Holeinthehull » FINANCIAL BLOGS

US in worse financial shape than Greece?

admin — Mon, 13 Jun 2011 15:05:50 +0000

Bill Gross with Pimco,world’s largest hedge fund discusses the real financial health of the United States.

Rick Santelli Bashes CNBC SquawkBox Panel

admin — Fri, 04 Feb 2011 18:00:32 +0000

You gotta love the “Santelli” for speaking the truth and giving his viewing audience the real lowdown on government spin.

Chris Martenson Alert: QE II Has Lit the Fuse

admin — Sat, 13 Nov 2010 21:25:22 +0000

Insightful article from Chris Martenson

For a very long time, I have been calling for, expecting, and otherwise anticipating the day that the Federal Reserve would begin openly monetizing government debt. Intellectually knew the day would come, but in my heart I hoped it wouldn’t. But with the Fed’s recent decision to directly monetize the next eight months of federal deficit spending, that day has finally arrived. I have to confess, while my prediction has proven accurate, I’m still stunned the Fed actually did it.

In this report I examine the risks that this new path presents, what match(es) may finally ignite the decades-old pile of dry fuel, what the outcomes are likely to be, and what we can and should be doing in preparation.

How is this Quantitative Easing (QE) different from the prior QE?

There are two main points of departure between the two QE programs:

The level of global support for such efforts
Where the money was/is targeted

Let’s take the second point first.

QE I consisted of all sorts of liquidity efforts that went by various acronyms, but the main act was the accumulation of some $1.25 trillion in MBS and agency debt. Some might note that taking MBS paper off the hands of financial institutions, which then bought Treasuries with the cash, is little different than the recently announced QE II program, because at the end of the day, money was printed and Treasuries were bought. In this regard, they’re right.

But let’s be clear about something: The first QE effort had the specific aim of repairing damaged bank balance sheets. That is, banks and other financial institutions had made some colossally poor and risky financial moves that didn’t work out for them. They needed some help, and the Fed was more than happy to oblige by handing them free money to patch up their losses.

Of course they didn’t do this outright by saying, “Here take this money!” — they did it somewhat sneakily. But when the Fed hands you huge piles of money (for your dodgy debt) and then lets you park that very same money in an interest-bearing account at the Fed, there’s really no difference between that and just handing you free money. No difference at all. If the Fed ever offers you free money that you can then park in an interest-bearing account with the Fed, you should take them up on it, and you should do it as much as they will allow.

Indeed, that’s exactly what happened. These parked funds are called “excess reserves,” and this chart clearly displays the massive program undertaken by the banks and the Fed:

Now, it’s also true that the Fed does not pay a lot of interest on this money, just 0.25%, but on a trillion dollars that pencils out to some $2.5 billion a year, handed straight over to the banks. I call this program “Stealth QE” because it is nothing more than printing money and handing it over to the banks, with a slight bit of complexity thrown in just to put the dogs off the scent. A couple of billion may not sound like much these days, but I raise it to illustrate the many and creative ways that QE I was about getting the banks back to health, and not much else.

So QE I (and the ‘Stealth QE’ program) was directly aimed at banks to help them repair their balance sheets and make them whole after their terrible decisions and losses. It turned out, though, that fixing the banks did absolutely nothing for Main Street. The rest of the economy remained mired in a rut, with banks either unable or unwilling to make additional loans. They kept their QE lotto winnings and parked them with the Fed.

QE II, then is about getting thin-air money to the government which, the Fed rightly assumes, will immediately spend and push out into the economy. Here’s how the head of the Dallas Fed, Richard Fisher put it in a recent talk he gave:

A Bridge to Fiscal Sanity?

The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.

This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice.

There it is in black and white. You might want to read it a couple of times to let it sink in. The Fed is directly monetizing the next eight months of excess(ive) spending by the federal government and is doing it despite being perfectly aware of the extent to which history is littered with the remains of those who have traveled this path before.

Presumably, we are supposed to console ourselves with the idea that the Fed will be successful where others have failed, and sometimes failed miserably. Yes, we are talking about the same Fed that fueled that last two destructive bubbles by keeping interest rates too low for too long; failed to see the housing bubble for what it was as late as 2007, and apparently entirely lacked the capability to foresee any of the current mess. That Fed.

The one run by the gentleman who said this to the House Budget Committee on June 3, 2009,

“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation…The Federal Reserve will not monetize the debt.”

~ Ben Bernanke

In summary, the difference between QE I and QE II is that QE I went primarily to the banks and QE II is going directly to the government. While this may be something of a semantic difference, it shows that the Fed is changing its strategy again. We might ask: Why this shift, and why now?

How is QE II being viewed outside of the US?

In a word, poorly.

The German finance minster called the Fed’s application of US monetary policy “clueless” and argued that the Fed decision would “increase the insecurity in the world economy.”

China was predictably unhappy too, but initially used more diplomatic language:

Xinhua: G-20 Should Set Up Mechanism To Monitor Reserve Currency Issuers

BEIJING (Dow Jones)–China’s state-run Xinhua News Agency published a commentary on Tuesday calling for the Group of 20 industrial and developing economies to supervise the issuance of international reserve currencies, and harshly criticized the U.S. Federal Reserve’s new round of quantitative easing.

The G-20 should “set up a new mechanism that effectively monitors the issuer of the international reserve currency, especially when it is not able to carry out responsible currency policies,” Xinhua said, making an apparent reference to the U.S. as the issuer of the dominant reserve currency.

“Considering the influence of the policy moves in the major international reserve currencies on the global economy, it is necessary for the issuer of the international reserve currency to report to and communicate with the G-20 Group before it makes major policy shifts.”

All of the above is loosely coded diplomatic speak for “The US really bummed us out here; it should have stuck to the agreements we thought we had after the Pittsburg meeting. Going off-script like this was really not appreciated. We think an intervention is needed here.”

