1.5 Million Seniors Foreclosed — Most Illegally

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Editor’s Comment and Analysis: As I predicted (along with many others), the foreclosure scam is reaching further and further to all segments of the population. With more than half of all homeowners under 40 being “underwater” and the release of information showing that widows are being hit hardest, the statistics showing 1.5 million foreclosures on people over 50 are hardly surprising. But they don’t tell the whole human story of grief, confusion and disbelief that the banks would engage in large-scale fraud.

It is ironic that many of the millions who were hit with foreclosure were the same people who joined the public outcry against mortgage relief because they were playing by the rules, making their payments, and also losing money. They failed to educate themselves and their naive belief that the debts were legitimate and the borrowers were deadbeats led the public, the media, and those who pull the levers of power in Federal and State government to conclude that the debts were legitimate and the market simply went sour.

To call these debts legitimate in the face of absolutely incontrovertible facts regarding appraisal fraud, forgery, robo-signing, and lies told in in court is akin to drawing the distinction between rape and legitimate rape. You can argue all you want about what a woman should look for to “detect” a possible criminal and and argue circumstances when she “asked for it” but rape is rape.

And you can argue all you want about how homeowners should have read a pile of papers 6 inches thick to determine what was really going to happen to their lives if they signed those papers and that they should have investigated who was behind the easy money, but in the end they were the victims, just like many investors were the victims.

And until we agree that the money the banks received should have been allocated to the investors on whose behalf they received the money we won’t know the amount of the debt of the homeowner, if any, that is remaining. Allowing foreclosures to start, foreclosure “sales” to be conducted, foreclosure deeds to be issued “for cash received” when they accepted a credit bid from a non-creditor, and then allowing evictions was and remains wrong.

In fact, while I have not seen a study analyzing this, I’ll bet you will find that the same people who were foreclosed were on pensions paid by managed funds that bought the bogus mortgage bonds that enabled the mortgage meltdown in the first place.

So the same people were both losers in investing in mortgages and then losers when their own money was used against them in deals that were impossible to be viable.

The tragic irony here is that most borrowers still don’t get it. They also think the debts are legitimate and that any claims of fraud or predatory loan practices are just ways of delaying the inevitable foreclosure and eviction.

Precious few homeowners have any idea that they have legitimate defenses and remedies that would lead to a mortgage-free house or a modification that uses fair market value as a basis for the loan balance and applies the payments received by creditors from insurance, credit default swaps and federal bailouts.

In what I have called Deny and Discover, lawyers following this blog or who have arrived at the same conclusions on their own are winning case after case. Mark Stopa published an article about 14 cases in Florida in which 14 different judges entered summary final judgment FOR THE BORROWER!

As the banks plant articles warning against strategic defaults, ultimately, there is no debtor’s prison in this country and they can’t do a thing about it. And widows, pensioners and others who are on fixed incomes and facing rising medical and living expenses are forced into default. This mess will take decades to clear up unless government does its job of governing and applying the same set of rules to everyone. If you commit fraud, you owe restitution and you are punished either civilly or criminally.

Pension Fund Bangs Goldman for $26.6 Million

Editor’s Note: The allegation was that the Pension Fund was misled into buying securities backed by risky mortgages from the now defunct New Century Financial.

The importance of this is that it corroborates what we have been saying all along. The pension funds were required by law to invest in “stable” funds which means in Wall Street parlance — investments that have very little risk. Goldman came to them with what appeared to be Triple A rated inured investments with a higher return than what the pension fund could get elsewhere from similar investments. The proposal was an outright lie and Goldman knew it. The only thing that the Pension Fund missed was an opportunity to get punitive damages. It is possible that the pension fund managers had a relationship with Goldman that might have raised questions about whether the fraud could be proved.

But there is no doubt who funded those loans — the Pension Fund. So there is no doubt that whoever was named on the promissory note and mortgage was a naked nominee at best and probably just a regular bad country lie. And there is also no doubt that the terms and quality of the loan were DIFFERENT from the terms and quality proposed to the borrower. Thus we have a mismatch: the terms and names of the principals in the transaction were changed to allow Goldman to trade the loans and resell them as “temporary” owner of the loans while the Pension Fund was left high and dry on the actual lender.

No mortgage broker originator has been punished or sued for giving those bad loans to to Goldman, because Goldman knew the loans were bad and in fact counted on it: they were betting the loans would fail. But just for good measure they included language in the tranche terms that made it certain that they, as Master Servicer, could pull the rug out from the Pension Fund by simply declaring that the level of defaults resulted in a write-down or wipe-out of the investment. Then Goldman made a claim on AIG et al, for proceeds of insurance and credit default swaps payable to Goldman instead of the Pension Fund.

So there was no meeting of the minds, in lawyer speak, between the borrower (homeowner) and the lender (Pension Fund). The note was void because the party identified as the lender was not the lender at all. And it was void because it recited different terms than what the lender thought would be in the loans. Therefore, the mortgage lien was never perfected because it was securing the faithful performance of a note, under which no performance was required — the borrower did not intend to pay a party from whom he had received no loan.

The borrower had intended to pay the real lender, not the party named on the note and mortgage who had neither funded nor purchased the loan. The lender had intended to own a piece of high quality loans that together constituted a stable fund. They were both fooled.

Now here is the kicker: since there was no meeting of the minds, common law takes over. The terms of the loan have yet to be resolved. One thing is fairly sure at this point, which is that the obligation to the lender has not been secured.

goldman-to-pay-26-6-mln-in-mortgage-debt-class-action

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Editor’s Notes:  

It comes as no surprise that BofA, now the unproud owner of Countrywide, would repeatedly appeal a judgment in which a moral man tried to avoid moral hazard at Countrywide and was fired for it. Corporations do that all the time to gain the advantage of achieving a smaller settlement or to dissuade others from doing the same thing. I feel appalled that this guy in Gretchen’s story is still waiting for his compensation and that if BofA has its way, he will be deprived of it altogether. BofA of coruse says that when they acquired CW there just wasn’t a job left for him. Bullcrap:

“But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.” (e.s., see full article below and link).

“These folks went in the other direction” is an understatement. And while most of the media is stepping back from foreclosure stories except for reporting the numbers, this story brings back the raw, mean, lawless intent of Countrywide and other leaders of the securitization scam. Let me first remind you that for the most part, the “securitization” never occurred. Any loan declared to be part of a pool that was “securitized” or otherwise transferred into the pool is a damn lie. Very few people understand how that even COULD be true, much less believe that it is an accurate statement. But it is true. There was no securitization in most cases.

