Tonight! Why the Bankruptcies of DiTech and Aurora Matters! Neil Garfield Show 6PM EDT

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The Neil Garfield Show — WEST COAST

with CHARLES MARSHALL AND BILL PAATALO

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I get that the complexity of securitization and foreclosure litigation can be mind-numbing even to an experienced litigator. But once you start winning you get a rush. Tonight we talk about making some of the more tedious aspects of examination of the case productive for the lawyer and for the homeowner.

The continued appearance of DiTech and or Aurora is actually a sparkling example of arrogance emanating from the investment banks that too often control the narrative. If either DiTech or Aurora ever owned a single debt, it was probably one in a million.

With the bankruptcy petitions involving several entities bearing the name of DiTech or Aurora and additional bankruptcies involving closely related entities like GMAC and Lehman Brothers, somehow we have been led to believe that the investment banks were so negligent that they actually left the loans in the entities that filed petitions for relief in bankruptcy with schedules that were devoid of virtually any loans.

On the Show tonight Charles and Bill address the following:

How MERS misused the transfer of Aurora servicing rights to Nationstar, all starting out of the Lehman Brothers BK following the Mortgage Meltdown.

How borrowers can use these servicer bankruptcies, particularly the one of Ditech, to advance the following:

– Using notices (of the Ditech) of stay to manage litigation options;

– Ditech’s non-judicial foreclosure auctions are apparently on hold, due to the automatic stay rules and restrictions on recording documents, in their BK. Judicial actions by Ditech should be on hold too. These restrictions even limit Ditech’s ability to direct the removal of Lis Pendens in lawsuits in which they received a judgment.

How Ocwen may be using a recent merger with PHH to shore up their book of business, to ameliorate credit issues or avoid bankruptcy.

Problems with Lehman and Aurora

Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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I keep receiving the same question from multiple sources about the loans “originated” by Lehman, MERS involvement, and Aurora. Here is my short answer:
 *

Yes it means that technically the mortgage and note went in two different directions. BUT in nearly all courts of law the Judge overlooks this problem despite clear law to the contrary in Florida Statutes adopting the UCC.

The stamped endorsement at closing indicates that the loan was pre-sold to Lehman in an Assignment and Assumption Agreement (AAA)— which is basically a contract that violates public policy. It violates public policy because it withholds the name of the lender — a basic disclosure contained in the Truth in Lending Act in order to make certain that the borrower knows with whom he is expected to do business.

 *
Choice of lender is one of the fundamental requirements of TILA. For the past 20 years virtually everyone in the “lending chain” violated this basic principal of public policy and law. That includes originators, MERS, mortgage brokers, closing agents (to the extent they were actually aware of the switch), Trusts, Trustees, Master Servicers (were in most cases the underwriter of the nonexistent “Trust”) et al.
 *
The AAA also requires withholding the name of the conduit (Lehman). This means it was a table funded loan on steroids. That is ruled as a matter of law to be “predatory per se” by Reg Z.  It allows Lehman, as a conduit, to immediately receive “ownership” of the note and mortgage (or its designated nominee/agent MERS).
 *

Lehman was using funds from investors to fund the loan — a direct violation of (a) what they told investors, who thought their money was going into a trust for management and (b) what they told the court, was that they were the lender. In other words the funding of the loan is the point in time when Lehman converted (stole) the funds of the investors.

Knowing Lehman practices at the time, it is virtually certain that the loan was immediately subject to CLAIMS of securitization. The hidden problem is that the claims from the REMIC Trust were not true. The trust having never been funded, never purchased the loan.

*

The second hidden problem is that the Lehman bankruptcy would have put the loan into the bankruptcy estate. So regardless of whether the loan was already “sold” into the secondary market for securitization or “transferred” to a REMIC trust or it was in fact owned by Lehman after the bankruptcy, there can be no valid document or instrument executed by Lehman after that time (either the date of “closing” or the date of bankruptcy, 2008).

*

The reason is simple — Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

*

The problems are further compounded by the fact that the “servicer” (Aurora) now claims alternatively that it is either the owner or servicer of the loan or both. Aurora was basically a controlled entity of Lehman.

It is impossible to fund a trust that claims the loan because that “reporting” process was controlled by Lehman and then Aurora.

*

So they could say whatever they wanted to MERS and to the world. At one time there probably was a trust named as owner of the loan but that data has long since been erased unless it can be recovered from the MERS archives.

*

Now we have an emerging further complicating issue. Fannie claims it owns the loan, also a claim that is untrue like all the other claims. Fannie is not a lender. Fannie acts a guarantor or Master trustee of REMIC Trusts. It generally uses the mortgage bonds issued by the REMIC trust to “purchase” the loans. But those bonds were worthless because the Trust never received the proceeds of sale of the mortgage bonds to investors. Thus it had no ability to purchase loan because it had no money, business or other assets.

But in 2008-2009 the government funded the cash purchase of the loans by Fannie and Freddie while the Federal Reserve outright paid cash for the mortgage bonds, which they purchased from the banks.

The problem with that scenario is that the banks did not own the loans and did not own the bonds. Yet the banks were the “sellers.” So my conclusion is that the emergence of Fannie is just one more layer of confusion being added to an already convoluted scheme and the Judge will be looking for a way to “simplify” it thus raising the danger that the Judge will ignore the parts of the chain that are clearly broken.

Bottom Line: it was the investors funds that were used to fund loans — but only part of the investors funds went to loans. The rest went into the pocket of the underwriter (investment bank) as was recorded either as fees or “trading profits” from a trading desk that was performing nonexistent sales to nonexistent trusts of nonexistent loan contracts.

The essential legal problem is this: the investors involuntarily made loans without representation at closing. Hence no loan contract was ever formed to protect them. The parties in between were all acting as though the loan contract existed and reflected the intent of both the borrower and the “lender” investors.

The solution is for investors to fire the intermediaries and create their own and then approach the borrowers who in most cases would be happy to execute a real mortgage and note. This would fix the amount of damages to be recovered from the investment bankers. And it would stop the hemorrhaging of value from what should be (but isn’t) a secured asset. And of course it would end the foreclosure nightmare where those intermediaries are stealing both the debt and the property of others with whom thye have no contract.

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https://www.vcita.com/v/lendinglies to schedule CONSULT, MAKE A DONATION, leave message or make payments.

 

Hunter vs Aurora: Fla 1st DCA Business Records Gets Tougher

Show me any other period in American history where banks lost so many cases.
https://www.vcita.com/v/lendinglies to schedule, leave message or make payments.
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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see http://caselaw.findlaw.com/fl-district-court-of-appeal/1664754.html

The heat on the banks has been steadily increasing for the last three years and has increased at an increasing rate during the past 18 months. More and more banks are losing in what the bank lawyers call a “Simple, standard foreclosure action.” Show me any other period in American history where banks lost so many cases. There is obviously nothing simple and nothing standard about these foreclosures that have caused ruination of some 25 million people living in around 9 million homes.

If things were simple, we wouldn’t be looking at musical chairs in servicing, plaintiffs and “holders.” If things were standard, the creditor would come forth with clear proof that it paid for this loan. Nobody I know has EVER seen that. I have written about why. Suffice it to say, if there was a real creditor who could come forward and end the argument, they would have done so.

Two years ago the Hunter case was decided. The court was presented with a panoply of the usual smoke and mirrors. The court took on the issue of the business records exception as a guide to the trial judges in the 1st District and to the trial lawyers who defend homeowners in foreclosure. This is a sample of the part of the analysis we do. Here are some quotes and comments from the case:

Aurora alleged in its “Complaint to Foreclose Mortgage and to Enforce Lost Loan Documents” that it owned and held the promissory note and the mortgage, [note that the allegation is never made that Aurora was the owner of the debt or was the lender. Why not? Who is the actual creditor?]
 *
original owner of the note and mortgage was MortgageIT, and that MortgageIT subsequently assigned both to Aurora. A letter dated January 27, 2007, from Aurora to Mr. Hunter entitled, “Notice of Assignment, Sale, or Transfer of Servicing Rights,” directed him to remit mortgage payments to Aurora beginning February 1, 2007. The “Corporate Assignment of Mortgage” executed on June 11, 2007, and recorded on January 8, 2008, showed MortgageIT as the assignor and Aurora as the assignee. [MortgageIT was a thinly capitalized originator/ broker who could not have made all the loans it originated. Hence the presumption should be that it didn’t loan money to Hunter. Logically it follows that it never owned the debt and should not have had its name on the note or the mortgage. Nor did the source of funds ever convey ownership to MortgageIT. So what value or validity is there in looking at an assignment or endorsement or even delivery from Mortgage IT? And given that behavior (see below) do we not have circumstances in which the paperwork is suspect? Should that be enough to withhold the statutory presumptions attendant to “holding” a note?]
 *
To establish that it held and had the right to enforce the note as of April 3, 2007, Aurora sought to put in evidence certain computer-generated records: one, a printout entitled “Account Balance Report” dated “1/30/2007,” indicating Mr. Hunter’s loan was sold to Lehman Brothers—of which Aurora is a subsidiary and for which Aurora services loans—and payment in full was received on “12/20/2006;” the second, a “consolidated notes log” printout dated “7/18/2007” indicating the physical note and mortgage were sent—it is not readily clear to whom—via two-day UPS on April 18, 2007. Neither document reflects that it was generated by MortgageIT. -[Interesting that Aurora is identified as a subsidiary of Lehman who was in bankruptcy in October of 2008. Aurora usually represents itself as a stand-alone company which is obviously not true. Equally obvious (see discussion above) is that the reason why Mortgage IT was not identified on the printout is that it had nothing to do with the actual loan money — neither payment of the loan as a lender nor payment for the loan from the homeowner. Mortgage IT, for all intents and purposes, in the real world, was never part of this deal.]

Section 90.803(6) provides one such exception for business records, if the necessary foundation is established:

A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinion, or diagnosis, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity and if it was the regular practice of that business activity to make such memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, or as shown by a certification or declaration that complies with paragraph (c) and s. 90.902(11), unless the sources of information or other circumstances show lack of trustworthiness. (e.s.) – [THIS is the point of my article. Under current circumstances both in the Hunter case and in the public domain the court should have considered the fact that the parties were well known to have fabricated, forged and otherwise misrepresented documents, together with outright lying about the existence of underlying transactions that would track the paperwork upon which courts have heaping one presumption after another. My argument is that Aurora should not have been given the benefit of the doubt (i.e. a presumption) but rather should have been required to prove each part of its case. My further argument is that virtually none of the foreclosure cases should allow for presumptions in evidence after the massive and continuing settlements for fraud relating to these residential mortgages. If this doesn’t show lack of trustworthiness, then what would?]

— If you want this kind of analysis done on your case —
See a description of our services  click here: https://wordpress.com/post/livinglies.wordpress.com/32498
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LEHMAN BROTHERS STORY: PATHWAY TO DISASTER

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Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.” Neil Garfield www.livinglies.me

EDITOR’S NOTE: I picked this up from the comments. It’s very good and helps describe some of the inner workings of how this crisis manifested as a grueling indictment of Wall Street and government laissez-faire, while the system played with our money, our future and the quality of our lives.