Later, an advisor to the Chinese central bank went further and called the US actions “absurd.”

PBOC Academic Adviser Questions Dollar’s Global Role

Nov. 9 (Bloomberg) — Li Daokui, an academic adviser to China’s central bank, said it could be seen as “absurd” that the dollar remains a reserve currency after the financial crisis.

Here are a few other selected expressions of dismay from around the world:

United States receive criticism from all sides because the decision to print money

U.S. decision to pump 600 billion dollars into the economy has sparked a wave of strong disapproval. World leaders, who are preparing for the G20 summit in Seoul this week, warns that the move will complicate U.S. global economic recovery.

G20 tensions rise over the future of the global economy

The US last week stoked the simmering tensions by unveiling plans for another $600bn (£370bn) of quantitative easing (QE), on top of the $1.7 trillion already in place. The dollar crashed in what is being seen as the latest round of competitive devaluations, as nations seek to debase their currencies to help domestic industry.

Brazil retaliated by buying dollars. Xia Bin, a member of the Chinese central bank’s monetary policy committee, branded the US stimulus plan “abusive” and warned it could spark a new global downturn. German finance minister Wolfgang Schäuble accused the US of breaking the promise made at June’s G20 in Toronto, saying he would “speak critically about this at the G20 summit in South Korea.”

Just two weeks earlier, G20 finance ministers at the warm-up summit in Gyeongju, South Korea, had pledged to refrain from competitive devaluation and Tim Geithner, the US Treasury Secretary, had promised the US would retain its “strong dollar” policy. At Seoul, the US will be facing accusations of empty rhetoric.

The harmonious language of hope at the Pittsburgh summit has now given way to something brazenly belligerent. The Brazilian President, Luiz Inácio Lula da Silva, has said he will go to the G20 meeting in Seoul ready “to fight.” For President Obama, who has just lost a bruising midterm election battle, it will mean another painful encounter.

Greece Hits Out At Money-Printing Nations

Speaking on Jeff Randall Live, George Papaconstantinou warned quantitative easing only serves to stoke up inflation.

“You get inflation. You get a situation that’s out of control. People lose their purchasing power. It doesn’t get you very far,” he said.

In summary, QE II has been described by several major trading partners as “clueless,” “abusive,” “absurd,” and even resulted in a lecture from Greece on the subject of printing. By the time you are getting lectured by Greece on monetary actions, it might be time for a bit of self-reflection.

It is not too strong to suggest that something of a tipping point has been reached in regards to how the US is perceived as a leader on financial and monetary matters.

Why this is important

Okay, so the US’s international friends are a little upset with it for deciding to print up the better part of a trillion dollars out of thin air. What’s the big deal?

The big deal here is that the OECD countries have a monster borrowing bill set for next year. There needs to be some level of cooperation, and fair play is going to be required in order to pull this off:

$10.2 Trillion in Global Borrowing

Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.

Just ponder those numbers for a bit. The average borrowing across 15 major developed countries is 27 percent of GDP(!) Ask yourself how dependent the entire OECD world is on a smoothly operating financial system in order to merely function next year.

Having the perception out there that the US is being run by clueless (or ‘abusive’) individuals is not going to help the situation much.

In order for the requisite levels of borrowing to be pulled off in a smooth and uninterrupted fashion, there can’t be any hits to confidence and no major disruptions can happen. Everything has to run with clockwork precision. It is against this backdrop that I view the profoundly undiplomatic statements directed at the US as quite a bit more serious than some other observers.

Conclusion

By choosing the path of money printing (instead of austerity like the UK), the Fed has decidedly placed the US on a very risky course. I see the outcomes as almost binary: Either this works, or it doesn’t.

If this gamble works, business will pick up, unemployment will drop, tax revenues will flow again to the states and federal government, the sun will continue to rise in the east, and roses will bloom in the spring.

If the gamble fails? Then we can envision an enormous devaluation event for the US dollar, with the Fed having to choose between defending the dollar (via rising interest rates) or preventing the federal government from a fiscal emergency brought about as a consequence of rising interest rates. And by “fiscal emergency” I mean being forced to slash expenditures by as much as 50% in order to service rapidly escalating interest-carrying costs on the short-term portion of the fiscal debt load. But that’s a death spiral, because cutting government spending is the same as cutting GDP (it’s practically 1:1), and every cut to GDP leads to lower revenues, which will necessitate more expenditure cutting, et cetera and so on, until ‘the bottom’ is reached.

I wish there was some sort of middle ground on this one, but I can’t quite see it. Either the Fed’s efforts work or they don’t. Let’s hope for success.

In truth, I‘ve long predicted that the day would arrive when the Fed would monetize government debt, but I hoped that it would never come. Because hope alone is a terrible investment strategy, I prepared for this event years ago by accumulating gold and silver as the core of my portfolio.

But now the rules have changed again, we are on a slippery slope, and gold and silver were always meant to be my “transition elements” put there to help shepherd my wealth through the transition period as the world’s fascination shifted from “paper” to “things.”

Now that we’re “almost there” in terms of the required shift in perception necessary to call an end to one period (the “king dollar” period) and mark the beginning of another, it’s time to begin considering the places, timing, and ways that these transition elements can be redeployed to take advantage of the second part of this story.

In particular, concerned minds are looking for answers to questions about what might happen next and how to insulate oneself from monetary madness. These questions are explored in detail in Part 2 of this article (free executive summary; paid enrollment required to access).

State Attorneys General Discuss Challenges against Obamacare

admin — Tue, 09 Nov 2010 14:35:07 +0000

More and more states are coming online in their push toward suing the federal government over the implementation of Obamacare.

