Kickbacks at Fannie, Freddie Explain a Lot

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

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EDITOR’S COMMENT AND ANALYSIS:  The criminality of the Wall Street banks for the last 15 years has been so widespread and pervasive that it is difficult to imagine a scenario under which such behavior could have gone undetected.  The questions are unending. One particular answer to those questions stands out far above all the other possible answers, to wit: the actions of Wall Street did not go undetected.

The banks and Wall Street in general practically invented the process of due diligence, which is an examination of a proposed deal to determine whether the representations of each side are true, exaggerated or just plain false.

The government-sponsored entities of Fannie and Freddie clearly had the resources to perform extensive due diligence before they put their stamp of approval and guarantee on loans and investments that were clearly not originated or issued in accordance with government guidelines or industry standards.

The same thing may be said for the rating agencies that “got it wrong” or the insurers who presumably evaluated the risk that they were undertaking, and of course the counterparties to the hedge products including but not limited to credit default swaps.

The Wall Street Journal published a number of articles about the close relationship and economic pressure existing between the banks that were underwriting the bogus mortgage bonds and the rating agencies, insurance companies, and counterparties to credit default swaps.  these articles in the Wall Street Journal and other periodicals in mainstream media started back in 2007.

Similar articles appeared in the blogosphere  before that time warning of the coming catastrophe. Anyone with a background similar to mine on Wall Street could easily see that the underwriting of loans to consumers (especially mortgage loans) did not and could not conform to any known standards for risk assessment.

Why would a bank loan money in the knowledge (and indeed the hope) that the money would never be repaid? Why did government-sponsored entities, insurance companies, rating agencies, securities regulators, and counterparties to exotic hedge instruments turn their heads the other way, with full knowledge of the impending disaster? The answer is as old and simple as the history of commerce —  kickbacks, payoffs, bribes and promises of lucrative employment.

The Wall Street Journal told the stories where individuals working for rating agencies and insurance companies were taken on fishing trips and other junkets following which they received threats from the Wall Street banks that if the rating and insurance contracts were not to the liking of the Wall Street banks, the banks would go elsewhere.

Considering the creation of such entities as mortgage electronic registration systems (MERS)  and the financial strength of the banks, it was easy to see that if the banks didn’t get what they want from existing rating agencies and insurance companies they would create their own. Thus in addition to direct payoffs to individuals the management of old established institutions was put under pressure to play ball with Wall Street or go out of business.

The same playbook was used with appraisers who were promised higher fees if they continue to raise the stated value of the real property as they were instructed to do. In 2005 8000 appraisers warned Congress that this would happen. They were ignored. All the information that was needed for due diligence was easily accessible to the institutions that ignored red flags and eventually became part of the largest case of criminal fraud in human history.

If you look at the history of organized crime in this country you will see substantial similarities between the crime syndicates and the behavior of Wall Street. Payoffs and kickbacks to law enforcement, agencies, government officials, and legislators in the governing body of states and Congress became the ultimate protection and immunity from prosecution regardless of the severity of the crime or the damage caused to society.

While it is true that most such syndicates and eventually fail we cannot wait for time to run its course. That is why the demonstrations by occupy Wall Street and others are so important to bring pressure on those who are protecting multinational banks and the people who run them. It is not going to be easy because the amount of money is staggering. Trillions of dollars have been siphoned out of our own economy and the economy of dozens of other countries. With that kind of money you can pay off a lot of people with more money than they ever dreamed of having.

So it should come as no surprise that a “foreclosure specialist” at Fannie Mae was caught picking up $11,200 in cash in a sting operation. The problem here is that we are catching the smallest fish in the pond instead of removing those who control the action. It is interesting that the case reported below involved steering foreclosure listings to particular brokers. By focusing attention on activities far from the core of evil emanating from Wall Street many of us are distracted from looking at the real cause and the real problem not only still exists, but is being renewed as we speak in new schemes not very different from the old schemes.

The arrogance of Wall Street is either well-founded or stupid. At the present time it appears to be well founded. It remains to be seen whether we the people force our representatives, regulators and law enforcement to reject the carrot and stick from Wall Street and return to a nation of laws.

Kickbacks as ‘a natural part of business’ at Fannie Mae alleged,0,6280041.story

Barofsky Challenges Geithner Doctrine: Crushing the Bank Oligopoly

See Financial Times for full article

Editor’s Comment: Barofsky’s characterization of the Geithner doctrine is accurate and appalling at the same time. The decision was made across the board that the stability and illusion of financial health on Wall Street was and is more important than anything else is what led to a prolonged recession and, from the reports being published it could be another 10-20 years before we work our way out of this mess.

President Obama made TRUTH a cornerstone of his campaign but the public wasn’t told the truth at any point. In fact the government was actively complicit in creating illusion and fraud. In doing so, they have created a precedent that will inevitably lead to bank behavior that will escalate the fraud and the damage on the world’s economies.

A creature of Wall Street, Geithner assumed that the money making machines on Wall Street were essential to stabilizing the financial system. He merely took over where Hank Paulson left off. At the point where the investment banks were converted to commercial banks, THAT was the time to strike with receivers, resolution of the megabanks that were holding trillions out of the U.S. economy and doing the same around the world.

The assumption by Paulson was that with a capital infusion the banks would lend more thus propping up the economy. It never happened. Instead people got notices in the mail freezing their home equity lines of credit and lowering their borrowing limits on all sorts of loans including credit cards. If the proof is in the pudding, then Geithner and Paulson were dead wrong.

The fraud extended from the closing tables where fictitious loans were documented and real loans were undocumented, to the diversion of investor money from the investment pools and to the investment banks. In short, the money was sucked out of the economy and the government, regulators and courts are either not doing doing anything about it, or making it easier for banks to get away with it, encouraging the moral hazard that occurs when greed fails to meet consequences.

The devastating effects on millions of homeowners and tens of millions of consumers, social services and taxpayers are not even on the table. Victims of fraud, pension funds, sovereign wealth funds, and individual retirement funds were stuck paying for Wall Street lies.

The same fraud — appraisal fraud, ratings fraud, and fraud in the inducement, fraud in the execution occurred with each of the borrowers, who never saw the benefit of the bargain they thought they had reached with what turned out to be a series of nominees (fictitious lenders). The Geithner doctrine stopped the government from intervening, stopped anything that smelled of restitution for the pension funds, dismissed the claims and losses of homeowners as though they didn’t matter and prevented an influx of wealth and capital that was badly needed by the economy.

The problem is that the central bankers have been scared into accepting a shadow banking system that is literally ten times the size of the real banking system. It’s a lie 10:1. The banks we call healthy are in fact subject to closure and receivership because the assets they are showing on their balance sheets are not worth nearly what they are reporting — and they never will be unless we all expand the money supply by ten times the current world monetary supplies.

But the existence of another curative solution is systematically disregarded on “moral”or “practical grounds.” Following the law, the banks should be forced into receivership if they don’t have the capital necessary to stay open, based upon the inflated values that started with appraisal fraud and ratings fraud, and now is sitting in bank balance sheets as accounting fraud.

By clawing back as much money as possible for investors in the bogus mortgage bonds, the amount owed to the investors would be reduced by payment instead of loss. And account receivables to each investor would be correspondingly reduced. And the accounts payable by the borrowers would be correspondingly reduced due directly to payment instead of forgiveness. It is simple arithmetic.

The banking oligopoly would be crushed and government could go back to being influenced by much smaller competing special interests. The pensioners would be assured that their pensions will keep coming, and homeowners could be restored to their homes or and possibly receive cash payments or credits for payment on the accounts receivable thus providing an enormous fiscal stimulus to an economy that is 70% based upon consumer spending.

If I understand this, along with Neil Barofsky and a gaggle of economists and financiers, why won’t the government even consider it?

Neil Barofsky: Geithner Doctrine Lives on in Libor Scandal

By Neil Barofsky, the former special inspector-general of the troubled asset relief programme and is currently a senior fellow at NYU School of Law. He is the author of ‘Bailout’, released in paperback this week.

Now that Tim Geithner has resigned as US Treasury secretary, it is time to survey the damage wrought from four years of his approach to the financial crisis. The “Geithner doctrine” made the preservation of the largest banks, no matter the consequences, a top priority of the US government. Aside from moral hazard, it has also meant the perversion of the US criminal justice system. The US faces a two-tiered system of justice that, if left unchecked by the incoming Treasury and regulatory teams, all but assures more excessive risk-taking, more crime and more crises. (e.s.)

The recent parade of banking scandals, such as the manipulation of Libor rates by Barclays, Royal Bank of Scotland and other major banks, can be traced back to the lax system of regulation before the financial crisis – and the weak response once disaster struck.

Take the response of the New York Federal Reserve to Barclays’ admission in 2008 that it was submitting false Libor rates and was not alone in doing so. Mr Geithner’s response was to in effect bury the tip. He sent a memo to the Bank of England suggesting some changes to the rate-setting process and then convened a meeting of regulators where he reportedly described only the risk but not the actual manipulation of the rate. He then put the government imprimatur on the rate via bailout programmes. His inaction helped permit a global crime to continue for another year.

When it was UBS’s turn to settle its Libor charges, even though a significant amount of the illegal activity took place at the parent company level, only a Japanese subsidiary was required to take a plea. Eric Holder, US attorney-general, demonstrated his embrace of the Geithner doctrine (a phrase coined by blogger Yves Smith) in explaining the UBS decision. He said that a more aggressive stance against the parent company could have a negative “impact on the stability of the financial markets around the world”.

This week we saw the latest instalment of the saga. In fining RBS £390m, the DoJ only indicted one of the bank’s Asian subsidiaries, avoiding the more damaging result that would have stemmed from charging the parent company.

Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail.

The lack of robust enforcement is of course not limited to the Libor scandal. It was seen in the recent settlement talks with HSBC, when Treasury officials reportedly pressed the DoJ to consider the broad economic consequences that would follow an indictment. After hearing these arguments the DoJ chose not to criminally charge HSBC.

And, of course, it is seen in the stunning dearth of criminal prosecutions arising out of the crisis. This was all but preordained given who the government turned to when the crisis struck: the same captured regulators who had blindly advanced bankers’ self-serving calls for a “light touch” before the crisis and who unsurprisingly embraced the Geithner doctrine afterwards. Having done so, of course, there would be no criminal prosecutions while the banks still teetered on the brink of collapse. The risk of causing them to fail, and thereby undoing all of the bailout efforts, was too high.

But that these arguments continue to resonate with officials in 2013 shows that the Geithner doctrine, perhaps justified by the conditions in 2008-09, has planted deep roots in our system of government.

This forbearance will have potentially devastating long-term effects, as each settlement on favourable terms reinforces the perception that, for a select group of executives and institutions, crime pays. It is only rational. They know that they will get to keep all of the ill-gotten profits if they go undetected, and on the small chance that they’re caught, most probably only the shareholders will pay – and only a relatively minor fine at that. The lack of meaningful consequences for those committing these frauds encourages future fraudulent conduct. Ultimately, the financial crisis was a game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.

Breaking those incentives requires ditching the Geithner doctrine, which has led to the banks becoming even larger and more systemically significant than they were before the crisis. As a result, the DoJ’s fear of destabilising the global economy through aggressive prosecutions may indeed be well-founded. But that must not be the end of the story.

To reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all.

Yves Smith Nails Obama on Failed Housing Policies

Editor’s Note: Yves wrote the piece I was going to write this morning. See link below. The salient points to me are mentioned below with comments. The principal point I would make is that Obama has been listening to people who are listening to Wall Street. The Wall Street spin is that this is just another housing bust. It isn’t. It is massive Ponzi scheme that was well-planned and executed with precision, sucking the life out of our economy. Normally Ponzi schemes (see Drier or Madoff) don’t get big enough to have that effect.

The bottom line is that the banks took money from investors under false pretenses and diverted the proceeds into their own pockets.

In order to cover that up they created false documents with false lenders and false secured parties, false creditors and false beneficiaries. They borrowed money from the lenders, then borrowed the identity of the lenders to declare it was the banks who were losing money from mortgage “defaults”, to receive proceeds of payouts from subservicers, payouts from insurance, payouts from credit default swaps and payouts from federal bailouts.

The plain fact is that under normal black letter law, the notes and mortgages were faked at origination based upon the false premise that the actual lender was named or protected. That was a lie. The loans are not secured and the investors have a mess on their hands figuring out who has what claim to what loan so they are suing the investment banks instead of going after the homeowners and striking deals that would undermine the hundreds of trillions of dollars in bets out there that is masquerading as shadow banking.

Instead the investors and the homeowners — the only true parties in interest — got screwed and the administration has yet to correct that basic injustice.

  1.  The proposals for the housing fix were predicated upon the fraud and other illegals activities of the parties in a mythological “securitization” scheme. They were not “unpopular” as Klein observes in the news. They were rejected because wall Street obviously rejected any plan that would take away their ill-gotten gains.
  2. Combat servicing operations using five times the staff of ordinary servicers are doing the work just fine. It was the lack of oversight and regulation that allowed the obfuscation of the truth by the servicers created for the sole purpose of covering up the fraud. These servicers never report the status of the loan receivable to anyone and they probably don’t have access to the loan receivable accounts. In fact, it is quite probable that no loan receivable account actually exists on the books of any creditor who loaned money through the vehicle of bogus mortgage bonds.
  3. Servicers were set up to foreclose, not service and not to assist in modification or settlement. Wall Street needed the foreclosure to be able to say to the investor, OK now the loan and the loss is yours, since we have drained all value out of it. Sorry.
  4. The administration had a ready tool available: enforcing the REMIC statute. They chose not to do this despite the obvious facts in the public domain that the banks were routinely ignoring both the law and the documents inducing investors to invest in non-existent bonds based upon non-existent loans.
  5. The CFPC had not trouble issuing a regulation that defined all parties as subject to regulation. Why did it take the formation of a new agency to do that? Treasury officials from the administration who argued that they had no authority over servicers were wrong and if they had done any due diligence, it would have been obvious that the banks were blowing smoke up their behinds.
  6. There are hundreds of billions of dollars, perhaps trillions of dollars in lost tax revenue that the ITS is not pursuing because the the policy of coddling the scam artists who manufactured this crisis. The deficit exists in large part because the administration has not pursued all available revenue, the bulk of which would have made a huge difference in the dynamics of the American economy and the election.
  7. Refusing the help the  victims by characterizing some of them as undeserving borrowers is like saying that a bank robber should be granted leniency because the bank he robbed was run poorly.
  8. The real issue is the solvency of the large banks which most economists and even bankers agree are in fact too big to manage, far too big to regulate. The administration is taking the view that even if the assets on the balance sheets of the big banks are fake, we can’t let them fail because they would bring the entire system down. That is Wall Street spin. Iceland and other places around the world have proven that is simply not true. The other 7,000 banks in this country would easily be able to pick up the pieces.

Yves Smith on Obama Failed Housing Policies

Haze and Malaise Again

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Editor’s Notes:

The article below speaks plainly, although at some length about the role of money and the role of Wall Street, the need for regulation and where we should look for remedies for what ails our society.

While the author is entirely correct from a theoretical standpoint, the fact that corruption and abuse emanates from Wall Street is conveniently side-stepped. So I conclude that it is a planted article written by someone who understands too well what went wrong.

To begin with money is not merely a social construct with the sort of neutral value or nature that the author portrays. Money has become the dominant religion in America. In other countries the presence or absence of money is not nearly as important as the services and protection of government that the citizens expect. Here money has assumed a religious component in two respects — first, in order for it to exist and be useful, people must believe that the paper or numbers on their bank statement are real purchasing power and second, Americans have accepted a unique perspective on money extending far beyond the concept of respect for those who have made a lot of money. They are like gods above our laws and whose wrath is to be feared. 

The purchasing power of the dollar has been declining since the Wall Street scandal began. The can was kicked down the road a few times because the victims of Wall Street’s antics in Europe are reacting appropriately to the rug being pulled out from under them. So the dollar looked safer than the other currencies that are in chaos or transition now. But everyone knows that Wall Street caused this chaos, and they did it because our government pulled the referees off the playing field leaving only the bullies to make up their own rules. The religious fervor with which our policies are dominated by money and banking to the exclusion of services and protection of our citizens is appalling and precisely why the large banks must crash and be taken apart with pieces going to the real players in the banking system that do fit the description of banks in the article below.

Our failure to take responsibility for not regulating the banks and letting them into the rooms where the levers of power are pulled is precisely why the belief of everyone other than Americans who don’t trust the dollar or the U. S. will ultimately topple the dollar as the world’s reserve currency. And, when any credible alternative to the dollar emerges, everyone including rich Americans will flock to the new currency. It’s strictly business. The U.S. has so debased its currency, its economic foundation and its infrastructure for power, transportation and public safety that we don’t stand a chance.

Where other countries are wrangling with the problems of delivery of safety and opportunity to their citizens, the American government is still arguing about ” class warfare.” The discussion here is not on point and while Europe looks more chaotic now, they will look a great deal better later because they did deal with the real issues of people and the purpose of government.

Excusing Wall Street from lying, cheating, and corrupting our society and marketplace through the sorrowful and stern pronouncement that private banks have one goal which is to make money for their owners — begs the issue of the long term viability of any enterprise whose only goal is to make money. As the Citizens United case told us, corporations are fictions,  but they are legal fictions entitled to act like a legal person under the law. True enough. And people who commit wrongs are ordinarily held accountable for anti-social behavior. In America they are not held accountable and the victims are seen as bugs who should be squashed with every step.

Bullying, emanating from the power that we gave up when we started worshipping money, is how the regulations were removed, how the judicial system allowed millions of fake foreclosures to go through on the premise faked defaults, and why even the Massachusetts Supreme Court while admitting the wrongful behavior declined to apply it retroactively. Those who steal far less money are forced into making restitution to diminish the loss of their liberty. Here the loss of liberty is not on the table and restitution is thus left to innovative homeowners and attorneys who can outwit the new world order of money and property. 

The corruption of our title caused by MERS is a perfect example. The only valid way of handling  the situation is to void all MERS transactions. Instead we now have a hybrid of transactions laced with corrupted title and claims that are now sitting in the files of the county recorder’s office. So the choices we have are that we accept title as it is which rewards thieves, or we just convert our system to MERS and caveat emptor as to title. Either way we will never know the real status of our title or our mortgages. 

These things won’t happen in countries that see money as a vehicle or tool. And that fact is going to isolate the U.S. from the rest of the world. A marketplace where the certainty of transactions completed and the title is always subject to clouds or defects is a third world unstable country. Welcome to America, 2012 — unless we do something about it.

Misunderstanding Banking Is Bankrupting                 The Entire Society

Cullen Roche, Pragmatic Capitalism

Much has been written since the JP Morgan trading fiasco and the big Congressional hearing last week – some of it enlightening, but most of it confusing some of the basic elements about banking and money in general.  I was reading this piece yesterday on Bloomberg about the responsibilities and the “job” of banks.  It got me thinking about how badly people confuse the role of banks in our system.  So I thought I’d chime in.

Banks are, at their core, profit seeking establishments that serve as the lifeblood of a complex payments system in the monetary system.  Banks make a profit by having liabilities that are less expensive than their assets (well, it’s more complex than that, but let’s keep things simple here).   They compete for deposits and business by offering various products and services.  In the USA banks are almost exclusively owned by private shareholders (as in, not the government or public sector).   Like most other private profit seeking entities the goal of a bank is not just to service the smooth facilitation of this payments system, but to to make money for its owners.  Most of the time, these two functions do not conflict, but at times the risks banks take can indeed jeopardize the functioning of the system.  Despite all the bad press that banks receive the progress surrounding their various services have actually had a positive impact on the world (for the most part).  Bank accounts, credit cards, debit cards, investment services, business hedging services , etc are all elements that make the institution of money more useful and more convenient.  Seeing as money is a tool and a social construct it makes sense that banks have evolved products and services to help facilitate the ease of its usage (all in the name of competition and profit generation, of course).

But we have to ask ourselves the question again.  What is Wall Street’s job?  Wall Street’s job is simple.  It is to increase earnings for their shareholders.  It is not to provide jobs for the private sector.  It is not to make sure the US economy is running smoothly.  It is not to make sure you feel good about your day to day life.  It is to generate a profit for its owners.  This is the essence of private banking.  To generate a profit.  But banks play a unique role in our capitalist system.  I’ve explained before that banks are not the engine of capitalism.  They are simply the oil in the machine.  As the oil in our machine, banks must be functioning smoothly in order for the machine as a whole to be functioning smoothly.  So when big banks do bad things that threaten their well-being parts of the system begin to malfunction.  And sometimes when these mistakes are big enough the contagion leads to the entire machine malfunctioning and requiring a major repair (hello 2008!).

But make no mistake, your local bank is not your best friend or a public purpose serving charity.  For instance, when a bank extends a mortgage (a word literally meaning “death security pledge” from the latin root “mortuus” for death and germanic “security pledge”) they are not doing you some charitable service to help you buy your home.  They are rating your credit risk and evaluating you as a potential profit engine for their shareholders.  That might not be the most pleasant way to think about it, but it is what it is.  A bank is not a charity.  It does not really care if your mortgage results in jobs or happiness for you.  Of course, it would be great if this did because that might result in more future business, but the bank does not need these things from you in order to generate a profit.  It really just wants to manage its risks in a way that helps to generate a profit for their shareholders without excessive risk.  Obviously, the debtor finds the mortgage advantageous, but don’t confuse this service for charity work.  It’s just good old fashioned profit seeking and offering a service where one is needed (in this case, the debtor being able to obtain money they could not otherwise currently obtain).

The business of private banking is largely about risk management.  A good bank manages risk by understanding how the various business components threaten the stability of the overall bank and align with this goal of generating a profit.   And as we ripped down the regulations structuring the amount of risk these institutions can and cannot take (in addition to making the risk taking business more complex) we realized that banks just weren’t very good risk managers.  This is not surprising to anyone who has been around markets for a while.  Investors and people in general are irrational, inefficient and poorly suited to manage the risks associated with complex dynamical systems.  So, for some reason, we all seem shocked when these profit seeking entities take excessive risks and prove to be poor risk managers.  And since we would never blame ourselves (the home buyers for instance) we blame the banking institutions.  And we write silly things about how they’re not doing their “job” or how they’re all out to screw the whole world.  It’s just not that black and white.