The one thing that keeps bothering me about the Lehman Brothers situation is that Lehman is in Bankruptcy while Aurora is not. But Aurora is essentially an arm of Lehman, and it is a mere servicer that is asserting rights of ownership over loans in direct derogation of the rights of (1) investors who put up the money and (b) borrowers who are trying to modify or settle the claims relating to their loan or  the title on their property. By what right is Aurora operating outside the scrutiny of the Bankruptcy Court in New York that is unraveling the Lehman puzzle?

I am aware of motions filed with respect to this issue but I am unaware of any resolution of those motions. It seems that the Bankruptcy Court is being used as yet another layer to keep investors from understanding or even knowing the facts about their investments. The goal is obviously  to deplete the apparent equity in the homes down to zero, which is why housing prices are going down. It is no mystery. The lower the housing prices, the easier it is to eat up the equity with fees that are uncontrollable.

Thus the Banks have a vested interest in keeping the housing market in a downward spiral just as they had a vested interest in keeping it in an upward spiral when they were soliciting unsophisticated borrowers and investors to buy into this game. I might add that  Alan Greenspan himself said in a television interview that he and a 100 other highly respected PhD economists looked at these financial products and were unable to decipher them.

Thus the effort by Wall Street to create asymmetry of information succeeded, which is all they needed to make the investors rely on the investment banks for the value of their investment and make the borrowers rely on them (through fraudulent inflated appraisals) for the value of their signature on paper that was in truth only part of the scheme of issuance of unregistered fraudulent securities. The fraud continues because the government regulators still don’t understand that the Banks are controlling the modification process, that they are producing scant modifications that fail anyway, just to pacify the government, and not to create an actual steady flow of modifications.

The Banks want the property, and then, using the valuation factors that were buried in the prospectus and pooling and services agreement, they are in the position of declaring a total loss  for the investors, while the Banks diverted money and assets that were due to the investors. This is really very simple. If the Banks wanted to settle the claims on the mortgages and foreclosures, they would have done so. They have the power, the infrastructure and the money to do it. They are not doing it because they are creating the appearance of a total loss while they line their pockets with investors money — money that should be paid to or credited to the investor.

If the investor actually received the money or was the recipient of a credit for the money pocketed by the Banks, then the amount due to the creditor would be reduced. This is turn would reduce the obligation due to the investor — an obligation that supposedly derives in large part from borrowers who thought they were entering into conventional loans but were in fact issuing paper that was traded without regulation or accountability. Thus all or part of the money that went into the pockets of the Banks is actually a credit against the obligation due to the ivnestor, a fact well known to investors and which is causing them to sue, the SEC to bring enforcement actions and other administrative actions to take a variety of actions, all leading presumably to criminal prosecutions.

The fact that is getting lost in all this is that if the obligation is reduced, then the amount claimed as due from the borrower is correspondingly reduced. The borrowers’ obligations may have been reduced to zero but in virtually all cases, it has been substantially reduced IN FACT, but applied IN LAW — i.e., the Notice of Default is wrong in every case as is the the notice of sale, the judgments entered, and the bogus auction that takes place in which title goes not to the investors or for the benefit of the investors but to the Banks who were using the money of the investors and thus had no loss.

In many cases the balance, unknown to the homeowner, was reduced to zero long before they were even notified that action was taken being against them for failing to pay — but what they failed to pay was a payment that was not due. IN fact, the diverted funds sitting in the pockets of the Bankers, is equal to far more than any group of so-called defaulted loans — and it is looking like far more than any group of loans that were funded during this period. That being the case, it is easy to see why the economy is anemic — the bankers have sucked out all the blood and as the body tries to cover they keeping taking that too.

Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.

Submitted on 2011/10/19 at 11:47 pm by Esther 9

I was watchng Cnbc around 1AM: it was about the repackagind of CDO’s and the great export they are, also stated that the issue in the mortgage origination and Kyle Vance who note the historic crash we are undergoing now …. I guess there are transcripts, set the stage from beginning to where we are now on Wall Street

Also, following in researchng HSBC:
http://plus.maths.org/content/how-maths-killed-lehman-brothers

How maths killed Lehman Brothers
by Horatio Boedihardjo
Submitted by plusadmin on June 1, 2009
in
• credit crunch
• finance
• financial mathematics
• financial modelling
• Plus new writers award 2009

This article is the winner in the university category of the Plus new writers award 2009.
On a sunny morning in 2001, a piece of investment plan landed on the desk of Dick Fuld, the then Chief Executive of Lehman Brothers. The document, compiled by a team of maths and physics PhDs, included a calculation to show how the bank will always end up with a profit if they invest on the real estate markets. Fuld was impressed. The next five years saw the bank borrowing billions of dollars to invest in the housing market. It worked. The housing market boom had turned Lehman Brothers from a modest firm into the world’s fourth largest investment bank.

The Lehman Brothers headquarters, Rockefeller Center, New York, before the collapse. Image: David Shankbone.
But as the housing market started to shrink, the assumptions that the PhDs made began to break down one by one. The investment now became a mistake, resulting in a stunning loss of $613 billion. On September 15 2008 Lehman Brothers collapsed — “The largest bankruptcy in the US history,” as described by Wikipedia.
The money making model
Imagine that you are working for Lehman Brothers and one morning you receive a phone call from HSBC.
“Hi! A hundred customers have each borrowed $1 million from us for a year. We would like to buy an insurance from you which will cover us in the case of any of them defaulting. From their application forms we reckon they each have a 3% chance of default. How much will the insurance cost?”
You can in fact calculate it, easily. The 100 customers each have a 3% chance of defaulting, so you expect three customers to default next year. That is, you will need to pay $3 million next year. Assuming the interest rate is about 3% each year, next year’s $3 million would be worth 3/(3/100+1)=3/1.03=2.91 million now.
Therefore HSBC will have to pay you at least $2.91 million for the insurance. Obviously Lehman Brothers wasn’t a charity and so, to make money, they would double the price to $5.82 million and expect to make $2.91 million out of each of these deals on average. This kind of insurance is called a credit default swap (CDS).
The legendary CDO
After putting down the phone, you might be quite worried about what would happen if ten of the borrowers defaulted, because then you would have to pay $10 million back! In this case, consider this deal: how about paying me a certain premium, and if more than ten defaults occur, you will only need to pay for ten of them and I will pay for the rest. If less than ten defaults occur, you will have to pay for all the defaults and I won’t pay anything. The type of deal that I am offering is called the senior tranche of a collateralised debt obligation (CDO) contract, while the one you are getting is called the junior tranche of the CDO.

Looks like a safe investment? Better think twice!
The attractiveness of the senior tranche is that almost all of the time I don’t have to pay anything, just pocketing my premium. Imagine how unlikely it is to have more than ten borrowers defaulting together! Senior tranches were generally considered to be almost as safe as borrowing money from the government. Since the senior tranche offers a better return than, but seems to be just as safe as, putting the money in the bank, the investors just loved it. In 2004 there were only $157.4 billion of CDO being issued, but by 2007 the amount grew to $481.6 billion.
But don’t you find it a bit unfair that you can have something as safe as bank deposits, that offers a higher return?

The pitfalls
Yes, it is unfair! In fact, CDO is a lot riskier than bank deposits, but Lehman Brothers, like many investors, didn’t seem to know that. Let’s go back to our original model. The first source of error is that we have assumed that each investor has a 3% chance of defaulting. How do we know that? It must be from historical data. The problem is, there hasn’t been a national drop of housing price since the great depression in the 1920s, so the chance that a borrower defaults was calculated on the basis of a good period when the housing prices surged. However, the housing market crashed in 2007. Many borrowers’ properties are now worth even less than the loan they have to pay in the future, so many of them refuse to pay. To worsen the situation, 22% of these borrowers are the so-called subprime borrowers — those who had little income and had little hope of returning money. Banks were not afraid of lending money to them because even if they defaulted, the insurance would pay them back. The participation of the subprime borrowers makes lending much riskier than before.
In fact, the default probability in the US has quadrupled from the 3% as assumed in the model to 12% since 2007, making it four times riskier. This means that investors like Lehman Brothers will be hit four times harder than they have anticipated.
Actually it is worse than that. The profitability, or lack of it, of financial products more complicated than CDS and CDO may depend on the square of the default probability, rather than the probability itself. Now as the default probability rises from 0.03 to 0.12, the square of the probability increased from 0.0009 to 0.0144 — that’s an increase by a factor of 16!

The Lehman Brothers headquarters on the night of September 15, 2008. Image: Robert Scoble.
There is also a second and more subtle source of error. Whether you can make money from selling the CDO insurance for the bank depends on whether the borrowers return the money, which in turns depends on the economy. So if the economy goes down, you are a lot more likely to lose money. If you are an active investor, then you probably have invested in the stock market as well. Now if the market crashes you lose both the money invested in the stock market and in the CDO. Suppose, on the other hand, that instead of spending the money on CDO, you bet on whether Manchester United will win the European Champion League. This time in order to lose all your money you need both the market to go down and Manchester United to lose their match — this is less likely than just having the market go down. Therefore, investing on CDO is a riskier choice than betting for Manchester United. The error in our model is that we have not taken into account this extra risk due to its dependence of CDO on the market.
These two errors were sufficient to mask the risk in CDO. In fact, the errors are so serious that 27 out of 30 of the CDOs issued by Merril Lynch were downgraded from AAA (the safest investment) to “junk” when the errors were spotted.
The fall of Lehman Brothers
Lehman Brothers, unaware of the hidden risks, decided to invest big on CDO. It even had a 35 to 1 debt to equity ratio, that is, it only owned $1 out of every $36 in its bank account — the other $35 were borrowed from somewhere. This meant that a loss of just 3% of the money on its balance sheet, would have meant the loss of all the money it owned. After suffering heavy losses (more than 3% of the money in its balance) from CDO, borrowers began to lose confidence and called back the loans. As Lehman had always relied on short-term loans, its lenders were able to pull their cash back quickly. Now the bank was in trouble. It borrowed much more than it was able to return and soon found itself unable to pay back.

LOST NOTE AFFIDAVIT GOES DOWN IN FLAMES IN IOWA

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SUMMARY JUDGMENT DEFEATED IN IOWA; TWO SIGNIFICANT SUPREME COURT
DECISIONS IN NEVADA
July 14, 2011, 2 hours ago | Jeff Barnes
July 14, 2011

An Iowa District Court has issued a 5-page Order denying Wells Fargo’s
(second) Motion for Summary Judgment. Wells Fargo had originally been
granted summary judgment against the borrower, who was pro se at the
time, in 2005 based upon a sworn affidavit that Wells Fargo was the
holder of the note. The borrower had filed an affidavit which stated
that she had spoken to Wells Fargo and was told that the “investor” on
her loan was Lehman. The case languished in an appellate posture and
was continued for various reasons.

