JP Morgan Corners Gold Market — where did they get the money? notes that JP Morgan has cornered the market in gold derivatives. They ask how the CFTC, who supposedly regulates the commodities markets could have let this happen. I ask some deeper questions. If JPM has cornered the market on those derivatives, is this a reflection that they, perhaps in combination with others, have cornered the market on actual gold reserves? leaves this question open.

I suggest that this position in derivatives (private contracts that circumvent the actual futures market) is merely a reflection of a much larger position — the actual ownership or right to own gold reserves that could total more than a trillion dollars in gold. And the further question is that if JPM has actually purchased gold or rights to own gold, where did the money come from? And the same question could be asked about other commodities like tin, aluminum and copper where Chase and Goldman Sachs have already been fined for manipulating market prices.

This is the first news corroborating what I have previously reported — that trillions of dollars have been diverted from investors and stolen from homeowners by the major banks, parked off shore, and then laundered through investments in natural resources including precious metals. This diversion occurred as an integral part of the mortgage madness and meltdown. It was intentional and knowing behavior — not bad judgment. It was bad because of what happened to anyone who wasn’t an insider bank (see Thirteen Bankers by Simon Johnson). But to attribute stupidity to a group of bankers who now have more money, property and investments than anyone else in the world is pure folly. What Is stupid about pursuing a strategy that brings a geometric increase in wealth and power? This was no accident.

And the answer is yes, all of this is relevant to foreclosure litigation. The question is directed at the source of funds for JP Morgan, Chase, Goldman Sachs and the other main players on Wall Street. And the answer is that they stole it. In the complicated world of Wall Street finance, the people at the Department of Justice and the SEC and other regulatory agencies, there are scant resources to investigate this threat to the entire financial system, the economy in each of the world marketplaces, and thus to national security for the U.S. And other nations.

It would be naive in the context of current litigation over mortgages and Foreclosures to expect any judge to allow pleading, discovery or trial on evidence that traces these investments backward from gold derivatives to the origination or acquisition of mortgages. Perhaps one of the regulators who read this blog might make some inquiries but there is little hope that they will connect the dots. But it is helpful to know that there is plenty of corroboration for the position that the REMIC Trusts could not have originated or acquired mortgages because they were never funded with the money given to the broker dealers who sold “mortgage bonds” issued by those Trusts with no chance of repayment because the money was never used to fund the trusts.

The unfunded trusts could not originate or acquire the loans because they never had the money. In fact, they never had a trust account. Thus in a case where the Plaintiff is US Bank as trustee is not only wrong because the PSA and their own website says that trustees don’t initiate Foreclosures — that is reserved to the servicers who appear to have the actual powers of a trustee. The real argument is that the trust was never a party to the loan because the trust was never party to a transaction in which any loan was acquired or originated.

Investors and governmental agencies have sued the broker dealers accusing them of fraud (not bad judgment) and mismanagement of money — all of which lawsuits are being settled almost as quickly as they are filed. The issue is not just bad loans and underwriting of bad loans. That would be breach of contract and could not be subject to claims of fraud. The fraud is that the investment banks took the money from investors and then used it for their own purposes. The first step was skimming a large percentage of the investor funds from the top, in addition to fake underwriting fees on the fake issuance of mortgage bonds from an unfunded trust.

And here is where the first step in mortgage transactions and foreclosure litigation reveals itself — compensation that was never disclosed closed to the borrower in violation of he the Truth in lending Act. While most judges consider the 3 year statute of limitations to run absolutely, it will eventually be recognized by the courts that the statute doesn’t start to run until discovery of the undisclosed compensation by an undisclosed party who was a principal player in permeating the loan. This will be a fight but eventually success will visit someone like Barbara Forde in Scottsdale or in one of the cases my firm handles directly or where we provide litigation support.