From a social perspective, this is all an extraordinarily interesting discussion.  Money is a social construct and a simple tool that helps us achieve certain ends within our society.  But money is something that is to be earned within our society (or utilized by the government in a democratic manner that is in-line with our goals as a society).  So there’s an interesting reality at work within the banking system.  Banks, as loan originators, act as a way to obtain access to money for someone who has not yet earned money.  And in return, they are charged a fee for “borrowing” this money that is technically not yet theirs.  If there was no interest fee attached to loans the demand for this money would obviously be through the roof and it would render it worthless.  Likewise, if banks make credit standards too lax, fail to properly asses risks and make credit plentiful they can create an imbalance within the system (by lending to people who can’t service their debt) that threatens the viability of the monetary system through the risk of excessive debt, defaults and inevitable de-leveraging (as we’re seeing now).  In this world of “what have you done for me lately” and “get rich quick” (or more often, appear rich quick!) you have a messy concoction of borrowers who want their McMansion YESTERDAY and lenders who are willing to give you the money to obtain that McMansion TODAY so they can generate a bigger profit TOMORROW.

To me, none of this is a conflict though and does not mean the system, at its core is corrupted or failing.  Banks are private profit seeking entities who play an important role in our society, but are not public servants and should not be public servants (a government managed loan system would almost certainly be a disaster waiting to happen).  Obtaining money is a privilege, not a right.  And a private profit seeking banking system serves to regulate the ability to obtain money before one has necessarily earned it (though there are certainly instances, such as some forms of government spending, where money is rightly distributed by political choice).  But because banks deal in distributing the social construct that binds our society together we have a responsibility to oversee that money so as to bring the interests of these profit seekers in-line with the interests of society as a whole.  So to me, it is not the capitalist profit motive that is evil here.  Nor is it the greedy consumption driven actions of the borrowers that is evil.  These are crucial elements of a healthy functioning monetary system.

I think we need to recognize that money is a social construct that is to be protected by the society that creates it.  But we must also understand that, while private profit seeking banks are a superior alternative to a government managed loan system, these banks will inevitably be poor risk managers at points during the business cycle.  There is plenty of blame to go around for the current debacle that is the US economy.  Home owners were greedy in the run-up and the profit seeking banks were quick to turn that extra demand into higher earnings per share.  This production/consumption component is a healthy functioning part of the capitalist machine.   But when it involves the very oil that greases the engine we must understand that this is a component of the economy that requires great oversight and better regulation.  I fear we still do not have this despite the recent changes.  And the result is that this boom/bust cycle is likely to continue causing people to believe the very essence of capitalism is corrupted when in fact, it is the users and their misunderstandings who have abused the system.  In failing to properly oversee the institution of money we have allowed it to fail us.

In sum, it is the misunderstanding of the essence of money that is evil here, not the system itself.  We have misunderstood the essence of money as a tool and a social construct and how it relates to modern banking.  And in doing so, we have allowed both borrowers and lenders to abuse that social construct.  And with 8% unemployment and a floundering economy it is not just the banking system that appears bankrupt, but our society as a whole.  Better oversight of the institution of money might not be able to fix our current problems, but it can certainly ensure that future generations don’t have to suffer through these same events.







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EDITOR’S NOTE: It is time to start filing complaints with every agency regulating banks, notaries, servicers and lawyers. Consumer complaints to the Attorney general’s office would also be advisable. If you have good grounds (speak to a lawyer in the jurisdiction in which your property is located, then get the complaint form and file it. There is a growing concern in these agencies that their do-nothing policy is backfiring on them and endangering their jobs.



Bank of America, National Association Charlotte, NC C&D 4/13/2011
OCC: 2011-048 DOCKET NUMBER AA-EC-11-12

2 Bank of America, National Association Charlotte, NC FA 2/9/2005
2005-10 2/27/2007 OCC: 2007-012 DOCKET NUMBER AA-EC-04-35

3 Bank of America, National Association Charlotte, NC FA 12/7/2010
OCC: 2010-239 NO DOCKET#

4 First National Bank Of America East Lansing, MI FA 8/13/2001
2001-57 8/28/2003 OCC: 2003-133 NO DOCKET#


1 Wells Fargo Bank, National Association Sioux Falls, SD BCMP
$115,000 6/27/2005 OCC: 2005-77

2 Wells Fargo Bank, National Association Sioux Falls, SD BCMP
$51,205 5/8/2009 OCC: 2009-063

3 Wells Fargo Bank, National Association Sioux Falls, SD C&D 4/13/2011 OCC: 2011-051 DOCKET NUMBER: AA-EC-11-19


Civil Money Penalty Orders; Formal Agreements, Restitution Orders

JPMorgan Chase Bank, National Association, Columbus OH 7/6/2011

2011-108 JP Morgan Chase Bank, National Association, Columbus OH 7/6/2011

Searched OCC Enforcement Actions Against JPM 1/1/2000 – 8/2000

OCC PROMISES “These lists are NOT guaranteed to be comprehensive ”

1 JPMorgan Chase Bank, National Association Columbus, OH BCMP
$2,000,000 6/14/2011 OCC: 2011-094 Docket Number: AA-EC-11-57

2 JPMorgan Chase Bank, National Association Columbus, OH BCMP
$22,000,000 7/6/2011 OCC: 2011-105 No DocketNumber

3 JPMorgan Chase Bank, National Association Columbus, OH C&D
Cease & Desist 4/13/2011 OCC: 2011-050 DOCKET# AA-EC-11-15

4 JPMorgan Chase Bank, National Association Columbus, OH FA 7/6/2011 OCC:2011-108 No Docket #

Enforcement Action Types:

C&D Cease & Desist Order
Banking organizations subject to cease and desist orders are required to take actions or follow proscriptions in the orders. 12 U.S.C. § 1818(b).

BCMP Civil Money Penalty Order
Banking organizations subject to civil money penalties must pay fines. 12 U.S.C. § 1818(i)(2)

FA Formal Agreements
Banking organizations that are subject to formal agreements agree to take actions or follow proscriptions in the written agreement. 12 U.S.C. § 1818(b).

Banking organizations that are subject to formal agreements agree to take actions or follow proscriptions in the written agreement. 12 U.S.C. § 1818(b).

Notices Filed (NFB): Banking organizations against whom an “OCC Complaint” (in the form of a Notice of Charges and/or Notice of Civil Money Penalty Assessment) is filed have an opportunity to litigate the matter before an Administrative Law Judge. 12 USC § 1818(b) (Notice of Charges) and 12 USC 1818(i) (Notice of Civil Money Penalty Assessment)

Banking organizations that are subject to prompt corrective action directives are required to take actions or to follow proscriptions that are required or imposed by the OCC, under section 38 of the FDI Act. 12 U.S.C. §1831o.

(SASO): Banking organizations that are subject to safety and soundness orders are required to take actions or to follow proscriptions that are imposed by the OCC under section 39 of the FDI Act. 12 U.S.C. §1831p-1.

Banking organizations that are engaged in securities activities, such as municipal securities dealers, government securities dealers, or transfer agents, can be subject to various OCC sanctions, including censures, suspensions, bars and/or restitution, pursuant to the federal securities laws

•1829 Notifications (1829): IAPs who have been convicted of, or entered into a pretrial diversion or similar program for certain criminal offenses are notified by letter that they are prohibited from participating in the affairs of any insured depository institution without prior regulatory or judicial approval by operation of law. 12 U.S.C. § 1829.

•Cease & Desist Orders against Individuals (PC&D): IAPs who are subject to cease and desist orders are required to take actions or follow proscriptions in the orders. 12 U.S.C. § 1818(b).

•Civil Money Penalty Orders against Individuals (CMP): IAPs who are subject to civil money penalties must pay fines. 12 U.S.C. § 1818(i)(2).

•Formal Agreements (FA): IAPs that are subject to formal agreements agree to take actions or follow proscriptions in the written agreement. 12 U.S.C. § 1818(b).

•Notices Filed (NFI): IAPs against whom an “OCC Complaint” (in the form of a Notice of Charges, Notice of Intent to Prohibit/Remove, and/or Notice of Civil Money Penalty Assessment) is filed have an opportunity to litigate the matter before an Administrative Law Judge. 12 USC 1818(b) (Notice of Charges); 12 USC 1818(e) (Notice of intent to Prohibit/Remove); and 12 USC § 1818(i) (Notice of Civil Money Penalty Assessment).

•Removal/Prohibition Orders (REM): IAPs who are subject to prohibition orders are prohibited from participating in the affairs of any insured depository institution without prior regulatory approval. 12 U.S.C. §§ 1818(e) or 1818(g).

•Restitution Orders (REST): IAPs who are subject to restitution orders are required to reimburse banking organizations or the Federal Deposit Insurance Corporation for losses caused or for unjust enrichment. 12 U.S.C. §1818(b).

•Securities Enforcement Actions against Individuals (SEI): IAPs who are affiliated with banking organizations engaged in securities activities, such as municipal securities dealers, government securities dealers or transfer agents, can be subject to various OCC sanctions, including censures, suspensions, bars and/or restitution, pursuant to the federal securities laws.

Simon JOhnson: Regulation is a Myth

EDITOR’S NOTE: Johnson is a leading economist who has been a consistent critic of anyone who fails to face reality. Applying his knowledge as an economist form the International Monetary Fund, his point is that we have a bank oligopoly in control of our society and that the TBTF banks are running the show. I agree

March 31, 2011, 5:00 am

The Myth of Resolution Authority

Today's Economist

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Senator Ted Kaufman, Democrat of Delaware, has been highly skeptical about whether the federal government's power to shut banks can be applied to global megabanks unless an international accord is reached.Andrew Harrer/Bloomberg News Senator Ted Kaufman, Democrat of Delaware, has been highly skeptical about whether the federal government’s power to shut banks can be applied to global megabanks, unless an international accord is reached.

Back when it really mattered – last spring, during the debate over the Dodd-Frank financial regulation – Senator Ted Kaufman, Democrat of Delaware, emphasized repeatedly on the Senate floor that the proposed “resolution authority” (the power to shut banks) was an illusion.

His point was that extending the established Federal Deposit Insurance Corporation powers for “resolving” financial institutions to include global megabanks simply could not work.

At the time, Senator Kaufman’s objections were dismissed by “experts” from both the official sector and the private sector. Now these same people (or their close colleagues) are falling over themselves to argue that resolution cannot work for the country’s giant bank holding companies. The implication, which these officials and bankers still cannot grasp, is that we need much higher capital requirements for systemically important financial institutions.

Writing in the March 29 edition of National Journal, Michael Hirsh quotes a “senior Federal Reserve Board regulator” as saying: “Citibank is a $1.8 trillion company, in 171 countries with 550 clearance and settlement systems,” and “We think we’re going to effectively resolve that using Dodd-Frank? Good luck!”

The regulator’s point is correct. The F.D.I.C. can close small and medium-size banks in an orderly manner, protecting depositors while imposing losses on shareholders and even senior creditors. But to imagine that it can do the same for a very big bank strains credulity.

And to argue that such a resolution authority can work for any bank with significant cross-border operations is simply at odds with the legal facts. The resolution authority granted under Dodd-Frank is purely domestic; that is, it applies only within the United States.