Jeff Barnes, Esq. began representing the borrower in early 2010 with
local Iowa counsel Christine Sand, Esq., who immediately initiated
extensive discovery. The Court ordered Wells Fargo to submit an
original of the Note by July 20, 2010. The next day (after the time
for compliance with the Court’s Order had already passed), Wells Fargo
filed a Motion for additional time to comply with the Order, and a
Motion to Substitute Plaintiff which stated that pursuant to a
servicing agreement between Wells Fargo and Lehman Brothers Bank FSB
that the holder of the note and mortgage was Lehman. The 2005 summary
judgment was thus vacated.

Wells Fargo filed a “lost note affidavit” a month later on August 20,
2010 which the Court found did not disclose the specific facts in the
“record of account” which was reviewed by the Wells Fargo affiant upon
which she based her conclusion. On February 23, 2011, Wells Fargo
filed an Amended Foreclosure Petition alleging that Wells Fargo was
the owner and holder of the note and that Lehman Brothers Bank, Lehman
Brothers Holdings, and a securitized mortgage loan trust of which US
Bank was the “trustee” were added “for the purposes of quieting title
to subject property and to comply with” Iowa statutory law. The court
noted that it was unclear what form of relief was being sought with
the addition of these parties.

Wells Fargo filed another affidavit executed by the same Wells Fargo
affiant who executed the “lost note” affidavit. This “new” affidavit
stated that the original note and mortgage were sent to Wells Fargo’s
prior counsel in November 2004 and were lost while in the custody of
said counsel. The Court again found that the affiant did not state the
facts upon which the affiant relied for her conclusions nor what parts
of the file she reviewed upon which she relied.

In its Reply to the borrower’s opposition (which is termed
“Resistance” in Iowa) to Wells Fargo’s second Motion for Summary
Judgment, Wells Fargo attached a copy of a lost note affidavit which
the Court stated was “purportedly” executed by Wells Fargo’s attorney
in 2005. Wells Fargo’s current counsel represented to the Court in its
Reply that Wells Fargo’s previous counsel filed a lost note affidavit
on March 28, 2005. The Court stated that it had reviewed both the
docket sheet and the court file and found no evidence that the
original of the alleged 2005 lost note affidavit was ever filed.

Based on these matters, the Court found that there were factual issues
as to whether or not the note has been lost and whether the note has
been “transferred”, and denied summary judgment to Wells Fargo on its
foreclosure claim.

Our question to Wells Fargo is, were you lying then or are you lying
now? Round and around and around we go, and where Wells Fargo and its
attorneys will stop, nobody knows! Note, note, who has the note?
Lehman? Lehman Holdings? The USBank securitization? None of the above?

Separately, the Supreme Court of Nevada issued two opinions on July 7,
2011 which finally compel foreclosing parties in Nevada to produce
material documentation as to chain of title to the Note and Deed of
Trust in order to be permitted to continue with a foreclosure action
when mediation is requested. in Leyva v. National Default Servicing et
al., No. 55216, 127 Nev. Advance Opinion 40, the Supreme Court held
that strict compliance is required with Nevada statutes governing the
production of certain documents including any assignment of the Deed
of Trust; that a foreclosing party’s failure to do so “is a
sanctionable offense; and the district court is prohibited from
allowing the foreclosure process to proceed”. Wells Fargo was also the
culprit in this case.

Significantly, in discussing the transfer of the Note, the Supreme
Court of Nevada cited to the recent In Re Veal decision from the 9th
Circuit Bankruptcy Appeals Panel (which was previously discussed on
this website), holding that the borrower “has the right to know the
identity of the entity that is ‘entitled to enforce’ the mortgage note
under Article 3 (of the Uniform Commercial Code).” The Court concluded
that Article 3 “clearly requires Wells Fargo to demonstrate more than
mere possession of the original note to be able to enforce a
negotiable instrument”. The court found that there was no endorsement
and no assignment, and reversed the District Court.

The opinion in Leyva cited to the Court’s opinion in Pasillas v. HSBC
Bank as Trustee, No. 56393, 127 Nev. Advance Opinion 39 (also decided
July 7, 2011), which also reversed the District Court and also cited
to Veal , setting forth the requirements for production of evidence of
chain of title to the note and Deed of Trust in a foreclosure.

The multiple citations to Veal, which is a Federal Bankruptcy
appellate court opinion, by the state Supreme Court of Nevada, is more
than important. It demonstrates that simply because a foreclosure
issue is decided by a Bankruptcy court does not mean that it is not
applicable to a non-Bankruptcy (or non-Federal) foreclosure case. Time
and again, when we argue that an issue in a state foreclosure case has
already been decided by a Bankruptcy court in the foreclosure context,
attorneys representing foreclosing “lenders” and servicers argue
“Well, Judge, that was a Bankruptcy case, and we are not in Bankruptcy
Court”. Leyva and Pasillas have now put that argument to bed. If a
Federal Bankruptcy decision is good enough for the Supreme Court of
Nevada in two separate opinions, it should be good enough for any
state court.

We thank one of our dedicated readers for alerting us to these two
highly significant Nevada decisions.

Jeff Barnes, Esq., www.ForeclosureDefensenationwide.com

DELUSION IS AN IRONCLAD DEFENSE

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

Biggest Fish Face Little Risk of Being Caught

EDITOR’S NOTE: There is only one reason why there are not over 1,000 prosecutions that would successfully land the perps in jail — the reason is that the perps are the ones actually in charge. This is not rocket science. It is complex but it is not abstract requiring the intellect of Einstein. It takes elbow grease but not brilliance to make the case for fraud.

ANY COMMON CITIZEN — A POTENTIAL JURY MEMBER —- CAN MAKE THE CONNECTION BETWEEN WHAT HAPPENED ON WALL STREET AND WHAT HAPPENED ON MAIN STREET. IT WAS ALL PART OF ONE TRANSACTION. THE MONEY CAME FROM WALL STREET TRANSACTIONS AND WAS USED IN BITS AND PIECES ALL THE WAY DOWN TO USING PART OF THE INVESTOR MONEY TO FUND MORTGAGE LOANS. WHAT DO YOU THINK WE SHOULD DO?

By JOE NOCERA

NY TIMES

So much for Angelo Mozilo taking the fall for the financial crisis.

Late last week, word leaked out that Mr. Mozilo, who had co-founded Countrywide Financial in 1969 — and, for nearly 40 years, presided over its astonishing rise and its equally astonishing fall — would not be prosecuted by the Justice Department. Not for insider trading. Not for failing to disclose to investors his private worries about subprime loans. Not for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers.

In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions “did not amount to criminal wrongdoing.”

Just months earlier, the Justice Department concluded that Joe Cassano shouldn’t take the fall for the financial crisis either. Mr. Cassano, you’ll recall, is the former head of the financial products unit of the American International Group, a man whose enthusiasm for credit-default swaps led, pretty directly, to the need for a huge government bailout of A.I.G. There was a time when it appeared that there was no way the government would let Mr. Cassano walk. But it did.

And then there’s Richard Fuld, the man who presided over Lehman Brothers’ demise. Though he was the subject of an investigation shortly after the Lehman bankruptcy, it appears that prosecutors are moving on.

Most of the other Wall Street bigwigs whose firms took unconscionable risks — risks that nearly brought the global financial system to its knees — aren’t even on Justice’s radar screen. Nor has there been a single indictment against any top executive at a subprime lender.

The only two people on Wall Street to have been prosecuted for their roles in the crisis are a pair of minor Bear Stearns executives, Ralph Cioffi and Matthew Tannin, whose internal hedge fund, stuffed with triple-A mortgage-backed paper, collapsed in the summer of 2007, an event that anticipated the crisis. A jury acquitted them.

Two and a half years after the world’s financial system nearly collapsed, you’re entitled to wonder whether any of the highly paid executives who helped kindle the disaster will ever see jail time — like Michael Milken in the 1980s, or Jeffrey Skilling after the Enron disaster. Increasingly, the answer appears to be no. The harder question, though, is whether anybody should.

Aficionados of financial crises like to point to the savings-and-loan debacle of the 1980s as perhaps the high-water mark in prosecuting executives after a broad financial scandal. When the government loosened the rules for owning a thrift, the industry was taken over by aggressive entrepreneurs, far too many of whom made self-dealing loans using savings-and-loan deposits as their own personal piggy banks.

In time, nearly 1,000 savings and loans — a third of the industry — collapsed, costing the government billions. According to William K. Black, a former regulator who teaches law at the University of Missouri, Kansas City, “There were over 1,000 felony convictions in major cases” involving executives of the thrifts. Solomon L. Wisenberg, a lawyer who writes for a blog on white collar crime, said, “The prosecutions were hugely successful.”

That is partly because the federal government threw enormous resources at those investigations. There were a dozen or more Justice Department task forces. Over 1,000 F.B.I. agents were involved. The government attitude was that it would do whatever it took to bring crooked bank executives to justice.

The executives howled that they were being unfairly persecuted, but the cases against them were often rooted in a simple concept: theft. And as prosecutors racked up victories in court, they became confident in their trial approach, and didn’t back away from taking on even the most well-connected thrift executives, like Charles Keating, who owned Lincoln Savings — and who eventually went to prison.

Today, Mr. Black says, the government doesn’t have nearly as many resources to pursue such cases. With the F.B.I. understandably focused on terrorism, there isn’t a lot of manpower left to dig into potential crimes that may have taken place during the financial crisis. Fewer than 150 of the bureau’s agents are assigned to mortgage fraud, for instance. Several lawyers who represent white collar defendants told me that outside of New York, there aren’t nearly enough prosecutors who understand the intricacies of financial crime and know how to prosecute it. It is a lot easier to prosecute people for old-fashioned crimes — robbery, assault, murder — than for financial crimes.

Which leads to another point: as Sheldon T. Zenner, a white collar criminal lawyer in Chicago, puts it, “These kinds of cases are extraordinarily difficult to make. They require lots of time and resources. You have some of the best, highest-paid and most sophisticated lawyers on the other side fighting you at every turn. You are climbing a really high mountain when you try to do one of these cases.”

Take, again, the one big case that prosecutors have brought, against Mr. Cioffi and Mr. Tannin. The Bear Stearns executives had written numerous e-mails expressing their fears and anxieties as the fund began to sink. Prosecutors viewed those e-mails as smoking guns, proof that the men had withheld important information from their investors. Thanks largely to those e-mails, prosecutors saw the case as a slam dunk.

But it wasn’t. For every e-mail the executives wrote predicting the worst, they would write another expressing their belief that everything would be O.K. Besides, expressing such fears publicly would have doomed the fund, because liquidity would have instantly vanished. Instead of viewing Mr. Cioffi and Mr. Tannin as crooks, the jury saw them as two men struggling to make the best of a difficult situation. By the time the trial was over, the e-mails, in their totality, made the defendants seem sympathetic rather than criminal.

