance of the assignment. The author points out that there is usually a 90-day rule, after which the the assignment is by definition not accepted. But there are other requirements as well, especially the one that says that the assignment must be recorded or in recordable form, which generally speaking it is not.

5. The sale, according to the paperwork, is to the underwriter, not the “Trust” (SPV). So you have a right to challenge the assertion that the “Trustee” is a Trustee, that the “Trust” is a trust and that there is anything in the trust. But I would add that the PRACTICE here was the selling forward of the mortgage backed security which means they were selling something they didn’t have. So the LEGAL title to the paper MIGHT not inure to the benefit of the holder of the mortgage backed bond; but it is equally true that they already “promised” the investor that they WOULD own the “loans”, and the investor is the only one who advanced money (and thus the only one meeting the definition of creditor). Hence there MUST be an equitable right by MBS holders to make a claim — the question being against whom — the homeowner, the investment banker or someone else? Your point in Court should NOT be to try to cover this abstractly with the Judge but only to have an expert witness that would make the assertion backing up your allegations. Your strategy is simply to say that according to the information you have there is a question of fact before the court as to what entity, if any, has this loan on their balance sheet? That is a question for discovery. And once that entity has been identified then you would want to discover the claims of third parties who could or would make a claim on that “asset.”

6. The author’s statement that the investor does not show the loan on its balance sheet is therefore both right and wrong. The investor bought a bond that is payable by an entity that issued the bond. That entity is not the homeowner and therefore it could be argued that the homeowner, who was not party to that transaction, does not have any obligation to the investor and that therefore the entry on the balance sheet of the pension fund investor would not account for the “loan.” BUT, the bond contains a conveyance of a percentage interest in a pool (which as we have seen might not exist), which purportedly includes “loans” of which the Homeowner’s deal was one. Thus effectively the ONLY party who could make an accounting entry for the loan in compliance with generally accepted accounting practices, is the investor. It comes down to the most basic of double entry bookkeeping practice. A debit from cash and a credit to receivables.


The “true sale” concept was the focus of FASB 166 and 167. Once the market crisis hit, intervention to support the SPVs rendered any “true sale” negated because there can be no intervention under a true sale.

Also, Mike H. is right regarding REMICs and ninety-day rule. A REMIC is a static fund and no mortgages can be added after 90 days (very limited exception). Many assignments are long after the 90 days and some are not even effectuated to the cutoff date (or 90 day rule) of the REMIC. Even if effectuated, and due to the dissolution of REMIC (violation of “true sale” by intervention), assignments are not valid. The problem is that if the loan is in default, it is no longer a pass-through security held by any trust. It has been removed.

As a result, assignments presented by foreclosure attorneys in court is probably not the LAST assignment. As discussed, collection rights are sold after the swap is paid.

Although courts view assignment and sale as the same thing for collection rights. It is not the same thing. In the process of securitization the mortgage loans are SOLD to security underwriters (we never see this sale in the chain), and the cash flows passed-through are assigned. The security underwriter still has the loan on their books (even if concealed by off-balance sheet conduit). Once in default, the loan is charged-off, and is no longer an asset, and the assignment of cash flows is also extinguished..

Again, the Federal Reserve, in Interim Opinion for TILA Amendment, has emphasized that the creditor is the one who must account for the loan on their balance sheet. It is not investors that have beneficial interests in REMICS, Pass-throughs, or any other security. Question is – who now is accounting for collection rights on it’s balance sheet. Who was accounting for rights at time of foreclosure initiation. How much did they pay for those rights??

There seems to be much confusion regarding the word “investor.” For beneficial interest in securities one may be called an “investor”. But this investor does not account for mortgage loan on its books. In terms of mortgage loan ownership, “investor” may also be used instead of “creditor.” But this investor accounts for mortgage loan (or collection rights) on its books – that is the investor you want to know.

Any last assignment recorded is likely NOT the actual last assignment executed. Foreclosure attorneys ignore this because they reason that the default derivatives attach the current owner/investor to the original trust. This is false – as derivatives are not certificates and not securities – and not part of the trust. The default loan is gone from the trust – gone from banks books – and in the hands of some “investor” who saw profit potential in the collection rights to the default loan. This what the government not only concealed, but also promoted to help the banks “clear” their off/on balance sheets of “toxic assets.”