Congress cannot readily make laws that apply in other countries. A cross-border resolution authority would require either agreement among the various governments involved or some sort of synchronization for the relevant parts of commercial bankruptcy codes and procedures.

There are no indications that such arrangements will be made, or that serious intergovernmental efforts are under way to create any kind of cross-border resolution authority — for example, within the Group of 20.

For more than a decade, the International Monetary Fund has been advising that the euro zone adopt some sort of cross-border resolution mechanism. But European (and other) governments do not want to take this kind of step.

Rightly or wrongly, they do not want to credibly commit to how they would handle large-scale financial failure –- preferring instead to rely on various kinds of ad hoc and spontaneous measures.

I have checked these facts directly and recently with top Wall Street lawyers, with leading thinkers from left and right on financial issues (in the United States, Europe and elsewhere), and with responsible officials from the United States and other countries. That Senator Kaufman was correct is now affirmed on all sides.

Even leading figures within the financial sector now acknowledge this. Mr. Hirsch quotes E. Gerald Corrigan, former president of the Federal Reserve Bank of New York and an executive at Goldman Sachs since the 1990s: “In my judgment, as best as I can recount history, not just the last three years but the history of mankind, I can’t think of a single case where we were able execute the orderly wind-down of a systemically important institution – especially one with an international footprint.”

It is most unfortunate that Mr. Corrigan did not make that point last year – for example, when he (and I) testified before the Senate Banking Committee on the Volcker Rule in February 2010.

In fact, rather tragically in retrospect, Mr. Corrigan was among those arguing most articulately that some form of Enhanced Resolution Authority (as he called it) could actually handle the failure of large integrated financial groups (again, his terminology).

The “resolution authority” approach to dealing with very big banks has, in effect, failed before it even started.

And standard commercial bankruptcy for global megabanks is not an appealing option -– as argued by Anat Admati in The New York Times’ Room for Debate in January.

The only people I have met who are pleased with the Lehman bankruptcy are bankruptcy lawyers. Originally estimated at more than $900 million, bankruptcy fees for Lehman Brothers are now forecast to top $2 billion. (The AmLaw Daily describes this in detail.)

It’s too late to reopen the Dodd-Frank debate –- and a global resolution authority is a chimera in any case. But it’s not too late to affect policies still under development. The lack of a meaningful resolution authority further strengthens the logic of larger capital requirements, as these would provide stronger buffers against bank insolvency.

The Federal Reserve has yet to announce the percentage of equity financing – i.e., capital – that will be required for systemically important financial institutions (the so-called S.I.F.I.’s). Under Basel III, national regulators set an additional S.I.F.I. capital buffer. The Swiss National Bank is requiring 19 percent capital and the Bank of England is moving in the same direction.

Yet there are clear signs that the Fed’s thinking –- both at the policy level and at the technical level –- is falling behind this curve.

This time around, officials should listen to Senator Kaufman. In his capacity this year as chairman of the Congressional Oversight Panel for the Troubled Assets Relief Program (for example, in this hearing), he has been arguing consistently and forcefully for higher capital requirements.

Lessons from Japan and Mortgage Meltdown

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

EDITOR’S NOTE: FLOYD NORRIS OF THE NY TIMES HAS WRITTEN WHAT I WAS THINKING. The question is whether we will learn from the incidents and be very aggressive in dismantling a system that poses this kind of risk. We have always heard anti-regulators say the same thing: crying wolf is no basis for making law or policy. But the same people use scare tactics to achieve their aim of anti-regulation.

Even the word “regulation” has become a rallying point of anti-government ideology. But people who rally to those concepts are the same people who rely on regulation that favors  them. The point here is that if you take the regulators (referees) off the playing field there is no inhibition preventing the players from performing the most outlandish brutal acts they can think of to achieve their aims. Even distracting or compromising the integrity of regulation poses the same threat or even greater because it lulls people into the false impression that the government is on the job, when in fact, the industry is running the whole show.


Each case — a collapse of house prices and a cascade of problems threatening a large release of radiation — was viewed as so improbable that it could be virtually ignored in considering risks. Those who counseled otherwise were viewed as alarmists.”

“In the years preceding each meltdown, the very act of reducing apparent risks may have increased actual risks. In the world of finance, there was a general acceptance of the idea that banks and their regulators had developed sophisticated risk models to prevent a disaster. As lending grew more reckless, there was confidence that no real risks were being taken.”

“In the world of finance, the assumption that safeguards would prevent disaster led people to believe it was safe to borrow heavily. There had, after all, been a prolonged period in which markets were not turbulent and there were only profits, not losses, to be realized from taking on the additional risk of leverage. As the economist Hyman Minsky wrote years earlier, “stability is destabilizing” because it encourages confidence that benign circumstances will endure.”

Japan’s Meltdown and the Global Economy’s


Four years ago, there were fears of a financial meltdown — a term borrowed from the nuclear power industry. Now there are fears of a real meltdown.

Comparing the two events may risk seeming insensitive to the rising human toll in northern Japan, but there are similarities in causation. In each case, overconfidence born of experience led to increased risks once a disaster unfolded.

Fortunately, there is reason to hope that the worst fears will not be realized. When — let us hope it is not “if” — the radiation releases are controlled, Japan can begin to rebuild and the worst economic fears could prove to be as exaggerated as the depression fears that paralyzed financial markets two years ago.

In the years preceding each meltdown, the very act of reducing apparent risks may have increased actual risks. In the world of finance, there was a general acceptance of the idea that banks and their regulators had developed sophisticated risk models to prevent a disaster. As lending grew more reckless, there was confidence that no real risks were being taken.

In Japan, the risks of earthquake and tsunami were well known, and believed to have been dealt with. An earthquake could damage a nuclear plant and its vital cooling process if power to the reactor were cut off. So backup generators were built and batteries installed to provide power even if the generator did not immediately kick in. A tsunami could cause flooding. So huge sea walls were built to prevent floods.

All the precautions had worked in previous earthquakes, and that history was reassuring.

Unfortunately, it appears that those building the nuclear plants assumed that the risk from tsunamis had been eliminated by the precautions that others took. The backup generators were behind the flood walls, but they were not on high ground, as would have seemed necessary without faith in the walls. So the generators flooded and the cooling systems broke down. That led to radiation releases. Whether it will lead to something much worse is still unknown.

In the world of finance, the assumption that safeguards would prevent disaster led people to believe it was safe to borrow heavily. There had, after all, been a prolonged period in which markets were not turbulent and there were only profits, not losses, to be realized from taking on the additional risk of leverage. As the economist Hyman Minsky wrote years earlier, “stability is destabilizing” because it encourages confidence that benign circumstances will endure.

We learned from the financial crisis that the comfortable assurances that authorities knew what to do were misplaced. Central bankers had insisted that it was futile and unnecessary for them to look out for bubbles, since they knew how to deal with the results if one did burst. The 2001 recession after the collapse of the technology stock bubble was both short and mild. The Federal Reserve emerged triumphant, its wisdom and capabilities widely admired.

But this time it turned out that easing monetary policy was not nearly enough, and the United States will be dealing for years with problems caused by homeowners who are — to use another term that seems newly inappropriate — underwater. Many, but not all, of those once-confident central bankers now say they were wrong.

It has become clear that the Japanese nuclear industry was ill equipped to deal with the current disaster. Otherwise the cooling systems would have continued functioning even if the earthquake had disabled plants. The cost — in lives and yen — is as yet unknown.

Each case — a collapse of house prices and a cascade of problems threatening a large release of radiation — was viewed as so improbable that it could be virtually ignored in considering risks. Those who counseled otherwise were viewed as alarmists.

What was not considered sufficiently, perhaps, is just how serious an unlikely risk may be. If it is bad enough, the risk may not be worth taking, no matter how good the odds. There is a reason people do not play Russian roulette, even if the odds are highly favorable. It is a game you lose only once.

At a time when brave workers are risking death from radiation, when whole communities have been destroyed by the tsunami and survivors are suffering in makeshift shelters, it seems inhuman to even suggest that of the two meltdowns, the financial one was worse. Bank failures do not kill people.

In economic terms, however, the financial crisis was extraordinary. It caused world gross domestic product to fall 1.5 percent in 2009, according to World Bank calculations. Nothing like that happened during the severe downturns of the 1970s and 1980s. The early estimates of the impact of the disaster in Japan suggest that economic damages will be far less, even though Japan accounts for almost 9 percent of world G.D.P.

But those damages will be significant, and that significance is only increased by the fact the financial crisis weakened developed economies and left governments with vastly increased debts. Even assuming that the radiation damage does not permanently scar a significant part of Japan, that country’s output will fall sharply for a time, and that time could be extended if rolling blackouts remain necessary. Some of that slack could be made up by non-Japanese companies, but in some industries they will be hampered by a shortage of needed components from Japan.

We owe the concept of “just-in-time” inventories to Japan. Now that practice could make the temporary damage to world growth all the more severe. Shortages of some products could drive up prices, making inflation numbers around the world that much worse.

It is, in other words, a recipe for 1970s style stagflation, at least briefly.

Japan’s plight could be worsened by the fact that many Japanese did not buy earthquake insurance, and most such policies that do exist pay half or less of the damage if a home is destroyed. Through a complicated arrangement, the Japanese government is responsible for much of the insurance liability, and if the affected areas are to be rebuilt much of the cost will fall to the government, whether or not the properties had insurance.

Fortunately, there are few countries as well equipped as Japan for the task.

That statement may seem surprising given the attention paid to the large Japanese government debt, which has led to almost hysterical warnings in some circles about an eventual default. How can this overextended government borrow more money?

As it happens, Japan owes the money almost entirely to itself. The private sector has ample resources. Moreover, Japan borrows in yen, the same currency the government can print. Default worries are absurd.

On March 10, the day before the earthquake and tsunami struck, Japanese five-year bonds yielded 0.57 percent. A week later, the yield had fallen to 0.51 percent. That is hardly the sign of fearful investors. Instead, it reflects a flight to safety.

In addition, Japan has the industrial base to undertake rebuilding. It will not need to import workers or expertise.

Finally, the Japanese economy is anything but overheated. There is plenty of spare capacity. Michael T. Darda, the chief economist of MKM Partners, a Connecticut-based research firm, points out that Japan’s G.D.P. is now lower than it was in the early 1990s, when expressed in nominal yen. Adjusted for deflation, there has been some growth, but not much.

If ever there was an economy that needed some stimulus, this is the one. The Bank of Japan now has a good reason to print money.

“Considering Japan’s limited capacity to take on more debt due to its already high debt/G.D.P. ratio, and impending pressures on domestic savings from an aging population,” Mr. Darda wrote, “reflation and debt monetization seem like the most likely path forward.”

For now, it seems reasonable to think that ordinary Japanese may cut back on spending for nonessentials, much as Americans did after Sept. 11, causing further weakness in the economy. Hoarding of some goods — among them milk and gasoline — appears to be happening in areas far removed from the crisis.

The economy is unlikely to stabilize until the nuclear situation is clearly under control, essential goods readily available and survivors living in conditions worthy of a wealthy nation. Only then will the country be in a position to assess how badly it has been hurt and begin the recovery process.

