Countrywide Found Guilty of Fraud, JPM Criminal Responsibility for Madoff PONZI Scheme

“The words PONZI SCHEME and FRAUD applied to the mortgage meltdown has been largely dismissed by policy makers, law enforcement and regulators. Instead we heard the terms RISKY BEHAVIOR and RECKLESSNESS. Now law enforcement has finally completed its investigation and determined that those who set the tone and culture of Wall Street were deeply involved in the Madoff PONZI scheme and were regularly committing FRAUD in the creation and sale of mortgage bonds and the underlying “DEFECTIVE” loans. The finding shows that these plans were not risky nor reckless. They were intentional and designed to deceive and cause damage to everyone relying upon their false representations. The complex plan of false claims of securitization is now being pierced making claims of “plausible deniability” RISKY and RECKLESS.

And if the loans were defective there is no reason to believe that this applies only to the loans claimed to be in default. It applies to all loans subject to false claims of securitization, false documentation for non existent transactions, and fraudulent collection practices by reporting and collecting on balances that were fraudulently stated in the first instance. At this point all loans are suspect, all loan balances stated are suspect, and all Foreclosures based on these loans were frauds upon the court, should be vacated and the homeowner reinstated to ownership of the property and possession of the property. All such loans should have the loan balance adjusted by the courts for appropriate set off in denying the borrowers the benefit of the bargain that was presented to them.

“It is now difficult to imagine a scenario where the finding of the intentional use and creation of defective mortgages will not trickle down to all mortgage litigation. The Countrywide decision is the first that expressly finds them guilty of creating defective loans. It is impossible to believe that Countrywide’s intentional acts of malfeasance won’t spread to the investment banks that used Countrywide as the aggregator of defective loans (using the proprietary desk top underwriting software for originators to get approval). The reality is coming up, front and center. And Judges who ignore the defenses of homeowners who were of course defrauded by the same defective mortgages are now on notice that bias towards the banks simply doesn’t work in the real world.” — Neil F Garfield,www.livinglies.me October 24, 2013

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By Neil F Garfield, Esq. Tallahassee, Florida October 24, 2013. If the mortgages were defective and were used fraudulently to gain illicit profits it is not possible to avoid the conclusions that homeowners are among the victims. By using false appraisals the huge banks created the illusion of rising prices. This was manipulation of market prices just as the banks were found guilty of manipulating stated market rates for interbank lending “LIBOR” and use of the manipulated pricing to trade for further benefit knowing that the reality was different. The banks have continued this pattern behavior and are still doing it, and laying fines as a cost of doing business in the manipulation and ownership of natural resources. They are a menace to all societies on the planet. The threat of that menace must be removed In the face of a clear and present danger posed by the real world knowledge that where an opportunity arises for “moral hazard” the banks will immediately use it causing further damage to government, taxpayers, consumers and investors.

None of it was disclosed or even referenced at the alleged loan closing with borrowers despite federal and state laws that require all such undisclosed profits and compensation to be disclosed or suffer the consequence of required payment to the borrower of all such undisclosed compensation. The borrowers are obviously entitled to offset for the false appraisals used by lenders to induce borrowers to accept defective loan products.

Further, borrowers have a clear right of action for treble damages for the pattern of conduct that constituted fraud as a way of doing business. In addition, borrowers can now be scene through a clear lens — that they are entitled to the benefit of the bargain that they reasonably thought they were getting. That they were deceived and coerced into accepting defective loans with undisclosed players and undisclosed compensation and undisclosed repayment terms raises the probability now that borrowers who present their case well, could well start getting punitive damages awards with regularity. It’s easy to imagine the closing argument for exemplary or punitive damages — “$10 billion wasn’t enough to stop them, $25 billion wasn’t enough to stop of them, so you, members of the jury, must decide what will get their attention without putting them out of business. You have heard evidence of the tens of billions of dollars in profits they have reported. It’s up to you to decide what will stop the banks from manipulating the marketplace, fraudulently selling defective loans to borrowers and pension funds alike with the intention of deceiving them and knowing that they would reasonably rely on their misrepresentations. You decide.”

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U.S. prepares to take action against JPMorgan over Madoff
In what would be an almost unheard of move when it comes to U.S. banks, the FBI and the U.S. attorney’s office are in talks with JPMorgan (JPM) about imposing a deferred prosecution agreement over allegations that the bank turned a blind eye to Bernie Madoff’s Ponzi scheme, the NYT reports.
Authorities would suspend criminal charges against JPMorgan but impose a fine and other concessions, and warn the bank that it will face indictments over any future misconduct.
However, the government has not decided to charge any current or former JPMorgan employees.
The report comes as the bank holds talks with various regulators over a $13B deal to settle claims about its mortgage practices.

Countrywide found guilty in U.S. mortgage suit
A federal jury has found Bank of America’s (BAC -2.1%) Countrywide unit liable for defrauding Fannie Mae (FNMA +22%) and Freddie Mac (FMCC +19.4%) by selling them thousands of defective mortgages.
The judge will determine the amount of the penalty – the U.S. has requested $848M, the gross loss to the GSEs as calculated by its expert witness.
The suit centered on Countrywide’s HSSL – High Speed Swim Lane – program instituted in August 2007, says the government, to keep the music playing as the property market was falling apart.

DOJ probes nine leading banks over sale of mortgage debt
The Department of Justice is reportedly investigating nine major banks over the sale of problematic mortgage bonds, although the probes are for civil infractions rather than criminal ones.
The banks are Bank of America (BAC), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), Morgan Stanley (MS), RBS (RBS), UBS (UBS) and Wells Fargo (WFC).
The inquiries span U.S. attorney’s offices from California to Massachusetts, and come as JPMorgan tries to reach a multi-billion dollar settlement over the issue.

Sitting on a Powder Keg: Riots and Demonstrations Worldwide

With the addition of Sweden to those countries rocked by and surprised by rioting over economic conditions and inequality, the day of reckoning for the banks and the governments controlled by the banks is nearing. As we saw in the Arab Spring and other social phenomena when passions reach critical mass, things change — and not always for the best, at least not at first.

History shows us that when inequality and social welfare are at their worst, as perceived by the public, a significant minority rises up, changes government and takes their revenge on the wicked and innocent alike. Our own revolution was a minority movement that achieved critical mass with very few people leading to the charge or even attending meetings.

Sweden, a country that prides itself on social justice, was hit yesterday by the fury of rioting citizens. And the Occupy Movement demonstration yesterday resulted in 17 arrests and Taser of at least one demonstrator. Anyone who believes that this will blow over without consequences is mistaken. The underlying problems of inequality were not the result of a business cycle: they were the result of criminal behavior of bankers colluding to take wealth, property and income away from virtually everyone.

The manipulation of LIBOR and the indexes that feed into LIBOR is an example of the arrogance of bankers who seem to know they won’t go to jail and probably will suffer no penalty whatsoever. Meanwhile the loans tied to changes in LIBOR as published by the Wall Street Journal had changes in interest rates dictated not by market forces by by the brute force of arrogant bankers whose religion is money.

The mortgage situation all over the world is what is causing the economies around the world to bleed. It was caused by bankers who cornered the market on money thus acting against free market forces which they pretend to like so much. They created an unprecedented storm by raising asset prices artificially, betting that the prices would come down to normal levels and defrauding pension funds and other investors plus defrauding homeowners, consumers, and tax-paying citizens. In the end they have the money and property and everyone else suffers. This fact is not lost on the public.

If we want to avoid the same fate as dozens of other countries around the world in turmoil we must return to being a nation of laws. It is in the public domain now that the banks have illegally foreclosed on millions of homeowners. Not only have they not gone to jail for mortgage fraud, wire fraud, RICO and other criminal actions, they have been rewarded with both more money and weakening of regulations that might prevent them from doing it again — if we ever get out of this mess.

The right thing to do when the wrong thing was done, is to make it right. If someone was foreclosed upon illegally they should get their house back or bargain for a dollar settlement that takes into account economic loss and the indignities of damage to lifestyle and reputation. As things stand now, this remedy is slipping away — and yet it is the only right thing to do. Millions of people in this country and Europe are falling into poverty, which means they don’t have the resources to put food on the table or a roof over their heads. To add insult to injury when tragedy strikes in places like Moore, Oklahoma the insurance companies are paying the banks that have no loss whatsoever.

I counsel people to avoid violence and to never disobey a direct instruction from anyone in law enforcement. It will only make matters worse. But I can tell from people who contact me and the mainstream news stories that people have no respect left for a legal system that does not respect the right of people and favors corporations and institutions even if they have obviously committed crimes against humanity, the state and millions of individual citizens. We have seen violence before and nobody liked it. I think it might be coming to our shores with a vengeance.