The reason it is relevant is that by tracing the funds, it can be determined that the actual “lender” was a group of investors who thought they were buying mortgage bonds and who did not know their money had been diverted into the pockets of the broker dealers, and then used to create fictitious transactions that the banks falsely reported as trading profits. In order to do this the broker dealers had to create the illusion of mortgage loans that were industry standard loans and they had to divert the apparent ownership of those loans from the investors through fraudulent paper trails based on the appearance of transactions that in fact never happened. In truth, contrary to their duties under the prospectus and pooling and servicing agreement, the broker dealers created a false “proprietary” trade in which the investment bank was the actual trader on both sides of the transaction.

They booked some of these “trades” as profits from proprietary trading, but the truth is that this was a yield spread premium that falls squarely within the definition of a yield spread premium — for which the investment bank is liable to be named as a party to the closing of the loan with borrowers. As such, the pleading and proof would be directed at the fact that the investment bank was hiding their identity or even their existence along with the fact that their compensation consisted of a yield spread premium that sometimes was greater than the principal amount of the loan. Under federal law under these facts (if proven) and the pleading would establish that the investment bank should be a party to the claim, affirmative defenses or counterclaim of borrowers for “refund” of the undisclosed compensation, treble damages, interest and attorney fees. I might add that common law doctrines that are not vulnerable to defenses of the statute of limitations under TILA or RESPA, could be used to the same effect. See the Steinberger decision.

Lawyers take note. Instead of getting lost in the weeds of the sufficiency of documentation, you could be pursuing a claim that is likely to more than offset the entire loan. I make this suggestion to attorneys and not to pro se litigants who will probably never have the ability to litigate this issue. My firm offers litigation support to those law firms who have competent litigators who can appear in court and argue this position after our research, drafting and scripting of litigation strategies. Once taught and practiced, those firms should no longer require us to provide support except perhaps for our expert witnesses (including myself). For more information on litigation support services offered to attorneys call 850-765-1236 or write to

I conclude with this: it is unlikely that any judge would seriously entertain discharging liability or stop enforcement of a mortgage merely because of a defect in the documentation. These defects should be used — but only as corroboration for a more serious argument. That the attempted enforcement of the documentation is a cover-up of a fraud against the investors and the borrower; this requires artful litigating to show the judge that your client has a legitimate claim that offsets the alleged debt to the investors who are seeking damage awards not from the borrowers but from the investment bankers. As long as the Judge believes that the right lender and the right borrower are in his court, the judge is not likely to make rulings that would create additional uncertainties in a market that is already unstable.

I have always maintained that a pincer action by investor lenders and homeowner borrowers would bring home the point. The real culprits have been left out of foreclosure litigation. Tying investment banks to the loan closing would enable the homeowner to show that the intermediaries are in fact inserting themselves as parties in interest — to the detriment of the real parties. The investors are bringing their claims against the broker dealers. Now it is time for the borrowers to do their part. This could lead to global settlements in which borrowers and investors are able to mitigate (or even eliminate) their losses.

ILLEGAL PARKING: Housing Prices Sinking, Wall Street Stays Rich and Investors Head for Gold for Safety


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

EDITORIAL COMMENT: Practically everyone seems to know that housing prices are going down, the dollar is getting trashed, and our position in world finance is tenuous at best and that the problems are all related. We also know that as the value of the dollar goes down, foreign imports become “cheaper”. Yet the MYTH persists that we must live a lie: that the foreclosures must continue, the volume of stolen houses on the market must be preserved, and that the wealth drained from the middle class and the poor must be sustained — meaning that the money that would otherwise be coming into the economy as consumer spending that would stimulate business spending and hiring will continue to be parked on Wall Street. And of course money that would otherwise constitute taxable commerce will continue to be withheld from Federal, State and local government.

The idea that there can be a bottom to the housing market without resolving the foreclosure mess and the underlying mortgage mess that has corrupted our title system is absurd. This is very simple: if fewer and fewer people have less and less and money and no prospects for improving their condition, and a bleak future buried under a mountain of fictitious debt created by appraisal fraud and predatory lending mixed in with the rest of the ingredients in the fraudulent and illusory securitization scheme, THEN IT FOLLOWS THAT THEY WON’T AND CAN’T BUY ANYTHING, THAT BUSINESSES WILL HOLD BACK SPENDING AND HIRING AND THE SITUATION WILL CONTINUE TO GET WORSE. A few apparent spikes of activity do not constitute a recovery. The foundation is rotting and it won’t stop until we stop lying and tell the truth. LET’S STOP LIVING LIES!!!