This tragedy has destroyed many lives and much wealth. There is a risk that the government’s response will anger rather than unify the Japanese people, and that a crisis careering out of control will only worsen a reputation of incompetence and indecision that has grown as the country’s economy stumbled through the last two decades.

But there is a chance that the crisis could encourage a national unity of purpose, as Sept. 11 did for a time in the United States. If the Japanese government can maintain that sense of unity and show a new ability to act decisively and effectively, an economic disaster need not be part of the horrible legacy of the March 11 earthquake.


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


Representative Stephen Lynch, Democrat of Massachusetts, warned: “You think regulation is costly? How about the $7 trillion we just lost from not regulating the derivatives markets.”

EDITOR’S NOTE: Our institutions are compromised with moral hazard every way you turn. The FDA, running mostly on money from fees paid by drug and medical supply companies (who then turn around and hire the same FDA people who approve so-called blockbuster drugs) supposedly reviews test results and approves labeling without doing any independent testing of their own. And people die. The federal and state agencies regulating banks, insurance companies, oil companies all run the same way — funded by fees paid by the companies they regulate and then the people who were the regulators end up employed by the companies they were regulating.

Somehow we seem to expect that this “system” will provide us with protection from thieves and those indifferent to whether we live or die, as long as they make a profit. This isn’t a system. It is a scam on the American public. Except that with the financial crisis it ended up affecting the world. With Congress regulating its own ethics, and with money being the principal religion in Washington, D.C. it is a huge challenge to even offer a conjecture of a favorable outcome.

In the mortgage mess, it was the rating agencies who were funded by fees paid by investment bankers who told the rating agency how to analyze the “low-risk” derivatives and give them AAA ratings — while at the same time the same investment firms had paid lobbyists to make sure they were not regulated at all when it came to derivatives and credit default swaps and other “custom” exotic financial products. It was the appraisers who were funded by fees generated by “lenders” (most of whom were merely acting as mortgage brokers) in order to generate fee revenue for merely pretending to underwrite loans. It is quite natural that the appraisals and ratings were so favorable to the scheme — the people who were doing the appraising and ratings were being paid to see things the way their “benefactors” wanted them to see it.

The two “protections” — ratings for investors and appraisals for homeowners — were reasonably relied upon to their combined detriment. What was promoted as an independent third party evaluation became an in-house marketing tool. So the investigations and the charges against individuals will skim the surface just enough for government to say they did something but not so much to make sure it never happens again. The larger problem is that each iteration of this cycle ends up in a worse debacle than the one before it.

So it should come as no small surprise that the SEC operates the same way. Funded by fees paid by companies who are regulated by the SEC, the SEC spawns future employees of the law firms and investment banking firms that are the subject or should be subjected to scrutiny and compliance with applicable laws, rules and regulations. Not content with virtually total control over the dominant currency of the world — collateralized debt obligations — and not content with being virtually unregulated, the banks are now seeking to choke off the last vestige of any hope that our financial system will ever regain stature. In a word, they seek to stop funding from Congress just to make sure there is nobody who legally touch them. In other words, the mega banks are willing to pay the fees to the U.S. Government (fees meant for SEC enforcement), provided the government doesn’t use that money to fund the SEC which is the only real agency with teeth.

Running on Empty


The new financial regulation law gave the Securities and Exchange Commission a big new job to police hedge funds, derivatives dealers and credit agencies — some of the main culprits in the financial meltdown. It authorized raising the commission’s budget to $2.25 billion, over five years. Now Congress is threatening to deny the S.E.C. the necessary financing to carry out its duties.

What makes this even more absurd is that the S.E.C. doesn’t cost taxpayers a dime. Its budget, like that of other financial regulators, is covered by fees assessed on Wall Street firms. While the other regulators decide their own financing needs, Congress sets the S.E.C.’s budget.

The agency’s budget was due to rise $200 million this year to $1.3 billion, but hasn’t because of the across-the-board freeze in discretionary spending. If House Republicans get their way and roll back spending to 2008 levels, the S.E.C. budget would fall to $906 million.

Mary Schapiro, the chairwoman of the S.E.C., warns that more budget cutting will hamstring its ability to carry out its usual duties of policing increasingly complex securities markets — let alone discharge its new responsibilities. A group of lawyers representing the financial companies regulated by the S.E.C. sent a letter to lawmakers urging them to increase the commission’s budget. Otherwise, they warn, the markets will lose investors’ trust. “The regulator of our capital markets is running almost on empty,” they wrote.

The S.E.C. needs better technology and more employees. S.E.C. officials have pointed out that it took the commission three months to understand what happened during last May’s “flash crash,” because it took that long for its computers to handle all the trading data. The number of investment advisers that the S.E.C. must police has grown by half over the past decade and trading volume has doubled. In the years running up to the financial crisis, the commission’s staff declined.

Ms. Schapiro planned to hire 800 employees this year to beef up enforcement and meet the agency’s new duties. Those plans are on hold. The commission has also started cutting back on investigations and is considering canceling technology upgrades, including new data management systems and a new digital forensics lab.

The S.E.C.’s recent record was tarnished by its failure to uncover Bernard Madoff’s gargantuan Ponzi scheme, and it was caught off guard by the collapse of Bear Stearns and Lehman Brothers. The Bush administration’s lax approach to regulation should bear much of the blame. But a lack of qualified investigators was also a big problem. If the commission is to do its job right, it needs the resources to do it.

Regulation and Prosecution on Wall Street

In my opinion, the growing anger at Wall Street is giving Lloyd Blankfein and Jamie Dimon another chance at misdirection. They are using the current popular angst to steer the debate into whether derivatives and synthetic CDOs should be banned. In the end they will win that debate, and they should win it. What they should lose is their freedom in a judicial forum where they are prosecuted like Ken Lay and Bernie Ebbers, and where it is proven beyond a reasonable doubt that they committed criminal fraud and securities fraud.

The fact that we had a bad experience with derivatives is not a reason to ban them. The fact that they were abused and that people were cheated and that the entire financial system was undermined is another story.

There is nothing wrong with any transaction if the playing field is relatively level and if the imbalances are addressed by law and regulation. That is what the Truth in lending Act is all about and the Real Estate Settlement Procedures Act is meant to address.

When the big guys use their superior knowledge to trick consumers into deadly transactions, the big guys should pay the price. We have the SEC to take care of that on the other end protecting investors. Licensing laws and administrative sanctions against those licensed by state or federal agencies are well-equipped to step in and deal with these abuses. But they didn’t.

Complaints sent to the Federal Trade Commission, Office of Thrift Supervision and Office of the Controller of the Currency have gone unheeded even to this day. The only answer you get is similar to the answer we get from sending short or long Qualified Written requests or Debt Validation Letters — short shrift of legitimate complaints that by law are required to be investigated, verified (not just restated) and corrected.

The inconvenient truth is that our regulators were not employing the tools given to them. Everyone knew it. In part it was because of undue influence and in part it was because they were deferring to larger “smarter” institutions like the Federal Reserve. But the biggest reason the Federal and state agencies didn’t do their job is that we, as a society, bought into the non-regulation philosophy which has failed so spectacularly. We didn’t support appropriate funding, training and resources for these agencies. If we had done what we should have done — elect people who were committed to government protecting and serving the people — this mess would never have mushroomed to the point where Wall Street issued proprietary currency equal to 12 times times the amount of government currency — all in a span only 25 years.

The simple truth is that there was nothing inherently wrong about securitizing residential mortgages. In theory, spreading the risk out created much greater liquidity for small and large consumers of credit. What was wrong and remains wrong is that the use of these instruments was for an illegal purpose — to defraud investors and borrowers alike. And they did it in an illegal manner — by denying and withholding information essential to the decision-making on both sides of these transactions.

On one side you had a creditor who was willing to loan money for residential mortgages under terms and conditions that were “explained” in mind-numbing prospectuses and guaranteed by “insurance” that wasn’t really insurance and which was appraised by government licensed rating agencies who issued investment grade appraisals that were so wrong that it strains credibility to assume they didn’t know they were part of a larger criminal enterprise. This creditor lent money and received a bond, whose terms referenced other documents in the securitization chain that imposed conditions, co-obligors, and protections to the intermediaries that completely changed the loans that were signed by borrowers far, far away.

On the other side, you had borrowers, homeowners, who put their largest or only investment in the world at risk in a transaction that they could not understand because the information required to understand it was withheld. But even Alan Greenspan admitted he didn’t understand the transactions with the help of 100 PhD’s. These borrowers relied upon the sanctity of an underwriting process that no longer existed. Verification of property value, quality, affordability etc. were no longer in the mix.

These borrowers undertook an obligation to repay and signed a note that was evidence of the obligation but was payable to someone other than the party(ies) who loaned the money. That note was only a tiny part of the obligation to the creditor as evidenced by the mortgage backed bond they received.

The creditor was bilked out of a dollar and contrary to the expectations of the creditor, less than 2/3 of each dollar was actually used to fund mortgages. The creditor never actually received or even saw the note but ownership of the note was conveyed to the investor along with many other terms — terms that were entirely different from the note the borrower signed as to interest payments, principal, fees etc.

In between were the dozens of intermediaries who treated the documentation like a hot potato because nobody wanted to be stuck with it — knowing that misrepresentation and bad appraisals were the root of the instruments signed by creditors and debtors. These intermediaries kept possession of the note, kept the security instrument and kept the money and most of the insurance proceeds, received the federal bailout and now are proceeding to repackage the junk they already sold and through “resecuritization” are selling them again.

In my opinion there is nothing theoretically wrong with anything described above except for one thing — they lied. Fraud is fraud. If they had educated the creditors and debtors, if they had complied with local property and contract law, if they had been transparent disclosing everything much the same way as the prospectus in an IPO, then two things are true: (a) transactions that were completed would have been done because both sides knew the risks and were willing to take the loss and (b) transactions that were NOT completed (which would have been nearly all of them) would been rejected because the costs were too high, the risks were too high, and the consequences too dire.

But none of that happened because we allowed our regulators to be co-opted by the industries they were supposed to regulate. So tell your legislators and government agencies that you’ll allow them the resources to properly regulate and that you expect to hold them and the elected officials who put them there fully accountable.

Don’t throw the baby out with the bathwater. It isn’t derivatives that are wrong it is the people who used them and the way they were used that is wrong. Killing derivatives would lead to stagnation of what once was our greatest asset — the engine of liquidity for access to capital that has kept our economy growing.

Bully Bonus: $11.7 Billion JPM

“Each year they will launder more money back into the system and back onto the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.



This is the start of the REST of the scheme. Gradually repatriating income that was previously undeclared. $23.7 trillion was skimmed largely by the four horsemen of the Apocalypse. All that taxpayer money, in cash, obligations and guarantees went out because these banks were “too big to fail” and we accepted the proposition that they were failing when in fact they were sitting on more money than the government had. The “loss” was an accounting loss allowable by changes to generally accepted accounting principles (GAAP), deregulation and failure of the SEC to enforce the most basic elements of disclosure. They called it “off-balance sheet” transactions.

Now they they are laundering the money back in and giving themselves bonuses out of the taxpayer money they obtained through misrepresentation of their REAL financial status.

Each year they will launder more money back into the system and back on the books so it becomes “on balance sheet” but the explanation of where the profits came from will be double-talk. But as long as we let them do it, they will be using the proceeds of purse snatching from the little people and wholesale robbery from the the taxpayers to pretend that they have higher and higher earnings, make their stock more and more valuable.