Finally, Neil is right about sentiment in courts. Going in and asking for a “free house” will harm you. Sentiment in country in not on our side due to media propaganda. I have a long time friend in a prestigious private equity firm. Sentiment is that if anyone gets a principal reduction it is unfair because everyone should then get a principal reduction. People not affected by foreclosure fraud just do not get it. It is always all about “me” – even if they have not been harmed. I do not know how we are going to change this thinking – but if we do not – we will continue to get no help from government and lose in courts. Need a big case, with a judge that grants and enforces full discovery, in order to change the sentiment.

Bully Bonus: $11.7 Billion JPM

“Each year they will launder more money back into the system and back onto the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.



This is the start of the REST of the scheme. Gradually repatriating income that was previously undeclared. $23.7 trillion was skimmed largely by the four horsemen of the Apocalypse. All that taxpayer money, in cash, obligations and guarantees went out because these banks were “too big to fail” and we accepted the proposition that they were failing when in fact they were sitting on more money than the government had. The “loss” was an accounting loss allowable by changes to generally accepted accounting principles (GAAP), deregulation and failure of the SEC to enforce the most basic elements of disclosure. They called it “off-balance sheet” transactions.

Now they they are laundering the money back in and giving themselves bonuses out of the taxpayer money they obtained through misrepresentation of their REAL financial status.

Each year they will launder more money back into the system and back on the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.

They have no trouble taking their bonuses in stock. They know the stock will be ever higher and higher and the price earnings ratios will go up, multiplying the effect of the higher earnings. They know it just as surely as they knew the loans would fail, that their influence in Washington was strong enough with the Bush administration to get free money for fake losses, and that their tacit agreement to let non-creditors sue on defective loans as hush money would keep the cycle going.

President Obama told the big four that the only thing between them and pitchforks from the populace was him and he was doing his best to maintain order. But they don’t get it and they won’t get it because they think, perhaps correctly, that they will get away with the multiple phase scheme to drain America dry. Get out the pitchforks or watch your country dry up into a memory.

What does this mean for litigation and discovery. Plenty. The offshore SIV’s are the vehicle through which this money was sequestered and they are the vehicles through which the money is being laundered back in. That is why you must emphasize that you want the WHOLE accounting and not just the part about the records of the servicer, master servicer or some other intermediary in the securitization chain. They will try to keep the court’s attention on the non-payment of the borrower while you are trying to get a full accounting of the money from the start of the transaction all the way from debtor through creditor.

To use a simple analogy, suppose you had a five year loan and you prepaid the principal at the rate of $1,000 per month for the first three years.

Now they come in and want the court only to look at the total obligation and the fact that you missed the last three payments but they refuse to allow you access to an accounting that would prove the total principal has been reduced by your previous prepayments of $36,00 in addition to the regular amortization contained in your regular monthly payments.

Now add the fact that after the closing they realized that they had overcharged you on points for the loan and other charges, and they sent you a letter to that effect but the credit doesn’t show up in the demand, their notice of default of their foreclosure.

You have a right to demand discovery based upon your allegation that there were was money paid and that there are adjustments due in the accounting and that they have only offered a partial accounting, their demand letter was incorrect and so was their notice of default. What I am suggesting is that all of the above may be true PLUS there may have been debits and credits arising from third party transactions with participants in the securitization chain that you are only just learning about and you have a  right to discovery about that too.

REMEMBER: At this stage you are RAISING the question of fact, not proving it. You don’t have to be right to be entitled to discovery. You only have to make an allegation and it helps to have an expert declaration to go with it. Your goal is not to get the Judge to agree that these people can’t foreclose. Your goal is to get to the truth about your loan, the parties and all the money that exchanged hands. At the conclusion of discovery, properly conducted, and with the help of an expert, the case could very well be over.

New York Times

January 16, 2010

JPMorgan Chase Earns $11.7 Billion

JPMorgan Chase kicked off what is expected to be a robust — and controversial — reporting season for the nation’s banks on Friday with news that its profit and pay for 2009 soared.