“Obeying the constitution is not negotiable”

Karl Rove Reminds Matt Lauer that Obama called us the enemy

admin — Fri, 05 Nov 2010 19:10:01 +0000

Hey Lauer, do you remember your dude friend in the White House calling republicans the “enemy” on the Latino station last week? Do you remember Obama telling the country that he’s going to drive the car and the republicans can sit their ass in the back seat. Ummm? well do you?

Don’t school us on vitriol and anger you 2 bit shallow empty suit of a liberal shill!

Get a real job that you would excel in like shining Obama’s shoes and scooping poop for the President’s dog.

Mortgage Foreclosure are Rampant with Fraud

admin — Thu, 14 Oct 2010 10:50:19 +0000

The Daily Caller OP-ED has an explosive story by Joseph Tauke “One Nation Under Fraud”

Tomorrow, a bank—not your bank, but any bank—could evict you from your home. Even if you didn’t know the bank was foreclosing. Even if your mortgage is paid off. Even if you never had a mortgage. Even if the bank doesn’t hold a single piece of paper that you signed. And major banks not only know this fact, but have spent millions of dollars to defend it in court. Why? The answer starts with a Jacksonville homeowner named Patrick Jeffs.

In 2007, Deutsche Bank sued Jeffs for his home, which is a necessary step in the process of foreclosing on a homeowner in the state of Florida. Curiously, despite the fact that he immediately hired a law firm to defend his property when he found out about the foreclosure, neither Jeffs nor his attorneys were at the trial. That’s because it had already happened. Deutsche won by default because Jeffs wasn’t able to travel backwards in time to attend, even though the trial featured a signed affidavit indicating that he had been served his court summons.

The only problem with the summons Jeffs supposedly received was that it had been conjured out of thin air.

In June of this year, a Florida court ruled that the document was fraudulent, as the person who was supposed to make sure Jeffs was served had mysteriously received a copy of the summons before the lawsuit had even been filed, and Jeffs never even saw the copy. The text of that ruling was posted on various financial news websites in September. The lawyers that Jeffs hired to defend his case say that fraud such as this is not uncommon. It’s a widespread problem, and it has cost countless families their homes.

“I think it’s safe to say that 95% of the foreclosure cases in Florida involve some form of fraud on the part of the bank,” David Goldman of Apple Law Firm, PLLC told The Daily Caller in a phone interview. “It’s probably closer to 99%. And the court system is helping them get away with it.”

A 95% rate of fraud sounds preposterous, but the number was repeated by a paralegal familiar with the case, Lisa Beasely, as well as Michael Redman, who was prompted to create a website called 4closurefraud.org after enduring personal experiences with the matter. There’s a reason for them to say so—they take and report on a lot of foreclosure fraud cases—but there’s also a reason they devote so much of their time to these cases, just like there’s a reason that multiple states are suing major banks for the same type of fraud.

The Sunshine State has something called the “Sunshine Law,” which states that unless very specific conditions, such as the need to protect a witness, are met by a trial, it must be open to the public. But over the past several months, Goldman says that attempts to observe foreclosure proceedings have been met with bailiffs and locked doors. Then, banks successfully argue that because they own the paperwork behind mortgages and don’t want anyone who doesn’t have to see those titles to see them, the public doesn’t have the right to ask for them as part of an examination of court records.

Representatives of Deutsche Bank told The Daily Caller via email that the bank’s involvement in the Jeffs case was merely nominal, as it had to be named as the plaintiff in the case because it ultimately held the right to foreclose, not Chase, which originally made the loan and which was accepting Jeffs’ payments and forwarding them to the proper recipients. But Chase had tried to work out a loan modification with Jeffs, and he was current on his payments when Chase abruptly informed him that his modification was denied without explanation. Several days later, Jeffs found out that he supposedly no longer owned his home. He stopped making payments, and he hasn’t made them since. But no bank has been able to successfully repossess and sell the property. To the banking system, the asset backed by the house—the mortgage—has simply vanished into thin air.

Does that mean that Jeffs is finally in the clear? Not exactly. “Quite often, what happens in these cases is the bank creates new documents to fix the old documents,” said Goldman. “One of the most common things we see is a paper with a notary stamp that gives the bank the legal authority to foreclose. Well, anyone can buy those stamps. I can buy those stamps. A lot of what’s going on is law firms desperate to win a case are hired by banks who don’t know what those law firms are up to. Then the bank thinks it can foreclose, even though other banks also think they have that right, and those banks might not figure out what happened for a long time because the system is absolutely overloaded with foreclosures. And even if they do figure it out, suing to repossess a property that another bank already sold is a long and arduous process. So you wind up with a scenario in which the left hand doesn’t know what the right hand is doing.”

The “right hand” took three years to figure out the Jeffs case. Meanwhile, the fraud continues. Earlier this year, Goldman worked with Jane Doe, an elderly woman whose real name couldn’t be disclosed for legal reasons. She had just spent several weeks outside of her home state of Florida visiting relatives, and she was current on her mortgage payments, which she had been paying for the past 15 years. She even called up her bank during her trip to ask about the best way to send in her latest payment. The bank told her that it wasn’t allowed to discuss the mortgage with her because her husband was the property owner, not her. But the bank couldn’t discuss the mortgage with her husband, either. Why? Because he was dead. And he had been for five years. Confirming this fact would have taken mere minutes.

Instead, when Jane returned home, the locks to her house had been changed and all of the property inside the house was gone. She still hasn’t recovered that property, and the bank hasn’t even told her where it is. According to Goldman, the wrongful repossession was first admitted, and then, inexplicably, the bank actually changed its mind and tried to make the outrageous claim that the homeowners’ association was actually the entity which had ultimately decided to change the locks and empty the house.