We can save ourselves the trouble if we break up the mega banks, break their hold on government and reduce them to the status of utilities regulated carefully so that they don’t run away with transactions conducted by their customers — which is exactly what happened in the continuing mortgage  meltdown. Occupy is right, Elizabeth Warren is right, and even the rioters are right (even if we disagree with their methods).

Sweden’s capital hit by worst riots in years
http://uk.reuters.com/article/2013/05/22/uk-sweden-riots-idUKBRE94L0C720130522

Millions falling into poverty in recession-racked Italy: report
http://www.reuters.com/article/2013/05/22/us-italy-economy-poverty-idUSBRE94L0AX20130522

Peaceful Foreclosure Protester Tased At Department of Justice
http://crooksandliars.com/susie-madrak/peaceful-foreclosure-protester-tased-

How Foreclosure Undermined Black and Brown Wealth
http://www.theroot.com/buzz/how-foreclosure-undermined-black-and-brown-wealth

Warren asks feds: Why no cases against bankers?
http://www.cbsnews.com/8301-505123_162-57584642/warren-asks-feds-why-no-cases-against-bankers/

Elizabeth Warren Asks New Treasury Secretary If He’ll Be As Bad On Big Banks As The Old One (VIDEO)
http://www.huffingtonpost.com/2013/05/21/elizabeth-warren-jack-lew_n_3315005.html

Banks Win Big as Regulators Refuse to Rein in $700 Trillion Derivatives Market
http://www.truth-out.org/video/item/16500-banks-win-big-as-regulators-refuse-to-rein-in-700-trillion-derivatives-market

Truth Coming Home to Roost: JPM Knew the Loans Were Bad

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman [Attorney general, New York state] said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure or to challenge whoever is taking your money every month, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

A PRIMER ON COOKING THE BOOKS

Editor’s Comment and Analysis: It’s been a long pull to get the real information about the misbehavior of the mega banks and their officers. But Schneiderman, Attorney general of the State of New York, is drilling down to where this really needs to go. And others, tired of receiving hollow assurances from the mega banks are suing — with specific knowledge and proof that is largely unavailable to borrowers — a good reason to watch these suits carefully.

Both internal emails and interviews have revealed that they repeatedly were warned by outside analysts of the perils of the mortgage lending process. The officers of JPM chose to change the reports to make them look more appealing to investors who gave up the pension money of their pensioners in exchange for what turns out to be bogus mortgage bonds issued by a non-existent or unfunded entity that never touched a dime of the investors’ money and never received ownership or backing from real loans with real security instruments (mortgages and deeds of trust).

A lawsuit filed by Dexia, a Belgian-French bank is being closely watched with justified trepidation as the onion gets pealed away. The fact that the officers of JPM and other mega banks were getting reports from outside analysts and took the trouble to change the reports and change the make-up of the bogus mortgage bonds leads inevitably to a single conclusion — the acts were intentional, they were not reckless mistakes, they weren’t gambling. They were committing fraud and stealing the pension money of investors and getting ready to become the largest landowners in the country through illegal, fraudulent, wrongful foreclosure actions that should have been fixed when TARP was first proposed.

The Dexia lawsuit focuses on JPM, WAMU and Bear Stearns, acquired by JPM with government help. The failure to provide bailout relief to homeowners at the same time sent the economy into a downward spiral. Had the Federal reserve and US Treasury department even ordered a spot check as to what was really happening, the “difficult” decisions in 2008 would have been averted completely.

Receivership and breakdown of the large banks would have produced a far more beneficial result to the financial system, and is still, in my opinion, inevitable. Ireland is doing it with their major bank as announced yesterday and other countries have done the same thing. Instead of the chaos and trouble that the banks have policy makers afraid of creating, those countries are coming out of the recession with much stronger numbers and a great deal more confidence in the marketplace.

The practice note here is that lawyers should look at the blatant lies the banks told to regulators, law enforcement and even each other. The question is obvious — if the banks were willing to lie to the big boys, what makes you think that ANYTHING at ground level for borrowers was anything but lies?  They went to their biggest customers and lied in their faces. They certainly did the same in creating the illusion of a real estate closing at ground level.

Lawyers should question everything and believe nothing. Normal presumptions and assumptions do not apply. Keep your eye on the money, who paid whom, and when and getting the proof of payment and proof of loss. You will find that no money exchanged hands except when the investors put up money for the bonds that were supposed to be mortgage backed, and the money that was sent down the pipe via wire transfer to the closing agent under circumstances where the “lender” was not even permitted to touch the money, much less use it in their own name for funding.

The diversion of money away from the REMICs and the diversion of title away from the REMICs leaves each DOCUMENTED loan as non-existent, with the note evidence of a transaction in which no value exchanged hands, and the mortgage securing the obligations of the invalid note.

The diversion of the documents away from the flow of money leaves the borrower and lenders with a real loan that, except for the wire transfer receipts, that was undocumented and therefore not secured. Yet nearly all borrowers would grant the mortgage if fair market value and fair terms were used. Millions of foreclosures would have been thwarted by settlements, modifications and agreements had the investors been directly involved.

Instead the subservicers rejected hundreds of thousands of perfectly good proposals for modification that would have saved the home, mitigated the damages to investors, and left the bank liable to investors for the rest of the money they took that never made it into the money chain and never made it into the REMIC.

Add to this mixture the rigging of LIBOR and EuroBOR, the receipt of trillions in mitigating payments kept by the banks that should have been paid and credited to the investors, and it is easy to see, conceptually, how the amount demanded in nearly all foreclosure cases is wrong.

Discovery requests should include, in addition to third party insurance and CDS payments, the method used to compute new interest rates and whether they were using LIBOR ( most of them did) and what adjustments they have made resulting from the revelation that LIBOR was rigged — especially since it was the same mega banks that were rigging the baseline rate of interbank lending.

Once you are in the door, THEN you can do not only your own computations on resetting payments, but you can demand to see all the transactions so that the applied interest rate was used against the alleged principal. At that point you will know if a loan receivable account even exists and if so, who owns it — and a fair guess is that it is not now nor was it ever any of the parties who have “successfully” completed foreclosure, thus creating a corruption of title in the marketplace for real estate that has never happened before.

E-Mails Imply JPMorgan Knew Some Mortgage Deals Were Bad

By JESSICA SILVER-GREENBERG

When an outside analysis uncovered serious flaws with thousands of home loans, JPMorgan Chase executives found an easy fix.

Rather than disclosing the full extent of problems like fraudulent home appraisals and overextended borrowers, the bank adjusted the critical reviews, according to documents filed early Tuesday in federal court in Manhattan. As a result, the mortgages, which JPMorgan bundled into complex securities, appeared healthier, making the deals more appealing to investors.

The trove of internal e-mails and employee interviews, filed as part of a lawsuit by one of the investors in the securities, offers a fresh glimpse into Wall Street’s mortgage machine, which churned out billions of dollars of securities that later imploded. The documents reveal that JPMorgan, as well as two firms the bank acquired during the credit crisis, Washington Mutual and Bear Stearns, flouted quality controls and ignored problems, sometimes hiding them entirely, in a quest for profit.

The lawsuit, which was filed by Dexia, a Belgian-French bank, is being closely watched on Wall Street. After suffering significant losses, Dexia sued JPMorgan and its affiliates in 2012, claiming it had been duped into buying $1.6 billion of troubled mortgage-backed securities. The latest documents could provide a window into a $200 billion case that looms over the entire industry. In that lawsuit, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has accused 17 banks of selling dubious mortgage securities to the two housing giants. At least 20 of the securities are also highlighted in the Dexia case, according to an analysis of court records.

In court filings, JPMorgan has strongly denied wrongdoing and is contesting both cases in federal court. The bank declined to comment.

Dexia’s lawsuit is part of a broad assault on Wall Street for its role in the 2008 financial crisis, as prosecutors, regulators and private investors take aim at mortgage-related securities. New York’s attorney general, Eric T. Schneiderman, sued JPMorgan last year over investments created by Bear Stearns between 2005 and 2007.

Jamie Dimon, JPMorgan’s chief executive, has criticized prosecutors for attacking JPMorgan because of what Bear Stearns did. Speaking at the Council on Foreign Relations in October, Mr. Dimon said the bank did the federal government “a favor” by rescuing the flailing firm in 2008.