HERE’S THE TRUTH: The illusion of securitization and all the compounding fractures caused by fraudulent documentation, misrepresentation, invalid documents has enabled Wall Street to distract us from the very real transaction that took place between the investor and the borrower. Our title and financial system is corrupted and like a crack in the window will continue to spider crack out indefinitely unless we acknowledge that the MONEY transaction was between investor and homeowner, and that those are the people who need to be accorded relief like any victim of fraud. As soon as we do that and forget the Wall Street myth, we will be back on firm footing, the foreclosures will stop, the pension funds will recover far more than they are going to in the current status quo, and the economy will be stimulated to new heights.

Prices Surge as Investors Rush to Safety of Gold


The price of gold rose above $1,500 an ounce on Wednesday for the first time, pushed higher by investor concerns about global inflation, government debt and turmoil in the Arab world.

The prices of other precious metals, like silver and platinum, have also surged recently on what analysts call a flight to quality, when uncertainty about the economic and political outlook sends investors into assets that are perceived to be safest.

“We’re seeing a perfect storm for gold and silver prices,” said Robin Bhar, a senior metals analyst in London for the French bank Crédit Agricole.

The list of factors that have supported the price of precious metals in recent weeks is long. It includes worries about the sustainability of European debt levels and whether countries like Greece will soon default; the weaker dollar; rising inflation in many parts of the world; continued unrest in North Africa and the Middle East, which has also pushed up oil prices; and concern over the United States budget, which also stirred fear in world stock markets earlier in the week.

Stocks recovered somewhat Wednesday after strong earnings reports restored investor confidence, analysts said.

Other factors that are helping precious metals include the buildup to the early autumn wedding season in India, during which families lavish gifts of gold on brides; the longstanding shortage of skilled labor and equipment at certain mines; and the increase in the number of mutual funds investing in gold.

The recent popularity of gold-based exchange-traded funds has also propelled prices of the underlying metal by making it easier for more investors to trade in gold.

Each share in a gold exchange-traded fund represents part of an ounce of bullion, but it comes without the inconvenience of holding the metal or the risk of buying futures and options. Before such funds became popular in the middle of the last decade, individuals who wanted to invest in gold had to buy gold jewelry, coins or bullion — and pay the high security and transaction costs. They could also invest in the shares of gold mining companies — more of an arm’s-length exercise — although the cost of investing in those companies has also risen recently.

In addition to benefiting from increased demand for the underlying metal, gold and silver futures contracts are seen as attractive substitutes for paper investments, given that they can be redeemed for a physical commodity.

“Gold is sometimes a currency, sometimes a commodity and sometimes a store of value,” analysts at Merrill Lynch wrote recently.

Gold for June delivery rose as high as $1,506.50 a troy ounce during trading in New York on Wednesday before settling at $1,498.90, a gain of $3.80 on the day. It was the first time that gold had breached the $1,500 level.

While that represented the highest level in nominal terms, the inflation-adjusted price was higher during the early 1980s, when it was well above $2,000 in current dollars.

Silver prices also climbed on Wednesday. Silver for May delivery climbed 1.2 percent, to $44.46 a troy ounce in New York, after rising as high as $45.40, the highest price since 1980. A troy ounce is 31.1 grams, or 1.1 ounces.

Although gold prices are likely to remain volatile and are vulnerable to retreat as investors take profits on their gains, few analysts are willing to bet on a sharp reversal in the near term. “As the purchasing power of workers in emerging markets increases, we see demand for gold as a commodity increasing over the next few years,” the Merrill Lynch report said.