Stories like these are what prompted a class-action lawsuit against lenders in southern Florida, with Deutsche Bank being listed as one of the defendants. Unfortunately, the problem isn’t limited to Florida. California’s attorney general recently filed his own class-action lawsuit on behalf of all of his state’s homeowners regarding the use of fraudulent documents to foreclose. Ohio’s attorney general has announced that he will be prosecuting every single case of foreclosure fraud committed by Ally Bank, formerly known as GMAC, with an individual lawsuit. Each suit would carry with it a fine of up to $25,000 on top of the cost of repairing the damages caused by the erroneous foreclosure. Arizona’s attorney general has sent letters to more than 60 banks informing them that foreclosing on any homeowners with erroneous documents will be considered criminal fraud.

Things are particularly bad in states like Arizona because of a peculiarity of their respective state foreclosure laws. Banks don’t have to go to court to foreclose on a property in those states. Instead, they can simply show “proof” of rightful foreclosure to local officials, who then evict the homeowners. To fight back against fraud, the homeowners have to hire a lawyer—which many can’t afford to do—and win a lawsuit before the property is sold.

“A lot of this stuff gets by everyone,” said Kevin Harper of Harper Law PLC, which operates in Arizona. “State law says that if a bank makes a mistake when they foreclose and sell, they only have to pay for damages incurred by the rightful owners. And since so many homes are underwater, the banks often argue that the owners haven’t suffered any damage whatsoever. Even if there was rampant fraud, there really would be no way to stop it in Arizona. So many of these cases involve mortgages that have repeatedly been bought and sold, and what you get is some guy in a bank checking off boxes for a foreclosure without knowing why. The left hand doesn’t know what the right hand is doing.”

No, that’s not a typo. Both Goldman and Harper used the exact same cliché to describe what the American financial system, the one taxpayers “needed” to pay untold billions to save, has become. Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.

Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case, crushing the hopes of Wells Fargo.

As business reporter Al Lewis wrote at the time, “You can’t expect a bank that is dumb enough to sue itself to know why it is suing itself.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.

That’s how Bank of America could foreclose on homeowners who paid for their property in cash up front—repeatedly. Earlier in the year, Bank of America “foreclosed” on Charlie and Maria Cardoso, removing all of their property and changing the locks even as a realtor employed by the bank itself told it that there was no mortgage on which the Cardosos could skip payments. Eventually, the papers used by Bank of America were shown to have the wrong address. Someone, somewhere guessed. And Bank of America didn’t learn from its mistake.

On September 23, the bank “foreclosed” on a Ft. Lauderdale house owned by Jason Grodensky. Phone calls and emails elicited no answers, and the problem was only resolved after Grodensky took the story to the media and received national attention. There should have been no way for Bank of America to take control of the property. Instead, Grodensky discovered that the title to that property had already been sold. The bank recovered the title at its own cost.

Other banks are keeping up. This week, Florida television station WFTV reported Nancy Jacobini’s story. JP Morgan’s lawyers had sent a contractor to change the locks on Jacobini’s house. She actually happened to be sitting on a coach inside that house at the time, which means that she could have simply opened the door for the contractor in response to a simple knock—and it also means, according to Jacobini’s lawyer, that changing the locks was illegal, because the house was still occupied. Instead of a knock, Jacobini heard someone breaking through her front door, grabbed her phone and hid in her bathroom, where she called 911. The breaking and entering was just an extra helping of crime. And here’s the kicker—not only was Jacobini occupying the house, but JP Morgan hadn’t even foreclosed. At every step along the way, the rule of law simply didn’t exist.

The implications of this foreclosure nightmare are enormous. In the rare cases like the Cordosos’, when the correct owner of a mortgage is the same bank which thinks it’s the correct owner, little is ultimately changed in terms of bank assets unless there’s a large disparity between the value of the properties. But a much more common occurrence is what recently forced Ally, formerly known as GMAC, to knock over the first domino by halting nearly all of its foreclosure activities, and what prompted the state of California to file a class-action lawsuit against foreclosing banks.

A man named Jeffrey Stephans testified on September 14th that he had signed off on affidavits which he didn’t actually examine. Those affidavits were used in thousands of Ally foreclosures, and the properties involved were subsequently bought and sold. The previous homeowners can now sue the banks that foreclosed, and the “they were underwater anyway” argument isn’t holding up in many states, where both civil and criminal penalties are being discussed. By admitting his actions, Stephans instantly invalidated all of the repossessions and sales that were based on those actions. And Stephans said his practices are common in the industry. They’re so common, in fact, that a term was developed to describe them: “robo-signing.” This is being performed at law firms that process thousands of documents a day, which have become known as “foreclosure mills.”

Tammie Lou Kapusta, a former paralegal for one of those mills, testified on September 22nd that she was instructed by the attorneys at the firm to officially notarize hundreds of documents a day with a notary stamp that she wasn’t legally allowed to use. When complaints started rolling in about stamp dates that didn’t match other dates within the documents, she and all of the other paralegals doing the same thing at the firm were instructed to make the date of the stamp match the other dates, no matter what day it actually was. The documents would then be signed with the name “Cheryl Samons” by three different people, only one of whom was actually named Cheryl Samons. Kapusta said she drew the line when she was instructed to use random Social Security numbers assigned to people who might not even exist in order to falsify documents regarding each hypothetical person’s military status.

At least she drew it somewhere. She told the court that others didn’t. Unless Kapusta, a paralegal, was looking to incriminate herself, and unless she somehow managed to file emails from Samons and documents from the firm as evidence, there are now countless fraudulent papers containing military-related claims which are making their way through the system, and the actual people attached to the Social Security numbers used have absolutely no idea they’re tied to legal documents that they’ve never laid their eyes upon.

