ELIZABETH WARREN AND JOHN MCCAIN TEAM UP TO REIGN IN BANKS

Go to http://www.msnbc.com. CONTACT YOUR SENATORS AND CONGRESSMEN AND WOMEN. LET THEM KNOW THEY ALREADY HAVE YOUR SUPPORT FOR THIS LAW AND THAT THEY DON’T NEED TO SELL THEMSELVES TO GET SUPPORT FROM THEIR CONSTITUENCY.

MSNBC had a segment today in which they interviewed Elizabeth Warren about a new set of laws reinstating the old style of Chinese walls. There are probably similar interviews on other channels with Senator Warren or Senator McCain and others. Just go to your favorite news channel and look it up. Their approach has bi partisan support because of its simplicity and its history. Historically it is merely a tune-up of the old laws to include definitions of new financial products that did not exist and were not adequately considered in the 1930’s when EVERYONE AGREED THE RESTRICTIONS WERE NEEDED.

Bottom Line: RETURN TO THE BORING BANK SAFETY WITHOUT BOOMS AND BUSTS FROM 1930’s into the 1990’s: leading republicans and democrats are stepping out of gridlock into agreement. They want to stop Wall Street from access to checking and savings accounts for use in high risk investment banking because that is what brought us to the brink and some say brought us Into the abyss. And it would stop commercial banks that are depository institutions for your checking and savings accounts from using your money on deposit in ways where there is a substantial risk of loss that would require FDIC ((taxpayer) intervention.

Banking should be boring. In the years when restrictions were in place we only had one serious breach of banking practices — the S&L Scandal in the 1980’s. But it didn’t threaten the viability of our entire economy and more than 800 people were serving prison terms when the dust cleared. Of course Bankers saw prison terms as an invasion of their business practices and regulation as unnecessary.

But the simple reason for bipartisan support is that the public is enraged that the mega banks (too big to fail) have GROWN 30% SINCE THE 2007-2008 while the people on Main Street are losing jobs, homes, businesses, families (divorce), thus stifling an already grievously injured economy because credit and cash are now scarce — unless you are a mega bank that made hundreds of billions or even trillions of dollars because they were able to create an illusion (securitization) and at the same time, knowing it was an illusion, they bet heavily using extreme leverage on the illusion being popped.

They made it so complex as to be intimidating to even bank regulators. So no wonder borrowers could not realize or even contemplate that their mortgage was not a perfected lien, so they admitted it. Foreclosure defense attorneys made the same mistake and added to it by admitting the default without knowing who had paid what money that should have been allocated to the loan receivable account of the borrower that was supposedly converted for a note receivable from the borrower to a bond receivable from an asset pool that supposedly owned the note receivable account.

The complexity made it challenging to enforce regulations and laws. The complexity was hidden behind curtains for reasons of “privacy”. The real reason is that as long as bankers know they are acting behind a curtain, they are subject to moral hazard. In this case it erupted into the largest PONZI scheme in human history.

And the proof of that just beginning to come out in the courts as judges are confronted with an absurd position — where the banks “foreclosing” on homes and businesses want delays and the borrower wants to move the case alone; and where those same banks want a resolution (FORECLOSURE OR BUST) that ALWAYS yields the least possible mitigation damages, the least coverage for the alleged loss on the note because they would be liable for all the money they made on the bond. Just yesterday I was in Court asking for expedited discovery and the Judge’s demeanor changed visibly when the Plaintiff seeking Foreclosure refused to agree to such terms. The Judge wanted to know why the defendant borrower wanted to speed the case up while the Plaintiff bank wanted to slow it down.

And because of all the multiple sales, the insurance funds, the proceeds of credit default swaps, because the initial money funding mortgages came from depositors (“investors”), and all the money from the Federal Reserve who is still paying off these bond receivables 100 cents to the dollar — all that money amounting to far more than the loans to borrowers — because it related to the bond receivable, the banks think they can withhold allocation of that money to the receivable until after foreclosure and avoid refunding all the excess payments to the borrower the investor and everyone else who paid money in this scheme. And the system is letting them because it is difficult to distinguish between the note receivable and the bond receivable and the asset pool that issued the bond to the actual lender/depositor.

Senators Warren and McCain and others want to put an end to even the illusion that such an argument would even be entertained. Support them now if not for yourselves then for your children and grandchildren.

Wall Street Banks Don’t Own Toxic Loans: ABC

NOW AVAILABLE ON AMAZON/KINDLE!!!