In a remarkable rebound from the depths of the financial crisis, JPMorgan earned $11.7 billion last year, more than double its profit in 2008, and generated record revenue. The bank earned $3.3 billion in the fourth quarter alone.

Those cheery figures were accompanied by news that JPMorgan had earmarked $26.9 billion to compensate its workers, much of which will be paid out as bonuses. That is up about 18 percent, with employees, on average, earning about $129,000.

Workers in JPMorgan’s investment bank, on average, earned roughly $380,000 each. Top producers, however, expect to collect multimillion-dollar paychecks.

The strong results — coming a day after the Obama administration, to howls from Wall Street, announced plans to tax big banks to recoup some of the money the government expects to lose from bailing out the financial system — underscored the gaping divide between the financial industry and the many ordinary Americans who are still waiting for an economic recovery.

Over the next week or so, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are expected to report similar surges in pay when they release their year-end numbers.

But not all the news from JPMorgan Chase was good. Signs of lingering weakness in its consumer banking business unnerved Wall Street and drove down its share price along with those of other banks.

Chase’s consumer businesses are still hemorrhaging money. Chase Card Services, its big credit card unit, lost $2.23 billion in 2009 and is unlikely to turn a profit this year. Chase retail services eked out a $97 million profit for 2009, though it posted a $399 million loss in the fourth quarter. To try to stop the bleeding, the bank agreed to temporarily modify about 600,000 mortgages. Only about 89,000 of those adjustments have been made permanent. In a statementon Friday, Jamie Dimon, the chairman and chief executive of JPMorgan, said that bank “fell short” of its earnings potential and remained cautious about 2010 considering that the job and housing markets continued to be weak.

“We don’t have visibility much beyond the middle of this year and much will depend on how the economy behaves,” Michael J. Cavanagh, the bank’s finance chief, said in a conference call with journalists. Across the industry, analysts expect investment banking revenue to moderate this year and tighter regulations to dampen profit. As consumers and businesses continue to hunker down, lending has also fallen.

Just as it did throughout 2009, JPMorgan Chase pulled off a quarterly profit after the strong performance of its investment bank helped offset large losses on mortgages and credit cards. The bank set aside another $1.9 billion for its consumer loan loss reserves — a hefty sum, but less than in previous periods.

That could be a sign that bank executives are more comfortable that the economy may be turning a corner. The bank has now stockpiled more than $32.5 billion to cover future losses. Still, Mr. Dimon warned that the economy was still too fragile to declare that the worst was over, though he hinted that things might stabilize toward the middle of the year. “We want to see a real recovery, just in case you have another dip down,” he said in a conference call with investors. Earlier, Mr. Cavanagh said that the bank hoped to restore the dividend to 75 cents or $1 by the middle of 2010, from 20 cents at present.

Over all, JPMorgan said 2009 net income rose to $11.7 billion, or $2.26 a share. That compares with a profit of $5.6 billion, or $1.35 a share, during 2008, when panic gripped the industry. Revenue grew to a record $108.6 billion, up 49 percent.

JPMorgan has emerged from the financial crisis with renewed swagger. Unlike several other banking chiefs, Mr. Dimon has entered 2010 with his reputation relatively unscathed. Indeed, he is regarded on Wall Street and in Washington as a pillar of the industry. On Wednesday on Capitol Hill, during a hearing of the government panel charged with examining the causes of the financial crisis, Mr. Dimon avoided the grilling given to Lloyd C. Blankfein, the head of Goldman Sachs. Mr. Dimon was also the only banker to publicly oppose the administration’s proposed tax on the largest financial companies.

Moreover, JPMorgan appears have taken advantage of the financial crisis to expand its consumer lending business and vault to the top of the investment banking charts, including a top-flight ranking as a fee-earner. Over all, the investment bank posted a $6.9 billion profit for 2009 after a $1.2 billion loss in 2008 when the bank took huge charges on soured mortgage investments and buyout loans.

The division posted strong trading revenue, though well short of the blow-out profits during the first half of the year when the markets were in constant flux. The business of arranging financing for corporations and advising on deals fell off in the last part of the year, though Mr. Cavanagh said there were signs of a rebound in the first two weeks of January.