Some local governments were even accidentally informed directly that an institution was committing fraud, but no one noticed for years. The public record of Florida’s Nassau County shows that American Home Mortgage Acceptance, Inc. filed forms which claimed that a mortgage had been sold to, astonishingly, “BOGUS ASMTS.” The same company filed papers with Fulton County, in Georgia, which claimed that a mortgage had been sold to “BOGUS ASSIGNEE,” a company apparently based out of the address “XXXXXXXXXX.” Wells Fargo filed papers with that same county which supposedly showed that a mortgage had been bought by “BOGUS.” (No word on whether or not Wells proceeded to take itself to court for this infraction.) Some documents contain names with signatures that don’t even match

On top of it all, there are companies which provide banks with the convenient ability to purchase “recovered documents” to replace papers that are “missing.” (Of course there are.) Until 2009, a company called DOCX was one of these providers. What super-sleuthing ability allowed DOCX to “find” those papers? The ability to make them up, which DOCX openly advertised. Then banks used—and still use—them in court. Supposedly, DOCX only created papers when the facts behind those papers were correct according to electronic records. In reality, those electronic records are very, very flawed, and are now causing major confusion for banks that think they own mortgages which are actually owned by other banks, or sometimes not owned by any of them.

In August, the Shapiro & Fishman law firm had to file a second set of mortgage papers in a foreclosure case because the original DOCX papers had been proven to be fraudulent. Got that? Two different sets of papers regarding the same mortgage. DOCX was forced to stop providing its “services” in the face of growing complaints about the fact that the documents it was preparing were about as legitimate as Monopoly money. And which bank has been sued for using documents “found” by DOCX? Deutsche. Naturally.

One thing DOCX apparently didn’t do is file affidavits of lost summons. Those are legal claims that a defendant was informed of a case with a court summons that was supposed to be kept on file but was instead mysteriously lost. On Friday, 4closurefraud.org reported that Legalwise, Inc. had pulled a report on how many of these affidavits are being filed on behalf of banks. The site then posted a list of some of the affidavits of lost summons that have been filed in the past year alone; not the text of the affidavits themselves, just the identifying serial number and three names connected to the case. When copied and pasted into a word processing program, the list is 271 pages long. Many of the names of the defendants are either blank or John/Jane Doe, which could make one wonder exactly how the process servers figured out who to tell about the impending trial. Yves Smith, a well-known economics writer, reports that the entire list is from just one state—and from just one county within that state. If the process server signs an affidavit “confirming” that the summons was delivered and subsequently lost, then there’s no way to tell who was actually served until courts call into question all process server affidavits. An untold number of homeowners are missing their foreclosure proceedings, just like Patrick Jeffs did, because they’re never even told about them.

The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common. She added that she signed thousands of statements “confirming” examination of documents used to foreclose every month, and that she “typically doesn’t read them.” When did Bank of America begin to halt some of its foreclosures? Less than two weeks ago. That’s not a sign that Bank of America didn’t know what it was doing. It’s a sign that Bank of America thought it could get away with what it was doing.

Still, that’s not what’s most insidious about the reaction. What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.

The banks in question have been trying to claim that they only chose to stop most foreclosure activity in the 23 judicial review states because they think the problem is almost entirely contained within the robo-signing of the court documents needed to foreclose. That’s a bit strange, because Yves Smith writes that North Carolina lawyer Max Gardner has a running joke that when a group of over 100 lawyers he works with find a mortgage with proper documentation, the papers should be bronzed and hung on the wall—and North Carolina isn’t a judicial review state.

To be more specific, a mortgage has two basic components. One is the deed of trust attached to the property itself, and the other, called a note, is the homeowner’s IOU. Gardner’s lawyers have yet to find a single note that correctly documents the path the IOU has taken to arrive at the bank trying to foreclose. The notes were the things getting robo-signed during the housing bubble, not by foreclosure mills but by mortgage mills. And the signing was even more robotic because it could be done electronically through a system called Mortgage Electronic Registration Systems (MERS). When a note was sold into the system, “ownership” of the note could be traded via computer. Unfortunately for MERS, the law requires the physical note to prove ownership, so none of these trades were exactly what one might call legal, or even what one might call real. Hence the need for operations like DOCX, to fill in the missing paperwork.

To provide an understanding of just what kind of legal monster MERS has become, Christopher Peterson, a law professor at the University of Utah, has authored a working draft of a paper about MERS which says, among other things, that the company that runs the system, MERSCORP, does not actually have any employees, and that it licenses employees of other companies to use the title “Vice President of MERSCORP” in foreclosure lawsuits. It also sells its own corporate seals, used on paperwork to back up foreclosures, for $25 online. Peterson’s paper described the legal process used to foreclose on any mortgage within the system as reliant upon determining the owner of that mortgage to be “whoever the error prone, virus infected, customer service representative bulwarked computer records of mortgage servicers say it is.”

In addition, the AP reports that recently-released court depositions state that financial institutions hired hair stylists and Walmart floor workers to fill positions that would qualify for the term “foreclosure experts,” even though the so-called “experts” received barely any training at all. These were the robo-signers, and many of them couldn’t even answer questions as to what a mortgage is, or what an affidavit is. Some of those people have now testified that they knew they were lying when they signed foreclosure affidavits (the ones they couldn’t define), and that they agreed with the accusations of document fraud. As they signed, they both used information from and created new information for MERS.

A class-action lawsuit was just filed in California which asserts that MERS has no legal standing whatsoever in nearly any state to actually hold a mortgage. Many mortgage-backed security experts are not even aware that MERS has made the shaky legal argument that it’s both the actual owner of any given mortgage and also merely the entity holding onto any given mortgage for someone else. The same lawsuit states that Countrywide, which took over a larger and larger part of all mortgage lending in the state during the housing bubble, not only committed fraud by selling faulty mortgages to investors from 2004 onward, but knew that it was doing so. That means a lot of the original paperwork behind those mortgages will have to be changed, which poses a problem not just for Countrywide, but for nearly every lender in the United States.