If a loan was securitized it would have been underwritten by a bona fide lender and then sold to an aggregator, and from there sold to a REMIC “trust” or special purpose vehicle. Certificates of ownership of the loan together with a promise to pay the owner of the loan a sum of money with interest would have been issued to qualified investors like pension funds and other institutional investors upon which our society depends for social services and a safety net (which in the case of pension funds is largely funded by the workers themselves). Of course the investors would have paid the investment banker for those loans including a small fee for brokering the transaction. And everyone lives happily ever after because Tinker Bell certified the transactions.

So if the loan was securitized, then both the document trail and the money trail would show that the loan was properly owned and funded by the “lender,”, the lender assigned the loan in exchange for payment from the aggregator and the aggregator assigned the loan in exchange for payment into the pool (REMIC, trust, or whatever you want to call it). The problem for the banks is that none of that happened in most cases. And their solution to that problem, instead of acting like trustworthy banks, is to delay and fabricate and forge and intimidate. (PRACTICE NOTE: THESE ARE THE DOCUMENTS AND PROOF OF PAYMENT YOU WANT IN DISCOVERY)

The real story is that the loan was not underwritten by a bona fide lender whose role involved any risk of loss on the loan. In fact, in most cases there was no financial transaction between the lender named on the note and mortgage and the borrower. The financial transaction actually occurred between the borrower and an undifferentiated commingled group of investors who THOUGHT they were buying into REMICs but whose money was used for anything BUT the REMICs. Their money was in an account far from the securitization chain described above controlled by an investment bank who was taking “trading profits” and fees out of the money as though it was their own private piggy bank.

The “assignment” (sometimes erroneously referred to as an allonge or endorsement) was offered and accepted between the named lender (who was not the real lender) and the mortgage aggregator WITHOUT PAYMENT. The assignment says “for value received” but the value was received by the borrower and the investment bank and so there was no payment by the aggregator for an assignment from a “lender” that wasn’t the lender anyway and who never had one penny in the deal, nor any legal right to declare that they were the owner of the loan.

The “aggregator” was a fictitious entity meant to deceive any inquiring eyes. My eyes were inquiring and for a long while I believed in the existence of the aggregator — but then I was late on getting the real scoop on Santa and tooth fairy too. But it misdirects the attention of the audience like any illusionist. Meanwhile various “affiliates of the investment bank are busy creating “exotic instruments” that make believe that the bank owns the loan and thus has the power to sell it, when in fact we all know that the investors own the note but even they don’t quite understand how they own the note — a fact complicated by the fact that the “aggregator” was a fiction and the money came from a Superfund escrow account in which ALL the money from ALL the investors was commingled and the moment of funding of each loan was a different moment in the SuperFund account because money was coming and going and so were investors. This is what enabled the banks to (a) sell something they didn’t own (they called it selling forward, but it wasn’t selling forward, it was fraud) (b) sell it over and over again, by calling the “exotic instrument” something else, changing a few pieces of information about the loan data and presto!, Bear Stearns had “leveraged” the loan 42 times.

Translation: They sold something they didn’t have 42 times. And the risk of loss was that if someone in the chain of sales ever demanded delivery, they needed to go out and buy the loans which they figured was a sure thing because in all probability the loans were not worth the paper they were written on and in the open market, they could be purchased for pennies while Bear Stearns et al was selling the loans 42 times over at 100 cents on the dollar.

The last “assignment” for “value received” into the “pool” also had similar problems. First, the aggregator was a fictitious entity, second there was no value paid, and third they had already sold the loan 42 times. Add to that the assignment simply never took place to either the aggregator or the pool unless there was litigation and you have a real mess on your hands, which is where distraction and delay and illusion and raw intimidation come into play — all present in the case of one Michael Winston, a former executive at Countrywide Financial.

The repeated sales of the loans, the repeated collection of insurance for losses that never occurred, and repeated collection of proceeds of credit default swaps (a/k/a sales with a different name) means quite simply that the loan was paid in full from the start and that there is no balance due and probably never was any balance due and even if there was a balance due it was never due to the people who are now foreclosing. So why are they foreclosing? Because if they get to complete a foreclosure it completes the illusion that the investors were owed the money from the borrower instead of the bank that stole their money in the first place. So they pursue foreclosures while their PR machines grind out the illusion of modifications and mediation and short-sales. Nobody is getting good title or a title policy worth the paper it is written upon, but who cares?

He Felled a Giant, but He Can’t Collect

By GRETCHEN MORGENSON

“TAKING on corporate Goliaths for their wrongdoing should not be so daunting.”

That’s the view of Michael Winston, a former executive at Countrywide Financial, the subprime lending machine that was swallowed up by Bank of America in 2008. Mr. Winston won a wrongful-dismissal and retaliation case against the company in February 2011, but is still waiting to receive his $3.8 million award. Bank of America is fighting back and has appealed the jury verdict twice.

After hearing a month of testimony from a parade of top Countrywide officials, including the company’s founder, Angelo Mozilo, a California state jury sided with Mr. Winston. An executive with decades of expertise in management strategy, he contended that he was pushed out for, among other things, refusing to follow questionable orders from his superiors.

But for the last year and a quarter, Mr. Winston, 61, has been in legal limbo. Bank of America lost one appeal in the court that heard the case and has filed another that is pending in state appellate court.

Mr. Winston, meanwhile, has been unable to find work that is commensurate with his experience. “The devastation caused by Countrywide to me, my family, my team, the work force, customers, shareholders, taxpayers and citizens around the world is incalculable,” he said.

Before joining Countrywide, Mr. Winston held high-powered strategy posts at Motorola, McDonnell Douglas and Lockheed. He was global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that post in 2003 to care for his parents, who were terminally ill.

At Countrywide, he said, one of his problems was his refusal in fall 2006 to misrepresent the company’s corporate governance practices to analysts at Moody’s Investors Service. The ratings agency had expressed concerns about succession planning at Countrywide and other governance issues that the company hoped to allay.

Mr. Winston says a Countrywide executive asked him to write a report outlining Countrywide’s extensive succession planning for use by Moody’s. He refused, noting that he had no knowledge of any such plan. The company began to diminish his duties and department shortly thereafter. He was dismissed after Bank of America took over Countrywide.