As the investment bank’s income surged, the amount of money set aside for compensation in that division rose by almost one-third, to about $9.3 billion for 2009. But JPMorgan officials cut the portion of revenue they put in the bonus pool by almost half from last year.

The division, which employs about 25,000 people, reduced the share of revenue going to the compensation pool, to 37 percent by midyear, from 40 percent in the first quarter. The share fell to 11 percent in the fourth quarter because of the impact of the British bonus tax and the greater use of stock awards.

Bank officials have said that they needed to reward the firm’s standout performance, but to show restraint before a public outraged over banker pay. Other Wall Street firms may make similarly large adjustments.

Chase’s corporate bank, meanwhile, booked a $1.3 billion profit this year, even as it recorded losses on commercial real estate loans. Still, that represents a smaller portion of the bank’s overall balance sheet compared with many regional and community lenders. JPMorgan’s asset management business and treasury services units each booked similar profits for 2009.

Bostonian of the Year: Elizabeth Warren, Watchdog

Editor’s Note: Thanks to Allan again. If there is one person in a relatively high position who has understood the subprime crisis, acquired the information on securitization, named the villains and described their practices separating honest people from their money it is Elizabeth Warren, whose was barely heard over the din of back-slapping during the roaring mortgage meltdown. She understood the basics and the the long-term consequences but she was largely ignored because her message did not put a “happy face” on the ending.

As Chairman of the Congressional Oversight Committee for the TARP funds, she has steadfastly sought answers to questions that need to be answered before we can even think or consider ourselves past this crisis. She can’t get those answers. She needs your help. Write to your congressman and senators (yes, it DOES work when enough people do it) and tell them to support Elizabeth Warren’s efforts to give answers to the most basic of questions: where did the TARP money go? Did TARP cover losses on “troubled assets” or bets that the troubled assets would tank? Where is the rest of the money from the mortgage meltdown period? Were the losses proclaimed by the Bush Treasury Ex-Goldman CEO real (or was this another “weapon of mass destruction”)? Ms. warren wants answers so she can give Congress and the American people information they need, even if they don’t want to hear it.

All evidence points to some obvious conclusions. The TARP money was the cherry on top of a giant cake that Wall Street baked and ate. There were no losses because they had not advanced the money for the mortgage loans. And they rigged the system so that the hedge bets they made through credit default swaps went into their own pockets, instead of the investors who put up the money (i.e., the ones who parted with real cash). Their premise was simple —- why take the risk of trying to make good loans perform well when you can make a whole lot more money making bad loans, making sure they go into default and placing bets that the loans will fail? The proof of the pudding is in the results. Goldman now takes the position that they could have survived the credit squeeze without the TARP money because now it suits them to say it. One year ago they were screaming “fire!”

Now they are also taking advantage of a rigged system wherein the proceeds of foreclosure sales also go to the intermediary players and not to investors and they won’t let the homeowner bid on his own property when they have rigged the sale to go to a friend at a triple distressed discount, at a price set moments before the bidding commences.

2 years ago I said that the Wall Street Banks were going to declare fictitious losses to cover ill-gotten gains leaving the investors and homeowners as the stooges in their virtual money game of synthetic derivatives and related instruments. The stock market would crash for many reasons, the housing market would dissolve into quicksand, and in the end, the Wall Street Banks would start declaring a portion of the trillions of dollars they made —seemingly out of nowhere. Despite the decrease in the movement of money from which Wall Street earns its “fees”, they would declare higher profits.

Each year they will declare a little more and bring it back on shore unless there is more money in keeping it off shore. Each year their stock will appear to rise in value because of profits they made years before but hid from everyone with “off-balance sheet” (read that as unreported, because they were allowed to do it) transactions that will gradually be reunited with the main company when and if it suits them to do so. When they want their stock to go up, they will release good earnings news — made possible by absurd changes in the rules of generally accepted accounting principles.