For financial institutions, the problem isn’t the “missing” documents. It’s the missing documents—the real ones, which say much different things than the “missing” ones, and which the banks can’t seem to get their hands on. Everyone in the financial industry has been looking for them in more places than kids look for Carmen Sandiego, and they still can’t seem to find the X that marks the spot. There’s good reason for that—the industry destroyed the papers a long time ago. On purpose.

Banking officials happily told the Florida court system in 2009 that the documents had been shredded. At the time, lenders were trying to prevent some foreclosure rule changes, so they sent a letter to the Florida Supreme Court. Among other things, the letter stated that it was standard practice to destroy mortgage papers once the mortgages were sold into MERS in order to avoid confusion. (“A” for effort on that front.) Something funny happens when tearing up a contract, and it might best be explained by a certain common phrase. That phrase is, “Tearing up a contract.” Unless very specific conditions are met, the contract becomes null. Void. Not worth the paper it is printed on.

The fact that so many contracts were torn up explains why DOCX didn’t deal in affidavits of foreclosure, at least not according to a DOCX price sheet posted on attorney Matthew Weidner’s website. The sheet lists the going rates for tasks such as, “cure defective mortgage.” Nowhere on the document does DOCX say that its services were limited to 23 states. Quite the opposite, in fact—DOCX proudly boasts of its “nationwide” presence at the very top of the sheet. Any mortgage that became “defective,” something that tends to occur when banks can’t find anything signed by homeowners with “mortgage” written in nice big letters somewhere, could be “cured” by DOCX, no matter what state contained the relevant property.

DOCX also offered to “create missing intervening assignment,” which refers to something called an “assignment of mortgage,” the document used to sell a mortgage from one financial institution to another. The company would completely make up the document showing who owned any given mortgage, and would do so for the low, low price of $35. DOCX saved its best for last: “Recreate entire collateral file.” A collateral file is made up of several documents, including the note, deed, title commitment, and assignment. In other words, this was the combo meal on DOCX’s menu. And anyone willing to buy a whole lot of fresh papers even received a “volume discount” for their bulk orders.

Banks expect Americans to believe that this only occurred in 23 states, because doing so in the other 27 might be unethical. They also expect us to believe that not a single foreclosure has been challenged in those 27 states, and that the resulting paperwork didn’t come from a foreclosure mill. They also expect us to believe that the sales of houses that have already been seized, which are continuing as scheduled, are legitimate. Just like they expect Americans to believe that the reason DOCX didn’t also sell photocopies of personal checks is something other than the fact that copies of checks can’t be cashed. A check is actually just about the only thing a homeowner can sign without significant fear of being held hostage by a mere copy.

Americans have stopped believing. The attorneys general of every single state just opened a joint investigation into foreclosure fraud. As long as 50 is still a bigger number than 23, the problems aren’t contained. And banks are finally starting to react to the disbelief. The CEO of JP Morgan Chase, one of the founding members of MERS, has told CNBC that the bank has stopped naming the system as a plaintiff to foreclose. He actually said that JP Morgan had stopped naming it two years ago. The foreclosures that relied upon the information MERS holds, however, didn’t stop. Coincidentally, JP Morgan bumped up the reserves it was holding for “litigation and repurchase,” referring to events that would require buying back mortgages that had been mistakenly sold off. The Association of Financial Guaranty Insurers recently told Bank of America to prepare to be hit by lawsuits which will force it to buy back between $10 and $20 billion worth of mortgages. Similar numbers would apply to other nationwide banks. Bank of America’s entire federal bailout, before it purchased Merrill Lynch and needed additional funding, was worth $25 billion.

MERS, incidentally, also developed a commercial real estate program. The company even went so far as to declare that the commercial market had been “liberated from assignments” in the press release announcing the new program. The law has a much different opinion about whether or not MERS actually liberated anyone from anything. Inventing a product that gets around legal requirements doesn’t mean those requirements simply disappear. It only means that the inventor had better hope that nobody notices. Right now, the fraud investigations are mostly contained within residential real estate. Just like the problems in subprime lending were “contained” within subprime housing, according to Ben Bernanke in 2007. The owners of stores and offices around the country will soon be investigating the documents used to foreclose on commercial property much more closely.

The federal government recently tried to “fix” the mortgage mess with HR3808, a bill which would have required every state to recognize electronic records—the ones being robo-signed. Word of this legislation spread around the Internet quickly enough that an enormous amount of pressure was put on President Obama to veto it, which he ultimately did. The problem was that he had to. HR3808 was only on his desk because it had passed through the House with a simple voice vote and through the Senate by unanimous consent. Every single Democrat and every single Republican present in the Senate at the time approved of the bill. Which experts in blind rubber-stamping could possibly have been advising senators and representatives to let this legislation sail through Congress?

Smith also reports that when confronted with this information, the CEO of a major subprime lender replied, “If you’re right, we’re [screwed]. We never transferred the paper. No one in the industry transferred the paper.” The CEO used appropriate terminology. The decision to stop foreclosures in only 23 states is nothing less than a giant middle finger given to the collective intelligence of the American people. When it comes to each individual branch, the left hand doesn’t know what the right hand is doing, but it turns out that there’s a brain after all. The brain knows exactly what’s going on, and it knows that both hands can only get away with it as long as they can operate outside the law. That’s because what they’re doing is illegal. Fraudulent. Wrong. A forgery wrapped in a deception wrapped in a lie.

That’s why the final email The Daily Caller received from Deutsche did not contain any explanation at all. When questioned as to why its foreclosure proceedings are continuing despite the fact that its lawyers had been proven to be committing fraud, and why those proceedings are continuing despite the fact that the loan servicers which are a part of every major bank’s legal stature have been called into question, Deutsche offered no answer whatsoever. Its official response, sent directly to The Daily Caller, was that it “declined to comment.” Rather than stopping the fraud, Deutsche wants to cover its ears and keep kicking people out of their homes with fake documents, and wants to pretend that there won’t be repercussions for doing so.