It seems safe to say that the government’s failure to convict those two Bear Stearns executives has caused prosecutors to shy away from bringing other cases. After all, the case against Mr. Cioffi and Mr. Tannin was supposed to be the easy one. By contrast, a case against Angelo Mozilo would have been, from the start, a much harder one to win.

Although the Justice Department never filed charges against Mr. Mozilo, one can assume that its case would have been similar to the civil case brought earlier by the Securities and Exchange Commission. (On the eve of the trial date last fall, the S.E.C. blinked and settled with Mr. Mozilo.) One of the S.E.C.’s charges was insider trading — that Mr. Mozilo sold nearly $140 million worth of stock after he knew the company was in trouble. But the defense countered by pointing out that Mr. Mozilo was selling his stock under an automatic selling program that top corporate executives often use — thus mooting the insider trading accusation.

Like the Bear Stearns executives, Mr. Mozilo had written his share of e-mails expressing worries about some of Countrywide’s loan practices. He called one of Countrywide’s subprime products “the most dangerous product in existence, and there can be nothing more toxic.” The government argued that Mr. Mozilo had a legal obligation to share that information with investors.

But this case, too, would have been awfully difficult to make. Countrywide’s descent into subprime madness was hardly a secret. It made all sorts of crazy adjustable rate mortgages that required no documentation of income; its array of products was also well known and disclosed to investors. Indeed, Mr. Mozilo was quite vocal and public in saying that the housing market was due to fall, and fall hard. But he always assumed that whatever its losses, Countrywide was so strong that it would be one of the survivors and would feast on the carcasses of its former competitors. No internal e-mail he wrote contradicted that belief.

Was there outright fraud at Countrywide? Of course there was. That is a large part of the reason that Bank of America, which bought Countrywide in early 2008, has struggled so mightily with the legacy of all the Countrywide loans now on its books. But most of the fraudulent actions at Countrywide took place at the bottom of the food chain, at the mortgage origination level. It has been well-documented that mortgage brokers induced borrowers to take loans that they never understood, and often persuaded them to lie on their loan applications. [EDITOR’S NOTE: THEY STILL DON’T GET IT. WHO DO THEY THINK WAS GIVING THE INSTRUCTIONS? IN AN INDUSTRY THAT INVENTED THE TERM DUE DILIGENCE IS THERE ANY POSSIBILITY THAT MOZILO AND OTHERS DIDN’T KNOW EXACTLY WHAT WAS GOING ON? WHY NOT LET A JURY DECIDE?]

That kind of predatory lending is against the law — and it should be prosecuted. But going after small-time mortgage brokers isn’t nearly as satisfying as putting the big guy in jail, especially a big guy like Mr. Mozilo, who symbolizes to many Americans the excesses and wrongdoing embodied in the subprime lending mess. The problem is that Mr. Mozilo, though he helped create the culture that made such predatory lending acceptable, never made the fraudulent loans himself. Legally, if not morally, he’s off the hook.

A few days ago, I listened to a recording of a lengthy interview with Mr. Mozilo conducted by investigators working for the Financial Crisis Inquiry Commission and posted recently on the commission’s Web site. It was a remarkable performance; Mr. Mozilo expressed no regrets and no remorse. He extolled subprime loans as a way to allow lower-income Americans to get a piece of the American dream and “really build wealth” — just like people used to do during the housing bubble. He bragged that Countrywide, unlike the too-big-to-fail banks, never took a penny of government money. He said that Countrywide had helped put 25 million Americans in homes.

His voice rising passionately, he said finally, “Countrywide was one of the greatest companies in the history of this country.”

Which is a final reason Mr. Mozilo would have been difficult to prosecute. Delusion is an iron-clad defense.

J SELNA DIST. FED CT. CENTRAL DISTRICT CALIFORNIA: TRO AND ORDER TO SHOW CAUSE

ONE ON ONE WITH NEIL GARFIELD ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

SELNA CA-TRO DEUTSCH AURORA QUALITY

Attorney Lenore L. Albert in Huntington beach, CA, attorney for Plaintiffs and the Class Action has secured an order that is worth reading both from the standpoint of what you should be looking for as well as what should be in your pleadings. The Court has obviously been convinced that Deutsch, Aurora, Quality Loan Service et al are involved in an enterprise that if not criminal, does not meet the standards of due process or even just plain common sense and fairness.

J Selna is paving the way for a permanent injunction against them for much the same reasons as we have seen in the high Court decisions around the country including the recent Ibanez decision in Massachusetts, and the very recent New jersey decision. The Order is important not only for its content but because of its form which is why I want you to read it.

The Order 1st prohibits the Defendants from taking ANY action with respect to the properties, and second sets the stage for making that prohibition permanent. What is interesting to me about this order is the specificity of the order and the timing in which it takes effect. See if you don’t agree.

Lehman retrieves $60bn for creditors

SERVICES YOU NEED

EDITOR’S NOTE: We are seeing more and more of these “recoveries.” The question we pose and that should be posed IN COURT is to whom this money is paid and more importantly, how is it going to be credited? Why is that important?

ANSWER: If that recovery means that the investors or investor pools recovered money then the obligations to those investors have been mitigated or reduced. Those obligations derived from liabilities that were represented to be principally from borrowers who had taken loans on their homes. If the obligations are reduced, then there should be a credit. That credit should be reported to the borrower but it isn’t. We continue this charade everyday with past, present and future foreclosures claiming amounts due that are overstated. In fact, many if not most of these foreclosures are relying upon the existence of a default that either never happened or was cured by these “recoveries.”

The simple fact is that a default does NOT occur because the named borrower fails to make a payment. The default actually occurs ONLY if the creditor fails to receive payment from ANY source. Think about it.

In commercial transactions, if the creditor has successfully mitigated the obligation without payment from the borrower, the obligation is still obviously reduced since the creditor is not entitled to recover more than the amount that is due. So why are we allowing the creditors and pretender lenders to recover multiples of the amount due in residential home foreclosures?

Note that this effects all Lehman entities which include notably Aurora Loan Servicing, BNC and dozens of other entities.

Lehman retrieves $60bn for creditors

By Telis Demos in New York

Published: September 22 2010 20:58 | Last updated: September 22 2010 20:58

The bankrupt estate of Lehman Brothers has recovered nearly $60bn in value for creditors since September 2008, but a decision on how to distribute the funds will not be finalised until next year at the earliest.

Bryan Marsal, a partner with restructuring firm Alvarez & Marsal and serving as Lehman’s chief executive, presented the bank’s “state of the estate” report in a Manhattan bankruptcy court on Wednesday.

New MERS Standing Case Splits Note and Mortgage: Bellistri v Ocwen Loan Servicing, Mo App.20100309

From Max Gardner – QUIET TITLE GRANTED

Bellistri v Ocwen Loan Servicing, Mo App.20100309

Mortgage Declared Unenforceable in DOT Case: NOTE DECLARED UNSECURED

“When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless”

Editor’s Note:

We know that MERS is named as nominee as beneficiary. We know that MERS is NOT named on the note. This appellate case from Missouri, quoting the Restatement 3rd, simply says that the note was split from the security instrument, and that there is no enforcement mechanism available under the Deed of Trust. Hence, the court concludes, quiet title was entirely appropriate and the only remedy to the situation because once the DOT and note are split they is no way to get them back together.

NOTE: THIS DOES NOT MEAN THE NOTE WAS INVALIDATED. BUT IT DOES MEAN THAT IN ORDER TO PROVE A CLAIM UNDER THE NOTE OR TO VERIFY THE DEBT, THE HOLDER MUST EXPLAIN HOW IT ACQUIRED ANY RIGHTS UNDER THE NOTE AND WHETHER IT IS ACTING IN ITS OWN RIGHT OR AS AGENT FOR ANOTHER.

The deed of trust, …did not name BNC [AN AURORA/LEHMAN FRONT ORGANIZATION TO ORIGINATE LOANS] as the beneficiary, but instead names Mortgage Electronic Registration System (MERS), solely as BNC’s nominee. The promissory note does not make any reference to MERS. The note and the deed of trust both require payments to be made to the lender, not MERS.

a party “must have some actual, justiciable interest.” Id. They must have a recognizable stake. Wahl v. Braun, 980 S.W.2d 322 (Mo. App. E.D. 1998). Lack of standing cannot be waived and may be considered by the court sua sponte. Brock v. City of St. Louis, 724 S.W.2d 721 (Mo. App. E.D. 1987). If a party seeking relief lacks standing, the trial court does not have jurisdiction to grant the requested relief. Shannon, 21 S.W.3d at 842.

A Missouri appellate court, without trying, may have drawn a map to a defense to foreclosures-if borrowers can figure it out before the Missouri Supreme Court overturns the decision in Bellistri v Ocwen. The opinion shows how an assignment of a loan to a servicing company for collection can actually make the loan uncollectible from the mortgaged property.

This case concerns the procedures of MERS, which is short for Mortgage Electronic Registration Service, created to solve problems created during the foreclosure epidemic of the 1980s, when it was sometimes impossible to track the ownership of mortgages after several layers of savings and loans and banks had failed without recording assignments of the mortgages. The MERS website contains this explanation:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

MERS is the named mortgage holder in transactions having an aggregate dollar value in the hundreds of billions, and its service of providing a way to trace ownership of mortgages has played a large role in the securitization of mortgages and the marketability of derivative mortgage-backed securities, because it seemed to eliminate the necessity of recording assignments of mortgages in county records each time the ownership of a mortgage changed, allowing mortgage securities (packages of many mortgages) to be traded in the secondary market, with less risk.

This case began as a routine quiet title case on a collector’s deed, also known as a tax deed. Following the procedure by which people can pay delinquent property taxes and obtain the ownership of the delinquent property if the owner or lien holder fails after notice to redeem, Bellistri obtained a deed from the Jefferson County (Mo.) collector.

Because of the possibility of defects in the procedures of the county collectors and in the giving of proper notices, the quality of title conferred by a collector’s deed is not insurable.

A suit to cure the potential defects (called a “quiet title suit”) is required to make title good, so that the property can be conveyed by warranty deed and title insurance issued to new lenders and owners. The plaintiff in a quiet title suit is required to give notice of the suit to all parties who had an interest in the property identified in the collector’s deed.

A borrower named Crouther had obtained a loan from BCN Mortgage. The mortgage document (called a deed of trust) named MERS as the holder of the deed of trust as BCN’s nominee, though the promissory note secured by the deed of trust was payable to BCN Mortgage and didn’t mention MERS.

Crouther failed to pay property taxes on the mortgaged property.

Bellistri paid the taxes for three years, then sent notice to Crouther and  BNC that he was applying for a collector’s deed. After BNC failed to redeem (which means “pay the taxes with interest and penalties,” so that Bellistri could be reimbursed), the county collector issued a collector’s deed to Bellistri, in 2006.

Meanwhile, MERS assigned the promissory note and deed of trust to Ocwen Servicing, probably because nobody was making mortgage payments, so that Ocwen would be in a position to attempt to (a) get Crouther to bring the loan payments up to date or (b) to foreclose, if necessary. But this assignment, as explained below, eliminated Ocwen’s right to foreclose and any right to the property.