In a research note published Friday, Goldman Sachs forecast a gold futures price of $1,690 an ounce in 12 months’ time, driven primarily by the assumption that the Federal Reserve’s continued stimulus policy, known as quantitative easing, would keep interest rates low in the United States, bolstering demand for the metal as an investment.

The market for silver, which Mr. Bhar of Crédit Agricole described as a “poor man’s gold,” is far more illiquid than gold. Mr. Bhar said several hedge funds appeared to have been “bullying” the price higher in recent sessions. Prices of palladium and platinum have also climbed.

Less valuable base metals like copper, tin, aluminum and zinc, which are used in large quantities in construction and heavy industries, have also climbed since last year, after plummeting during the financial crisis.

But among these commodities, there have been more divergences, according to Jim Lennon, head of commodity research in London for Macquarie Securities.

Markets for commodities like coking coal, used to make steel, iron ore and copper have been tight, he said, driven by inventory accumulation from producers and concerns about output bottlenecks at mines in Africa, Australia, Brazil, Chile and China.

For other base metals like aluminum, zinc and nickel, supply and demand appear better matched, he added.

Overhanging many of these markets remained the question of China, and whether its roaring economy might soon cool down. Many metals’ traders and analysts have had to become China watchers, poring over the economic data issued by that country and studying accumulations of stocks in Chinese warehouses. During the first quarter, China’s economy expanded 9.7 percent from a year earlier.

Investment and consumer spending in China have remained robust despite the government’s effort to temper growth through interest rate increases and curbs on bank lending.

Investment Advice

  • Several people have emailed me regarding what to do with their investments. I am not Warren Buffett and I don’t have a crystal ball so what I say here should be checked against other knowledgeable analyses. Keep in mind that most people are full of s–t. Everyone thinks they are a genius in an up market. In a down market, everyone still thinks they are a genius, like gamblers because they count their successes and don’t count their losses. Most economists, securities analysts (I used to be one), institutional traders (I used to be one), fund managers (I used to be one) etc are ill-trained, poorly educated, not well-rounded, and basically go with the herd. They sound good but they don’t know a thing about real economic behavior. Account representatives are even worse. Their job is to get you to do something without concern to wether you make or lose money (if you find one that doesn’t fit the mold, hold onto him or her for dear life).
  • First any investment in money market, CD, US Treasury, or other strictly dollar denominated assets including actual cash or deposits on hand should be converted to non-cash assets or non-dollar denominated assets. There are several internet banks and other companies that will allow you to keep accounts in dual currencies or more. My assumption is that the dollar is in for a crash. My theory is that if I am right, then you will make a lot of money. If I am wrong, there is little to suppose that the Euro or Canadian dollar or the Yen or Yuan will do badly. Either way you are probably pretty well protected.
  • Precious metals are always an inflation hedge but you are depending, again, on perception of value as opposed to real value. It is not likely that Gold ever again be “money.” hence it will always be a commodity and thus subject to the rules and trends of the commodity trading marketplace. The same holds true for corn, oil, and other commodities. yes they are likely to increase in value (and they present an inflation hedge as well) but you probably should not venture into commodities now unless you are already a successful commodity trader. Pick an ETF or other fund and let someone else make the trading decisions.
  • Stocks are not necessarily bad particularly if the company does not depend upon US consumer spending, and if the company does not hold or depend upon receiving US dollars. If it is getting Euros in payment for goods and services or other currencies around the world that are not pegged (i.e. a currency whose value is derived from whatever the value of the U.S. dollar is — BE CAREFUL),  then if it is a good company it will do well in the intermediate term even if it gets hit with the usual over-selling that occurs when an economy fails. 
  • Don’t stop looking at fundamentals just because it is in another currency. It is true that you “make money” if the dollar dives and the foreign stock dives less, but that is not a very safe strategy. Find even financial institutions that are oversold because of the general fear of bank failures. Avoid Citi, BOA, Lehman, and all of the other major national banking groups. They are all at risk. Think about the firms that figured out the crash months or years ago, like Goldman Sachs and see how they are doing now. 
  • Bonds are not necessarily bad either for the same reason, and the same with CD equivalents etc. As long as principal interest, dividends etc are paid in Euros or some other currency not tied to the dollar, you should do OK, if you pick right on the company or mutual fund.
  • Keep in mind that most people are unwilling to accept the coming crash and that they may be right and that I may be wrong.
  • Why Euros? Because it is the ONLY currency of consensus. 2 dozen countries are involved in the Euro, thus giving you immediate diversification of risk. 
  • Real estate: Avoid bargain locations — they might never come back, avoid locations that might be affected by flooding from rising sea levels, use leverage if you can afford the staying power, and stay in for the long haul (3-5 years minimum). This is a non-cash asset whose value will rise proportionately to the decline in the value of the dollar. If the dollar does not decline, and you have avoided problematic locations, you will still be OK. 
  • Jewelry: For short term trading and turnovers in the marketplace there are probably some profits to be made. I don’t recommend it. There are a lot of people who know more at a glance than you would with an electron microscope and a handbook.
  • Lending Money: Tie the interest payments and the principal to the real rate of inflation and use an index like oil rather than the CPI which at this point has been rearranged so many times the tires are worn out. 
  • Borrowing Money: Avoid borrowing at ridiculously high rates (in case I am wrong) and avoid if possible, the imposition of indexing on inflation. If indexing is going to occur, argue for the CPI, which the government will keep at the lowest possible levels in order to keep social security and other payment increases to a minimum. A reasonable loan will put you in the position of tremendous leverage and profit if I am right and still give you ordinary returns on investment if I am wrong.