The legal onslaught has been costly. In November, JPMorgan, the nation’s largest bank, agreed to pay $296.9 million to settle claims by the Securities and Exchange Commission that Bear Stearns had misled mortgage investors by hiding some delinquent loans. JPMorgan did not admit or deny wrongdoing.

“The true price tag for the ongoing costs of the litigation is terrifying,” said Christopher Whalen, a senior managing director at Tangent Capital Partners.

The Dexia lawsuit centers on complex securities created by JPMorgan, Bear Stearns and Washington Mutual during the housing boom. As profits soared, the Wall Street firms scrambled to pump out more investments, even as questions emerged about their quality.

With a seemingly insatiable appetite, JPMorgan scooped up mortgages from lenders with troubled records, according to the court documents. In an internal “due diligence scorecard,” JPMorgan ranked large mortgage originators, assigning Washington Mutual and American Home Mortgage the lowest grade of “poor” for their documentation, the court filings show.

The loans were quickly sold to investors. Describing the investment assembly line, an executive at Bear Stearns told employees “we are a moving company not a storage company,” according to the court documents.

As they raced to produce mortgage-backed securities, Washington Mutual and Bear Stearns also scaled back their quality controls, the documents indicate.

In an initiative called Project Scarlett, Washington Mutual slashed its due diligence staff by 25 percent as part of an effort to bolster profit. Such steps “tore the heart out” of quality controls, according to a November 2007 e-mail from a Washington Mutual executive. Executives who pushed back endured “harassment” when they tried to “keep our discipline and controls in place,” the e-mail said.

Even when flaws were flagged, JPMorgan and the other firms sometimes overlooked the warnings.

JPMorgan routinely hired Clayton Holdings and other third-party firms to examine home loans before they were packed into investments. Combing through the mortgages, the firms searched for problems like borrowers who had vastly overstated their incomes or appraisals that inflated property values.

According to the court documents, an analysis for JPMorgan in September 2006 found that “nearly half of the sample pool” – or 214 loans – were “defective,” meaning they did not meet the underwriting standards. The borrowers’ incomes, the firms found, were dangerously low relative to the size of their mortgages. Another troubling report in 2006 discovered that thousands of borrowers had already fallen behind on their payments.

But JPMorgan at times dismissed the critical assessments or altered them, the documents show. Certain JPMorgan employees, including the bankers who assembled the mortgages and the due diligence managers, had the power to ignore or veto bad reviews.

In some instances, JPMorgan executives reduced the number of loans considered delinquent, the documents show. In others, the executives altered the assessments so that a smaller number of loans were considered “defective.”

In a 2007 e-mail, titled “Banking overrides,” a JPMorgan due diligence manager asks a banker: “How do you want to handle these loans?” At times, they whitewashed the findings, the documents indicate. In 2006, for example, a review of mortgages found that at least 1,154 loans were more than 30 days delinquent. The offering documents sent to investors showed only 25 loans as delinquent.

A person familiar with the bank’s portfolios said JPMorgan had reviewed the loans separately and determined that the number of delinquent loans was far less than the outside analysis had found.

At Bear Stearns and Washington Mutual, employees also had the power to sanitize bad assessments. Employees at Bear Stearns were told that they were responsible for “purging all of the older reports” that showed flaws, “leaving only the final reports,” according to the court documents.

Such actions were designed to bolster profit. In a deposition, a Washington Mutual employee said revealing loan defects would undermine the lucrative business, and that the bank would suffer “a couple-point hit in price.”

Ratings agencies also did not necessarily get a complete picture of the investments, according to the court filings. An assessment of the loans in one security revealed that 24 percent of the sample was “materially defective,” the filings show. After exercising override power, a JPMorgan employee sent a report in May 2006 to a ratings agency that showed only 5.3 percent of the mortgages were defective.

Such investments eventually collapsed, spreading losses across the financial system.

Dexia, which has been bailed out twice since the financial crisis, lost $774 million on mortgage-backed securities, according to court records.

Mr. Schneiderman, the New York attorney general, said that overall losses from flawed mortgage-backed securities from 2005 and 2007 were $22.5 billion.

In a statement shortly after he sued JPMorgan Chase, Mr. Schneiderman said the lawsuit was a template “for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes.”

UBS Admits Criminal Wrongdoing, Pays $1 Billion Fine

CHECK OUT OUR DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Note: This happened because European regulators and law enforcement made it happen. Why are we not doing the same thing here? See my earlier post today.

Criminal wrongdoing is all over the  board spilling onto the floor in the mortgage meltdown. The banks are rigging the auctions just like they rigged the Libor rates, which should be interesting because now we don’t know what the rate should have been. That interbank rate is the base for all interest rate calculations on all loans. And where the LIBOR shows an increase mortgage payments go up.

So most everyone with an ARM or even conventional mortgage, should send a QWR asking for how the rate was calculated at origination and how it is calculated now, plus how they intend to calculate the rates and payments in the future.

Foreclosure auctions based upon demands for money due were based in part on adjustments caused by the bid rigging in LIBOR. Thus the amount demanded was probably wrong, even if the loan was valid (something I doubt). That would mean the Notice of Default and the sale would have taken place with the wrong figures being used.

PRACTICE HINT: In filing for wrongful foreclosure, make an allegation that the banks already admit criminal wrongdoing in setting LIBOR, the foundation for computation of all interest rates. Thus the homeowner additionally DENIES the amount due and demands DISCOVERY of the calculations that were made and by whom those calculations were made when the loan was approved and/or when the monthly statement went out and/or when the monthly payment was supposedly adjusted to reflect LIBOR or changes based based upon LIBOR.

If the attorney represents the state or county, then they should make hay out of this, stating that besides corrupting the title registries across the state, the defendants conspired to wreck the economy of the state by false calculations in which the banks themselves were the source of the LIBOR manipulations.

UBS Admits Criminal Wrongdoing in Bid Rigging

Wells Fargo Sued For Intentionally Underwriting and Submitting Bad Mortgages on Insurance Claims

Editor’s Comment: “Reckless?” No, it was intentional. And THAT lies at the heart of the media and government perception of this entire securitization scam. The worse the loan, the more money they made. By insuring it for 100 cents on the dollar they received total payback, plus they probably got the honor of foreclosing on the home, when they never funded or purchased the loan in the fist place. Since they were not the creditor, they were neither entitled to foreclose nor to receive insurance proceeds which should have gone to investors. But the investors are probably long gone having settled their claims with the investment banker that sold them bogus mortgage bonds.

On a side note, I have read the Master contract with Fannie and Freddie several times and I cannot tell if the agency was giving a guarantee of the bond given to investors or the loan, or both. But I do know that once it went into the secondary market, the bond was sold and resold multiple times, using the federal guarantee as an incentive to purchase the bond with a perception of no risk.

The negligence being asserted in these lawsuits from investors and government agencies is merely a cover-up for intentional fraud. The investors put up a sum of money expecting a varying return based upon LIBOR, which we all know was also bogus. The return was relatively small since the risk appeared to be non-existent and the bonds were rated Triple A.

But here is the trick. If you get $1 billion with the investor expecting a 5% return, and you add to the prospectus that the investor’s money can be used to pay the expected return (PONZI Scheme), then the only way for the scheme to continue is if people continue to buy the bogus mortgage bonds. But the real issue is the money. By lending the money out with a fair distribution of interest rates between 6%-12%, you don’t need to lend out the full $1 billion you received from the investors.

The investor is looking for $50 million per year in interest return. So if you lend out $500 million at 10% you get the nominal rate that WOULD produce the expected $50 million per year to the investor if it was ever paid. But in order to get 10% you have to loan to people who are likely NOT to be able to pay.

The remaining $500 million that was NOT loaned is kept by the Bank and they have never been required to account for this money. They call it proprietary trading. Explain how proprietary means trading with investor money!

wells-fargo-sued-by-us-government.html

The U.S. government sued Wells Fargo on Tuesday, claiming the San Francisco-based bank committed fraud by recklessly approving government-backed mortgages and then seeking government insurance when those loans flopped.

Officials with the U.S. Attorney’s office and the Department of Housing and Urban Development (HUD) made the announcement Tuesday. They contend in the lawsuit, filed in U.S. District court in Manhattan, that the Federal Housing Administration (FHA) has wrongfully paid millions of dollars in insurance claims on loans that defaulted.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” U.S. Attorney Preet Bharara said. “As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.”