Bellistri filed a suit for quiet title and to terminate any right of Crouther to possess the property. After discovering the assignment of the deed of trust to Ocwen, Bellistri added Ocwen as a party to the quiet title suit, so that Ocwen could have an opportunity to prove that it had an interest in the property, or be forever silenced.

Bellistri’s attorney Phillip Gebhardt argued that Ocwen had no interest in the property, because the deed of trust that it got from MERS could not be foreclosed. As a matter of law, the right to foreclose goes away when the promissory note is “split”  from the deed of trust that it is supposed to secure. The note that Crouther signed and gave to BNC didn’t mention MERS, so MERS had no right to assign the note to Ocwen. The assignment that MERS made to Ocwen conveyed only the deed of trust, splitting it from the note.

When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless. Ironically, the use of MERS to make ownership of the note and mortgage easier to trace also made the deed of trust unenforceable. Who knows how many promissory notes are out there that don’t mention MERS, even though MERS is the beneficiary of the deed of trust securing such notes?

O. Max Gardner III

Gardner & Gardner PLLC

PO Box 1000

Shelby NC 28151-1000

704.418.2628 (C)

704.487.0616 (O)

888.870.1647 (F)

704.475.0407 (S)

maxgardner@maxgardner.com

max@maxinars.com

www.maxgardnerlaw.com

www.maxbankruptcybootcamp.com

www.maxinars.com

www.governoromaxgardner.com

Next Boot Camp:  May 20 to May 24, 2010

Lehman dissection provides clues for discovery and motion practice

Challenge everything, assume nothing. The chances are that through this shadow banking system, your loan was paid in whole or in part through third party insurers, counterparties, federal bailout etc. Without an accounting from the CREDITOR, there is no basis for claiming a default. What the other side is doing is centering in on the note, which is only part of a string of evidence about the obligation in securitized debt. Your position is that you want ALL the evidence, so you can identify the CREDITOR,and pursuant to Federal and State law, either pay, settle, modify or litigate the case if you have legitimate defenses. You can’t do that if the party you are fighting has no power to execute a satisfaction of mortgage or release and reconveyance.
April 12, 2010

Lehman Channeled Risks Through ‘Alter Ego’ Firm

By LOUISE STORY and ERIC DASH

It was like a hidden passage on Wall Street, a secret channel that enabled billions of dollars to flow through Lehman Brothers.

In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.

The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.

While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.

None of this was disclosed by Lehman, however.

Entities like Hudson Castle are part of a vast financial system that operates in the shadows of Wall Street, largely beyond the reach of banking regulators. These entities enable banks to exchange investments for cash to finance their operations and, at times, make their finances look stronger than they are.

Critics say that such deals helped Lehman and other banks temporarily transfer their exposure to the risky investments tied to subprime mortgages and commercial real estate. Even now, a year and a half after Lehman’s collapse, major banks still undertake such transactions with businesses whose names, like Hudson Castle’s, are rarely mentioned outside of footnotes in financial statements, if at all.

The Securities and Exchange Commission is examining various creative borrowing tactics used by some 20 financial companies. A Congressional panel investigating the financial crisis also plans to examine such deals at a hearing in May to focus on Lehman and Bear Stearns, according to two people knowledgeable about the panel’s plans.

Most of these deals are legal. But certain Lehman transactions crossed the line, according to the account of the bank’s demise prepared by an examiner of the bank. Hudson Castle was not mentioned in that report, released last month, which concluded that some of Lehman’s bookkeeping was “materially misleading.” The report did not say that Hudson was involved in the misleading accounting.

At several points, Lehman did transactions greater than $1 billion with Hudson vehicles, but it is unclear how much money was involved since 2001.

Still, accounting experts say the shadow financial system needs some sunlight.

“How can anyone — regulators, investors or anyone — understand what’s in these financial statements if they have to dig 15 layers deep to find these kinds of interlocking relationships and these kinds of transactions?” said Francine McKenna, an accounting consultant who has examined the financial crisis on her blog, re: The Auditors. “Everybody’s talking about preventing the next crisis, but they can’t prevent the next crisis if they don’t understand all these incestuous relationships.”

The story of Lehman and Hudson Castle begins in 2001, when the housing bubble was just starting to inflate. That year, Lehman spent $7 million to buy into a small financial company, IBEX Capital Markets, which later became Hudson Castle.

From the start, Hudson Castle lived in Lehman’s shadow. According to a 2001 memorandum given to The New York Times, as well as interviews with seven former employees at Lehman and Hudson Castle, Lehman exerted an unusual level of control over the firm. Lehman, the memorandum said, would serve “as the internal and external ‘gatekeeper’ for all business activities conducted by the firm.”

The deal was proposed by Kyle Miller, who worked at Lehman. In the memorandum, Mr. Miller wrote that Lehman’s investment in Hudson Castle would give the bank and its clients access to financing while preventing “headline risk” if any of its deals went south. It would also reduce Lehman’s “moral obligation” to support its off-balance sheet vehicles, he wrote. The arrangement would maximize Lehman’s control over Hudson Castle “without jeopardizing the off-balance sheet accounting treatment.”

Mr. Miller became president of Hudson Castle and brought several Lehman employees with him. Through a Hudson Castle spokesman, Mr. Miller declined a request for an interview.

The spokesman did not dispute the 2001 memorandum but said the relationship with Lehman had evolved. After 2004, “all funding decisions at Hudson Castle were solely made by the management team and neither the board of directors nor Lehman Brothers participated in or influenced those decisions in any way,” he said, adding that Lehman was only a tenth of Hudson’s revenue.

Still, Lehman never told its shareholders about the arrangement. Nor did Moody’s choose to mention it in its credit ratings reports on Hudson Castle’s vehicles. Former Lehman workers, who spoke on the condition that they not be named because of confidentiality agreements with the bank, offered conflicting accounts of the bank’s relationship with Hudson Castle.

One said Lehman bought into Hudson Castle to compete with the big commercial banks like Citigroup, which had a greater ability to lend to corporate clients. “There were no bad intentions around any of this stuff,” this person said.

But another former employee said he was leery of the arrangement from the start. “Lehman wanted to have a company it controlled, but to the outside world be able to act like it was arm’s length,” this person said.

Typically, companies are required to disclose only material investments or purchases of public companies. Hudson Castle was neither.

Nonetheless, Hudson Castle was central to some Lehman deals up until the bank collapsed.

“This should have been disclosed, given how critical this relationship was,” said Elizabeth Nowicki, a professor at Boston University and a former lawyer at the S.E.C. “Part of the problems with all these bank failures is there were a lot of secondary actors — there were lawyers, accountants, and here you have a secondary company that was helping conceal the true state of Lehman.”

Until 2004, Hudson had an agreement with Lehman that blocked it from working with the investment bank’s competitors, but in 2004, that deal ended, and Lehman reduced its number of board seats to one, from five, according to two people with direct knowledge of the situation and an internal Hudson Castle document. Lehman remained Hudson’s largest shareholder, and its management remained close to important Lehman officials.

Hudson Castle created at least four separate legal entities to borrow money in the markets by issuing short-term i.o.u.’s to investors. It then used that money to make loans to Lehman and other financial companies, often via repurchase agreements, or repos. In repos, banks typically sell assets and promise to buy them back at a set price in the future.

One of the vehicles that Hudson Castle created was called Fenway, which was often used to lend to Lehman, including in the summer of 2008, as the investment bank foundered. Because of that relationship, Hudson Castle is now the second-largest creditor in the Lehman Estate, after JPMorgan Chase. Hudson Castle, which is still in business, doing similar work for other banks, bought out Lehman’s stake last year. The firm’s spokesman said Hudson operated independently in the Fenway deal in the summer of 2008.

Hudson Castle might have walked away earlier if not for Fenway’s ties to Lehman. Lehman itself bought $3 billion of Fenway notes just before its bankruptcy that, in turn, were used to back a loan from Fenway to a Lehman subsidiary. The loan was secured by part of Lehman’s investment in a California property developer, SunCal, which also collapsed. At the time, other lenders were already growing uneasy about dealing with Lehman.

Further complicating the arrangement, Lehman later pledged those Fenway notes to JPMorgan as collateral for still other loans as Lehman began to founder. When JPMorgan realized the circular relationship, “JPMorgan concluded that Fenway was worth practically nothing,” according the report prepared by the court examiner of Lehman.

Lehman-Barclay Deal Hid Windfall of $11 Billion

“relief from the sale order is warranted by law whether there was an innocent mistake or deliberate concealment.”

Editor’s Note: When you watch these events unfold, you might begin to realize that the windfall is not to the homeowner who gets the foreclosure thrown out of court, it already happened for the financial players who continue to reap their rewards.

Now if some enterprising soul would help us out by getting hold of the transcripts and exhibits used in those depositions and discovery tools, it would probably contain a wealth of information we could post on here to help others dealing with Lehman, Aurora, BNC, Barclay, etc.

Judge Rules for Lehman in Sale Case

By BLOOMBERG NEWS

A federal judge on Friday rejected a bid by Barclays to throw out a motion by Lehman Brothers Holdings to recover an $11 billion “windfall” the bank supposedly made on the purchase of the bankrupt firm’s North American brokerage.

The case pits creditors and customers of Lehman, which an examiner said used accounting methods that concealed billions of dollars of risks, against Britain’s second-biggest bank. Barclays doubled its profit last year and reported a $4 billion gain on the brokerage in 2008.

Judge James Peck of United States District Court in New York threw out Barclays’ request at the outset of a court hearing, instead ordering immediate opening statements in the case.

The court was never told of the $11 billion gain for Barclays which was known before the sale hearing,” a Lehman lawyer, Robert Gaffey, said at the hearing. “Barclays sat silent in court while Lehman’s lawyers described the deal to the court as a wash.”

Barclays argued that if the judge reopened the sale contract, buyers of distressed bank assets would become scarce. Lehman, which filed for bankruptcy in 2008, said new evidence from 60 depositions and 100,000 documents justify forcing Barclays to give back its gains.

A court victory for Lehman would add money for creditors with claims estimated at $260 billion, augmenting the $50 billion that Bryan Marsal, the chief executive, has said he intends to raise within five years.

Mr. Gaffey, of the New York office of Jones Day, said “relief from the sale order is warranted by law whether there was an innocent mistake or deliberate concealment.

Goldman and JPM Still Playing with Other People’s Money

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry [$605 trillion], according to the Office of the Comptroller of the Currency.

Goldman Sachs Demands Collateral It Won’t Dish Out

By Michael J. Moore and Christine Harper

March 15 (Bloomberg) — Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

Both New York-based banks are demanding unequal arrangements with hedge-fund firms, forcing them to post more cash collateral to offset risks on trades while putting up less on their own wagers. At the end of December this imbalance furnished Goldman Sachs with $110 billion, according to a filing. That’s money it can reinvest in higher-yielding assets.