Mortgage Meltdown: Reverse Negative ARM With Equity Kicker is Answer

Strategies for Living in a Failing Economy: Break the Bond of Mortgage and Note

While You Deal with Foreclosure and Eviction: Buy time and Make Money

Time for States and People to Act Now — Don’t Wait for Federal Government

Even while the Bush administration and bell ringers on Wall Street attempt to maintain the appearance of business as usual, the underpinnings of the entire U.S. economy are coming unglued and taking the Euro Union with it. Oil prices are up in U.S. dollars by 350%, up in Euros by 200%, and up in gold by 0% — that’s right. If you held gold when the price of oil started its meteoric climb in dollars, you would be sitting in the same position as before (no loss of purchasing power, oil would cost the same as before). If you held Euro’s, you would have lost ground, but only about half the ground lost by 300 million Americans who perform commercial transactions in dollars.

Besides the obvious importance of this to investment strategies, the consequence for every day American lives has been bad and is now turning catastrophic. The net buying power of the average American has been going down persistently for more than 20 years and the loss is likely to accelerate to hyper inflation levels that were unheard of in the lifetimes of most people living today.

The CDO (free money) scheme hatched on Wall Street where they created money and moved the risk away from those who were granting loans, opened the barn door and all the horses left. The scheme probably worked far better than they ever imagined it would — and far worse. The net effect is that tens of trillions of dollars have been moved like the water moving out from the beach before the tsunami hits. And now, like everything else, the pendulum starts swinging the other way. When the wave hits, it will bury some of the best companies along with the worst, and it will forever shake-up the way we conduct our commerce, monetary policy and political regulation of financial markets. Firing a bunch of CEOs isn’t going to cut it. Neither will sending them to jail, although they certainly deserve it.

And attempting to hold back the forces of change by avoiding the benefit to undeserving buyers/borrowers falls flat in view of the enormity of this worldwide fraud. Frankly, I don’t care if some people get an undeserved benefit and I don’t care if whether some people get fired or go to jail. What I care about is finding a way out of this mess — a solution that works, even if it means getting the people involved who created the mess or who should have known better. 