Libor vs Mortgage Scandals: Amount of Money Appears to be the Only Difference

COME TO THE ANAHEIM 1/2 SEMINAR WEDNESDAY MORNING

It appears as though LIBOR is being thrown under the bus as a distraction from the much larger mortgage securitization scam. Both cases relied upon trust that was breached, money that was invented, figures that were fabricated, lying, cheating and inside trading to the detriment of the institutions that participated in one form or another. In both cases the ultimate victims on both sides of the transactions is the consumer.

Yet with LIBOR “suits are mounting,” (Wall Street Journal) investigations proliferating and a handy group of scapegoats far from the top of the scam may well be prosecuted.

The only difference seems to be that the size of the LIBOR scandal in terms of consequences to the institutions and consumers appears to be far less than the monumental scam foisted upon taxpayers all over the industrialized world, especially in the U.S.

To be certain the manipulation of the LIBOR rates was clearly an intentional act, but so was the insertion of the bankers naked nominees when residential loans were originated. In most cases, securitization was different in the commercial setting because it was more likely that more questions would be asked by higher priced, more sophisticated lawyers for the borrower.

The manipulation of LIBOR rates resulted in the wrong calculation of adjustable rate mortgages all over the world, making the notices of default, demand for payment and perhaps even the sales illegal. That is more in the nature of legal argument. The insertion of nominees controlled by the investment banks as payees, nominees, trustees, beneficiaries and mortgagees in lieu of the institutions that were actually providing the money and hiding the compensation that TILA requires to be disclosed, the steady practice of table funded loans which are deemed “predatory per se” under regulation Z, allowed intermediaries to pretend to be the lenders, the owners of the loans so they could trade with impunity. If they lost money, they threw the loss over the fence at the taxpayers and investment funds that bought bogus mortgage bonds. If they made money, they kept it.

The only difference is that the the amount of money involved in the non-existent securitization scheme that was so well “documented” was that it resulted in siphoning out the life blood of multiple nations and sending the world into a recession not seen in most of your lifetimes. AND the policy makers in Washington either were or are in bed with the perpetrators on this scheme, whereas the LIBOR scandal is being couched in terms where the traders were conspiring but the banks were unaware of their transgressions.

Let’s face it, if suddenly you have a trading department that is reporting profits geometrically and even exponentially higher than any other time in history, as CEO you would want to know why. Those trading profits did exactly that in both LIBOR and the mortgage securitization myth. One must ask why thousands of advertisements costing billions of dollars were on TV, radio, newspapers and magazines for loans at 5%. Put pencil to paper. If normal underwriting standards were used, and normal fees were applied to intermediaries who made the loan possible, there would be no room in the budget for such extravagance, much less the pornographic profits and bonuses reported on Wall Street. Why were armies of salesmen, including 10,000 convicted felons in Florida alone pushed into the market place as mortgage brokers or mortgage originators?

The intentional reporting of the wrong rates has an effect on all loans, past, present and future, but it requires yet more education of an already overloaded judiciary. So throwing a few traders under the bus and calling it a day is pretty much what is going to happen.

As it turns out though, the Banks have painted themselves into a corner on the securitization scam. What they securitized was paper, not money. The monetary transactions were left untouched by the documents, leaving the people who loaned the money through the scam vehicle known as a REMIC trust with no security for a bad loan.

Hence neither the documentation of an on-existent transaction between the parties named on the instrument, nor the manipulation of terms that were presented in one set to the investor-lenders and an entirely different set of terms presented to the borrower created valid contracts, much less perfected liens. But that didn’t matter to the intermediaries who were supposed to be acting as intermediaries — in the same way a check clears the bank — with no claim to the subject matter of the transaction.

They too manipulated rates by creating second tier yield spread premiums, and thus created spreads upon which they could withdraw money, pay for insurance, credit default swaps and other bets that the bad loans they wanted and received would fail, leaving the market in free-fall.

Predicting the market to to fall is like pushing a person off a cliff. You pretty much know that once the balance is lost the person is doomed. Doctoring up the applications with false income and false property appraisals did exactly that. It was a bet on a sure thing. Wall Street could rest comfortably in the knowledge that housing would ultimately fall to normal levels simply because there was nobody who could or would pay the premium they invested on the mortgage scam.

Now Wall Street is creating entities that will buy up “distressed”properties — a product of their own wrongdoing, using the money of the same people who owned the homes that were foreclosed — i.e., their pension and 401k retirement money. So they used your own money to fund a bad loan to you that they knew they could foreclose, and in between the time they originated the loan documents and the time of foreclosure they engaged in trading on your mortgage even though they had no part in funding or purchasing the loan.

My question to you is where is your outrage? When are you going to fight the bank control of Washington, the bank manipulation of judiciary by fabricating false, forged documentation that “looks right?” You can do it by voting against hose  most closely tied to the Wall Street community, by fighting with the party claiming to be your mortgage lender/servicer, or both. If you don’t you are handing the Country over to the banks and leaving it to your children and grandchildren to suffer the consequences.

Criminal Charges Expected Against BofA, Citi, JP Morgan Chase

ALL THIS IS DISCUSSED IN MY SEMINAR IN CHANDLER THIS THURSDAY 7/26 AT 9:00 AM.

SIGN UP NOW FOR SEMINAR IN CHANDLER, AZ — THERE IS HOPE

NEW NAME FOR LIBOR: LIE-BORE
NEW BUSINESS MODEL: LIE MORE
Editor’s Note: I was sort of expecting this from the Obama administration. Like others I long suspected the Libor was rigged but it seemed like they were covering their tracks too well to be sued or prosecuted. What I was expecting was that some MAJOR action would be brought against the banks in a way that wouldn’t look political. The prosecutions directly in the mortgage scandal were a bit long in the tooth for it not to look like political timing. But Libor, closely tied to all the loans and Loan resets and all the derivatives brings us back to first base with England leading the case.
As I have stated before, it does not seem likely that the voting public will look kindly on any politician in bed with the banks. About the only thing our divided electorate can agree upon is that the Banks screwed everything up and pretty much did it intentionally. Running against the banks is the smartest political move regardless of where you are on the political spectrum. Obama, probably knowing all about this investigation but not able to comment about it until the story broke, now has a clear path to run against the Banks while Romney practically is a bank.
As the economy worsens, and it will, the blame for it is going to be laid squarely at the doorstep of the banks where it belongs. The strategy of blaming Obama for past administration errors and failure of leadership in the economy is blowing up in the face of Republicans who actually do have platforms that are electable. Their problem is like the Democrats who didn’t really talk about their core issues in past elections.

Obama will correctly be seen as leading the charge against the banks whom everyone now hates. The dominant issue of the campaign has been delivered to the incumbent wrapped in a paper bow.

A 33% Minimum Probability Of Criminal Charges Against JP Morgan In Lieborgate?
http://www.zerohedge.com/news/33-minimum-probability-criminal-charges-against-jp-morgan-lieborgate

Local Governments on Rampage Against Banks’ Manipulation of Credit Markets

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“When both government and the citizens start acting together, things are likely to change in a big way. There appears to be a unity of interests — the investors who thought they were buying bonds from a REMIC pool, the homeowners who thought they were buying a properly verified and underwritten loan from a pretender lender, and the local governments who were tricked into believing that their loans were viable and trustworthy based upon the gold standard of rate indexes. In many cases, the only reason for the municipal loan, was the illusion of growing demographics requiring greater infrastructure, instead of repairing the existing the infrastructure. As a result, the cities ended up with loans on unneeded products just like homeowners ended up with loans on houses that were always worth far less than the appraisal used.” — Neil F Garfield, www.livinglies.me

Editors Note: Hundreds of government agencies and local governments are on the rampage realizing that they were duped by Wall Street into buying into defective loan products. This puts them in the same class as homeowners who bought such loan products, investors who believed they were buying Mortgage Bonds to fund the loans, and dozens of other institutions who relied upon the lies told by the banks who were having a merry old time creating “trading profits” that were the direct result of stealing money and homes, and misleading the financial world on the status of the interest rates in the financial world. All loans tied to Libor (London Interbank Offered Rate), which was the gold standard,  are now in question as to whether the reset on those loans was true, correct or simply faked.

The repercussions of this will grow as the realization hits the victims of this gigantic fraud broadens into a general inquiry about most of the major practices in use — especially those in which claims of securitization were offered. It is now obvious that the deal proposed to pension funds and other investors was simply ignored by the banks who used the money to create faked trading profits, removing from the pool of investments money intended for funding loans that were properly originated and dutifully underwritten.

Cities, Counties, Homeowners and Investors are all victims of being tricked into loans that were simply unsustainable and were being manipulated to the advantage of the banks they trusted to act responsibly and who instead acted reprehensibly.