Deutsche’s refusal to explain its actions is even more important than most would think because mortgages themselves aren’t the end of the story. When banks bought bunches of mortgages to create now-infamous mortgage-backed securities, they did so by forming trust companies to hold the mortgages themselves and forward money to the investors who bought the securities. One of those companies is technically who sued Patrick Jeffs—not Deutsche Bank, but the Deutsche Bank National Trust Company. When the companies were created, they had to abide by what’s called a pooling and servicing agreement, which defined the steps they had to take to acquire mortgages and send mortgage payments to the correct investors. The agreements allow the companies to enjoy tax-free status with the IRS, because the payments they receive aren’t considered income due to the fact that the role of the trusts is to send virtually all of the money to someone else.

The IRS has strict rules regarding these companies, and when the rules are broken, there’s a slight penalty. From 0%, the tax rate on payments received by a trust company that broke the rules jumps to 100%. One of the rules states that a trustee is supposed to acquire any mortgages it will hold within three months of the formation of the trust. There’s an exception for replacing a mortgage with another mortgage, but remember, the notes and assignments involved have either been destroyed or are so erroneously marked that they’re fraudulent. Even if the notes and assignments were all accurate and still in existence, the status of the mortgages in question has changed dramatically. Countless payments that were being made in 2005 have stopped in the aftermath of the housing bubble. The trusts can’t acquire anything close to the number of healthy mortgages they claim to hold, and even if they could, the IRS would take the payments or money from foreclosure sales away. Trusts haven’t been selling mortgage-backed securities. They’ve been selling nothing-backed securities. And as people discover this fact, the value of both the “mortgages” that banks only think they own and the nothing-backed securities will become $0, unless homeowners decide to get their jollies by giving banks money for no reason.

It gets worse. The equally-infamous credit-default swaps that bankrupted AIG will come roaring back with a vengeance as the foreclosure process grinds to a halt. Credit-default swaps are financial instruments called derivatives, which are assets with values determined by other assets. When a mortgage isn’t really a mortgage, a derivative based on that mortgage is suddenly called into question. Banks own trillions in derivatives. They also own derivatives of derivatives. Amazingly, they even own derivatives of derivatives of derivatives. The total dollar value of all derivatives in the American financial system is listed by the Office of the Comptroller of the Currency at an absolutely incomprehensible $233 trillion. And much of that will simply vanish into thin air, crashing major banks into the ground.

They can’t survive without the fraud. So they’ve decided to rob America blind. They just don’t want you to know. Thus, only one question remains. When do we foreclose?

Surprise! Almost 1 million Homebuyers Must Repay Their 2009 Tax Credit

admin — Fri, 10 Sep 2010 13:59:58 +0000

Get a load of this story about the circumstances that 950,000 first time home buyers find themselves in.

CNN/Money has this post…

Nearly half of all Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to repay the government.

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home’s purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.

Now, the IRS is developing a strategy for separating the 2009 taxpayers who are required to repay the credit from those who are not.

I wonder if these first time home buyers knew this going in?

Al Franken speaking at The “NutRoots” Convention in Vegas

admin — Tue, 27 Jul 2010 19:23:45 +0000

Al Franken, SNL actor and known pervert speaks to the Nutroot Convention claiming that Dan Issa, if he gets in power will come after the liberals like some kind of “witch hunt.”

What ever Issa does I am sure it will be something you and your crowd are not familiar with- his constitutional obligation to make sure everything is on the up and up.

Minnesotans, what were you thinking when you voted this piece of flotsam into office? Is this the best you guys can do? If it is, ask to secede from the union and then you can do your own thing and not hurt the whole country doing it.

Wachovia Bank implicated in Massive Drug money laundering

admin — Wed, 30 Jun 2010 01:14:34 +0000

Wachovia regularly helped move money for Mexican drug cartels, the bank’s parent, Wells Fargo, has admitted in a deal with federal prosecutors, Bloomberg Markets magazine reports in its August issue

The deal, struck in March, “sheds light on the largely undocumented role of U.S. banks in contributing to the violent drug trade that has convulsed Mexico for the past four years,” Bloomberg writ More..es.

Wachovia, which San Francisco-based Wells Fargo bought in 2008 amid the financial crisis, admitted it “didn’t do enough to spot illicit funds in handling $378.4 billion for Mexican-currency-exchange houses from 2004 to 2007. That’s the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history — a sum equal to one-third of Mexico’s current gross domestic product,” according to Bloomberg.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” Jeffrey Sloman, the federal prosecutor who handled the case, told Bloomberg.

Bloomberg tells how Mexican soldiers seized a DC-9 jet after it landed in April 2006 at the international airport in Ciudad del Carmen, 500 miles east of Mexico City: “They found 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was supposed to have been delivered from Caracas to drug traffickers in Toluca, near Mexico City, Mexican prosecutors later found.”

They also found that the smugglers had bought the jet with laundered funds they transferred through Wachovia and Bank of America, both headquartered in Charlotte, N.C. The plane was one of four that narcotraffickers bought and used to ship a total of 22 tons of cocaine.

People working for Mexican cartels deposited illegal funds in Bank of America accounts in Atlanta, Chicago and Brownsville, Texas, from 2002 to 2009, and Mexican drug dealers used shell companies to open accounts at HSBC Holdings, Europe’s biggest bank by assets, U.S. and Mexican prosecutors found. But neither bank was accused of wrongdoing. Spokespeople for the banks said laws prevent them from discussing the cases. Less..

Mortgage borrowers flee from Obama’s reduced mortgage program

admin — Tue, 22 Jun 2010 13:46:46 +0000

Alan Zibel posted this story with The Daily Caller about subprime borrowers fleeing the reduced mortgage program from the Obama administration

The Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That’s more than the 27 percent who have managed to have their loan payments reduced to help them keep their homes.

