THE QUESTION NOBODY IS ASKING

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EDITOR’S ANALYSIS: WHAT IS THE EFFECT OF TRADING, BUYBACKS, RECONSTITUTED “TRUSTS” ON THE CLAIMS OF “OWNERSHIP” OF THE LOANS?”

Up in the clouds of finance and trading desks they are creating accounting entries indicating transfers of mortgage backed bonds. AIG announced it is “buying back” $17 billion worth of the worthless stuff. Industry insiders estimate that more than 50% of all Special Purpose Vehicles (SPV) have been “reconstituted” into new vehicles and sold again. And then you have “trading” as investors purchase and sell MBS speculating on their eventual value, which I contend is zero.

Meanwhile on the ground, 7 million foreclosure sales have been conducted at auctions at the behest of people and parties who claim they have the right to foreclose. The only way that could be true is if they are the lender or creditor or they have acquired the receivable without conditions or other provisions. But we all know that the trading activity, bailouts, insurance, credit default swaps, and other third party transactions either paid the obligation, or transferred it. In the case of AIG, who insured MBS values, and the contracts written for credit default swaps, they specifically waived the right to subrogation, so they obviously didn’t buy the MBS or the SPV, they simply paid the liability.

Yet in courts and non-judicial proceedings, “foreclosures” have been conducted as though they are real, even though the highest probability is that the claimant is not in the least related to the loan or the purchase of the loan, and the party for whom they claim the position as “agent” has long since been dissolved or has transferred its claims to interests in the loans.

Then, to top matters off, somebody, not necessarily the party that started or ordered the foreclosure, makes a “credit bid” at the foreclosure auction. This means that instead of paying cash for the house they use a piece of paper that says they are the creditor, when everyone knows that at the very least they are not and never were in the position of a creditor because they neither loaned any money nor purchased any receivables with actual money. They were appointed by unnamed authorities to start the foreclosures and “bid” on the property like mobsters order hits through intermediaries so they can’t be charged with murder.

The fact remains that the shell game on the ground, in the court system is merely a reflection of the shell game in the clouds where they are pretending that the MBS actually are backed by loans even though the borrower never agreed to the terms that the investor received when they advanced the money. It is also true that the investor never agreed to the terms of the loans that were funded or the manner in which they were executed, and that transfer of the loans, in any form, were never made.

So why are we pretending that we know who owns the loan and that the documents proffered are accurate representations of the funded loans? Why are we pretending that the credit bid is valid and why are we pretending that the claims of foul predatory lending, along with investors’ claims of predatory proprietary trading by investment houses are “irrelevant.” The answer can only be that when somebody is paid not to see something they don’t see it. When their job depends upon them being ignorant of the facts, then they know nothing. And that is why we have this huge market of predatory loans and predatory foreclosures by people who are knowingly committing fraud on the homeowners and investors — from the ground up to the sky.

For example: There were several “Maiden Lane” entities named for a small street dating back 200 years right off Wall Street. These were created during the bailouts and other chicanery to create the impression that the mega banks were in stable condition. These Maiden Lane Entities were said to own the mortgage-backed securities, which is to say, they were now in the position of the “lender” on loans that were funded to homeowners.

How they came to own those loans is a mystery because there is no document in any public record that effectuates the transfer but it has been widely announced, thus giving actual notice to anyone who is involved with those loans that any particular loan can and probable was the subject of some sort of transfer. None of these entities ever show in foreclosure proceedings, nor do you ever see AIG, the U.S. Treasury, or the investment houses, some of whom were stuck with MBS that had not quite made it to sale.

Now here is the kicker — The price, although not publicly disclosed yet, is 100 cents on the dollar — on securities of no value or if you want to twist things around, on securities of at best dubious value. Why would they do that, what assets are they buying, and what is the effect on foreclosures of loans held in those “portfolios”? DEFINE THE ASSET!!

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NY Times

A.I.G. Offers to Buy Back Securities for $15.7 Billion

By MICHAEL J. DE LA MERCED

9:12 a.m. | Updated with New York Fed statement

The American International Group offered on Thursday to pay $15.7 billion to buy back mortgage securities held in an investment fund set up as part of its huge government bailout.

The move is intended to further simplify what remains of the rescue package granted to A.I.G., the insurance company, before it begins selling off the government’s 92.1 percent stake in an offering that will probably be held in May.

Under the offer, outlined in a letter A.I.G. sent on Thursday, it would buy back securities held in an investment fund financed primarily by a loan from the Federal Reserve Bank of New York.