The ramifications for the mortgage and foreclosure markets could not be larger. If the banks were lying about the basics of the rate and the terms then what else did they do? As the Governor or of the Bank of England said, the business model of the banks appears to have been “lie More” rather than living up to the trust reposed in them by those who dealt with them as “customers.” Specifically, the evidence suggests that while the funding of the loan and the closing documents were coincidentally related in time, they specifically excluded any reference to each other, which means that the financial transaction as it actually occurred is undocumented and the document trail refers to financial transactions that did not involve money exchanging hands.

The natural conclusion created by the coincidence of the funding and the documents was to conclude that the two were related. But the actual instructions and wire transfers tell another story. This debunks the myth of securitization and more particularly the mortgage lien. How can the mortgage apply to a transaction described in the note that never took place and where the terms of the loan were different than what was expected by the creditors (investors, like pension and other managed funds) in the mortgage bond. The parties are different too. The wires funding the transaction are devoid of any reference to the supposed lender in the closing documents presented to borrowers. Thus you have different parties and different terms — one in the money trail, which was undocumented, and the other in the document trail which refers to transactions in which no money exchanged hands.

When the municipalities like Baltimore start digging they are going to find that manipulation of Libor was only one of several issues about which the Banks lied.

Rate Scandal Stirs Scramble for Damages

BY NATHANIEL POPPER

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing. Libor, a measure of how much banks must pay to borrow money from one another in the short term, is set through a daily poll of the banks.

The rate influences what consumers, businesses and investors pay on a wide range of financial contracts, as varied as mortgages and interest rate swaps. Barclays has said it and other banks understated the rate during the financial crisis to make themselves look healthier to the public, rather than to make more money from clients. As regulators and lawmakers in Washington and Europe assess the depth of the Libor abuse and the failure to address it, economists and analysts are already predicting it could be one of the most expensive scandals to hit Wall Street since the financial crisis.

Governments and other investors may face many hurdles in proving damages. But Darrell Duffie, a professor of finance at Stanford, said he expected that their lawsuits alone could lead to the banks’ paying out tens of billions of dollars, echoing numbers from a recent report by analysts at Nomura Equity Research.

American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that “about 75 percent of major cities have contracts linked to this.”

If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said.

“Unambiguously, state and local government agencies lost money because of the manipulation of Libor,” said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. “The number is likely to be very, very big.”

The banks have declined to comment on the lawsuits, but their lawyers have asked for the cases to be dismissed in court filings, pointing to the many unusual factors that influenced Libor during the crisis.

The efforts to calculate potential losses are complicated by the fact that Libor is used to determine the cost of thousands of financial products around the globe each day. If Libor was artificially pushed down on a particular day, it would help people involved in some types of contracts and hurt people involved in others.

Securities lawyers say the lawsuits will not be easy to win because the investors will first have to prove that the banks successfully pushed down Libor for an extended period during the crisis, and then will have to demonstrate that it was down on the day when the bank calculated particular payments. In addition, investors may have to prove that the specific bank from which they were receiving their payment was involved in the manipulation. Before it even reaches the point of proving such subtleties, however, the banks could be compelled to settle the cases.

One of the major complaints was filed by several traders and hedge funds that entered into futures contracts that are traded through the Chicago Mercantile Exchange and that pay out based on Libor. These contracts were a popular way to protect against spikes in interest rates, but they would not have paid off as expected if Libor had been artificially lowered.

A 2010 study cited in the suit — conducted by professors at the University of California, Los Angeles and the University of Minnesota — indicated that Libor was significantly lower than it should have been throughout 2008 and was particularly skewed around the bankruptcy of Lehman Brothers.

A separate complaint filed in 2010 by the investment firm Charles Schwab asserts that some of its mutual funds, including popular ones like the Schwab Total Bond Market Fund, lost money on similar investments.

The complaints being voiced by municipalities are mostly related to their use of a popular financial contract known as an interest rate swap. States and cities generally enter into these swaps with specific banks so that they can borrow money in the bond market. They pay bondholders based on a floating interest rate — like an adjustable-rate mortgage — but end up paying their bankers a fixed rate through a swap. If Libor is artificially lowered, the municipality is stuck paying the same fixed rate, but it receives a smaller variable payment from its bank.

Even before the current controversy, some municipal activists have said that banks took advantage of the financial inexperience of municipal officials to sell them billions of dollars of interest rate swaps. Experts in municipal finance say that because of the particular way that cities and states borrow money, they are especially liable to lose out on their swaps if Libor drops.

Mr. Shapiro, who helps cities, states and companies negotiate these contracts, said that if a city had interest rate swaps on bonds worth $1 billion and Libor was artificially pushed down by 0.30 percent, which is what the lawsuits contend, that city would have lost $3 million a year. The lawsuit claims the manipulation occurred over three years. Barclays’ settlement with regulators did not specify how much the banks’ actions may have moved Libor.

In Nassau County, the comptroller, George Maragos, said in a statement that according to his own calculations, Libor manipulation may have cost the county $13 million on swaps related to $600 million of outstanding bonds.

A Massachusetts state official who spoke on the condition of anonymity because of potential future legal actions, said the state was calculating its potential losses.

“We are deeply concerned and we are carefully analyzing all of our options,” the official said.

Anne Simpson, a portfolio manager at the California Public Employees’ Retirement System — the nation’s largest pension fund — said that the fund’s officials “are sifting through the impact, but there certainly is an impact.”

In Baltimore, the city had Libor-based interest rate swaps on about $550 million of bonds, according to the city’s financial report from 2008, the central year discussed in the lawsuit. The city’s lawyers have declined to specify what they think Baltimore’s losses were.

The city solicitor, George Nilson, said that the rate manipulation claims meant that the city lost out on money when it needed it the most.

“The injury we suffered during the time we suffered it hurt more because we were challenged budgetarily,” Mr. Nilson said. “Every dollar we lost due to illegal conduct was a dollar we couldn’t pay to keep open recreation centers or to pay police officers.”


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Simon Johnson on Business Model of Lie More

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Editor’s Comment:  

Anyone who is curious why I named this blog LivingLies will have all their questions answered by this well-articulated article by Simon Johnson, Chief economist of the World Bank, author of 13 Bankers, and the main writer for www.baseline scenario.com. Johnson is first among the world of economists who instantly knew the severity of the culture of lying and deception at the TBTF banks. He is joined in these views by the Financial Times, normally rabidly pro-bank and no less than the Governor of the Bank of England who apparently coined the phrase “Lie More” to replace what was the only index that mattered in the world of finance and bond trading.

The consequences of this culture of lying will be laid bare in the weeks and months and years to come. But as Johnson points out, the days are over when anyone trusts a bank or bank statement. Representations of bank officials once considered as good as gold or what used to be called good as Libor, are now going to be subject of scrutiny and will no doubt reveal a pattern of deceit even deeper than thes we already know about the mortgage meltdown and the trading scam resulting from intentionally manipulating Libor — the gold standard of all indexes.

Lie-More As A Business Model

By Simon Johnson

On Monday, Bob Diamond – the CEO of Barclays, one of the largest banks in the world – was supposedly the indispensable man, with his supporters claiming he was the only person who could see that global megabank through a growing scandal.  On Tuesday morning Mr. Diamond resigned and the stock market barely blinked – in fact, Barclays’ stock was up 0.3 percent.  As Charles de Gaulle supposedly remarked, “the cemeteries are full of indispensable men.”

Mr. Diamond’s fall was spectacular and complete.  It was also entirely appropriate.

Dennis Kelleher of Better Markets – a financial reform advocacy group – summarized the situation nicely in an interview with the BBC World Service on Tuesday.  The controversy that brought down Mr. Diamond had to do with deliberate and now acknowledged deception by Barclays’ staff with regard to the data they reported for Libor – the London Interbank Offered Rate (with the abbreviation pronounced Lie-Bore).  Mr. Kelleher was blunt: the issue in question is “Lie More” not Libor.  (See also this post on his blog, making the point that this impacts credit transactions with a face value of at least $800 trillion.)

Mr. Kelleher’s words may seem harsh, but they are exactly in line with the recently articulated editorial position of the Financial Times (FT) – not a publication that is generally hostile to the banking sector.  In a scathing editorial last weekend (“Shaming the banks into better ways,” June 28th), the typically nuanced FT editorial writers blasted behavior at Barclays and nailed the broader issue in what it called “a long-running confidence trick”:

“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates.  But few have shone such an unsparing light on the rotten heart of the financial system.”

The editorial was exactly right with regard to the cultural problem – within that Barclays it had become acceptable or perhaps even encouraged to provide false information.  It underemphasized, however, the importance of incentives in creating that culture.  The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be “clawed back”.