They have no trouble taking their bonuses in stock. They know the stock will be ever higher and higher and the price earnings ratios will go up, multiplying the effect of the higher earnings. They know it just as surely as they knew the loans would fail, that their influence in Washington was strong enough with the Bush administration to get free money for fake losses, and that their tacit agreement to let non-creditors sue on defective loans as hush money would keep the cycle going.

President Obama told the big four that the only thing between them and pitchforks from the populace was him and he was doing his best to maintain order. But they don’t get it and they won’t get it because they think, perhaps correctly, that they will get away with the multiple phase scheme to drain America dry. Get out the pitchforks or watch your country dry up into a memory.

What does this mean for litigation and discovery. Plenty. The offshore SIV’s are the vehicle through which this money was sequestered and they are the vehicles through which the money is being laundered back in. That is why you must emphasize that you want the WHOLE accounting and not just the part about the records of the servicer, master servicer or some other intermediary in the securitization chain. They will try to keep the court’s attention on the non-payment of the borrower while you are trying to get a full accounting of the money from the start of the transaction all the way from debtor through creditor.

To use a simple analogy, suppose you had a five year loan and you prepaid the principal at the rate of $1,000 per month for the first three years.

Now they come in and want the court only to look at the total obligation and the fact that you missed the last three payments but they refuse to allow you access to an accounting that would prove the total principal has been reduced by your previous prepayments of $36,00 in addition to the regular amortization contained in your regular monthly payments.

Now add the fact that after the closing they realized that they had overcharged you on points for the loan and other charges, and they sent you a letter to that effect but the credit doesn’t show up in the demand, their notice of default of their foreclosure.

You have a right to demand discovery based upon your allegation that there were was money paid and that there are adjustments due in the accounting and that they have only offered a partial accounting, their demand letter was incorrect and so was their notice of default. What I am suggesting is that all of the above may be true PLUS there may have been debits and credits arising from third party transactions with participants in the securitization chain that you are only just learning about and you have a  right to discovery about that too.

REMEMBER: At this stage you are RAISING the question of fact, not proving it. You don’t have to be right to be entitled to discovery. You only have to make an allegation and it helps to have an expert declaration to go with it. Your goal is not to get the Judge to agree that these people can’t foreclose. Your goal is to get to the truth about your loan, the parties and all the money that exchanged hands. At the conclusion of discovery, properly conducted, and with the help of an expert, the case could very well be over.

New York Times

January 16, 2010

JPMorgan Chase Earns $11.7 Billion

JPMorgan Chase kicked off what is expected to be a robust — and controversial — reporting season for the nation’s banks on Friday with news that its profit and pay for 2009 soared.

In a remarkable rebound from the depths of the financial crisis, JPMorgan earned $11.7 billion last year, more than double its profit in 2008, and generated record revenue. The bank earned $3.3 billion in the fourth quarter alone.

Those cheery figures were accompanied by news that JPMorgan had earmarked $26.9 billion to compensate its workers, much of which will be paid out as bonuses. That is up about 18 percent, with employees, on average, earning about $129,000.

Workers in JPMorgan’s investment bank, on average, earned roughly $380,000 each. Top producers, however, expect to collect multimillion-dollar paychecks.

The strong results — coming a day after the Obama administration, to howls from Wall Street, announced plans to tax big banks to recoup some of the money the government expects to lose from bailing out the financial system — underscored the gaping divide between the financial industry and the many ordinary Americans who are still waiting for an economic recovery.

Over the next week or so, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are expected to report similar surges in pay when they release their year-end numbers.

But not all the news from JPMorgan Chase was good. Signs of lingering weakness in its consumer banking business unnerved Wall Street and drove down its share price along with those of other banks.

Chase’s consumer businesses are still hemorrhaging money. Chase Card Services, its big credit card unit, lost $2.23 billion in 2009 and is unlikely to turn a profit this year. Chase retail services eked out a $97 million profit for 2009, though it posted a $399 million loss in the fourth quarter. To try to stop the bleeding, the bank agreed to temporarily modify about 600,000 mortgages. Only about 89,000 of those adjustments have been made permanent. In a statementon Friday, Jamie Dimon, the chairman and chief executive of JPMorgan, said that bank “fell short” of its earnings potential and remained cautious about 2010 considering that the job and housing markets continued to be weak.

“We don’t have visibility much beyond the middle of this year and much will depend on how the economy behaves,” Michael J. Cavanagh, the bank’s finance chief, said in a conference call with journalists. Across the industry, analysts expect investment banking revenue to moderate this year and tighter regulations to dampen profit. As consumers and businesses continue to hunker down, lending has also fallen.

Just as it did throughout 2009, JPMorgan Chase pulled off a quarterly profit after the strong performance of its investment bank helped offset large losses on mortgages and credit cards. The bank set aside another $1.9 billion for its consumer loan loss reserves — a hefty sum, but less than in previous periods.

That could be a sign that bank executives are more comfortable that the economy may be turning a corner. The bank has now stockpiled more than $32.5 billion to cover future losses. Still, Mr. Dimon warned that the economy was still too fragile to declare that the worst was over, though he hinted that things might stabilize toward the middle of the year. “We want to see a real recovery, just in case you have another dip down,” he said in a conference call with investors. Earlier, Mr. Cavanagh said that the bank hoped to restore the dividend to 75 cents or $1 by the middle of 2010, from 20 cents at present.

Over all, JPMorgan said 2009 net income rose to $11.7 billion, or $2.26 a share. That compares with a profit of $5.6 billion, or $1.35 a share, during 2008, when panic gripped the industry. Revenue grew to a record $108.6 billion, up 49 percent.

JPMorgan has emerged from the financial crisis with renewed swagger. Unlike several other banking chiefs, Mr. Dimon has entered 2010 with his reputation relatively unscathed. Indeed, he is regarded on Wall Street and in Washington as a pillar of the industry. On Wednesday on Capitol Hill, during a hearing of the government panel charged with examining the causes of the financial crisis, Mr. Dimon avoided the grilling given to Lloyd C. Blankfein, the head of Goldman Sachs. Mr. Dimon was also the only banker to publicly oppose the administration’s proposed tax on the largest financial companies.

Moreover, JPMorgan appears have taken advantage of the financial crisis to expand its consumer lending business and vault to the top of the investment banking charts, including a top-flight ranking as a fee-earner. Over all, the investment bank posted a $6.9 billion profit for 2009 after a $1.2 billion loss in 2008 when the bank took huge charges on soured mortgage investments and buyout loans.

The division posted strong trading revenue, though well short of the blow-out profits during the first half of the year when the markets were in constant flux. The business of arranging financing for corporations and advising on deals fell off in the last part of the year, though Mr. Cavanagh said there were signs of a rebound in the first two weeks of January.

As the investment bank’s income surged, the amount of money set aside for compensation in that division rose by almost one-third, to about $9.3 billion for 2009. But JPMorgan officials cut the portion of revenue they put in the bonus pool by almost half from last year.

The division, which employs about 25,000 people, reduced the share of revenue going to the compensation pool, to 37 percent by midyear, from 40 percent in the first quarter. The share fell to 11 percent in the fourth quarter because of the impact of the British bonus tax and the greater use of stock awards.

Bank officials have said that they needed to reward the firm’s standout performance, but to show restraint before a public outraged over banker pay. Other Wall Street firms may make similarly large adjustments.

Chase’s corporate bank, meanwhile, booked a $1.3 billion profit this year, even as it recorded losses on commercial real estate loans. Still, that represents a smaller portion of the bank’s overall balance sheet compared with many regional and community lenders. JPMorgan’s asset management business and treasury services units each booked similar profits for 2009.

House Fails on Cramdown in Chap 13

The outlook is bleak in terms of government providing for the common welfare and common defense. We have a coup d’etat that is a fait accomplit. The job is finished. Wall Street and the insurance companies are running the country. So it is up to us to go with the flow and have them wondering about the old saying “Be careful what you wish for.” If they want to run the country they will find they can’t just run PART of it. This is not a pick and choose situation.

If the country is being run for the benefit of the powerful financial sectors and other businesses too big to fail, they are going to find themselves in the same position that every government encounters — disatisfied people who start taking matters into their own hands. If we are going to ignore the protections contained in the constitution and the ideals stated in the Declaration of Independence, then anyone can.

Law enforcement has already shown a willingness to stop serving foreclosure papers. Everyone knows this is wrong. The Titans, who didn’t even show up at Obama’s meeting (again) believe in their arrogance that they can continue their reign of domestic terror forever.

As a student of history and in particular Mr. Jefferson, I personally am quite satisfied that government or the exercise of governmental power ONLY exists by virtue of the collective consent of the governed. The time comes (it always does) when internal and external forces converge on these newly annointed autocrats, and dislodge them from their positions.

This country was created to provide multiple vehicles to allow those transitions to occur without violence, chaos and extremism. As each one of these paths is shut down, the autocrats risk more than their power and privilege.

It seems that despite the fact that we have a Democratic controlled House and Senate, we have further proof that as Sen. Dick Durbin (D-IL) has said “the banks own the place.” The Bankruptcy courts despite not being given the “cramdown tool” in Chap 13 have continued to produce some of the better rulings by simply enforcing black letter property law, particularly with regard to an identifiable real party in interest being joined to foreclosure proceedings. Here again we have further evidence that answers to the foreclosure problem are not going to come from the Legislative or Executive branches of government. The battle will be waged in the courtroom.

Eric Holder, US Attorney General recently said before the Senate Judiciary Committee, “When I appeared before this committee in January for my confirmation hearing, I laid out several goals for my time as Attorney General: to protect the security of the American people, restore the integrity of the Department of Justice, reinvigorate the Department’s traditional mission, and most of all, to make decisions based on the facts and the law, with no regard for politics.”

Well perhaps Mr. Holder can take a sabbatical from worrying about due process for Guantanamo detainees and spend a little time addressing the absence of due process that homeowners are experiencing, paricularly in non-judicial venues like California, Arizona and Nevada. The objective of non-judicial foreclosure was judicial economy, it was not meant to be an avenue to do an “end around” due process.

There is no greater security than HOME for most people. The greatest injustice or illegal seizure of property is still occuring in states that allow non-judicial foreclosure. When combined with the shortage of competent legal representation for homeowners in both judicial and non-judicial states not to mention the cost of obtaining any kind of represenation has resulted in thousands of Pro Se litigants having to fend for themselves.

WASHINGTON (AP) — The House has rejected an effort to expand a Wall Street regulation bill with mortgage relief that would let debt-ridden homeowners reduce their payments in bankruptcy court. The vote was 241-188 to reject.

The provision would have revived a previous bill that passed the House but later failed in the Senate. Democrats hoped that by inserting the provision in the regulatory legislation they would have had another opportunity to make it law. Aiding homeowners through bankruptcy had been a key feature of President Barack Obama’s foreclosure fighting proposal, but the president did not push for it.

Banks and credit unions have lobbied against the bankruptcy measure. They say it would force a flood of bankruptcy filings and ultimately drive up mortgage rates.