Of course, it is not unusual for big corporate defendants to appeal jury awards. Bank of America argues in its court filings that the jury erred because Mr. Winston’s battles with his Countrywide superiors had nothing to do with his dismissal. Bank officials testified that he was let go because there was no job for him at the acquiring company.

“We believe that the jury’s finding of liability on the single claim of wrongful termination in retaliation is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” a Bank of America spokesman said.

In court filings, the bank also said that the jury appeared to be “swayed by emotion and prejudice, focusing on unsubstantiated and unsupported statements by plaintiff and his counsel slandering Countrywide and its executives.”

But a juror in the case rejected this argument. “There was no doubt in my mind that the guys at Countrywide had not only done something wrong legally and ethically, but they weren’t very bright about it,” said that juror, Sam Usher, a former human resources executive at General Motors who spoke recently about the officials who testified. “If somebody in an organization is a whistle-blower, then you not only treat him with respect, you also make sure that whatever he was concerned about gets taken care of. These folks went in the other direction.”

The credibility of all testimony in the case was central to jurors’ deliberations, Mr. Usher said. Instructions to the jury went into great detail on this point, advising them that they were “the sole and exclusive judges of the believability of the witnesses and the weight to be given the testimony of each witness.” The instructions added: “A witness, who is willfully false in one material part of his or her testimony, is to be distrusted in others.”

Mr. Usher said that those who testified against Mr. Winston “didn’t have a lot of credibility.”

That’s putting it mildly, said Charles T. Mathews, a former prosecutor in the Los Angeles County district attorney’s office who represented Mr. Winston. He said he was so disturbed by what he characterized as persistent perjury by various Countrywide officials that he forwarded annotated copies of court transcripts to Steve Cooley, the Los Angeles district attorney, for possible investigation.

“We won a multimillion-dollar verdict against Countrywide, but it sticks in my guts that they lied through their teeth and continue to escape accountability,” Mr. Mathews wrote to Mr. Cooley, urging him to investigate.

Whether perjury or not, the testimony ran into withering challenges.

Countrywide’s top human resources executive testified that Mr. Winston was a problematic employee and not a team player. But a performance evaluation she had written shortly before the company started to reduce his duties was produced in the case. It said Mr. Winston had “done well to build relationships with key members of senior management and continues to do so.”

The evaluation went on: “Michael strives to be a team player,” and “is absolutely focused on process improvement in his areas and has been working tirelessly to do so since he’s been on board.”

Mr. Mathews also contends that Mr. Mozilo, in a rare courtroom appearance, misrepresented his views of Mr. Winston. First, Mr. Mozilo testified that he did not know Mr. Winston, even though testimony and documents showed that he had attended presentations with him, personally given Mr. Winston a pair of Countrywide cuff links and told another employee that Mr. Winston’s leadership programs were “exactly what Countrywide needs.”

Mr. Mozilo’s testimony that he was unimpressed with Mr. Winston and his work was also refuted by another Countrywide executive who said that Mr. Mozilo was enthusiastic enough about Mr. Winston’s programs to suggest that he present them to the company’s board.

Asked about Mr. Mozilo’s testimony, David Siegel, a lawyer who represents him, said in an e-mail that there was no merit to the accusation that Mr. Mozilo was not truthful.

A spokeswoman for Mr. Cooley’s office confirmed last week that it had received the court transcripts and said that one of its prosecutors was reviewing them. She declined to comment further.

“God forbid our system continues to ignore these people and their acts,” Mr. Mathews said in an interview last week. “I am optimistic but the price of justice can be different depending on what your wallet says.”


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Editor’s Comment:

When I first suggested that securitization itself was a lie, my comments were greeted with disbelief and derision. No matter. When I see something I call it the way it is. The loans never left the launch pad, much less flew into a waiting pool of investor money. The whole thing was a scam and AG Biden of Đelaware and Schniedermann of New York are on to it.

The tip of the iceberg is that the note was not delivered to the investors. The gravitas of the situation is that the investors were never intended to get the note, the mortgage or any documentation except a check and a distribution report. The game was on.

First they (the investment banks) took money from the investors on the false pretenses that the bonds were real when anyone with 6 months experience on Wall street could tell you this was not a bond for lots of reasons, the most basic of which was that there was no borrower. The prospectus had no loans because there were no loans made yet. The banks certainly wouldn’ t take the risks posed by this toxic heap of loans, so they were waiting for the investors to get conned. Once they had the money then they figured out how to keep as much of it as possible before even looking for residential home borrowers. 

None of the requirements of the Internal Revenue Code on REMICS were followed, nor were the requirements of the pooling and servicing agreement. The facts are simple: the document trail as written never followed the actual trail of actual transactions in which money exchanged hands. And this was simply because the loan money came from the investors apart from the document trail. The actual transaction between homeowner borrower and investor lender was UNDOCUMENTED. And the actual trail of documents used in foreclosures all contain declarations of fact concerning transactions that never happened. 

The note is “evidence” of the debt, not the debt itself. If the investor lender loaned money to the homeowner borrower and neither one of them signed a single document acknowledging that transaction, there is still an obligation. The money from the investor lender is still a loan and even without documentation it is a loan that must be repaid. That bit of legal conclusion comes from common law. 

So if the note itself refers to a transaction in which ABC Lending loaned the money to the homeowner borrower it is referring to a transaction that does not now nor did it ever exist. That note is evidence of an obligation that does not exist. That note refers to a transaction that never happened. ABC Lending never loaned the homeowner borrower any money. And the terms of repayment intended by the securitization documents were never revealed to the homeowner buyer. Therefore the note with ABC Lending is evidence of a non-existent transaction that mistates the terms of repayment by leaving out the terms by which the investor lender would be repaid.

Thus the note is evidence of nothing and the mortgage securing the terms of the note is equally invalid. So the investors are suing the banks for leaving the lenders in the position of having an unsecured debt wherein even if they had collateral it would be declining in value like a stone dropping to the earth.

And as for why banks who knew better did it this way — follow the money. First they took an undisclosed yield spread premium out of the investor lender money. They squirreled most of that money through Bermuda which ” asserted” jurisdiction of the transaction for tax purposes and then waived the taxes. Then the bankers created false entities and “pools” that had nothing in them. Then the bankers took what was left of the investor lender money and funded loans upon request without any underwriting.

Then the bankers claimed they were losing money on defaults when the loss was that of the investor lenders. To add insult to injury the bankers had used some of the investor lender money to buy insurance, credit default swaps and create other credit enhancements where they — not the investor lender —- were the beneficiary of a payoff based on the default of mortgages or an “event” in which the nonexistent pool had to be marked down in value. When did that markdown occur? Only when the wholly owned wholly controlled subsidiary of the investment banker said so, speaking as the ” master servicer.”