Most of the business world and therefore the people in government who are run by the business world don’t want to think about these things and refuse to speak about them out loud (Marcy Kaptur D-Ohio, a notable exception). The facts point to a single conclusion that leaves a crater in our American idealism: an act of domestic and international terrorism was spawned and directed from Wall Street killing the futures, the lives and the hopes of millions of people. These were people on pensions, where their pension fund manager invested in these crazy exotic toxic securities. And they were people with homes that were paid for, or new home buyers who invested their life savings and their home into a scheme they knew nothing about. The losers are the investors and the homeowners. Restore them and you restore confidence. Restore them and the ability of the economy to recover is enhanced.

The correction is simple: take it back from Wall Street and give back the losses to those who were defrauded. As long as millions of people are living in homes they will never be able to pay for (because of inflated appraisals that were false on the day of closing) we can never recover. So one of two things needs to happen: either the principal and payments are reduced, or the people simply walk from their homes and rent the house next door for a fraction of their former payments.  Either way, the fair market value of the homes can never be pumped up to the false levels of 2001-2008. The difference is whether the inside club will be allowed to trade in these houses for pennies on the dollar because they have no money in the deal or if the courts (and the media) start demanding the truth, case by case. They will discover that the real creditor, the investor is not making a claim for collection on the obligation, the note or foreclosure of the mortgage. Why? And if the the investor is the real creditor, then who are these people who are pushing through millions of foreclosure sales?


The Watchdog: Elizabeth Warren

It seemed as if the banks and other firms got a $700 billion bonanza and the American taxpayer got the shaft. But along came this straight-shooting Harvard professor to oversee the bailout, someone who pledged to look out for the middle class and brought a sense of sanity to the economic crisis. For this we give her our top honors this year.

By Charles P. Pierce | December 20, 2009 A.D.

There are many ways to become our Bostonian of the Year. You could be one of the nation’s preeminent bankruptcy scholars, and a tenured professor of law at Harvard University, and a talking head for Frontline specials and Michael Moore’s latest documentary, and a leading voice decrying the human cost of the current economic morass, and the chairwoman of the Congressional Oversight Panel monitoring the Troubled Assets Relief Program, the TARP that covers a multitude of financial sins. The panel keeps an eye on how the nation’s banks have spent the taxpayer money shoveled into them in the fall of 2008, as well as the destination of the rest of the $700 billion allocated by the government when the economy seemed on the verge of swallowing itself whole. This can set you at odds with secretaries of the Treasury, various ambitious legislators, and laissez-faire economic fundamentalists. Elizabeth Warren has done all that, and has done as much to earn the title Bostonian of the Year as has anyone who was born and raised in Oklahoma. But she has one even more essentially Bostonian accomplishment on her considerable resume — she once shut up basketball fans in Philadelphia.

One night about two decades ago, she and her husband, Bruce Mann, who also teaches at Harvard Law, were attending a game between the 76ers and Warren’s beloved Houston Rockets. (Warren taught at the University of Houston when Hakeem Olajuwon played for a Cougars team memorably dubbed “Phi Slama Jama” for its dunking prowess.) “So Elizabeth is up, cheering, yelling at the ref,” Mann recalls. “And the crowd around is getting kind of, well, restive. They’re saying, ‘Hey, lady, you’re not from around here, are you?’ ” Finally, one of the burlier gentlemen in Warren’s section inquired why she was so passionate about the Rockets. Warren explained her background in Houston. He then determined to quiz her on her bona fides.

Who was the coach of that team, he asked her.

Guy V. Lewis, she answered.

What was his trademark, he asked her.

He carried around a checkered towel, she answered.

(Warren was being kind here. Lewis’s most conspicuous trademark was his staggering incompetence in big games.)

Satisfied, the man sat down and Warren went back to being loud. Gradually, the crowd began to get audibly impatient with her again. Suddenly, the large gentleman stood up and addressed his colleagues.

“Leave the lady alone,” he told them. “She’s got history.”