Bush Administration Saw It Coming, Was Told to do Something, Did Nothing

AP IMPACT: US diluted loan rules before crash

Gov’t rejected tougher mortgage rules in 2005

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

“Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

“These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages,” David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

The administration’s blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

  • _Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
  • _Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
  • _Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.
  • _Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
  • _Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
  • Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature.

“In hindsight, it was spot on,” said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Federal regulators were especially concerned about mortgages known as “option ARMs,” which allow borrowers to make payments so low that mortgage debt actually increases every month. But banking executives accused the government of overreacting.

Bankers said such loans might be risky when approved with no money down or without ensuring buyers have jobs but such risk could be managed without government intervention.

“An open market will mean that different institutions will develop different methodologies for achieving this goal,” Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in a March 2006.

Countrywide Financial Corp., at the time the nation’s largest mortgage lender, agreed. The proposal “appears excessive and will inhibit future innovation in the marketplace,” said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes. Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they shouldn’t have to double-check the brokers.

“It is not our role to be the regulator for the third-party lenders,” wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

California-based IndyMac also criticized regulators for not recognizing the track record of interest-only loans and option ARMs, which accounted for 70 percent of IndyMac’s 2005 mortgage portfolio. This summer, the government seized IndyMac and will pay an estimated $9 billion to ensure customers don’t lose their deposits.

Last week, Downey Savings joined the growing list of failed banks. The problem: About 52 percent of its mortgage portfolio was tied up in risky option ARMs, which in 2006 Downey insisted were safe — maybe even safer than traditional 30-year mortgages.

“To conclude that ‘nontraditional’ equates to higher risk does not appropriately balance risk and compensating factors of these products,” said Lillian Gavin, the bank’s chief credit officer.

At least some regulators didn’t buy it. The comptroller of the currency, John C. Dugan, was among the first to sound the alarm in mid-2005. Speaking to a consumer advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, would soon be unable to afford their payments, he said. And if housing prices declined, homeowners wouldn’t even be able to sell their way out of the mess.

It sounded simple, but “people kind of looked at us regulators as old-fashioned,” said Brown, the agency’s former deputy comptroller.

Diane Casey-Landry, of the American Bankers Association, said the industry feared a two-tiered system in which banks had to follow rules that mortgage brokers did not. She said opposition was based on the banks’ best information.

“You’re looking at a decline in real estate values that was never contemplated,” she said.

Some saw problems coming. Community groups and even some in the mortgage business, like Welch, warned regulators not to ease their rules.

“We expect to see a huge increase in defaults, delinquencies and foreclosures as a result of the over selling of these products,” Kevin Stein, associate director of the California Reinvestment Coalition, wrote to regulators in 2006. The group advocates on housing and banking issues for low-income and minority residents.

The government’s banking agencies spent nearly a year debating the rules, which required unanimous agreement among the OCC, Federal Deposit Insurance Corp., Federal Reserve, and the Office of Thrift Supervision — agencies that sometimes don’t agree.

The Fed, for instance, was reluctant under Alan Greenspan to heavily regulate lending. Similarly, the Office of Thrift Supervision, an arm of the Treasury Department that regulated many in the subprime mortgage market, worried that restricting certain mortgages would hurt banks and consumers.

Grovetta Gardineer, OTS managing director for corporate and international activities, said the 2005 proposal “attempted to send an alarm bell that these products are bad.” After hearing from banks, she said, regulators were persuaded that the loans themselves were not problematic as long as banks managed the risk. She disputes the notion that the rules were weakened.

In the past year, with Congress scrambling to stanch the bleeding in the financial industry, regulators have tightened rules on risky mortgages.

Congress is considering further tightening, including some of the same proposals abandoned years ago

Healthcare Madness and Private Taxation

Healthcare Madness: Stem Cell Furor

You must remember the simple American health care formula: if insurance covers it, it gets done. Insurance only covers it if the overall revenue and profit picture for big Pharma and insurance is maintained or enhanced.

The big LIE in the United States that we have all subscribed to until recently is that single payer systems would vastly increase our costs and decrease the quality and availability of health care producing long waits for appointments and treatments. 

The TRUTH is that of all the countries in the world, the United States pays more per citizen for health care and many, if not most, of its population is ineligible to receive it. Long waits for appointments and treatments under most HMOs exceed any waiting period in England, France and Canada. Check it out. 

In short, we are already paying for socialized medicine but we are not getting it — just like the education we pay for that is not delivered to our children and requires us to seek private school alternatives. 

And under Medicare Part D, the public has been frightened into taking a plan that drains more money from them than before — AND they can’t shop around for better prices. Worse yet, most people after going to the doctor under Medicare get billed for the part that Medicare didn’t pay. One can only wonder why AARP endorsed Part D. 

AND that secondary insurance they pay for every month somehow never seems to cover the shortfall, which is MORE expense (private tax) to the citizen providing a benefit that is 90% oriented to the sellers of insurance, the providers of drugs, and medical service providers. There again we are paying for socialized medicine, and not getting it. It is capitalist medicine disguised as socialized medicine. How about the real thing, since we are already paying for it?

The problem with ANY proposal that keeps the insurance companies in the mix is that while it makes it look like we are not going to a political extreme” (socialized medicine), we are going to pay for it anyway, and guarantee that prices will remain high, costs of providing healthy care will remain out of reach and will burden taxpayers with far more than they are paying right now. 

We are already paying double what we should be paying. All of the difference is going into the pockets of large corporations controlling our government policies. It is not politically feasible for any candidate to come right out and say we should convert to a National Healthcare System because too many people have blindly accepted the disinformation disseminated by drug companies, insurance companies and medical associations. So until we educate ourselves we are stuck with this ridiculous system.

EDITOR’S COMMENT: STEM CELL IS A HOT TOPIC. I knew that when I wrote the piece.

The comment from “watchdogonscience” contains inaccurate facts resulting from disinformation from the pharmaceutical companies and from lobbyists working for medical service providers. Cell treatment isn’t the end of disease or dying, but it is the largest advance in medical care we have achieved in human history

Only some of the bone marrow transplant has worked and none of it has worked for lung disorders. It also is quite troublesome on the issue of rejection when the marrow comes from another human being. It is not yet “quite successful” because of a variety of absurd and sometimes dangerous side effects (cancer etc). 

Embryonic stem cell research, still in its infancy is far more promising under the latest advances. It avoids the pitfalls and pain and risks of bone marrow extraction, and allows true differentiation into specific organs which in many countries has resulted in the regeneration of organ function and sometimes the organ itself. 

The comment about the drug companies wanting stem cell therapy is wrong. Drug companies want any therapy that requires purchases from them on a regular basis at prices controlled by the seller in protocols that are written by the sellers themselves and which medical providers blindly follow. 

This is why almost every recent medication requires a constant regimen for life rather than a defined course of treatment over a specified period of time. The oath to “first do no harm” is completely ignored by the drug companies because it doesn’t apply to them. And doctors, afraid of liability, must stay with “conventional protocols, which as it turns out were written by the drug companies. It is a perverse cycle. Thus they want gene therapy but not stem cells. 

Stem cell therapy and other forms of cell therapy from animals threatens drug revenue far more than any regulation or other external event. By getting Bush to veto stem cells in this country the drug companies shot themselves in the foot. The protocol is now developed in the UK, China, Venezuela, Costa Rica, Mexico and several other countries. 

The price structure has been developed without any input from the major drug companies. Hence a person receiving a successful stem cell treatment and eliminating, for example, diabetes from their current health condition is likely to avoid more than $200,000 in health care costs mostly including medications from pharmaceutical companies. The cost of stem cell therapy varies from $15,000 to about $45,000 and the cells themselves cost only around $7,000. 

It is not hard to see why the pharmaceutical companies are putting out disinformation about stem cells and stoking the religious fires to maintain opposition. 

Stem cell therapy, far from “making the pharmaceutical companies richer” threatens their legislative and market dominance. And insurance companies and government health care programs, faced with decreasing health care costs, will be under pressure to reduce premiums. Thus revenues of insurance companies are threatened as well. And fewer visits to doctors’ offices, urgent care and hospitals does the same.  

You must remember the simple American health care formula: if insurance covers it, it gets done. Insurance only covers it if the overall revenue and profit picture for big Pharma and insurance is maintained or enhanced. 

The TRUTH is that the United States pays more per citizen for health care and many, if not most, of the population is ineligible to receive it. Long waits for appointments and treatments under most HMOs exceed any waiting period in England, France and Canada. Check it out. In short, we are already paying for socialized medicine but we are not getting it — just like the education we pay for that is done delivered to our children and requires us to seek private school alternatives.

Mortgage Meltdown and Credit Crisis Measurements and Collateral Damage: $41.5 trillion

That’s Trillion with a “T”

  • Most people agree that we can’t correct the problems that are still unfolding unless we admit the severity of the problem. The current estimates of a maximum of $450 billion damage are absolute lies designed to give reassurance to people who could and probably should cut and run. As long as we deny what is really happening, the real solutions will not emerge. The current group of proposals can be be all logged in under one word : patchwork. 
  • The real solution is comprehensive political action together with regulatory reform that goes in an entirely different direction than allowing money to be controlled more by political force of individuals in power with their own private agendas.
  • Here is a one page summary of the measurements of the actual damages caused by the sub-prime mortgage crisis, coupled with the effect of the sub-prime mortgage crisis on all mortgages and housing, coupled with the effect on inflation and private losses rippling out from the collapse of liquidity, credit, jobs, and social services. Some fo this information was taken from the BBC News Website.
  • Mortgage Meltdown: The real measurements and statistics 

Mortgage Meltdown: New Treasury Blueprint for Greater Disaster

You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S. Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy. Some immediate thoughts about the reports on the new plan to be unveiled on Monday by Secretary Paulson:

  • There is being nothing being reported that indicates the plan seeks to help out anyone now: soften the meltdown, slow the foreclosures, stop the evictions, restore confidence in the financial markets, restore consumer confidence, restore balance sheets, increase liquidity without enlarging the money supply, reverse the slide of the dollar, or reverse the rising tide of inflation. It is all about future bubbles and busts which may or may not look like the one we have, the one before (.com bubble), or the one that is in process (foreign exchange and commodities).
  • There is nothing being reported that indicates the plan seeks to increase transparency for the public so that they are well-informed and educated about “new” financial products whose design is to create confusion through complexity and profit through back-doors that undermine the American Citizen, U.S. Economy, and U.S. foreign policy.
  • There is nothing being reported that indicates the plan seeks to enhance the fundamentals of our economic system, which is currently based upon profligate consumer spending, pressures to increase consumer debt, and steering citizens away from savings. It is interesting that the very same people who “ideologically” plead for less government and more personal responsibility are lining up behind a plan that institutionalizes to an even greater extent all the economic forces that prohibit or inhibit the ability to provide fro their own security and prosperity.
  • There is nothing being reported that the plan is willing to even address the current disparity of wealth, the current trend toward a deepening divide between a few people who have wealth and the rest who don’t. It is interesting that the very same people who plead for a free market economy line up behind a plan that would allow precedent to stand on socializing losses and expenses for big business, thus undermining entrepreneurship and innovation (the hall mark of all prior economic progress in the United States). 
  • While these people tell us that windfall profits are part of the game that will even out in the end, they give us plans that prevent leveling the playing field by covering losses with access to tax dollars, covering expenses by shifting the risk onto public programs, and covering deception by legalizing slight of hand reporting in which both the methods of business and the financial results are completely misstated (that would be “lying”) or even reversed converting actual losses to the company and damage to the society into reported profits, higher per share earnings, higher price earnings ratios, higher stock prices, and “benefits” of bringing new products and services to the downtrodden members of our society (like tricking them into signing papers to “buy” a house) enabling the lender to sell the paper at a profit without regard to the quality of the paper, thus tricking investors, undermining pensions, social services etc.)
  • What is being reported is more centralization of highly complex political and economic subjects into the hands even fewer people of dubious talent, leadership, training, education or creativity —thus decreasing the pool of available talent and decreasing the discourse on economic policies all contrary to the basic constitutional premise of checks and balances, division of power, prevention of tyranny and promoting policies for the health, wealth, safety, security, and benefit of United States citizens.
  • Centralization of banking and deregulation of banking has produced a boondoggle of problems that will take decades to reverse. There is no doubt that the Federal Reserve should have greater control over any process that creates “money” in the marketplace so that monetary policy will mean something. But it is the Federal reserve itself that needs re-structuring to provide for greater transparency, more checks and balances, and greater de-centralization of decision-making. The open-market committee is simply not set up to deal with today’s marketplace, today’s money, the prospect of a declining dollar and the possibility of a rising Euro in the United States. 
  • Centralization of banking has led to the flow of money away from where it is deposited into places that have no relationship to the depositors. Loans are made in foreign countries from deposits made in Springfield, Illinois. The depositors are deprived of the economic benefit of having that money loaned or invested in their locale, thus improving liquidity and growth prospects for those depositors and all the citizens of their town or city. With no safety net, the slightest ripple can and does cause blight to replace what were once vibrant or at least promising communities.
  • Centralization of banking has led to indexing of loans as the exclusive basis on which to grant them — replacing the old fashioned relationship of person to person. This has resulted in hyperventilating the prospects for fraudulent lending by lenders, the entire CMO/CDO market, and fraudulent borrowing by borrowers. JP Morgan was asked at a senate hearing 100 years ago what was the primary criteria, the essential quality for granting credit; his answer was that it was “character,”(not balance sheets, income statements or track record) which is exactly what is not part of the equation now with the total reliance on FICO scores, other computer algorythms etc. 
  • By removing “Character” from the equation we removed accountability. You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S.Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy.

Mortgage Meltdown: Free Market Theology and Politics

Mortgage Meltdown: Socialized Losses and Expenses

The root of any solution to the current credit crisis and meltdown is politics, which is simply a consensus of opinion. When people consent to an idea like “free market” it seems to work because we make it work. The fact is that we don’t have a free market, we never had a free market, and if we did, the mortgage crisis  would be even worse. When we give up our ideology in favor of thoughtful response to the facts “on the ground” we will have a solution. Failing that, the economy is headed for far worse than ever imagined by the doom  sayers.

There is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of ALL parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors. “Bailing out” some of the variables just tips the economy more toward ultimate disaster. 

While we have free market forces at work within our economy, sometimes they work and sometimes they don’t. That is why you need a referee (government regulation). Free market ideology is wrong in its premise — that given the chance, everyone will rise to their highest potential, at least in terms of wealth. That has never been true because people are all different, they have all different perspectives and values, and all different life challenges that come from factors outside the closed circle of economic theory. 

In a truly free market, tyranny is the inevitable result. Those with the ambition, leadership qualities and political skills end up with controlling positions in the marketplace and in government such that wealth is unevenly distributed to themselves. Innovations, education, and cultural advances that endanger the dominance of such persons or companies are squelched. It’s legal because we make it legal. For the past 10-12 years American society has been reaching for the “ideal” of non-regulation or “free economy.” Now even the most ardent free market proponents are conceding that it has brought us to the brink of disaster.

In a truly “free market,” the market is actually a closely held dominated society with despotic leadership. Government mirrors the society in which the predatory and monopolistic entities get to pay for legislation and enforcement (and non enforcement) they want. 

In a truly free market, a few people dominate government and the marketplace so that losses and expenses are transferred to the citizens while profits and gains are transferred to the leaders in the marketplace and in government. This is what Bill Maher called “socialized losses.” I would add “socialized expenses.” 

Thus a truly free market is actually a socialized marketplace for the benefit of those at the top. In other words, “free market” is a combination of words stating an idea that does not exist but which politically is accepted because politicians and business leaders refer to it so much it has gained sufficient acceptance by listeners to be considered true. 

Thus it is the opinion of most people that “free markets” exist even though all empirical evidence is to the contrary. 

However as a political tool, the bullet phrase “free market” is appealing and is used to socialize the marketplace for the benefit of a select few right under the noses of the people whose opinion was swayed by disinformation emanating from the top.


  • We already have socialism as the predominant policy in our politics. We just call it other things like “benefits,” “bailout.” loan, relief package, earmarks, etc. 
  • We have socialized medicine — it just works to provide profits to the Big Pharma and service providers instead of medical service to the patients. 
  • We have socialized schools — it just works to provide added money to government budgets instead of education to our children and college for aspirants. 
  • We have socialized police — it just works to put more people behind bars than any other country in the world in a highly secretive privatization of prisons, the owners of which need to know the prisons will always be full. 
  • We have socialized fire departments — but they are sacrificed in budget cuts as soon things get a little hairy. 
  • We have socialized defense — but it used offensively to promote oil and profits pursuant to policies that should have been abandoned decades ago, instead of providing for the defense and welfare of citizens beset by disasters (Katrina) or defending and securing our borders.
  • We even have socialized money — it just works such that non-regulated money floods the marketplace, leveraged off of a money supply that is supposed to be controlled by the Federal Reserve, creating hollow profits and rising stock prices, while the rest of the citizenry deals with prices so high for fuel, food and other essentials that they can’t make it on two incomes.
  • We are a socialized economic society NOT a free market society. It just works for the benefit of the people at the top instead of the usual way of  spreading the benefit throughout the country to all the citizens. 

In a truly free market, Bear Stearns would have gone out of business, the proper result of overreaching behavior that tipped the risk allocations without telling anyone. 

OR, in an environment where free market forces were the goal, the Fed would not only have opened up its window to private investment houses, but also to private individuals and small businesses that were equally in danger of being wiped out. Instead we have the Fed conspiring to bail out one of a dozen variables in the equation that would produce a solution and then, responding to political pressure (something that the Fed was designed NOT to do), it increased the bailout for Bear Stearns 500% so rich people and the people that worked for this firm would not get completely wiped out. 

Careful examination of the Fed bailout of Bear Stearns, however, reveals the perfect plan for bailing out all the players behind all the variables in the equation for solving our monetary crisis, credit crisis, housing crisis, confidence crisis, political and economic crisis: Leaving the opportunity for their fortunes to rise when the crisis is over allows maximum protection for the player to recover, establishes an equilibtrium or plateau that is fairly strong is withstanding further downward pressure, and restores CONFIDENCE in the U. S. financial markets around the world.

By starting out as $2 per share and then moving up to $10 per share, the Fed and JP Morgan established a new precedent that can be applied to borrowers, investment bankers, lenders, investors in CDOs, homeowners who are in foreclosure and homeowners who are at risk. 

If followed out to its maximum advantage, foreclosures could stop, evictions would cease, payments would resume, CDOS (CMOs) would recover their value on balance sheets, capital insolvency would recede, and the opportunity for every one to recover as much as possible would be restored. 

As we have repeatedly said, there is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of all parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors.

Central to the solution is a political feat of enormous proportions: accepting the fact that housing prices were artificially inflated in 2001-2007. A reduction of the mortgage balances, payments and interest rates combined with an incentive to all players to recover their losses downstream when the market recovers would stop the slide, eliminate the crisis and stimulate the recovery. 

Mortgage Meltdown: Remedial Legislation

Mortgage Meltdown Remedial Legislation

Barney Frank has a good idea that will work. Mortgage notes must be reduced without penalty to borrowers, and of course continue the tax exemption for short sale. 

Cooperation will be needed by FDIC, Federal Reserve, SEC, FASB, IRS, Controller of Currency and Treasury Department. 

I would add the following AFTER reducing the mortgage by a flat percentage (because it will take too long to figure out 10 million mortgages on a case by case basis):


  1. Contingent reverse amortization (betting that housing prices will recover particularly in the event that this plan is put into effect). 75-25 in favor of homeowner up to recovering value of home at time of purchase. Then 75-25 in favor of Lender over purchase price until full value of mortgage is covered. Encourages homeowners to stay in their homes instead of abandoning them. Covers 8.8 million homes instead of 1 million.
  2. Allow contingent equity to reported as actual capital for lenders. Allows capital requirements and reserves to be met and allows further lending, increasing market liquidity in the credit and money markets.
  3. Allow contingent equity to be reported as footnote capital for investment banking. Allow financial institutions to recover write-downs and avoid additional write-downs.
  4. Allow contingent equity to be capital for CDO holders, including where used as collateral.
  5. Use flat relief percentage unless hardship is demonstrated. HUD has hearings. Suggested decrease in mortgage debt 20%.
  6. Use Fed Funds rate plus 1% as interest rate, 30 year amortization fixed. 3 point service fee that can be paid up front or 5 points if added to note. This applies to all mortgages. Opt-out provisions can apply for those homeowners who wish to opt out. Many will do so rather than go through the hassle of adjustment, even though most of the work will be done by lender.
  7. 1 year moratorium on all foreclosures on primary residential dwellings, giving time for mortgages to be converted.
  8. 2 month moratorium on payments of principal and interest on primary residential dwellings. Insurance and Taxes must still be paid. Borrowers given up to an additional 6 months to bring their escrow accounts for insurance and taxes up to date.
  9. After 1 year moratorium, foreclosures resume only on those homes where the mortgage note has been reset, as above, and borrower has defaulted. 
  10.  After 10 years original mortgage and note reinstated, adjusted for payments as above.
  11.  On second homes provide relief, by half of the above, and after 5 years original terms reinstated. 
  12.  Credit cards: Remedial cap on interest at 15%
  13.  Credit Cards: If interest rate is already 15% or under, reduce the rate by 25%.
  14.  Cap overdraft, bank fees etc. at 60% of current industry rates. 
  15.  Payday advance: cap fees, costs and interest at 10% per month. Require payroll deduction for repayment over maximum of 10 weeks.
  16.  Establish aggressive regulatory environment wherein the ultimate holders of risk (CDO owners) are educated as to actual quality of the mortgage-backed securities. This would include indexes identifying subprime loans, subprime borrowers, and various levels of prime borrowers statistically, so that ratings agencies, insurers, investors, fund managers, CFO’s and Treasurers can properly evaluate the risk of the investment. 
  17. This uses full information to allow market forces to dictate the credit liquidity offered to home buyers and other consumer debt. In other words, if the buyers of CDOs had been told the truth about these mortgage backed securities, and other aggregate derivative investments, neither the ratings  nor the demand for them would have been nearly as robust. 
  18. The meltdown would never have occurred. instead the incentive was to put out as many mortgage loans as possible, artificially inflated prices, because the lenders, closing agents, appraisers etc., were all incentivized to appease the confusion and worriers of the borrower and get the borrower to sign papers.
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