So the truth is that the insurers and counterparties on CDS paid the bankers instead of the investor lenders. The same thing happened with the taxpayer bailout. The claims of bank losses were fake. Everyone lost money except, of course, the bankers.

So who owns the loan? The investor lenders. Who owns the note? Who cares, it was worth less when they started; but if anyone owns it it is most probably the originating “lender” ABC Lending. Who owns the mortgage? There is no mortgage. The mortgage agreement was written and executed by the borrower securing terms of payment that were neither disclosed nor real.

Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages

By David McLaughlin

New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices.

The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm.

“The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”

Countrywide Faulted

Schneiderman said Bank of America Corp. (BAC)’s Countrywide Financial unit last year made errors in the way it packaged home loans into bonds, while investors have sued trustee banks, saying documentation lapses during mortgage securitizations can impair their ability to recover losses when homeowners default. Schneiderman didn’t sue Bank of America in connection with that criticism.

The Justice Department in January said it formed a group of federal officials and state attorneys general to investigate misconduct in the bundling of mortgage loans into securities. Schneiderman is co-chairman with officials from the Justice Department and the Securities and Exchange Commission.

The next month, five mortgage servicers — Bank of America Corp., Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. and Ally Financial Inc. (ALLY) — reached a $25 billion settlement with federal officials and 49 states. The deal pays for mortgage relief for homeowners while settling claims against the servicers over foreclosure abuses. It didn’t resolve all claims, leaving the lenders exposed to further investigations into their mortgage operations by state and federal officials.

Top Issuers

The New York and Delaware probes involve banks that assembled the securities and firms that act as trustees on behalf of investors in the debt, said one of the people and a third person familiar with the matter.

The top issuers of mortgage securities without government backing in 2005 included Bank of America’s Countrywide Financial unit, GMAC, Bear Stearns Cos. and Washington Mutual, according to trade publication Inside MBS & ABS. Total volume for the top 10 issuers was $672 billion. JPMorgan acquired Bear Stearns and Washington Mutual in 2008.

The sale of mortgages into the trusts that pool loans may be void if banks didn’t follow strict requirements for such transfers, Biden said in a lawsuit filed last year over a national mortgage database used by banks. The requirements for transferring documents were “frequently not complied with” and likely led to the failure to properly transfer loans “on a large scale,” Biden said in the complaint.

“Most of this was done under the cover of darkness and anything that shines a light on these practices is going to be good for investors,” Talcott Franklin, an attorney whose firm represents mortgage-bond investors, said about the state probes.

Critical to Investors

Proper document transfers are critical to investors because if there are defects, the trusts, which act on behalf of investors, can’t foreclose on borrowers when they default, leading to losses, said Beth Kaswan, an attorney whose firm, Scott + Scott LLP, represents pension funds that have sued Bank of New York Mellon Corp. (BK) and US Bancorp as bond trustees. The banks are accused of failing in their job to review loan files for missing and incomplete documents and ensure any problems were corrected, according to court filings.

“You have very significant losses in the trusts and very high delinquencies and foreclosures, and when you attempt to foreclose you can’t collect,” Kaswan said.

Laurence Platt, an attorney at K&L Gates LLP in Washington, disagreed that widespread problems exist with document transfers in securitization transactions that have impaired investors’ interests in mortgages.

“There may be loan-level issues but there aren’t massive pattern and practice problems,” he said. “And even when there are potential loan-level issues, you have to look at state law because not all states require the same documents.”

Fixing Defects

Missing documents don’t have to prevent trusts from foreclosing on homes because the paperwork may not be necessary, according to Platt. Defects in the required documents can be fixed in some circumstances, he said. For example, a missing promissory note, in which a borrower commits to repay a loan, may not derail the process because there are laws governing lost notes that allow a lender to proceed with a foreclosure, he said.

A review by federal bank regulators last year found that mortgage servicers “generally had sufficient documentation” to demonstrate authority to foreclose on homes.

Schneiderman said in court papers last year that Countrywide failed to transfer complete loan documentation to trusts. BNY Mellon, the trustee for bondholders, misled investors to believe Countrywide had delivered complete files, the attorney general said.

Hindered Foreclosures

Errors in the transfer of documents “hampered” the ability of the trusts to foreclose and impaired the value of the securities backed by the loans, Schneiderman said.

“The failure to properly transfer possession of complete mortgage files has hindered numerous foreclosure proceedings and resulted in fraudulent activities,” the attorney general said in court documents.

Bank of America faced similar claims from Nevada Attorney General Catherine Cortez Masto, who accused the Charlotte, North Carolina-based lender of conducting foreclosures without authority in its role as mortgage servicer due improper document transfers. In an amended complaint last year, Masto said Countrywide failed to deliver original mortgage notes to the trusts or provided notes with defects.

The lawsuit was settled as part of the national foreclosure settlement, Masto spokeswoman Jennifer Lopez said.

Bank of America spokesman Rick Simon declined to comment about the claims made by states and investors. BNY Mellon performed its duties as defined in the agreements governing the securitizations, spokesman Kevin Heine said.

“We believe that claims against the trustee are based on a misunderstanding of the limited role of the trustee in mortgage securitizations,” he said.

Biden, in his complaint over mortgage database MERS, cites a foreclosure by Deutsche Bank AG (DBK) as trustee in which the promissory note wasn’t delivered to the bank as required under an agreement governing the securitization. The office is concerned that such errors led to foreclosures by banks that lacked authority to seize homes, one of the people said.

Renee Calabro, spokeswoman for Frankfurt-based Deutsche Bank, declined to comment.

Investors have raised similar claims against banks. The Oklahoma Police Pension and Retirement System last year sued U.S. Bancorp as trustee for mortgage bonds sold by Bear Stearns. The bank “regularly disregarded” its duty as trustee to review loan files to ensure there were no missing or defective documents transferred to the trusts. The bank’s actions caused millions of dollars in losses on securities “that were not, in fact, legally collateralized by mortgage loans,” according to an amended complaint.

“Bondholders could have serious claims on their hands,” said Gradman. “You’re going to suffer a loss as bondholder if you can’t foreclose, if you can’t liquidate that property and recoup.”

Teri Charest, a spokeswoman for Minneapolis-based U.S. Bancorp (USB), said the bank isn’t liable and doesn’t know if any party is at fault in the structuring or administration of the transactions.