This is why it is critically important that (a) you get help in organizing your information (b) getting a forensic analysis, review or even a TILA Audit (c) that you secure a third party expert declaration that puts the the facts in issue and (d) that you aggressively pursue discovery without trying to convince the Judge that the mortgage, note or obligation is invalid.

see how-to-be-an-expert-witness

Everyone seems to be getting it right — including the New York Times lead editorial this morning — except the main point. It’s been said that there are two kinds of truth — reality and the collective perception of reality whether it is wrong or right. see self-dealing-part-ii-investigations-started
REALITY: The main point missed by nearly everyone is that in the securitization of real estate loans — residential and commercial — the Wall Street Banks do not own the toxic loans and never did. The simple ABC is that the loans were executed by homeowners and then trafficked like illegal drugs through middlemen until they ended up in the hands of investors (pension funds, sovereign wealth funds etc.).
The actual amount and movement of money was kept carefully hidden from investors and homeowners, violating Federal, State, and common law. Much of this money actually belongs in the hands of homeowners, investors, and taxing authorities from Federal State and Local governments.

CONSENSUS FALSEHOOD: The banks made loans that were too risky and “relaxed” their underwriting standards. A slew of defaults occurred causing a danger of a run on the banks. [The truth is that risk never entered the picture: there is no risk in arranging a loan (with investor funds) that you know for sure is guaranteed to fail because it will reset to a payment level that the homeowner could never be able to pay under any conceivable circumstances.]

THE INCONVENIENT TRUTH: Profits piled up off-shore that are being repatriated on a gradual basis showing incredible gains at the Wall Street Banks that supposedly lost hundreds of billions of dollars. The truth is they never lost a dime. The truth is the loan was sold multiple times through multiple intermediaries each of whom in each “sale” were paid fees and profits vastly exceeding any prior compensation to those who arranged or made loans prior to securitization.
Second Hidden Yield Spread Premium: As I have pointed out before the hidden yield spread premium was jaw-dropping (when the loans were packaged by the aggregator and then sold to the Special Purpose Vehicle that issued and sold the mortgage-backed securities. This second YSP was sent off-shore to the Bahamas or the Caymans to Structured Investment Vehicles with their own trustees, who scattered the actual depository accounts all around the world. The beneficiaries were the 100 Club — the main players in the creation, promotions and protection of the scheme through government contacts, plausible deniability, and simple non-disclosure sometimes achieved through the sheer complexity of the arrangements.

Nobody wants to acknowledge this fact because it would be admission that the con game is still on and that government is still part of it. They took many trillions of dollars to “bail out” banks that had arranged the bad loans but never underwrote them.

After centuries of lending in which banks made loans and were the obvious source of funds and the obvious losers if the loans went bad, it seems that there is hardly a soul in media, government, or the judiciary that is willing to come right out and say the banks are by nature intermediaries and that they carried their business of intermediation too far (removing the risk for bad loans).

In the old model, prior to Glass Steagel being repealed, the use of money held on deposit (i.e, your checking, savings or CD account) at a depository institution was the source of funds for the loans, thus putting the bank at risk. A bad loan meant that the payback had to be covered by the bank’s capital reserves that were regulated to make sure there was always enough money on hand to satisfy the demands of depositors who needed the use of the money they had deposited into the bank, for safe-keeping.

In fact, the scheme was built upon the premise that by not actually having any risk and by entering into “hedge (insurance) contracts, they could make far more money arranging bad loans than good loans. Logistically they guaranteed their profit by inserting terms into mortgage backed bond indentures that cut the investor out of the bounty.
The result, as always, was that Wall Street won and everyone else lost. 1 in 50 people now are living strictly on food stamps in this country. And the number is rising. Leading the pack are white-haired white people whose numbers are growing exponentially, followed by blacks and Hispanics. Fifty percent of the securitized loans were refi’s. Yet the misconception is that this crisis only affects people who bought houses they could not afford.
January 3, 2010
New York Times Editorial

Avoiding a Japanese Decade

Thankfully, 2009 ended better than it began. Economists talk about green shoots of recovery taking hold. Consumer confidence has improved. Equity markets have soared. But for all the progress, the American economy remains extremely vulnerable.

To understand those economic risks, it is worth considering Japan’s experience in the 1990s. A bursting housing bubble there sparked a banking crisis that was followed by a decade of economic stagnation.

The Japanese government lacked the resolve to do what was necessary. It failed to fix its banks and stopped its early fiscal stimulus before recovery had taken hold, leaving the economy all too vulnerable to outside shocks, including the Asian currency crisis and the dot-com collapse in 2001. Japan’s annual growth rate — which had averaged 4 percent since 1973 — slowed to less than 1 percent, on average, from 1992 to 2003.