Last month alone, 150,000 borrowers left the program — bringing the total to 436,000 who have exited since it began in March 2009.

Administration officials say borrowers will get help in other ways. But analysts fear the majority will still wind up in foreclosure.

A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Many borrowers complained that the banks lost their documents. The industry said borrowers weren’t sending back the necessary paperwork.

Treasury officials have directed lenders to shift to a new system. They are now required to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.

The growing number of people leaving the program could lead to a new wave of foreclosures. If that happens, it could weaken the housing market and hold back the broader economic recovery.

Most of those leaving the program were rejected during a trial period lasting at least three months. More than 6,300 dropped out after having their loans modified.

Another 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.

Experts say more borrowers are likely to drop out in the coming months. Some homeowners who owe more on their loans than their properties are worth are likely to conclude that paying an oversized mortgage simply isn’t worth the cost.

Even after their loans are modified, many borrowers are simply stuck with too much debt — from car loans to home equity loans to credit cards.

“The majority of these modifications aren’t going to be successful,” said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. “Even after the permanent modification, you’re still looking at a very high debt burden.”

Obama administration officials contend that borrowers are still getting help — even if they fail to qualify for the program. The administration published statistics showing that nearly half of borrowers who fell out of the program received an alternative loan modification from their lender. About 7 percent fell into foreclosure.

Another option is a short sale — one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.

A short sale results in a less severe hit to a borrower’s credit score, and is better for communities because homes are less likely to be vandalized or fall into disrepair. To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.

Administration officials said their work on several fronts has helped stabilize the housing market. They cited government efforts to provide money for home loans, push down mortgage rates, and provide a federal tax credit for buyers.

“There’s no question that today’s housing market is in significantly better shape than anyone predicted 18 months ago,” said Sean Donovan, Obama’s housing secretary.

The mortgage modification was announced with great fanfare a month after Obama took office.

It is designed to lower borrowers’ monthly payments — reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Borrowers who complete the program are saving a median of $514 a month. Mortgage companies get taxpayer incentives to reduce borrowers’ monthly payments

90 banks miss May TARP payments

admin — Thu, 17 Jun 2010 12:53:22 +0000

Rick Moran with American Thinker had this post today

No, we’re not out of the woods – not by a long shot. The banking sector is still weak, and ripe for another shock, such as a Greek collapse or another spur to a meltdown.

From CNBC:

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.

The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.

SNL Financial’s analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

Under the TARP program, the U.S. Treasury invested in preferred shares issued banks looking for funds. The banks were to make regular dividend payments to the Treasury, and have the right to repurchase the shares at some point in the future.

Since the FDIC was strengthened last year, individual depositor’s are not at risk of losing their savings, even if all these banks go belly up, which is not likely anyway. But the failure to make timely payments to the Treasury by these institutions does not bode well for banking stability as we head into the summer and the possibility that any shock at all to the system could start the dominoes falling.

Keep the chainsaws running-we are not out of the woods yet…admin

World is dangerously exposed to European default

admin — Wed, 26 May 2010 12:23:13 +0000

Tony Barber with the Brussels Blog had this post yesterday..

For anyone wondering why Europe’s leaders are so determined to avoid a restructuring of Greek sovereign debt, I recommend a remarkable piece of research published on Monday by Jacques Cailloux, the Royal Bank of Scotland’s chief European economist, and his colleagues. (Unfortunately, it seems not to be easily available on the internet, so I’m providing links to news stories that refer to the report.)

The RBS economists estimate that the total amount of debt issued by public and private sector institutions in Greece, Portugal and Spain that is held by financial institutions outside these three countries is roughly €2,000bn. This is a staggeringly large figure, equivalent to about 22 per cent of the eurozone’s gross domestic product. It is far higher than previous published estimates. It indicates that, if a Greek or Portuguese or Spanish debt default were allowed to take place, the global financial system could suffer terrible damage.

As the RBS analysts say, the problem isn’t – as some commentators have suggested – that Europe’s troubles would trigger an economic downturn or trade conflicts that would depress demand for US and other foreign goods. These are legitimate concerns but, relatively speaking, fairly trivial.

“Any assessment of the economic impact of a sovereign default of these economies through trade linkages or through their GDP size misses entirely the point,” the RBS report says. “It is the financial linkages that suggest that these economies are too intertwined with foreign financial institutions to default, a phenomenon largely reminiscent of that of subprime … in terms of the potential ramifications that a default would have across the global financial system.”

The €2,000bn estimate is based on data compiled by the Bank of International Settlements, the International Monetary Fund, the Organisation for Economic Co-operation and Development, and the World Bank. It differs from earlier estimates in that it includes not only foreign bank exposure to Greek, Portuguese and Spanish debt, but the exposures of other institutions such as insurance companies and pension funds.

What is the breakdown? Foreign foreign institutions are estimated to have held €338bn of Greek debt at the end of 2009 – equivalent to 142 per cent of Greek GDP. In Spain’s case, the figure is €1,500bn – also 142 per cent of GDP. For Portugal, the figure is €333bn, the equivalent of twice its GDP. The combined amount for the three countries is €2,171bn, but the RBS authors think the total exposure of foreign institutions has declined a little in the first five months of this year.

Even so, the report provides a fairly compelling case for an all-out effort on the part of Greece, other eurozone countries and international financial institutions to prevent a default. The trouble is, however, that – as many commentators have pointed out – the chances look pretty slim that Greece will be able to restore order to its public finances by means of austerity measures and structural economic reform. Putting it bluntly, Greece partied for too long and has almost certainly left it too late to deal with the hangover.

The urgent task facing international financial policymakers and bankers is therefore to anticipate the potential fall-out from a Greek default and take steps to keep the damage as limited as possible