“If there was fault, this unhappy investor is seeking recompense from the wrong party,” she said. “We were not the sponsor, underwriter, custodian, servicer or administrator of this transaction.”

AP: BOA SETTLES WITH MISSISSIPPI PENSION FUND: $315 MILLION

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JUDGE RAKOFF APPROVES SETTLEMENT

EDITOR’S COMMENT: SINCE JUDGE RAKOFF APPROVED THE SETTLEMENT, WE CAN ONLY ASSUME THAT THE NUMBERS WERE MORE IN LINE WITH WHAT WAS APPROPRIATE. But on the other hand, here you have payment from BOA to the actual creditors who advanced money for the funding of mortgages. They are getting $315 million. Why isn’t anyone asking how that affects the balances due to those creditors?

What if that payment completely resolves the outstanding balance of Joe Smith, the plumber who was foreclosed for not making payments that, it turns out, were indeed to be paid by third parties because of the faulty procedures and representations made by Merrill Lynch and the mortgage aggregators and of course the mortgage originators and mortgage brokers?

What happens to Joe’s house, now that the creditor has received payment in full? What happens to Joe’s house if the creditor received partial payment in addition to the foreclosure? Why is there no accounting to Joe, besides the 1099-A often issued to people who were foreclosed? Is this tax fraud?

You can’t pick up one end of the stick and not pick up the other. You can’t pay the creditor off, even in part, without reducing the balance owed by the debtor. This simple fact is being ignored, along with dozens of other accounting and legal issues that go with them. Will the attempt be made to categorize this as unspecified damages that have nothing to do with the balance owed to the creditor? Who is going to believe that?

And THAT is why you need the COMBO and loan level accounting together with perhaps even further research to determine if the creditor has received or agents of the creditor has received payments that should be taken into account, along with payments from the “debtor” whose debt may well have been paid off completely at closing. If so, then there was no mortgage encumbrance that should have attached to the land. The parties who were losing money on the deal had separate contracts with third parties and eventually they are getting paid even as millions of homes are being foreclosed for the SAME DEBT.

Don’t be intimidated. It is just arithmetic.

SEE FULL ARTICLE FROM ASSOCIATED PRESS.

NEW YORK (AP) — Bank of America agreed to pay $315 million to settle claims by investors that they were misled about mortgage-backed investments sold by its Merrill Lynch unit.

The settlement was disclosed in court papers filed late Monday in U.S. District Court in Manhattan and requires the approval of a judge.

The class action lawsuit was led by the Public Employees’ Retirement System of Mississippi pension fund. The fund claimed that the investments were backed by poor quality mortgages written by subprime lenders Countrywide Financial Corp., First Franklin Financial, and IndyMac Bancorp, a bank that failed in 2008.

The settlement represents another attempt by Charlotte, N.C.-based Bank of America Corp. to put its legal issues behind it. In the first half of the year alone the bank put up $12.7 billion to settle similar claims from different groups of investors.

U.S. District Judge Jed Rakoff has to approve the settlement, something that could prove difficult since the settlement includes no admission of guilt from Bank of America.

Just last week, Rakoff struck down a $285 million settlement that Citigroup Inc. reached with the Securities and Exchange Commission. The settlement would have imposed penalties on Citigroup even as it allowed the company to deny allegations that it misled investors.

Rakoff said the public has a right to know what happens in cases that touch on “the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives.” In such cases, the SEC has a responsibility to ensure that the truth emerges, he wrote.

Banks’ Stranglehold Tightens: We’re Almost out of Air

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“That means no jobs for the foreseeable future — not just for us but for the children moving back in with us and our grandchildren. Forget retirement. That pension you were counting on is finally going to be announced as cut off or reduced because of the massive losses taken by the pension funds who bought the bogus securitization bonds for credit cards, auto loans, mortgages, student loans, furniture loans etc.” Neil F Garfield, livinglies.me

CALL OUT TO WHITE HAIRS WHO VOTE: PROTECT YOUR GRANDCHILDREN!

EDITOR’S COMMENT AND ANALYSIS: If you are around my age, approaching 65 in a  couple of months, you want to retire, kick back, stay retired and never work again. You’ve paid your dues. But it is likely that you will soon be back at some job that you can barely perform just to make ends meet. And your dependent children over the age of 45 in some cases are going to hear the word “no” from the lips of people who want to help, but can’t.

The recession continues to deepen for most Americans. And the capital that would reverse the trend in directly in the hands of the megabanks who are “awash in money.” That capital was siphoned out of the U.S. Economy through fraud, deception and other egregious, even criminal behavior. It is unfathomable why we allow this continue. I guess the real question is whether we, as a society are going to permit the banks to divide us into camps that oppose each other instead of realizing we are all in the same boat.

The employment figures are grim and nobody is able to put a happy face on it anymore. There won’t be any jobs until the banking crisis is over — until all aspects of the consumer credit market have leveled off, until all credit-worthy risks are funded, and until the bank’s control over our government is ended — really stopped, as opposed to some public relations stunt like the “settlement” they are trying to get at least some states to sign onto that amounts to Amnesty for the banks and continuing control of our democracy.

Our democracy has been corrupted and our capitalist economy has been cornered and, controlled and manipulated by just a few people pulling the levers of power performing acts that everyone knew 100 years ago were against the interest of the financial system and the society that allows that financial system to exist. Crony capitalism and and corrupt politicians make for some “fun” Halloween parties (see article on Steven Baum Law Firm), but for those of us who don’t walk in the clique of power brokers, we don’t enjoy the benefits of our real life Boardwalk Empire.

In India, the unlikely source of a surge for reform comes from the middle class that are still doing well, but who are tired of political corruption in their system and who fear for their futures. Somebody with the experience and brains and wisdom must take the longer view, like the middle class Indian families, and see where this is headed.

Here, maybe it could be the white haired people, like myself, who vote every time and who remember a time when America was #1 in just about everything. We reject the system that reduced our educational system to rubble, created millions of homeless people, and can’t give a job to trained, experienced, hardworking job-seekers. We reject the right of banks to steal and we reject their ability to keep what they stole. We want the money back but more important, we want our country back.

Employment Probably Cooled in October: U.S. Economy Preview


Oct. 30 (Bloomberg) — Employment probably cooled in October, indicating the U.S. recovery remains too weak, economists said before reports this week.