“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”

The collapse of American International Group Inc. in 2008 was hastened by the insurer’s inability to meet $20 billion in collateral demands after its credit-default swaps lost value and its credit rating was lowered, Treasury Secretary Timothy F. Geithner, president of the Federal Reserve Bank of New York at the time of the bailout, testified on Jan. 27. Goldman Sachs was among AIG’s biggest counterparties.

AIG Protection

Goldman Sachs Chief Financial Officer David Viniar has said that his firm’s stringent collateral agreements would have helped protect the firm against a default by AIG. Instead, a $182.3 billion taxpayer bailout of AIG ensured that Goldman Sachs and others were repaid in full.

Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.

The firm led by Chief Executive Officer Lloyd C. Blankfein collected cash collateral that represented 57 percent of outstanding over-the-counter derivatives assets as of December 2009, while it posted just 16 percent on liabilities, the firm said in a filing this month. That gap has widened from rates of 45 percent versus 18 percent in 2008 and 32 percent versus 19 percent in 2007, company filings show.

“That’s classic collateral arbitrage,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked as treasurer at Morgan Stanley and chief financial officer at Lehman Brothers Holdings Inc. “You always want to enter into something where you’re getting more collateral in than what you’re putting out.”

Using the Cash

The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.

“They do have to pay interest on it, usually at the fed funds rate, but that’s a low rate,” Claassen said.

Goldman Sachs’s $110 billion net collateral balance in December was almost three times the amount it had attracted from depositors at its regulated bank subsidiaries. The collateral could earn the bank an annual return of $439 million, assuming it’s financed at the current fed funds effective rate of 0.15 percent and that half is reinvested at the same rate and half in two-year Treasury notes yielding 0.948 percent.

“We manage our collateral arrangements as part of our overall risk-management discipline and not as a driver of profits,” said Michael DuVally, a spokesman for Goldman Sachs. He said that Bloomberg’s estimates of the firm’s potential returns on collateral were “flawed” and declined to provide further explanation.

JPMorgan, Citigroup

JPMorgan received cash collateral equal to 57 percent of the fair value of its derivatives receivables after accounting for offsetting positions, according to data contained in the firm’s most recent annual filing. It posted collateral equal to 45 percent of the comparable payables, leaving it with a $37 billion net cash collateral balance, the filing shows.

In 2008 the cash collateral received by JPMorgan made up 47 percent of derivative assets, while the amount posted was 37 percent of liabilities. The percentages were 47 percent and 26 percent in 2007, according to data in company filings.

“JPMorgan now requires more collateral from its counterparties” on derivatives, David Trone, an analyst at Macquarie Group Ltd., wrote in a note to investors following a meeting with Jes Staley, chief executive officer of JPMorgan’s investment bank.

Citigroup Collateral

By contrast, New York-based Citigroup Inc., a bank that’s 27 percent owned by the U.S. government, paid out $11 billion more in collateral on over-the-counter derivatives than it collected at the end of 2009, a company filing shows.

Brian Marchiony, a spokesman for JPMorgan, and Alexander Samuelson, a spokesman for Citigroup, both declined to comment.

The five biggest U.S. commercial banks in the derivatives market — JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup and Wells Fargo & Co. — account for 97 percent of the notional value of derivatives held in the banking industry, according to the Office of the Comptroller of the Currency.

In credit-default swaps, the world’s five biggest dealers are JPMorgan, Goldman Sachs, Morgan Stanley, Frankfurt-based Deutsche Bank AG and London-based Barclays Plc, according to a report by Deutsche Bank Research that cited the European Central Bank and filings with the SEC.

Goldman Sachs

Goldman Sachs and JPMorgan had combined revenue of $29.1 billion from trading derivatives and cash securities in the first nine months of 2009, according to Federal Reserve reports.

The U.S. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin. A clearinghouse that includes both banks and hedge funds would erode the banks’ collateral balances, said Kevin McPartland, a senior analyst at research firm Tabb Group in New York.

When contracts are negotiated between two parties, collateral arrangements are determined by the relative credit ratings of the two companies and other factors in the relationship, such as how much trading a fund does with a bank, McPartland said. When trades are cleared, the requirements have “nothing to do with credit so much as the mark-to-market value of your current net position.”

“Once you’re able to use a clearinghouse, presumably everyone’s on a level playing field,” he said.

Dimon, Blankfein

Still, banks may maintain their advantage in parts of the market that aren’t standardized or liquid enough for clearing, McPartland said. JPMorgan CEO Jamie Dimon and Goldman Sachs’s Blankfein both told the Financial Crisis Inquiry Commission in January that they support central clearing for all standardized over-the-counter derivatives.

“The percentage of products that are suitable for central clearing is relatively small in comparison to the entire OTC derivatives market,” McPartland said.

A report this month by the New York-based International Swaps & Derivatives Association found that 84 percent of collateral agreements are bilateral, meaning collateral is exchanged in two directions.

Banks have an advantage in dealing with asset managers because they can require collateral when initiating a trade, sometimes amounting to as much as 20 percent of the notional value, said Craig Stein, a partner at law firm Schulte Roth & Zabel LLP in New York who represents hedge-fund clients.

JPMorgan Collateral

JPMorgan’s filing shows that these initiation amounts provided the firm with about $11 billion of its $37.4 billion net collateral balance at the end of December, down from about $22 billion a year earlier and $17 billion at the end of 2007. Goldman Sachs doesn’t break out that category.

A bank’s net collateral balance doesn’t get included in its capital calculations and has to be held in liquid products because it can change quickly, according to an executive at one of the biggest U.S. banks who declined to be identified because he wasn’t authorized to speak publicly.

Counterparties demanding collateral helped speed the collapse of Bear Stearns and Lehman Brothers, according to a New York Fed report published in January. Those that had posted collateral with Lehman were often in the same position as unsecured creditors when they tried to recover funds from the bankrupt firm, the report said.

“When the collateral is posted to a derivatives dealer like Goldman or any of the others, those funds are not segregated, which means that the dealer bank gets to use them to finance itself,” said Darrell Duffie, a professor of finance at Stanford University in Palo Alto. “That’s all fine until a crisis comes along and counterparties pull back and the money that dealer banks thought they had disappears.”

‘Greater Push Back’

While some hedge-fund firms have pushed for banks to put up more cash after the collapse of Lehman Brothers, Goldman Sachs and other survivors of the credit crisis have benefited from the drop in competition.

“When the crisis started developing, I definitely thought it was going to be an opportunity for our fund clients to make some headway in negotiating, and actually the exact opposite has happened,” said Schulte Roth’s Stein. “Post-financial crisis, I’ve definitely seen a greater push back on their side.”

Hedge-fund firms that don’t have the negotiating power to strike two-way collateral agreements with banks have more to gain from a clearinghouse than those that do, said Stein.

Regulators should encourage banks to post more collateral to their counterparties to lower the impact of a single bank’s failure, according to the January New York Fed report. Pressure from regulators and a move to greater use of clearinghouses may mean the banks’ advantage has peaked.

“Before the financial crisis, collateral was very unevenly demanded and somewhat insufficiently demanded,” Stanford’s Duffie said. A clearinghouse “should reduce the asymmetry and raise the total amount of collateral.”

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.

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

By MICHAEL J. de la MERCED

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.

Bankruptcy Judge Invalidates Securitization Payment Structure

Editor’s Note: 180787_86_opinion Lehman My reading of this report is that the underlying principle of the ADDITION of conditions and co-obligors changed the homeowner’s note from being negotiable to non-negotiable. This decision doesn’t say that but the underlying reasoning leads me to believe that we are on the precipice of a paradigm shift in the way that derivatives are perceived in court and the marketplace. It appears a large number of other writers agree.

The relevance is that if the derivatives are construed as part of a single transaction in which the homeowner loan was funded, and that there are conditions under which the derivative operates that add or change the original contract as set forth in the note, then the original note was REPLACED with a new deal that did not include the homeowner.

This means the original obligation was replaced with a new obligation in which parties inserted themselves into that contract without disclosure to either the investor who funded the transaction or the homeowner who secured the transaction with the home. In my opinion (check with your own lawyer) the legal effect is that the note was a nullity the moment it was signed or assigned. This eviscerated the security rights of the creditor — although the creditor (if he/she/they can be found) might have some right to sue in equity to create a constructive trust over the property — subject to the various defenses and counterclaims available to the homeowner.

This does NOT mean that the obligation ceases to exist. But it DOES mean that the note is no longer the evidence of the obligation. It is for other reasons (third party payment by Federal agencies, insurers, or counter-parties) that the obligation has been reduced or eliminated. And it is for still other reasons that the off-set to the obligation (payment of several layers of undisclosed yield spread premiums among them), that the obligation could be eliminated or reduced.

The reaction from the financial community clearly shows they are concerned about far-reaching implications of this seemingly minor and esoteric decision. They couldn’t be so concerned and inflamed unless they saw the whole securitization scheme unraveling.

Bloomberg Friday, January 29th, 2010, 10:59 am

A federal bankruptcy court judge in New York ruled earlier this week that long-held assumptions about payments owed to a counterparty in securitization deals cannot be enforced under US Bankruptcy Code, in a decision set to upend the securitization market.

The decision was handed down by Judge James Peck, the judge overseeing the Lehman Brothers bankruptcy proceedings, who said that certain contractual provisions in a Lehman collateralized default obligation (CDO) are unenforceable under Chapter 11.

The CDO, called Dante, was also hedged by a credit default swap (CDS) provided by Lehman Brothers Special Financing (LBSF). Lehman Brothers Holding Inc. (LBHI) provided credit support to LBSF before both units filed bankruptcy in fall 2008.

After Lehman went bankrupt, trustees for the bondholders initially laid claim to the Dante obligations. When they did not receive compensation under the agreements of the CDO, they took Lehman to court. Peck dismissed the trustees’ claim under ipso facto clauses, and by doing so, threw off previously accepted principles of securitization.

“From a credit perspective, [the] ruling has important implications because it contravenes what have been longstanding market assumptions as to the enforceability of the documents as agreed to by the parties at the beginning of the transaction, and more specifically, the priority of payment provisions,” according to commentary on the ruling from credit rating agency Moody’s Investors Service.

Structured finance transactions often contain swaps – interest rate swaps, basis swaps, foreign exchange swaps, total return swaps and credit default swaps (CDS). Moody’s said the presence of this derivative contract can sometimes introduce additional risk of counter-party default. At the time of default, a counterparty could fail to meet its obligations to the issuer and/or be owed a swap termination payment if it is “in the money” at the default event.

In the case of Dante, the bankruptcy triggered early redemption of notes and required distribution of collateral proceeds that secured the notes. The United Kingdom law governing the program documentation provides that payments to the swap counter-party precede payment to noteholders. A default by the counterparty due to bankruptcy would require that payments be made to the swap counterparty only after noteholders are paid in full.

Peck decided these subordination provisions constitute “ipso facto” clauses — those that seek to modify the relationship of contracting parties due to bankruptcy filing — that are void under bankruptcy law.