Martin Wolf, senior economics columnist at the FT and formerly a member of the UK’s Independent Banking Commission, sees to the core issue:

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

This matters because, “Trust is not an optional extra in banking, it is, as the salience of the word “credit” to this industry implies, of the essence.”

As the FT editorial put it, “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars”.

In the words of Mervyn King, governor of the Bank of England, “the idea that my word is my Libor is dead.”  Translation: No one will believe large banks again when their executives claim they could have borrowed at a particular interest rate – we will need to see actual transaction data, i.e., what they actually paid.  Presumably there should be similar skepticism about other claims made by global megabanks, including whenever they plead that this or that financial reform – limiting their ability to take excessive risk and impose inordinate costs on society – will bring the economy to its knees.  It is all special pleading of one or another, mostly intended to rip off customers or taxpayers or, ideally perhaps, both.

Mr. Kelleher has the economics exactly right.  Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations.  Their size confers both market power and the political power needed to conceal the extent to which they are engage in economic fraud.  The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates.

The rip-off is not just for retail investors; chief financial officers of major corporations who should be up in arms.  Boards of directors and shareholders of companies that buy services from big banks should be asking much harder questions about all kinds of derivatives transactions – and who exactly is served by the terms of such agreements.

As Mr. Kelleher puts it on his blog,

“They like to call themselves “banks,” but they aren’t banks in any traditional sense. They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage. Take JP Morgan Chase for example. It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank.”

“Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many. What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever they can get away with to get the biggest paychecks as possible. (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better”


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Weidner: Notes Are Not Negotiable Instruments

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Editor’s Notes:  

Matt Weidner appears to have mastered the truth about securitization and how to apply it in foreclosure defense cases. The article below is really for lawyers, paralegals and very sophisticated pro se litigants. His point about being careful about how you present this is very well taken. This is for lawyers to do and lawyers should read this and get with the program. Securitization turned about to be virtually all SHAM transactions with the real financial transaction hidden away from the view of the borrower, the courts and even securitization analysts. The operative rule here is that the existence of a financial transaction does not mean that strangers to that transactions can claim any rights. 

These loans were nearly always funded by other parties who had made promises to investors whose money was used to fund the mortgages. The very existence of co-obligors and payments by them defeats the arguments of the banks and servicers. I’d like to see ONE investor come into court and say that yes, they would ratify the inclusion of a defaulted loan into their pool years after the cutoff date which negates their tax benefits. There is o reasonable basis for an investor to do or say that. That leaves the loan undocumented, unsecured and subject to offset for predatory and wrongful lending practices.

The wrong way of approaching this is any way in which you are going into court to disclaim the obligation when everyone knows you received the money or the benefit of the money. The obligation exists. And the only way to discharge that debt is through payment, waiver (or bankruptcy) or forgiveness. Anything that smells like “I don’t owe this money anymore” is going to be rejected in most cases. But an attack on the lien and the reality of the true creditor is a different story. That needs to be presented as simply as possible and I think I good way to start is to deny the loan, obligation, note, mortgage etc on the basis of an absence of any financial transaction between the borrower and the party named on the documents upon which the foreclosers rely. Any discovery at all will reveal that the money never came from the payee on the note or mortgagee or beneficiary on the mortgage or deed of trust. 

by Matt Weidner:

Let’s start with real basic stuff here.  Sometimes law is complex, nuanced,difficult.  Other times it’s black and white…you just read the words, look at the facts and the answer is unavoidable.  Such is the case with the simmering dispute over the fact that the notes that are part of nearly every residential foreclosure case are not negotiable instruments.  Oh sure, too many courts won’t take the time to consider the argument and…just yesterday I heard an appellate court argument where the judges just kept repeating the mantra, “this is a negotiable instrument” without ever doing any analysis at all and without any finding of that “fact” from the trial court.  The attorney needed to stop the appellate judge right there and say, “No Your Honor, it’s Not A Negotiable Instrument”.

Just last week, in a trial court, here’s exactly the way it went down.  Now, keep in mind, this argument in court was supplemented by a long and detailed memo similar to the one attached here.  The best part it was in front of one of Florida’s most respected and brilliant judges.  He’s been on the bench longer than I’ve been alive, he knows more law in the tip of his finger than most lawyers get in their whole bodies in an entire lifetime, he’s presided over tens of thousands of foreclosure cases. It was a beautiful thing to see an argument before a dedicated jurist whose seen and heard it all before that really made him sit up, dig in to those decades of judicial wisdom and then do the heavy lifting. That’s one of the beautiful things about this job….despite decades of work and hundreds of years of law, out of nowhere something new and exciting can still get the intellect and wisdom fired up and shooting like a cannon. Here’s how it goes down:

Your honor, I’ve highlighted and present for you the statutory definition of a “negotiable instrument”.  Because it’s a statutory definition, it’s black and white. We cannot alter or weave or color it with shades of gray….here’s what it is:

673.1041 Negotiable instrument.—
(1) Except as provided in subsections (3), (4), and (11), the term “negotiable instrument” means
an unconditional promise or order to pay a fixed amount of money, with or without interest or other
charges described in the promise or order, if it:
(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a
holder;
(b) Is payable on demand or at a definite time; and
(c) Does not state any other undertaking or instruction by the person promising or ordering
payment to do any act in addition to the payment of money.

FL Article 3

Now, we’re all stuck with exactly that definition. Before we examine the note in this case, let’s first think about what a negotiable instrument is….a check made payable to a person for $100. An IOU for $100.  Bills of lading with a total included.  It’s all real simple.

So now that we’re fixed about what a negotiable instrument is, let’s examine what it ain’t.  What ain’t a negotiable instrument, as defined by Florida law is the standard Fannie/Freddie Promissory note and the following paragraphs are the primary reasons why.  Read each one carefully and ask, “Are these sentences conditions or undertakings other than the promise to repay money?” (Of course they are)

4.         BORROWER’S RIGHT TO PREPAY

I have the right to make payments of Principal at any time before they are due.  A payment of Principal only is known as a “Prepayment.”  When I make a Prepayment, I will tell the Note Holder in writing that I am doing so.  I may not designate a payment as a Prepayment if I have not made all the monthly payments due under the Note.

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge.  The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note.  However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note.  If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.

5.         LOAN CHARGES

If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then:  (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me.  The Note Holder may choose to make this refund by reducing the Principal I owe under this Note or by making a direct payment to me.  If a refund reduces Principal, the reduction will be treated as a partial Prepayment.

10.  UNIFORM SECURED NOTE

This Note is a uniform instrument with limited variations in some jurisdictions.  In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the “Security Instrument”), dated the same date as this Note, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note.  That Security Instrument describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note.  Some of those conditions are described as follows:

If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.

If Lender exercises this option, Lender shall give Borrower notice of acceleration.  The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument.  If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.

3210-FloridaFRNote-Freddie_UI

So, the deal is, if we were sitting in a law school classroom, there’s not a chance in the world but that every student in the room and the professor would agree and understand that the document being examined side by side is not covered by the definition provided.  The problem is we get into courtrooms and we get infected by considerations that are beyond and above the operative law.  Judgment gets clouded by preconceived notions and prejudices against our neighbors and favoritism for the criminal banking institutions that caused all this mess. Even to this day, years into this, years into all the fraud and the lies and the deceit, it’s like we’re still hypnotized by the banks and their black magic and voodoo.

Now, if you really want to take it a step deeper, Margery Golant makes a very credible argument that in doing this analysis we cannot just look at the note alone, but that we must also examine the mortgage that follows with it.  They truly are two integrated documents and you can see from her highlights that so many of the provisions in the mortgage have nothing to do with security and everything to do with conditions on the payment of money….these provisions are just jammed into the mortgage and kept out of the note to try and prop up this artifice of negotiability.  Read her highlights with this analysis in mind:

Fannie Florida Mortgage with Golant Highlights

Further supported by this case Sims v New Falls

Now, understand the industry never intended these notes and mortgages to transfer via endorsement.  The industry set this whole system up so that the notes and mortgage would transfer via Article 9 of the UCC.  It’s just so plain and simple.  They never set it up or intended that million dollar notes and mortgages would transfer via forged endorsements, undated squiggles and rubber stamps or floating allonges.  Of course not…that’s just crazy.  The entire system was created such that notes and mortgages and all the servicing agreements and rights and liabilities would transfer via far more formalized Assignments, with names and dates and notary stamps and witnesses.  The Article 9 transfer regime had nothing to do with protecting consumers, but everything to do with protecting the players in the industry from the scams, the lies, the cons that they all like to play on one another. (Hello, LIBOR anyone?)