You can understand that moment when Warren, 60, talks about the political heat inherent in the position she now holds. The great cause of her life has been defending middle-class Americans against what she calls the “tricks and traps” the nation’s financial institutions devise to separate those citizens from their money. She was talking about the dangers of the subprime mortgage binge long before the bubble finally popped. She is equally scornful of how the credit card companies bury their real brigandage under a blizzard of sub-paragraphs and dependent clauses. And ever since last November, when Senate majority leader Harry Reid persuaded her to take charge of the Congressional Oversight Panel, and even though she is aware that the panel does not have any real enforcement powers, Warren has become a burr under the saddle of official Washington — plain-spoken, invariably polite, intolerant of business-school persiflage (“That’s a word we don’t use enough!” she exclaims), and utterly contemptuous of conventional wisdom. These are not qualities that endear you to the courtier set inside the Beltway. Warren got in the face of then Treasury secretary Henry Paulson and stayed there to the point where Paulson’s staff began sniping at her in the newspapers. She gently — but relentlessly — prodded Paulson’s successor, Timothy Geithner, until Geithner dragged himself before the panel to testify.

“We are an experiment here,” she says. “The secretary of the Treasury raced in and said the economy’s on fire. Congress was in the position of having to react rapidly and without much specificity. At the same time, they didn’t want to write a blank check to Treasury, so they hooked oversight to it. The secretary of the Treasury has enormous discretion, but there will be a group appointed to keep evaluating what Treasury is doing, and that group will be required to put out a report every 30 days. We’re supposed to keep planting flags in the ground. You have to prove what you said. I don’t want happy-face conclusions. I want the truth.”

They also are not qualities guaranteed to make you friends among the Masters of the Universe in the financial services industry or among the legislators whom they may have sublet. Her advocacy of a financial product safety commission, a federal watchdog agency to regulate predatory lending, drew howls from small-government conservatives. “That agency is the game-changer,” she argues. “This is the chance to level the playing field between middle-class families and huge financial institutions by making those products work again, by making them as simple as toasters.”

In short, she has been accused of exceeding her mandate, mostly by people who would rather she not have a mandate at all. She has been called an ideologue — mostly, it should be said, by other ideologues. Warren, simply, could not care less. “They were tired of me before I started,” Warren says with a laugh. “I am not looking for jobs with these guys. My job is not to get out there and kowtow to these guys so they’ll be nice to me. I figure this is the one time I will have a true public-service job. I’m going to do everything I can to execute this job the way it ought to be done. If there’s some politician, Republican or Democrat, who has a problem with that, I just don’t care.

“I have no future in this, and I have lifetime tenure [at the Harvard Law School]. What are you going to do to me?”

Perhaps the most dissonant criticism leveled against Warren is that she simply is another Harvard elitist come down from the mount to lecture the rest of us on the way the country should be run. On the wall of her office, framed, is a Pennsylvania newspaper advertisement from August 23, 1882, announcing that Sheriff Joseph Frankenfield would be auctioning off a farm that day, a property owned by folks on whom the bank had foreclosed a mortgage. Gradually, almost imperceptibly, a gentle twang enters Warren’s voice when she talks about this ad. “If you don’t talk about families,” she says, “then it’s easy to disembody subprime mortgages and asset securitization and unemployment rates without remembering that every one of those numbers is a million families.” This is what the guy meant in the basketball arena some 20 years back. The lady has history.

In Norman, Oklahoma, it was the last house on the last road on the far edge of town. Behind it were wheat fields that extended to Texas, or to the Pacific, or to Oz, as best as you could tell from standing in the yard. Elizabeth Warren grew up there, a caboose of a child with three much older brothers. “One was huge and the other two were mean,” she recalls. “I was 30 before I realized, you know, that I probably was an accident. These things just suddenly hit you one day.” Eventually, her father wound up as a maintenance man in an apartment building and her mother did catalog sales for Sears.

Warren was something of a local prodigy, a state champion debater who graduated from high school at 16. One day, having saved up her baby-sitting money, she went to the local convenience store and took out money orders totaling $50 to apply to two colleges — George Washington University and Northwestern — to which she thought she was most likely to get a debate scholarship. She enrolled in the former but left after two years, when, at 19, she married Jim Warren, an engineer with NASA whom she’d been dating since she was 13. He was in Houston, working on the Apollo program, and Elizabeth transferred to the University of Houston to finish her degree. Eventually Jim’s work took them to New Jersey, where he was working on the country’s antiballistic missile program. Spurred by some of the people who had been on the debating team with her, Elizabeth enrolled in law school at Rutgers University. In 1976, she had a JD and new baby and few prospects.