Payrolls climbed by 95,000 workers after a 103,000 September increase, according to the median forecast of 65 economists surveyed by Bloomberg News ahead of Nov. 4 data from the Labor Department. The jobless rate was 9.1 percent for a fourth consecutive month, the report may also show.

Hiring slowed even as the economy grew in the third quarter at the fastest pace in a year, showing why some Federal Reserve policy makers have said in advance of their meeting this week that the central bank should be prepared to do more. While retailers like Macy’s Inc. are boosting staff ahead of the holidays, bigger job gains are needed to spur consumer spending.

“Yes, there’s job growth, but it’s not good enough,” said Jonathan Basile, an economist at Credit Suisse in New York. “We have a labor market that is very frustrating for policy makers. They’ve tried a bunch of things but the unemployment rate remains elevated.”

The jobless rate has exceeded 8 percent since February 2009, the longest stretch of such levels of unemployment since monthly records began in 1948.

Private payrolls, which exclude government jobs, rose 125,000 after a gain of 137,000 in September, economists forecast the Labor Department report will show.

The projected gain in total payrolls would bring the average for July through October to 96,000, compared with 131,000 in the first six months of the year.

More Needed

Sustained increases of around 150,000 a month are needed to bring unemployment down about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Through September, the economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18- month recession that ended in June 2009.

Faster hiring would spur bigger gains in incomes and bolster confidence, helping cushion against declines in home prices and allowing households to sustain their spending. Purchases grew at a 2.4 percent annual rate in the third quarter and the economy expanded at a 2.5 percent pace, the Commerce Department reported last week.

Investors are turning more optimistic about the global economic outlook as Europe takes steps to limit the damage from its credit crisis. The Standard & Poor’s 500 Index last week extended its biggest monthly rally since 1974 as European leaders agreed to expand a bailout fund to $1.4 trillion and American growth accelerated.

Holiday Hiring

Some retailers are betting last quarter’s gain in spending will be sustained during the November-December holiday shopping season. Macy’s, the second-biggest U.S. department-store chain, is stepping up hiring of mostly part-time employees by 4 percent for the period. Kohl’s Corp., the fourth-largest U.S. department-store chain, plans to add more than 40,000 holiday workers, a 5 percent gain from 2010.

President Barack Obama is seeking ways to take action to spur hiring without congressional approval after the Senate blocked his $447 billion proposal. The plan included expanding a payroll tax break due to expire at the end of 2011, lifting spending on public works and extending jobless benefits.

Fed officials pledged in August to hold the benchmark interest rate near zero at least through the middle of 2013 so long as joblessness stays high and the inflation outlook is subdued. On Sept. 21, the central bank announced a plan to replace debt in its portfolio with longer-term Treasuries to help cut borrowing costs. Policy makers meet on Nov. 1 and 2.

More Stimulus

Fed Vice Chairman Janet Yellen, Governor Daniel Tarullo and Federal Reserve Bank of New York President William C. Dudley were among the policy makers this month saying additional stimulus by the central bank may be needed.

Some companies continue to pare staff. Whirlpool Corp., the world’s largest maker of household appliances, said it planned to cut more than 5,000 jobs and trimmed its earnings forecast. The workforce reductions will be primarily within North America and Europe and include the closure of the refrigeration manufacturing site in Fort Smith, Arkansas, by mid-2012.

“We are taking necessary actions to address a much more challenging global economic environment,” Chief Executive Officer Jeff Fettig said in a statement on Oct. 28.

One bright spot for the recovery is manufacturing, which accounts for about 12 percent of the economy. A report on Nov. 1 may show the Institute for Supply Management’s factory index rose to 52 this month from 51.6 in September, according to the Bloomberg survey median. A reading above 50 signals expansion.

Economists also projected the Tempe, Arizona-based ISM group’s gauge of service industries, due on Nov. 3, climbed to a five-month high of 53.6 in October.

Bloomberg Survey                         Release    Period    Prior     Median Indicator                 Date               Value    Forecast 

Construct Spending MOM%   11/1     Sept.      1.4%      0.3% ISM Manu Index            11/1      Oct.      51.6      52.0 ISM NonManu Index         11/3      Oct.      53.0      53.6 Factory Orders MOM%       11/3     Sept.     -0.2%     -0.1% Nonfarm Payrolls ,000’s   11/4      Oct.      103        95 Private Payrolls ,000’s   11/4      Oct.      137       125 Manu Payrolls ,000’s      11/4      Oct.      -13        4 Unemploy Rate %           11/4      Oct.      9.1%      9.1%

To contact the reporter on this story: Shobhana Chandra in Washington at        schandra1@bloomberg.net <mailto:schandra1@bloomberg.net>
To contact the editor responsible for this story: Christopher Wellisz at        cwellisz@bloomberg.net <mailto:cwellisz@bloomberg.net>
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RHODE ISLAND CRASH AND BURN

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“We’re looking at a Ponzi scheme that would make Bernie Madoff look like a Boy Scout,” said Mr. Berto, a supply officer for the state.”

the nightmare scenario is that Ms. Raimondo has seen the future of America, and it is Rhode Island. As Wall Street fixates on the financial disaster in Greece, a fiscal wreck is playing out right here. And the odds are that it won’t be the last. Before this is over, many Americans may be forced to rethink what government means at the state and local level.”

EDITOR’S COMMENT: Here’s the Truth: As long as we let Banks control our government, as long we let them define our lives as economic slaves, as long as we let Banks intervene in virtually every transaction of every kind, whether they are helping or not, we have surrendered our freedom and our Republic.

Rhode Island is about to crash and burn. There is no hope for a recovery unless basic policy and expectations change. But they are already headed in the wrong direction. Austerity and cut-back of basic social services like fire, police, emergency services, social services does not and never did reduce costs. It merely shifts them in the eye of the public from the perception of an “entitlement” to creatively accounting for the expenses in other ways. The cost will still be there. If government can’t provide protection and the basics of services that we , as a society, expect as a benefit of being together rather than on our own, then government won’t be there either, but the the expense will still be there, shifted around in various deceptive ways, but the jobs are going to get done.

We have lifted the referees off the playing field and let the players take over. Wall Street does not know about self-restraint although they have long sold that story. Investment Bankers are there to create the movement of money, the creation of money and every time they do that, they make money in fees, and now on trading profits as they create instruments which only insiders understand. So they are able to create instruments, the working s of which are known only to the sellers. The sellers then go out with knowledge of the outcome and bet on that outcome. And the easiest outcome is to make sure the run is pulled out from under us and make money on the way down, and make more money as measures are taken to try and recover.