But when the shifty con artists that set this whole securitization card game up, they were so focused on how much money they were making, they never considered what would happen when the whole house of cards blew down.  When it blew down, they threw their Article 9 intentions out the window and adopted the whole Article 3 negotiable instrument delusion.  Isn’t it an absurd argument when they cannot answer the question, “if assignments don’t matter, why do you still bother to do them?”  It’s because they do matter….assignments were and remain the foundation of their transfers.  The problem is Assignments, what with their pesky dates and legible names and notaries and all reveal the lies and the fraud and the con that developed once the system came crashing down and they all started stealing from one another. (With the explicit approval of our state and federal government to do so….too big to jail you know.)

Anywhoo, there’s still some faint glimmer of hope as long as we still have good judges out there that are willing to think these things through and do the heavy lifting, we might be able to rescue our nation’s judicial system and in fact our nation as a whole from this deep, dark black pit that we’ve all descended down.

I urge everyone to be very careful with these arguments.  I’m a very big supporter of pro se people and consumers being integrated into their courtrooms and being fully engaged in the public spaces they own. I’ve also seen some very good pro se people go into courtrooms and do some very beautiful things.  In some ways it’s like a “From the mouths of babes” experience.  Language and arguments stripped away from all their lawyerly pretense can have a magic effect on a judge’s ear and thoughtfully and well-prepared arguments are often received with great enthusiasm from our circuit courts….particularly those judges that recognize the roots of our civilian circuit justice system.  The danger is that ill-prepared and poorly presented arguments will taint the ears and poison the minds of judges that might otherwise accept with an open mind…..keep that in mind.  Max Gardner is the Obi One Kenobe of all this and there’s just something about the way he lays it out so clear and clean and simple that has it all make sense.  I really encourage everyone to get all his material and invest in the week long bootcamp before you go trying any of this out…..MAX GARDNER BOOTCAMP

And now my briefs:

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Initial-Brief


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British Government Getting Tough on Bankers

The Barclay Libor rigging scandal is apparently the straw that broke the Camel’s back in Great Britain. With various investigations of their co-conspirators in artificially creating moments in interest rates, the scam is unraveling. And in the balance, lies between $500 and $600 TRILLION dollars. How could that much money be effected when all the money in the world amounts to less than $70 Trillion? What the hell IS money anyway?

All these things are becoming less exotic and increasingly the subject of investigation, prosecution, conviction and sentencing in every place but the United States, where at this point in the savings and loan scandal of the 1980’s more than 800 people were already in jail. The British authorities are leading the way in Europe taking their cue from Iceland of all places, where prosecution of bankers has become the nation’s goal — bringing justice to the marketplace and bringing back certainty that those who play with the free Markets will be punished.

Iceland’s surge back to prosperity has been painful but they did it it because they forced the banks to accept “debt forgiveness” which is to say they merely forced the banks to admit that the debtors had been placed so far in debt with no assets or income to pay for the debt that it was
NOT going to get repaid anyway. That meant some of the assets on the balance sheets of the three biggest banks were worthless. Three banks failed and everyone held their breadth. Nothing bad happened. In fact the rest of the banking sector is prospering along with the rest of the Iceland economy.

In the U.S. Regulators and prosecutors seem to remain completely invested in the myth that bringing the banks and bankers to justice will bring down the entire financial system. It isn’t so and we know that because wherever the governments have cracked down on the financial services industry the economy got better — Iceland being only the latest example.

Back to the question: how could some reptilian behavior create more money than government allows and why is the government allowing it anyway? How could all the currency in the world be $70 trillion and the amount of money effected by the Barclay manipulation of Libor be ten times that amount, which is to to say ten times all the money the world? The answer is that it can’t. And the longer we pretend that it can, the longer and deeper will be the recession. The more we pretend that those exotic securities sitting in bank balance sheets are actually worth all that money, the longer we prolong the agony of the society that allows banks to exist. Those banks relying on fake assets should fail. It is that simple.

See Gretchen Morgenson’s article in the Sunday business section of the New York Times for a clear explanation of right and wrong and how the British are trying to get it right.

MORTGAGE MELTDOWN: LIBOR THREATENS CONFIDENCE —U.S. BANKS LYING TO THE WORLD

IF YOU ARE TAKING YOUR LENDER BANK TO COURT OR VICA VERSA, HERE IS MORE FUEL TO THROW ON THE FIRE — THEY EVEN LIED TO OTHER BANKS — INTENTIONALLY SO THEY WOULDN’T APPEAR DESPERATE FOR MONEY. 

The Mysteries of Libor

And Other Revelations…

 

THERE CAN BE NO DOUBT THAT THE FINANCIAL SYSTEM IS BASED 100% ON TRUST AND CONFIDENCE OF THE PLAYERS IN EACH OTHER. U.S. BANKS HAVE NOW TAKEN THAT OFF THE TABLE. THE EFFECTS WILL BE FAR-REACHING. 

 

By JOSEPH SCHUMAN

THE WALL STREET JOURNAL ONLINE

 

More than most financial crises of the recent past, the 2007-2008 credit crunch has exposed plumbing behind the walls of global finance, and the result is a lot of re-examination.

 

Let’s start with Libor. The London interbank offered rate, a figure drawn from dollar-lending rates among the biggest global banks, is used to set interest rates for a broad spectrum of borrowers, and it has provoked concern beyond banking circles lately thanks to some erratic movements. The Wall Street Journal decided to compare the borrowing costs reported by the 16 banks on the Libor-setting panel with a separate market that tracks the risk of lending and borrowing by these banks — the market for credit-default swaps, a form of default insurance. What the paper found is that Citigroup, UBS, J.P. Morgan Chase and some other Libor-panel members have been reporting borrowing costs that are lower than what the credit-default numbers suggest they should be. That has led Libor “to act as if the banking system was doing better than it was at critical junctures in the financial crisis,” the Journal says, which could cast doubt on the reliability of a number used to calculate home mortgages, corporate loans and a host of other borrowing around the world.

 

Some bankers have grown suspicious that rivals were low-balling their borrowing costs so they wouldn’t look desperate, and Libor’s overseer, the British Bankers’ Association, is expected to report on possible adjustments to the system tomorrow. But people familiar with the group’s deliberations tell the Journal no major changes are expected. The Libor and credit-default swaps rates have been diverging since late January, when the credit crunch was worsening and central bankers at the Federal Reserve and elsewhere started pulling out all the stops to calm the tumult. The BBA says Libor is reliable and that many financial indicators have acted funny during the crisis, while the Journal cites a number of reasons offered by analysts to explain the risk-rate disparity it finds: Lending between banks came to a halt for months amid the uncertainty, which added some guesswork to the borrowing-cost estimates; or Citigroup and others’ ability to tap their customers’ cash deposits and extra funds from the Fed could have reduced their borrowing needs.

 

Still, the Journal says, five banks in particular had wider gaps than the 11 others: Citigroup, WestLB of Germany, HBOS of Britain, J.P. Morgan Chase and Swiss lending giant UBS. And “one possible explanation for the gap is that banks understated their borrowing rates,” the paper says. “If dollar Libor is understated as much as the Journal’s analysis suggests, it would represent a roughly $45 billion break on interest payments for homeowners, companies and investors over the first four months of this year. That’s good for them, but a loss for others in the market, such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to Libor.”

Mortgage Meltdown Casualty: Trust between banks — Time for Truth

Another casualty of the Mortgage Meltdown induced paranoia that is sweeping the credit and money markets: Banks no longer trust the indexes which they have relied upon for decades. In other words, they don’t trust each other. And they don’t trust the people who report on what is happening out in the financial marketplace. The simple fact is that they do NOT know how much they are paying or how much they are going to pay, or the actual trend lines in inter-bank lending. This basically slips the rug out of the entire credit infrastructure. 

What this means to the average Joe or Jane is that it adds uncertainty to an already chaotic marketplace. Uncertainty produces fear and fear produces increased risk aversion. Bottom Line: Interest rates are going up no matter what the central banks do. Loans will be harder to get. Asset values will decline because of the difficulty in obtaining financing that is usually associated with the purchase of those assets — like housing and mortgages. 

In terms of policy, it means that decision-makers in government and the private sector need to be honest and straightforward in their reporting of data.

Making lemons appear to be lemonade is going to further erode trust and confidence in the financial systems.