That vehicle, known as Maiden Lane II, originally held about $30 billion worth of securities, though its portfolio value now stands at $15.9 billion. Through principal and interest payments from the securities’ underlying mortgages, the balance of the New York Fed’s loan to the fund has fallen to $13.2 billion from $19.5 billion.

It was set up to buy securities that A.I.G. had acquired through a subsidiary that lends stocks owned by the insurer to other investors for purposes like short-selling. While stock-lending businesses normally invest in safe instruments like Treasury securities, A.I.G.’s unit invested in higher-yielding mortgage-backed securities — which soured as the housing market collapsed, costing A.I.G. money.

To pay for the transaction, A.I.G. will draw upon cash held in its insurance subsidiaries, which would then hold the securities and profit from the coupons they pay out. The company said it believed that the securities would actually generate more income than the low-yield investments those subsidiaries hold, said a person with direct knowledge of the matter who spoke on condition of anonymity because he was not authorized to speak publicly on the matter.

A.I.G. is offering to buy the securities at an average of 50 cents on the dollar, this person added.

A.I.G. consulted credit ratings agencies to ensure that taking on the securities would not substantially affect its debt ratings, the letter said. In the letter, A.I.G.’s chief executive, Robert H. Benmosche, said the New York Federal Reserve would reap a $1.5 billion profit on the loan it made to Maiden Lane II.

Jeffrey Smith, a spokesman for the New York Fed, declined to comment.

Update: The Federal Reserve Bank of New York said in a statement:

The Federal Reserve has received a formal offer from AIG to purchase the assets in Maiden Lane II, LLC (MLII). The Fed has been aware of AIG’s interest in those assets for some time. Any decision on a possible disposition of these assets will be made in a way that maximizes the proceeds to the taxpayer and that is consistent with the goal of fostering financial stability.

SEC Charges Goldman Sachs With Fraud: Complaint Reveals Discovery Tips

see comp-pr2010-59 SEC Complaint V GS Fraud

“The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.” Editor’s Note: Here is where the rubber meets the road. This same pool of illegal fraudulent profit is also subject to being defined as an undisclosed yield spread premium due to the borrowers. Some enterprising class action lawyer has some low hanging fruit here — the class is already defined for you by the SEC — all those homeowners subject to loan documents that were pledged or transferred into a pool which was received or incorporated by reference into this Abacus vehicle)

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21489 / April 16, 2010

Securities and Exchange Commission v. Goldman, Sachs & Co. and Fabrice Tourre, 10 Civ. 3229 (BJ) (S.D.N.Y. filed April 16, 2010)

The SEC Charges Goldman Sachs With Fraud In Connection With The Structuring And Marketing of A Synthetic CDO

The Securities and Exchange Commission today filed securities fraud charges against Goldman, Sachs & Co. (“GS&Co”) and a GS&Co employee, Fabrice Tourre (“Tourre”), for making material misstatements and omissions in connection with a synthetic collateralized debt obligation (“CDO”) GS&Co structured and marketed to investors. This synthetic CDO, ABACUS 2007-AC1, was tied to the performance of subprime residential mortgage-backed securities (“RMBS”) and was structured and marketed in early 2007 when the United States housing market and the securities referencing it were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.

According to the Commission’s complaint, the marketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC (“ACA”), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. (“Paulson”) [Editor’s Note: Brad Keiser in his forensic analyses has reported that Paulson may have been a principal in OneWest which took over Indymac and may have ties with former Secretary of Treasury Henry Paulson, former GS CEO], with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (“CDS”) with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson’s adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials.
The Commission alleges that Tourre was principally responsible for ABACUS 2007-AC1. According to the Commission’s complaint, Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson’s undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson’s interests in the collateral section process were aligned with ACA’s when in reality Paulson’s interests were sharply conflicting. The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% was on negative watch. By January 29, 2008, 99% of the portfolio had allegedly been downgraded. Investors in the liabilities of ABACUS 2007-AC1 are alleged to have lost over $1 billion. Paulson’s opposite CDS positions yielded a profit of approximately $1 billion.

The Commission’s complaint, which was filed in the United States District Court for the Southern District of New York, charges GS&Co and Tourre with violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest and civil penalties from both defendants.

The Commission’s investigation is continuing into the practices of investment banks and others that purchased and securitized pools of subprime mortgages and the resecuritized CDO market with a focus on products structured and marketed in late 2006 and early 2007 as the U.S. housing market was beginning to show signs of distress.

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