Current estimates now show a $10,000 decrease in the value of all homes that are near areas with high rates of foreclosures. So if you live in an area where there are 10,000 homes and 1500 of them are foreclosed, the 8500 other homes will sustain an $85 million loss. But the government and Wall Street reports only the loss in the foreclosures which is only part of the value of the 1500 homes that were foreclosed. So the government and Wall Street might report a loss of $5 million when in fact the direct economic effect is $85 million and the indirect economic effect caused by loss of consumer purchasing power is over $400 million. Multiply that times tens of thousands of communities all over the country and the world and you get a picture of how big this REALLY is.

So if you read the previous posts on strategies for dealing with eviction and foreclosure, here are a few pointers about why you should fight and why you will win if you take the fight to them.

IF THEY HAVE NO LIEN, THEY CAN’T EVICT AND THEY CAN’T FORECLOSE: A legal objective would be to separate the mortgage lien from the note in the transaction that you signed. This can be done in state court, bankruptcy court or by local government enforcement filing an action to help everyone stuck with this mess. By alleging fraud and other torts relating to the execution of the original documents, you form the basis of a “quiet title” action that can result in extinguishing the mortgage lien. This will still leave the note, but the note can then be adjusted downward either by negotiation, mediation judicial declaration or cram-down in bankruptcy. By separating the lien from the note, the right to foreclose and evict is permanently removed. They can’t evict and they can’t foreclose. Yes you probably need a lawyer to accomplish this, but you can probably find considerable help from a city, county or state attorney who is looking at state revenues dropping like a rock.

Reverse Negative ARM With Equity Kicker is Answer

Your only hedge against the massive inflation that is in process is the house you were cheated into buying. And the only hedge that CDO investors have against total or near total loss is to maintain a deal where recovery in full or nearly in full is possible. And this is the only hope for the intermediaries — developers, mortgage brokers, appraisers,  “lenders”, investment bankers, and retail securities brokers and institutional sales agents. The entire transaction must be recast to (1) stop the tide from coming back in caused by defaults and losses to CDO holders, (2) provide a reasonable period of time for recovery (sell-out of housing inventories), (3) provide a reasonable period of time for growth (normal demand-pull inflation), (4) provide a reasonable probability for recovery of investment in CDO securities and (5) provide a low but acceptable return to CDO holders while this mess gets cleaned up.

In order to make this happen, all the players — including culprits and ne’er do wells — must cooperate and will cooperate because they have everything to gain and nothing to lose. Lower mortgage payments to teaser rates or keep them there if they have not been reset. Keep it simple and gradually adjust it upward on a very slow schedule spanning 10 years. Eliminate negative amortization — except if the house is sold for more than the price paid. Provide an equity kicker to CDO holders that allows participation in the proceeds of sale over the adjusted principal borrowed. Adjust the original principal borrowed downward by 15% of the price of the house. 

Meanwhile, holders of gold reserves should be paid a fee for allowing issuance of gold redemption certificates that are issued as currency in the areas hardest hit by the meltdown. The spread of the new currency(ies) might occur in areas not directly impacted by the meltdown. Dollars will trade freely, but after some wild gyrations will find an equilibrium in parity with gold. Eventually a complete return to fiat money is possible but more likely, parallel currencies are likely to continue for quite some time. Hyper inflation will be mitigated, and the dollar, now headed for extinction might be saved. No guarantees, mind you, but it is worth a try. 

This writer, under the sponsorship of General Transfer Corporation has offered a prospectus to government leaders all over the country for the creation of two new entities immediately: The Interstate Finance Commission for regulation and the Interstate Currency Network, that will (a) make arrangements for issuance of gold redemption certificates as currency and (b) regulate the electronic funds networks who until now have operated as quasi-governmental entities with no accountability to the government, merchants taking electronic payments (credit, debit, ATM) or the consumers. 

The Federal government has demonstrated its lack of relevance and lack of power to do anything about this mess. By the time the next president and the next congress is sworn in, the damage will be irreversible. The people an the states must act immediately under the powers vested in them by the U.S. Constitution, forming regional coalitions and cooperating groups to facilitate and if necessary coerce the parties in cooperating with these remedies.

If you agree, send a copy of this email to your local government officials and newspapers. 

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