THOSE WHO COUNSEL CAUTION IN GIVING THE PUBLIC THE REAL FACTS ARE PROLONGING THE AGONY. HISTORY SHOWS THAT WHEN THE BAD NEWS IS OUT AND THE PUBLIC BELIEVES THAT IT IS ALL OUT, THE PROCESS OF HEALING AND REJUVENATION BEGINS. Until then, we are headed at best for a limping economy, with declining prospects. 

Pointing out sectors that have upticks does nothing to restore confidence in the overall system. Everyone understands that the failure here was systemic, not economic. Failure to address that issue will simply produce declining confidence in the markets until people start believing what they are told. They won’t believe it unless they can confirm it. And we all have access now to information that will confirm or deny the spin or reports that government and private sector leaders publish.

Time to fess up boys!!!!

N.Y. Libor alternate tries to avoid London’s pitfalls
Still, upcoming interest rate is unlikely to show bank risks have improved
SAN FRANCISCO (MarketWatch) — A New York-based measure of how much it costs banks to borrow money will try to circumvent problems dogging Libor, the London benchmark that sets rates for everything from adjustable-rate mortgages to interest rate futures.
Successful avoidance of some pitfalls that have undermined bankers’ trust in Libor, however, is unlikely to prevent ICAP Plc’s New York Funding Rate from mimicking at least one of its London counterparts’ key traits. That is, a gap with other interest rates that suggests borrowing conditions for the world’s largest banks are still quite stressed.
“At this point, the U.S. index won’t make much difference, but it may be a good idea six months from now,” said Brendan Brown, head of research at Mitsubishi (UFJ) Securities International, in London.
Bankers point to a raft of other indicators, from currency forward rates to swap spreads, to show that bank borrowing costs are still high even while other measures of credit risk have fallen. That discrepancy has been a source of nagging worry for investors and economists looking for proof that the worse of the credit crisis has truly passed.
In fact, an interest rate that side-steps some of the problems that have recently undermined investors’ trust in Libor may even show banks are paying higher rates than shows up in Libor.
A month ago, Libor made its steepest five-day advance since August after concerns emerged that some banks had been underreporting their rates, out of fear they would be penalized if outsiders knew how much they were paying for funding.
Icap (UK:IAPnewschartprofile) , a London-based inter-dealer broker that specializes in handling over-the-counter transactions like currencies and interest rates, is trying to discourage banks from fibbing about their borrowing costs by making its survey of 40 global banks anonymous.
Plus, rather than ask banks for the rate at which they can borrow short-term, unsecured loans — as the British Bankers Association does — ICAP will ask banks for their estimates of what the going rate is for the average bank.
There’s some urgency among banks, borrowers and the Federal Reserve to know just how costly it is for banks to tap the money market for their borrowings.
These funds are one of the main ways U.S. and overseas banks get capital for their own lending activities. If their costs are running high, they are likely to lend less, a headache for consumers and businesses that rely on flush conditions at banks to fund new mortgages, new auto loans, student loans, acquisitions and expansions.
And if the new measure does show Libor has been printing lower than the true cost of interbank borrowings, a lot of consumers and businesses with loans tied to Libor could get a nasty shock. It’s been estimated that loans and derivative contracts totaling roughly $150 trillion (more than $20,000 for every person on earth) are indexed or tied to Libor in some way.
In fact, the universe of financial instruments tied to Libor is so huge that some bankers are nervous that any efforts to tweak the way Libor is collected could make a bigger mess.
Libor “is extremely important,” said Terry Belton, head of fixed income strategy at J.P. Morgan Chase. “We would probably create more problems by changing it in a material way than we would solve,” he said.
Libor rises…
ICAP’s efforts to publish a new bank lending rate follows an unusual period where Libor as well as other bank lending rates have frequently topped central bank policy rates, meaning banks are paying more to borrow because of heightened credit and liquidity risk
The difference, or spread, between the three-month U.S.-dollar Libor and the effective federal funds rate rose to more than 80 basis points on Wednesday. Usually, dollar-denominated Libor tracks closely with the fed funds rate. See earlier story on Libor’s rise.
By other measures, costs for banks’ borrowing needs have also been rising. The spread between three-month Libor and overnight index swaps has been climbing since February. What’s known among credit analysts as the BOR-OIS spread gives a view of Libor that strips out expectations that central banks will raise or lower rates.
These spreads “are all signs that there is stress in the market,” said Eoin O’Callaghan, market economist for BNP Paribas in London.
Such signs of stress are worrisome for the Fed, which has $462 billion in special lending programs to financial institutions as it tries to get money flowing in frozen pockets of the credit market.
Notwithstanding efforts by the Fed and other central banks to “meet panic demands for liquidity” by making more funds available to financial institutions, still “many markets are not functioning normally,” noted Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, in a speech Tuesday.
In contrast to rates that reflecting bank costs, indexes that track perceived credit risk and rates paid by corporations have been tumbling. Markit’s index of high-grade, North American credit default swaps has fallen about 27% since late-March. The spread between safe-haven 10-yield Treasury notes and bonds issued by companies with Baa ratings, which indicate riskier but still investment-grade companies, has also narrowed since mid-March.
… But not by enough?
Amid these concerns, other measures of short-term borrowing, such as the over-the-counter market to buy currencies like euros or sterling for future delivery, also suggest Libor just may not be high enough.
The British Bankers Association gets the Libor “fix” by polling global banks including Citigroup’s Citibank (C

and Lloyds TSB Group (UK:LLOYnewschartprofile) every day on what they are paying for funds.

The group says it doubts its Libor panel banks are contributing to deliberate distortions of the rate. Still, it has brought forward a review of how the rate gets calculated. See related story. And banks may be paying more for their loans than Libor suggests for purely innocent reasons.
It’s just not that liquid a market, bankers note.
Plus, the massive and surprise losses resulting from the U.S. housing market collapse have created a lot of variation among financial institutions when they try to borrow money. Banks that are light on funding or carry poor credit are likely to pay a far higher rate in the forward currency market, for instance, than the Libor panel would reflect.
“This is a problem that is temporary in nature and reflects the dislocation in the financing market,” J.P. Morgan Chase’s Belton said. He predicts that as central banks inject more money into the financial system “and as things there improve, we’ll move back to a world where all banks in panel have similar financing rates.”
Banks are likely paying more to borrow money, whether that’s reflected in Libor or another indicator, simply because supply has dried up. Banks, mutual funds and corporations that lend in the bank borrowing market are keeping more cash to themselves.
“Confidence in and between banks has been dented significantly after the Bear Stearns Cos. (BSC

) episode. Investors and banks are reluctant to lend cash to banks, effectively wondering who the next casualty will be,” said economists at Societe Generale in a report.

In mid-March, Bear Stearns came close to collapse, causing fears of a run on Wall Street.
“Also, money market funds, which are liquidity providers, continue to fear redemptions and invest at very low maturities,” they noted.
New York fixing
Since the NYFR will be based on a survey, rather than actual transactions, there still will be no way of telling if banks are giving an honest assessment of borrowing costs.
“There’s not really an ultimate check on whether the rates banks are reporting are the right rates,” said Brown of Mitsubishi Securities.
One thing that will change, however, is the time zone.
The British Bankers Association gets the so-called fixing of rates at 11 a.m. London time, or about 6 a.m. New York time. That’s about three hours before banks in the United States can start borrowing money in U.S. dollars, so may not accurately reflect the price of costs facing banks trying to tap these dollar markets.
ICAP’s planned NYFR rate instead will query banks at 9:30 a.m. New York time.
ICAP’s planned rate will also attempt to give a better view of what’s going on in the market for dollar-based bank borrowing than one of its current measures, eurodollar deposits. It gets this data from bid-ask spreads ICAP users provide for these deposits and supplies it to the Fed, which publishes the bid rate daily on its H. 15 statistical release. Go to the Fed’s Web site.
As the financial markets have convulsed, those eurodollar deposit rates have increasingly reflected a wider bid-ask spread, perhaps skewing the published rate.
“Since August, and especially since Bear Stearns, our desk has been setting that range very wide to reflect that trading is a lot messier,” said Lou Crandall, chief economist at Wrightson ICAP, the New York research arm of ICAP.
“It made us look for a more objective way to say where rates are trading,” he said.
NYFR is designed to give a clearer snapshot of bank borrowing costs. But it’s not designed to become the next Libor, which is the benchmark for so many loans and derivatives, Crandall stressed.
“This is designed to supplement Libor, not replace it,” Crandall said. “The series we had been publishing was no longer adequate for that purpose.” End of Story
Laura Mandaro is a reporter for MarketWatch in San Francisco.
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