President Obama’s economic advisers have learned from Japan’s experience. But they may not have learned enough. (Certainly Congress has not been paying attention.) If they are not careful, they could end up repeating some of the big mistakes that condemned Japan’s economy to a lost decade.

The green shoots are barely out of the ground and Republicans and conservative Democrats in Congress are already demanding that the administration “do something” to cut the budget gap. We worry that the political drumbeat may be too hard to resist. In 1997, after three years of tepid growth, the Japanese government stopped its stimulus: it raised a consumption tax, ended a temporary income tax cut, increased social security premiums and nipped recovery in the bud.

Japan’s other blunder was its unwillingness to fix its banks. Regulators did not force banks and indebted firms to recognize trillions of yen worth of bad loans. Banks trundled along like zombies, squandering credit to keep insolvent firms on their feet. When the Asian currency crisis hit, many undercapitalized banks toppled over.

The Obama administration has not been quite as forgiving with the banks, but it still has been nowhere near aggressive enough. The regulatory reform meant to curb bankers’ destructive risk-taking is moving at a snail’s pace through Congress. While the Treasury has forced banks to raise capital, many — including some of the largest — remain thinly capitalized and weak.

Banks have been unwilling to sell bad assets and take a loss. They remain stuffed with risky commercial and residential mortgages and consumer debt. Bankers, meanwhile, have made things worse by insisting on paying themselves huge bonuses after profiting so handsomely from the taxpayers’ tolerance and largess.

There are two big problems with that. The bankers’ taste for risk has not been in any way quenched. And the American public is, justifiably, fed up. That means if there is another bank crisis — say when the Federal Reserve takes away the punch bowl of low interest rates — it will be a lot harder to get Congress to approve another bailout, no matter how necessary.

The Obama administration has still done a far better job — up to now — in addressing the crisis than Japan’s governments did. As dismal as 2009 was, it pales when compared with what would have happened without the fiscal stimulus and the Fed’s enormous monetary boost.

The White House is now pushing another mini-stimulus plan for next year. Chances are it will need to do a lot more to push reform and boost the economy. If there is an overarching lesson from Japan’s lost decade, it is that half measures don’t pay.

Traveling on Empty for 35 Years, U.S. Government Traps Itself Into Teaser Rates Now Ready for Reset

NOW AVAILABLE ON KINDLE/AMAZON!

SEE calhoun_testimony LITANY of MORTGAGE LENDING ABUSES AND OTHER BANK ABUSES Admitted by Responsible Lending Association

Isn’t it interesting, frustrating, maddening that not only did Wall Street do it to 20 million homeowners in one form or another, they did it to the Federal Government too, which means they spread their pillage to all the taxpayers, not just the ones with mortgages.

By the way go get a copy of Nomi Prins, ex-director of Goldman Sachs, It Takes a Pillage. I saw her on C-Span “Afterwords” interviewed by Senator Bernie Sanders of Vermont (I). She’s brilliant and (2) knows the ins and outs not only of the structure of mortgage derivatives but the math too.

What annoys me and should annoy ALL taxpayers is that we have been tricked by Wall Street AND Government into accepting the losses of Wall Street’s wild ride. Teaser rates for the Federal Government on bailouts that should never have occurred, FED rates that charge banks nothing for loans so they can go out and speculate (since Glass Steagel) while the taxpayer is on the hook. At the same time the FED is paying the “banks” a little extra to make them healthier.

Why doesn’t anybody get the fact that now these monsters of financial chicanery have unfettered access to your bank deposits to go and play with it as they wish. And not only are your deposits at the “bank” being used in this way, you are also guaranteeing this behavior if ANY bank fails! Where do you think this is leading folks? Competition is in worse shape than it was over a year ago. There is MORE RISK IN THE FINANCIAL MARKETPLACE than there was over a year ago.

Economists are warning us in despondent tones that the worst is yet to come but absent from the scene is the outrage from the public which is needed to force change and break the claims and power of the incestuous relationship between Washington and Wall Street.

The following is the lead article in NY Times Today. Some snippets from it as follows:

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.

November 23, 2009

Payback Time

Wave of Debt Payments Facing U.S. Government
By EDMUND L. ANDREWS

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.

Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.

The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.

The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.

“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.

On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.

Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.

The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.

Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.

The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.

Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.

But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.

The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.

To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.

Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.

This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.

“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.

“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”

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