This is no diatribe against capitalism. It is a call to action to let capitalism work and control W all Street and stop them from cornering every market they touch. It is a call for accountability, and for reparations for those whom they injured when they knowingly deceived the world’s banks, governments, local, state and federal into an “understanding” that was a lie. Now we are financially embarrassed while Wall Street cleverly announces lower earnings and losses — much of which is fake.

They never had the prior earnings because that, in reality was simply theft and fraud proceeds. So the decrease is reflecting smaller opportunities to defraud others. And they never had the losses which are created by hiding the huge “trading profits” they stole out of the system when investors bought bogus bonds that were supposedly backed by debt when nothing was done to tie the bonds and the debt together.

There are answers to this mess, but the question is, are we willing to stop listening to the Banks for solutions? We are going to the perpetrators of crimes against humanity for solutions for the results of those crimes. Let’s stop that and listen to ourselves and each other.

The Little State With a Big Mess

By

CRANSTON, R.I.

ON the night of Sept. 8, Gina M. Raimondo, a financier by trade, rolled up here with news no one wanted to hear: Rhode Island, she declared, was going broke.

Maybe not today, and maybe not tomorrow. But if current trends held, Ms. Raimondo warned, the Ocean State would soon look like Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.

It is not the sort of message you might expect from Ms. Raimondo, a proud daughter of Providence, a successful venture capitalist and, not least, the current general treasurer of Rhode Island. But it is a message worth hearing. The smallest state in the union, it turns out, has a very big debt problem.

After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents. But the scary thing is that no one really knows. The Providence Journal recently tried to count all the municipal pension plans outside the state system and stopped at 155, conceding that it might have missed some. Even the Securities and Exchange Commission is asking questions, including the big one: Are these numbers for real?

“We’re in the fight of our lives for the future of this state,” Ms. Raimondo said in a recent interview. And if the fight is lost? “Either the pension fund runs out of money or cities go bankrupt.”

All of this might seem small in the scheme of national affairs. After all, this is Little Rhody (population: 1,052,567). But the nightmare scenario is that Ms. Raimondo has seen the future of America, and it is Rhode Island. As Wall Street fixates on the financial disaster in Greece, a fiscal wreck is playing out right here. And the odds are that it won’t be the last. Before this is over, many Americans may be forced to rethink what government means at the state and local level.

Economists have talked endlessly about a financial reckoning for the United States, of a moment in the not-so-far-away when the nation’s profligate ways catch up with it. But for Rhode Island, that moment is now. The state has moved to safeguard its bond investors, to avoid being locked out of the credit markets. Last week, the General Assembly went into special session and proposed rolling back benefits for public employees, including those who have already retired. Whether the plan will succeed is anyone’s guess.

Central Falls, a small city north of Providence, didn’t wait for news from the Statehouse. In August, the city filed for bankruptcy rather than keep its pension promises to its retired firefighters and police officers.

Illinois, California, Connecticut, Oklahoma, Michigan — the list of stretched states runs on. In Pennsylvania, the capital city, Harrisburg, filed for bankruptcy earlier this month to avoid having to use prized assets to pay off Wall Street creditors. In New Jersey, Gov. Chris Christie wants to roll back benefits, too.

In most places, as in Rhode Island, the big issue is pensions. By conventional measures, state and local pensions nationwide now face a combined shortfall of about $3 trillion. Officials argue that, by their accounting, the total is far less. But with pensions, hope often triumphs over experience. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent; the real number for the last decade is about 2.4 percent. A phrase that gets thrown around here, à la Rick Perry describing Social Security, is “Ponzi scheme.”

That evening in September, Ms. Raimondo walked into the Cranston Portuguese Club to face yet another angry audience. People like Paul L. Valletta Jr., the head of Local 1363 of the firefighters union.

“I want to get the biggest travesty out of the way here,” Mr. Valletta boomed from the back of the hall. “You’re going after the retirees! In this economic time, how could you possibly take a pension away?”

Someone else in the audience said Rhode Island was reneging on a moral obligation.

Ms. Raimondo, 40, stood her ground. Rhode Island, she said, had a choice: it could pay for schoolbooks, roadwork, care for the elderly and so on, or it could keep every promise to its retirees.

“I would ask you, is it morally right to do nothing, and not provide services to the state’s most vulnerable citizens?” she asked the crowd. “Yes, sir, I think this is moral.”

FOR many Americans, the Ocean State conjures images of Newport mansions and Narragansett chic. The overall reality is more prosaic. Rhode Island today is a place where the roads and bridges rank among the worst in the nation and where jobs are particularly hard to find. Unemployment rose faster during the 2008-9 recession than in any other state. The official jobless rate is now 10.6 percent, versus the national average of 9.1 percent.

The textile mills and jewelry manufacturers that once employed thousands here have dwindled away. The big employers today are in health care and education, both of which rely heavily on government spending that has been drying up.

Many states and cities can credibly say their pension plans are viable, even when those plans are not fully funded. That is because state retirement funds, like Social Security, pay out benefits bit by bit, over many years.

But unlike, say, California, with its large, diverse economy, Rhode Island is so small that there is little margin for error. Leaving the state, to escape its taxes, is almost as easy as moving to the other side of town. Efforts to balance the state budget by shrinking the public work force have left Rhode Island with a problem like the one that plagues General Motors: the state has more public-sector retirees than public-sector workers.

More ominous still, in each of the last 10 years, the state pension fund paid more money to retirees than the fund collected from state employees and taxpayers combined. The fund is shrinking, even though the benefits coming due are growing.

For all the pain here, one important constituency — Wall Street — seems satisfied enough. To reassure its bond investors, Rhode Island passed a special law this year giving them first dibs on tax revenue. In other words, bondholders will be paid, whatever happens. Ms. Raimondo has at times been accused of selling out ordinary Rhode Islanders to Wall Street interests, but she says hard choices must be made.

Ms. Raimondo remembers better times in Rhode Island. She grew up in a suburb of Providence, rode public buses to public schools and played in public parks. Her grandfather, who arrived from Italy, studied English in the evenings at the Providence Public Library. (That library system lost its financing from the city in 2009, closed branches and shortened its hours. These days, it is seldom open after 6 p.m.)

But Ms. Raimondo also learned early on about economic forces at work in her state. When she was in sixth grade, the Bulova watch factory, where her father worked, shut its doors. He was forced to retire early, on a sharply reduced pension; he then juggled part-time jobs.