The ruling contradicts previous decisions on the same case within United Kingdom courts. Additionally, Moody’s said the ruling may bear “profound” and far-reaching implications for structured finance transactions.

“[The ruling] challenges long-held assumptions relating to the subordination of swap termination payments to a swap counterparty following a swap counterparty bankruptcy,” Moody’s said in an e-mailed statement, adding that determining the impact on individual securities will require case-specific analysis.

Write to Diana Golobay.

Looking for the Lenders’ Little Helpers By GRETCHEN MORGENSON NY Times

Looking for the Lenders’ Little Helpers

Published: July 11, 2009
IT is hard not to be dismayed by the fact that two years into our economic crisis so few perpetrators of financial misdeeds have been held accountable for their actions. That so many failed mortgage lenders do not appear to face any legal liability for the role they played in almost blowing up the economy really rankles. They have simply moved on to the next “opportunity.”

And what of the giant institutions that helped finance these monumentally toxic loans, or arranged the securitizations that bundled the loans and sold them to investors? So far they have argued, fairly successfully, that they operated independently of the original lenders. Therefore, they are not responsible for any questionable loans that were made.

This argument is growing tougher to defend. Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

One example is a suit filed in Federal District Court in Atlanta, on behalf of the borrowers, Patricia and Ricardo Jordan. The Jordans are fighting a foreclosure on their home of 25 years that they say was a result of an abusive and predatory loan made by NovaStar Mortgage Inc. A lender that had been cited by the “More articles about Housing and Urban Development Department, U.S.” Department of Housing and Urban Development for improprieties, like widely hiring outside contractors as loan officers, NovaStar ran out of cash in 2007 and is no longer making loans.

Also named as a defendant in the case is the initial trustee of the securitization that contained the Jordans’ loan: “More information about Morgan, J. P., Chase & Company” JPMorgan Chase. In 2006, the bank transferred its trustee business “More information about Bank of New York Company” Bank of New York Mellon, which is also a defendant in the case. The Jordans are asking that all three defendants pay punitive damages.

“We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it,” said Sarah E. Bolling, a lawyer in the Home Defense Program at the Atlanta “More articles about Legal Aid Society” “The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”

IN their legal briefs, the trustees have made the traditional argument that their relationship was not a joint venture and that they are not responsible for any problems with the Jordans’ loan.

A JPMorgan spokesman declined to comment on the case but said that because the bank was no longer the trustee, it was not directly involved in the litigation. A spokesman for Bank of New York Mellon also declined to comment.
A lawyer for NovaStar did not return calls seeking comment.

The facts surrounding the Jordans’ case are depressingly familiar. In 2004, interested in refinancing their adjustable-rate mortgage as a fixed-rate loan, they said they were promised by NovaStar that they would receive one. In actuality, their lawsuit says, they received a $124,000 loan with an initial interest rate of 10.45 percent that could rise as high as 17.45 percent over the life of the loan.

Mrs. Jordan, 66, said that she and her husband, who is disabled, provided NovaStar with full documentation of their pension, annuity and “More articles about Social Security.” statements showing that their net monthly income was $2,697. That meant that the initial mortgage payment on the new loan — $1,215 — amounted to 45 percent of the Jordans’ monthly net income.

The Jordans were charged $5,934 when they took on the mortgage, almost 5 percent of the loan amount. The loan proceeds paid off the previous mortgage, $11,000 in debts and provided them with $9,616 in cash.

Neither of the Jordans knew the loan was adjustable until two years after the closing, according to the lawsuit. That was when they began getting notices of an interest-rate increase from Nova- Star. The monthly payment is now $1,385.

“I got duped,” Mrs. Jordan said. “They knew how much money we got each month. Next thing I know I couldn’t buy anything to eat and I couldn’t pay my other bills.”

All the defendants in the case have asked the judge to dismiss it. The Jordans are awaiting his ruling. Perhaps the most famous case that linked a brokerage firm with a predatory lender was the one involving First Alliance, an aggressive lender that declared bankruptcy in 2000, and “More articles about Lehman Brothers.” Lehman Brothers its main financier.

More than 7,500 borrowers had successfully sued First Alliance for fraud, and in 2003 a jury found that Lehman, which had lent First Alliance roughly $500 million over the years to finance its lending, “substantially assisted” it in its fraudulent activities. Lehman was ordered to pay $5.1 million, or 10 percent of damages in the case, for its role.

Another case, from 2004, took up the issue of liability for abusive lending that went beyond a loan’s originator. That case, which involved “More information about Wells Fargo & Co” Wells Fargo and a borrower named Michael L. Short, was settled after the court denied two motions to dismiss it.

That matter turned on the language in the securitization’s pooling and servicing agreement, which provides details not only on the types of loans in a pool but also on the relationships of various parties involved in it.

Diane Thompson, a lawyer with the National Consumer Law Center, said that the meaning of the agreement was that “the trustee was a joint venture with the originator and was therefore responsible for everything that happened in that joint venture.”

Many such agreements, she said, create a joint venture by force of law. “Everybody I know that has tried this argument has had pretty good success. Absolutely we are going to see more of these cases.”

And let us not forget that late in the mortgage mania, Wall Street was no longer content simply to package these loans and sell them to investors. Eager for the profits generated by originating these loans, big firms bought subprime lenders to keep their securitization machinery humming. This could expose the firms to liability.

“I think something that hasn’t been explored much is the extent to which the financial services industry has exposure to litigation risk in securitizations,” Professor Engel said. “As the industry got faster and looser, Wall Street just stopped paying attention. And when you stop paying attention, you get in trouble.”

Mortgage Meltdown: The institutionalization of fraud and criminality

GRETCHEN MORGENSON of the New York Times Keeps Getting It Better and Better. In Today’s article she demonstrates tenacity, insight and combines it with her excellent writing skills. Send her some fan mail. What follows is one of my annotations on one of the many books, treatises and articles that I am constantly reading on behalf of all of us involved in the Homeowner’s War.

Rethinking Bank Regulation: Till Angels Govern, by James R. Garth, Gerard Caprio, and Ross Levine, Cambridge University Press, 2006
– [ ] “Crises are considered a manifestation of imperfect information coupled with externalities.” p.26

– [ ] Relevance: Withholding relevant information from both investor and “borrower” they concealed the true nature of the scheme, to wit: the use of the borrower’s signature as a vehicle for the issuance of an unregulated security under false pretenses. The externalities were the incentives causing “lenders” to jettison underwriting standards in favor of fee income without creating “risk” in an accounting sense but causing great damage to both real parties in interest — the borrower/issuer of an instrument intended to be conveyed as a negotiable instrument and sold as a security to unwary (or maybe notso unwary) investors. Failing to disclose the right to rescind under securities laws, rules and regulations — coupled with the necessary disclosures of the idenity andscope of activities of all the players and their”compensation” creates an absolute permanent right to rescind in addition to the TILA rescission.

The limitations on TILA rescission would not apply if in fact the transaction was substantively a securities transaction for all practical purposes. The transaction was a securities transaction under the single transaction theory — i.e., the primary purpose of getting the borrower’s signature was not to create an asset (i.e., a loan that would be repaid) but rather to fill in the blanks, coupled with plausible deniability for each player as to the true value and nature of the “asset” so that the investor would be misled into thinking that the
triple AAA rating and “insurance (without assets to secure the payment of liability) could be relied upon in purchasing a mortgage backed security. To be sure, it is doubtful that any sophisticated investment manager of a hedge fund, pension fund or sovereign wealth fund could not have have at least suspected the truth. But these were people whose sole economic incentive was to achieve bonuses through apparently outperforming the market — even if later it resulted in huge losses they would blame on external third parties.

July 12, 2009
Fair Game

Looking for the Lenders’ Little Helpers

IT is hard not to be dismayed by the fact that two years into our economic crisis so few perpetrators of financial misdeeds have been held accountable for their actions. That so many failed mortgage lenders do not appear to face any legal liability for the role they played in almost blowing up the economy really rankles. They have simply moved on to the next “opportunity.”

And what of the giant institutions that helped finance these monumentally toxic loans, or arranged the securitizations that bundled the loans and sold them to investors? So far, they have argued, fairly successfully, that they operated independently of the original lenders. Therefore, they are not responsible for any questionable loans that were made.

But this argument is growing tougher to defend. Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

One example is a suit filed in Federal District Court in Atlanta, on behalf of the borrowers, Patricia and Ricardo Jordan. The Jordans are fighting a foreclosure on their home of 25 years that they say was a result of an abusive and predatory loan made by NovaStar Mortgage Inc. A lender that had been cited by the Department of Housing and Urban Development for improprieties, like widely hiring outside contractors as loan officers, NovaStar ran out of cash in 2007 and is no longer making loans.

Also named as a defendant in the case is the initial trustee of the securitization that contained the Jordans’ loan: JPMorgan Chase. In 2006, the bank transferred its trustee business to Bank of New York Mellon, which is also a defendant in the case. The Jordans are asking that all three defendants pay punitive damages.

“We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it,” said Sarah E. Bolling, a lawyer in the Home Defense Program at the Atlanta Legal Aid Society who represents the Jordans. “The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”

IN their legal briefs, the trustees have made the traditional argument that their relationship with NovaStar was not a joint venture and that they are not responsible for any problems with the Jordans’ loan.

A JPMorgan spokesman declined to comment on the case but said that because the bank was no longer the trustee, it was not directly involved in the litigation. A spokesman for Bank of New York Mellon also declined to comment.

A lawyer for NovaStar did not return calls seeking comment.

The facts surrounding the Jordans’ case are depressingly familiar. In 2004, interested in refinancing their adjustable-rate mortgage as a fixed-rate loan, they said they were promised by NovaStar that they would receive one. In actuality, their lawsuit says, they received a $124,000 loan with an initial interest rate of 10.45 percent that could rise as high as 17.45 percent over the life of the loan.

Mrs. Jordan, 66, said that she and her husband, who is disabled, provided NovaStar with full documentation of their pension, annuity and Social Security statements showing that their net monthly income was $2,697. That meant that the initial mortgage payment on the new loan — $1,215 — amounted to 45 percent of the Jordans’ monthly net income.

The Jordans were charged $5,934 when they took on the mortgage, almost 5 percent of the loan amount. The loan proceeds paid off the previous mortgage, $11,000 in debts and provided them with $9,616 in cash.

Neither of the Jordans knew the loan was adjustable until two years after the closing, according to the lawsuit. That was when they began getting notices of an interest-rate increase from Nova- Star. The monthly payment is now $1,385.

“I got duped,” Mrs. Jordan said. “They knew how much money we got each month. Next thing I know I couldn’t buy anything to eat and I couldn’t pay my other bills.”

All the defendants in the case have asked the judge to dismiss it. The Jordans are awaiting his ruling.

Perhaps the most famous case that linked a brokerage firm with a predatory lender was the one involving First Alliance, an aggressive lender that declared bankruptcy in 2000, and Lehman Brothers, its main financier.

