Editor’s Note: Yves wrote the piece I was going to write this morning. See link below. The salient points to me are mentioned below with comments. The principal point I would make is that Obama has been listening to people who are listening to Wall Street. The Wall Street spin is that this is just another housing bust. It isn’t. It is massive Ponzi scheme that was well-planned and executed with precision, sucking the life out of our economy. Normally Ponzi schemes (see Drier or Madoff) don’t get big enough to have that effect.
The bottom line is that the banks took money from investors under false pretenses and diverted the proceeds into their own pockets.
In order to cover that up they created false documents with false lenders and false secured parties, false creditors and false beneficiaries. They borrowed money from the lenders, then borrowed the identity of the lenders to declare it was the banks who were losing money from mortgage “defaults”, to receive proceeds of payouts from subservicers, payouts from insurance, payouts from credit default swaps and payouts from federal bailouts.
The plain fact is that under normal black letter law, the notes and mortgages were faked at origination based upon the false premise that the actual lender was named or protected. That was a lie. The loans are not secured and the investors have a mess on their hands figuring out who has what claim to what loan so they are suing the investment banks instead of going after the homeowners and striking deals that would undermine the hundreds of trillions of dollars in bets out there that is masquerading as shadow banking.
Instead the investors and the homeowners — the only true parties in interest — got screwed and the administration has yet to correct that basic injustice.
- The proposals for the housing fix were predicated upon the fraud and other illegals activities of the parties in a mythological “securitization” scheme. They were not “unpopular” as Klein observes in the news. They were rejected because wall Street obviously rejected any plan that would take away their ill-gotten gains.
- Combat servicing operations using five times the staff of ordinary servicers are doing the work just fine. It was the lack of oversight and regulation that allowed the obfuscation of the truth by the servicers created for the sole purpose of covering up the fraud. These servicers never report the status of the loan receivable to anyone and they probably don’t have access to the loan receivable accounts. In fact, it is quite probable that no loan receivable account actually exists on the books of any creditor who loaned money through the vehicle of bogus mortgage bonds.
- Servicers were set up to foreclose, not service and not to assist in modification or settlement. Wall Street needed the foreclosure to be able to say to the investor, OK now the loan and the loss is yours, since we have drained all value out of it. Sorry.
- The administration had a ready tool available: enforcing the REMIC statute. They chose not to do this despite the obvious facts in the public domain that the banks were routinely ignoring both the law and the documents inducing investors to invest in non-existent bonds based upon non-existent loans.
- The CFPC had not trouble issuing a regulation that defined all parties as subject to regulation. Why did it take the formation of a new agency to do that? Treasury officials from the administration who argued that they had no authority over servicers were wrong and if they had done any due diligence, it would have been obvious that the banks were blowing smoke up their behinds.
- There are hundreds of billions of dollars, perhaps trillions of dollars in lost tax revenue that the ITS is not pursuing because the the policy of coddling the scam artists who manufactured this crisis. The deficit exists in large part because the administration has not pursued all available revenue, the bulk of which would have made a huge difference in the dynamics of the American economy and the election.
- Refusing the help the victims by characterizing some of them as undeserving borrowers is like saying that a bank robber should be granted leniency because the bank he robbed was run poorly.
- The real issue is the solvency of the large banks which most economists and even bankers agree are in fact too big to manage, far too big to regulate. The administration is taking the view that even if the assets on the balance sheets of the big banks are fake, we can’t let them fail because they would bring the entire system down. That is Wall Street spin. Iceland and other places around the world have proven that is simply not true. The other 7,000 banks in this country would easily be able to pick up the pieces.
Yves Smith on Obama Failed Housing Policies
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Banana republic, banks, housing policy, Naked Capitalism, regulation, REMIC, servicers, Wall Street, yves Smith | 10 Comments »