“You can’t let people think that something’s going to be there if it’s not,” Ms. Raimondo said in an interview in her office in the pillared Statehouse, atop a hill in Providence. No one should be blindsided, she said. If pensions are in trouble, it’s better to deliver the news and give people time to make other plans.

BY any standard, Ms. Raimondo is a high achiever. She graduated from Harvard, collected a law degree from Yale and attended Oxford as a Rhodes scholar. After a stint in New York in the venture capital business, she helped found Rhode Island’s first venture capital firm, Point Judith Capital.

Then, in 2009, with zero political experience, she ran for the state office of treasurer. Although she is a Democrat in a heavily Democratic state, she stood out because she refused to promise that state jobs and pension benefits would be protected no matter what. She won by a landslide, receiving more votes than any other candidate for any state office. Her long-term ambitions, in politics, business or both, are the subject of speculation in Providence.

No sooner had she been sworn in than the S.E.C. called. She learned that the commission was investigating the finances of various cities and states, including Rhode Island, to determine whether bond investors were receiving truthful information. At the heart of the S.E.C. inquiry were pension funds.

Ms. Raimondo said she wasn’t entirely surprised. When she disclosed the investigation, she said: “For months, Rhode Island has been listed among several states with precarious finances. This challenging position is, in part, due to our significant and growing unfunded pension liability.” Her first priority, she vowed, would be to ensure that the numbers were right.

Others made similar pledges before. Rhode Island has been trying to fix its pension system for years; it has announced four “reform” plans since 2005, each of which has claimed to reduce costs for the state and cities. It has raised minimum retirement ages, slowed accrual rates, capped cost-of-living adjustments — but always for the youngest or least senior public workers. Retirees, and workers poised to retire, were spared, even though the numbers clearly showed that reducing payments to retirees was the only sure way to fix things quickly.

In recent months Ms. Raimondo has crisscrossed the state in an attempt to sell a different remedy, one in which everyone takes a hit. Yes, it would hurt. But at least the state would avoid having to come up with yet another plan in a year or two. The defined-benefit structure, very popular with public employees, could survive. Still, the battle lines are clear. Eight public workers’ unions have already sued, saying the pension changes of 2009 and 2010 were illegal.

On a September evening out in North Scituate, at the historic Old Congregational Church, Ms. Raimondo told a crowd about what had happened in Vallejo, Calif. That city filed for bankruptcy in 2009 and, after grueling negotiations, left pensions intact but drastically cut bus service, police patrols and other government functions, along with the pay of the city workers who provide all those services.

“That’s not what we want for Rhode Island,” Ms. Raimondo said. “That’s not the future we want for our children.”

Others in the crowd had their own stories. Several retired teachers said they had played by the rules and sent a part of every paycheck to the pension fund, as required by law. One man demanded pension cuts for state troopers and judges. A woman said her aged father would be unable to buy medicine if the state stopped adjusting his pension for inflation.

“I feel your anger,” Ms. Raimondo told the crowd. “In many ways, I’m angry myself. Many of the shenanigans that went on in past years were just wrong.”

In some ways, the central question is not only what the government owes to pensioners but what citizens owe to one another. From the pews of the church, Cindy Gould, a fourth-grade teacher, said that under the current system, she had 11 years to go until retirement. Under Ms. Raimondo’s plan, she might have to work longer. But, Ms. Gould, 54, said she was willing to do so if that meant the elderly would get the medical care they need.

Since the last recession hit, states and cities around the country have embarked on pension changes, often following the Rhode Island pattern. Benefits for state employees who have not yet been hired are usually the first to be cut. Then come changes for those now on the payroll, often in the form of higher mandatory contributions.

Retirees have mostly been off-limits, until now. In many instances, laws or legal precedent shield them. In the corporate sphere, they are supposed to bear losses only in bankruptcy. But those rules do not apply to states, which may not declare bankruptcy in any case. If a government homes in on retirees, a lawsuit is sure to follow, and the resolution will take years. But Ms. Raimondo says Rhode Island doesn’t have years. This isn’t a question of politics or law, she says, but of simple math. To get the numbers right, Ms. Raimondo quickly assembled a panel of experts that included academics, mayors and union officials. The goal was to figure out what a public pension should be and what Rhode Island could afford. Inflation protection every year, for people who in some cases retired in their 40s, started coming into focus.

Analysts also took a close look at the projected long-term investment return for the pension system: 8.25 percent. Everything rested on hitting that target, but the state’s actuary said there was less than a 30 percent chance that would happen over the next 20 years. The board voted to lower the assumption to 7.5 percent. (Given the recent run in the financial markets, even that figure may seem optimistic.)

As a result of that change, the state’s pension shortfall instantly rose to $9 billion from $7 billion. The unions said Ms. Raimondo had manufactured a crisis.

She denied it. “This is about the truth,” she said, “and about doing the right thing.”

Then, as if on cue, Central Falls declared bankruptcy. The city’s pension fund wasn’t just underfunded. It was completely out of money. A receiver for the city sought court permission to reduce by as much as half the base pensions of retired police officers and firefighters.

Suddenly the pension crisis wasn’t an abstraction any more. The unthinkable had happened, and the odds were that it would happen again unless the state acted quickly.

Other mayors began stepping forward and warning that their communities were on the brink, too. Here in Cranston, Mayor Allan W. Fung said that unless things changed, he would have to eliminate trash collection, services to the elderly and recreation programs for children, as well as reduce the size of the police force and fire department.

Over in Woonsocket, John W. Ward, the president of the City Council, said that all summer parks programs had been eliminated and that teachers were working with larger classes than their contracts allowed. Half of Woonsocket’s streetlights were out because the city couldn’t afford to replace them. His son, daughter-in-law and granddaughter had moved to another state.

“To allow the pension system to remain largely unchanged will make it impossible for Woonsocket, and every other urban community, to survive,” Mr. Ward said.

AT the Portuguese Club in Cranston, José M. Berto raised his hand. At 62, he told Ms. Raimondo, he was on the cusp of retirement.

“We’re looking at a Ponzi scheme that would make Bernie Madoff look like a Boy Scout,” said Mr. Berto, a supply officer for the state.

He asked if Rhode Island’s pension problem was the worst in the nation.

Ms. Raimondo said it was.

“I don’t like her message,” Mr. Berto said after the session. “But she has been honest, forthcoming. We’re in trouble. We’re just in so much trouble.”

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