More than 7,500 borrowers had successfully sued First Alliance for fraud, and in 2003 a jury found that Lehman, which had lent First Alliance roughly $500 million over the years to finance its lending, “substantially assisted” it in its fraudulent activities. Lehman was ordered to pay $5.1 million, or 10 percent of damages in the case, for its role.

Another case, from 2004, took up the issue of liability for abusive lending that went beyond a loan’s originator. That case, which involved Wells Fargo and a borrower named Michael L. Short, was settled after the court denied two motions to dismiss it.

That matter turned on the language in the securitization’s pooling and servicing agreement, which provides details not only on the types of loans in a pool but also on the relationships of various parties involved in it.

Diane Thompson, a lawyer with the National Consumer Law Center, said that the meaning of the agreement was that “the trustee was a joint venture with the originator and was therefore responsible for everything that happened in that joint venture.”

Many such agreements, she said, create a joint venture by force of law. “Everybody I know that has tried this argument has had pretty good success. Absolutely we are going to see more of these cases.”

And let us not forget that late in the mortgage mania, Wall Street was no longer content simply to package these loans and sell them to investors. Eager for the profits generated by originating these loans, big firms bought subprime lenders to keep their securitization machinery humming. This could expose the firms to liability.

“I think something that hasn’t been explored much is the extent to which the financial services industry has exposure to litigation risk in securitizations,” Professor Engel said. “As the industry got faster and looser, Wall Street just stopped paying attention. And when you stop paying attention, you get in trouble.”

Lehman Bankruptcy Affects Many Entities: Get involved and file your objections or your defenses may be waived when they sell the assets

lehman-web-of-originators-servicers-and-depository-institutions

Dear Neil; Good News, Pro Bono:  I have been contacted by a local law firm that is contemplating within the next several weeks to motion the Lehman Bankruptcy Courts to Appoint a Borrowers Committee for all borrowers who are otherwise unrepresentative in the Lehman Bankruptcy!  This is very good news!

The law firm will be representing our interest Pro Bono in a limited capacity.  If they are successful in convincing the courts that the borrows committee in fact is needed, as it is, then at least homeowners with these onerous loans will have a fund established in their benefit to allow borrowers to collect against upon winning their claims.

There is even a possibility that if….this goes well, the firm may be interested in representing borrowers claims, again, this is “IF” with no promises made here.  The law firm will be paid by the trustee for Lehman.  Most people do not know they have what is known as a Lehman Loan and I will cite just a few lenders that had their paper/loan securitized by the behemoth that are but is not limited to AURORA LOAN SERVICES, HSBC, CITIMORTGAGE INC., WELLS FARGO, WMC MORTGAGE CORP, PROVIDENT BANK, GREEN POINT MORTGAGE, NEW CENTURY MORTGAGE.

I have a comprehensive list of who the lenders are and anyone is free to contact me at timcotten@mris.com.  Also, I am putting together a prospective list for this law firm of borrowers who want to be represented by the Consumer Borrower Committee.  I am hopeful that any of your readers who believes Lehman may be the originator or, if you have anyone of the lenders just cited, please call me at 410-257-5283 or email me at timcotten@mris.com.  Lehman’s bankruptcy case has been posted www.epiqbankruptcysolutions.com, and you can view it for free.

Also, do not delay in getting a letter of objection in the courts regarding transfers or sales of notes subject to TILA claims as they MUST contain an order stipulating the transfer to be contingent up 11 U.S.C. §363(o).

We are very concerned about the sale of LEHMAN core assets as this is just going to be an underhanded attempt to dump “bad paper” and to escape liabilities so, though we are not lawyers and are not providing anyone here with ANY legal advise, we want everyone here to know that we are sending off a motion to block all transfers within the Lehman case unless they contain the Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005), 11 U.S.C. §363(o) forcing the new acquirer of said loans to take them contingent this provision and all consumer TILA claims. Thanks Neil and keep up the great blog! Tim 410-257-5283.

Mortgage Meltdown: JUNK SALE

In both cases — housing prices and CDO/CMO prices, there was no intervening factor that caused the decline. No meteor hit the earth, no world war broke out, no material event occurred to account for these changes. It is therefore impossible to come to any conclusion except that the fair market values of the houses and the CDO/CMO market were falsely represented in a systematic, intentional manner. 

 

Any remedy for this situation must first address that basic fact before moving on to anything else. Addressing the valuation issue allows all the other pieces to fall into place. In the interest of preserving U.S. sovereignty and the American lifestyle, we have proposed here amnesty for everyone, showing favoritism to nobody. Everyone must share in the loss. And everyone must participate in the recovery. But in all cases it starts with ending the foreclosures and ending the evictions.  

 

Anyone can go to www.wsj.com and see a multitude of articles on the effects and causes of the mortgage meltdown. You don’t have to be a subscriber to see the first page. It all boils down to finger pointing and a series of tricks that are being played out to stretch out the effects of the meltdown and avoid an economic collapse. Periodically G7 or its equivalent has met and historically come to some agreement to prop up or devalue the U.S. currency. This weekend they won’t prop it up yet, which pretty much means that the junk sale includes our beloved American dollar.

 

While the effort to stem the effect of the mortgage meltdown is a worthwhile endeavor, and spreading out the losses over a larger period of time is also a good idea to provide breathing room from a panic and collapse, the methods being employed are contrary to common sense, and are so out of balance that they are contributing to a collapse of larger proportions. It is a “NEXT BUBBLE” strategy. The overall effect will be to increase government and personal debt, increase the number of derivatives on the market, increase the effect of private companies on money supply, increase inflation, decrease employment in the U.S., decrease the financial resources of every household, decrease quality of life ands standard of living for the American Citizen, increase stress on the lower and middle class,  and thus continue the pattern of crating ever larger bubbles to cover up the last one. 

 

Our economic policies have been, continue to be and will apparently be maintained despite adherence to what is clearly a massive Ponzi scheme, illegally depriving the American Citizen of property, life, liberty and the pursuit of happiness all without any real notice to the public and obviously without the coveted due process of law required by our constitution. 

 

When you tally up the the various costs and expenses that have been socialized (including the bailouts of corporations and financial institutions for the benefit of a few at the expense of the many), the intentional devaluing of the dollar, and all of the other expenses that are charged “privately” (PRIVATE TAXATION) and add in the excise, sales and other taxes that people pay in addition to property, income and other standard revenue-producers for government, you can easily see that the effective tax rate on American Citizens is the highest in the world. It is masked by calling the taxes different things and spreading the imposition of taxes through channels of private companies. You need not be an economist to prove this. At the end of the month, citizens of much “poorer” countries have more money and less debt than we do. It’s basic arithmetic not advanced economic theory. 

 

Nowhere on top of the political agenda, is there any hope of widespread relief for everyone who fell victim to falsely inflated property values — including the homeowners who were tricked into signing papers based upon the apparent condition of the market, the appraisal of the property, the rating of the securities, the underwriting risk (none) of the lender. 

 

What home buyer would have closed the deal if they knew that the lender was not taking any risk, that the appraiser was validating a price based upon economic incentive rather than fundamentals, and that the mortgage broker and lender had no interest in protecting the buyer even though they were bound by law to do so? Nobody.

 

What investor would have purchased a collateralized mortgage obligation if he knew that the rating agency had issued ratings based upon negotiation and relationship with the issuer? Nobody.

 

Without tricking everyone who bought a home between 2001 and 2007 into believing the values were real, the scheme would not have worked. Now these people who bought those homes are seeing their largest investment, and in many cases, their only investment, pulled out from under them, while they are pulled out from having a roof over their heads, and remaining more deeply in debt than before the transactions started. 

 

Without addressing the needs of these people by stopping foreclosures and stopping evictions, the problem will not end, — it will simply grow larger. Yet in true form most legislators and many Americans take up the “conservative” position that these people should have known better. Exactly how would they have known better when the essential information was being withheld from them and the government was lying, along with the industry participants, about the key factor in the real estate market: fair market value. THIS IS NOT ABOUT PERSONAL RESPONSIBILITY, IT’S ABOUT FRAUD.

 

Without tricking investors to buy these derivative securities through again falsely creating the illusion of fair market value and quality, the scheme would not have worked because the risk would have fallen on the perpetrators on Wall Street instead of the governments, pension funds, and other investors who bought them. 

 

Without addressing the needs of the investors who were duped, and the reducing the impact of various investment decisions and flows of money that ran down stream from those investments, no solution can stem the tide of inflation, dollar devaluation, and economic collapse in the the U.S. And yes this means preserving the channels of market liquidity that precipitated this crisis. We need them even if right now we don’t like them. Wall Street should get a pass on consequences but not on future regulation.

 

Again common sense proves it without being a lawyer, economist or accountant. How could the housing prices have dropped so suddenly if they were really worth the values that were published? In some cases, the effect was seen within days or weeks of the closing. This is not the commodities market. It is the real estate market where the volatility index has always been low. 

 

And again, without being an expert, how could the same “investment” instruments be rated at AAA one minute and unrated the next?

 

In both cases — housing prices and CDO/CMO prices, there was no intervening factor that caused the decline. No meteor hit the earth, no world war broke out, no material event occurred to account for these changes. It is therefore impossible to come to any conclusion except that the fair market values of the houses and the CDO/CMO market were falsely represented in a systematic, intentional manner. 

 

Any remedy for this situation must first address that basic fact before moving on to anything else. Addressing the valuation issue allows all the other pieces to fall into place. In the interest of preserving U.S. sovereignty and the American lifestyle, we have proposed here amnesty for everyone, showing favoritism to nobody. Everyone must share in the loss. And everyone must participate in the recovery. But in all cases it starts with ending the foreclosures and ending the evictions.  

 

From the new “Freedom” aggregation of Lehman Brothers, to the other new derivative securities created for the purpose of hiding the blow-out, the Federal Reserve is converting itself from the lender of last resort to the investor of last resort. Buried on page 14 of the WSJ, — The Senate has created a bill that rewards buyers of distressed homes with a tax credit. Bear Stearns was bailed out by the Fed with a windfall profit potential to the people who helped create this mess. The bad paper that has been circulated is being repackaged and recirculated with the complicity of the Federal Reserve, the U.S. Treasury and all of the major players in the world of financial institutions. 

 

It’s a junk sale, where non-investment grade securities are being rated as investment grade by Moody’s and other rating agencies. These agencies are competing for “market share” and have succumbed to the pressures of the marketplace — thus abdicating their responsibility for independent analysis and entering into negotiations and friendly deals with the “clients” whose securities they are rating. 

 

The fact that these people go fishing together and are building “relationships, we are told, has not compromised the independence of these “auditors” of investment quality. If accountants did these things they would lose their licenses and maybe go to jail. But when rating agencies do it — and do far more damage than any bad report issued by an accounting firm — it’s the “marketplace.” And the free marketing ideologues continue to push the agenda of controlled markets through the utility of calling it “free markets.”  

 

What we have here is an invisible hand, but not the invisible hand of free market balancing that Adam Smith was talking about. We have instead the invisible hand and the free hands of government and private enterprise conspiring to defraud the world around them. 

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