“I graduated law school nine months pregnant and didn’t take a job,” she says. “This was 1976, and I’m thinking that I stepped off the track. So I’m at home, and I thought, ‘I’ll just take the bar exam. What’s the worst that can happen?’ So I took the bar exam and thought, ‘Well, shoot, I’ll just hang out a shingle.’ ” (In this, Warren is being quite literal. The shingle now hangs in her Harvard office, beneath the foreclosure notice from 1882.) She did real estate closings and lawsuits arising from automobile accidents. (Her talent for drawing up a will has yet to be fully tested, because, as far as she knows, nobody for whom she drew up a will has died.) In time, Rutgers asked her to teach a class part time, and Warren found herself a calling. By then, her husband’s job had vanished because the United States had bargained away the ABM system by treaty with the Soviet Union. They moved back to Houston and divorced in 1978. (She met Mann a year later.)

She taught in the law school at the University of Houston and, subsequently, at the universities of Texas and Pennsylvania before landing at Harvard in 1995. But Warren stumbled upon her specialty at her first full-time teaching job in Houston. In 1979, a new code of bankruptcy law went into effect, and Warren shared its details with the students in her first bankruptcy class the next year. Her interest was piqued. “I taught it like a Final Jeopardy question,” she recalls. “If this is the answer, what must have been the problem that people thought this fixed?” She teamed up with another law professor and a sociologist, and the three of them went into the field to study what was happening in the nation’s bankruptcy courts.

“I get this clever idea,” she says. “I’m going to expose these sleazy debtors who are exploiting the bankruptcy system and their poor, hapless creditors and enriching themselves as far as the law allows by going through bankruptcy court. I go out with these other two folks and we start collecting data about the families who are filing for bankruptcy. We end up doing this big study, and it ends up as a book [AS WE FORGIVE OUR DEBTORS]. And it completely turns me around. I knew what I was going to find before I went out there, and I discovered that it doesn’t work that way.”

Warren continued her study of the effect of the macroeconomic financial system on American families. Another book, THE FRAGILE MIDDLE CLASS, examined why most families in bankruptcy would be considered to be middle class by any conventional social indicator, and reported that most of them ended up in dire financial straits due to medical problems, job loss, or the breakup of the family. This led to THE TWO-INCOME TRAP, which she coauthored with her daughter, Amelia. (She also has a son, Alexander.) “It really was about what happened to the middle class over a generation,” she explains. “From the 1970s to the early 2000s, there was a hollowing out of the middle class.”

Over the past two years, in its near-collapse, the financial services industry began to smack not a little of the rigged wheel, and its impact on the lives of American families — particularly as seen through the prism of the subprime mortgage fiasco — appeared to be dire. The issues on which Warren made her career exploded into the national consciousness. She became a sought-after expert, debuting as a pundit — a word that makes her roll her eyes and moan — on the Dr. Phil show. And she minced no words.

“More and more middle-class families realized that what they were experiencing was not unique to themselves, that there were larger social trends,” she says. “And I also think there comes a point where people get tired of hearing the same old stuff from the kind of media machine the financial services industry has been pumping out.

“The thing about the Masters of the Universe syndrome is that it plays on ‘What I’m doing is so obscure that you’ll never get it. You’re too dumb.’ This really became relevant when we hit the financial crisis a year ago.”

Then, one day, while Warren was barbecuing with students, Harry Reid called and asked her to take on the TARP oversight job. “I’ve really been talking about the same set of issues for a long time, but I was under the radar, and that was OK with me,” she says, the twang thickening just a bit, as though her voice had been aged in oak. “I don’t know, but I think part of it was that the world changed. What was a boring and obscure issue suddenly moved front and center.” And, when it did, she was there, with her history and all that, looking faceless forces squarely in the eye, speaking plainly to persiflage, and, in her own amiable way, drowning out the faint, distant voice of Sheriff Frankenfield’s auctioneer.

Charles P. Pierce is a staff writer for The Globe Magazine. E-mail him at cpierce@globe.com.

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