By Steve Randy Waldman
I find it really depressing that I have to write this. But it seems I have to write it.
Substantially all of the TARP funds advanced to banks have been paid back, with interest and sometimes even with a profit from sales of warrants. Most of the (much larger) extraordinary liquidity facilities advanced by the Fed have also been wound down without credit losses. So there really was no bailout, right? The banks took loans and paid them back.
Bullshit.
Suppose you buy fire insurance from Inflammable Insurance. You pay $1000 for a year of insurance. There is no fire, so you make no claim. Next year, you find a different provider offering a better price, and you switch.
Soon after your relationship has ended, you discover that Inflammable failed to pay any claims at all during the year you were insured, because all customer premiums were diverted to the Cayman Islands and then spent on kiddy porn and Pez. Were you defrauded? Do you have any cause for complaint? After all, ex post your cash flows turned out to be the same as if you had been dealt with fairly.
Of course you have been defrauded. You did not get what you had paid for. You had paid for Inflammable to bear risk on your behalf. It did not do so. The money you paid was simply stolen.
In financial markets, risk-bearing is the ultimate commodity. It is what financial market participants buy and sell. As a financial speculator, I spend exorbitant amounts of money buying out-of-the-money options to limit my downside risk. The vast majority of those options expire worthless, just like the vast majority of fire insurance policies end with no claims paid. If only someone would give me all those options for free, or sell them to me for half the market price, or reimburse the cost of the options that I never end up using, I would be rich. Seriously, given the years I’ve been in this game, I’d be pretty set if I had my option premiums back. It doesn’t seem fair at all that I am confined to a modest middle-class life because I had to buy all this insurance I never used.
Cash is not king in financial markets. Risk is. The government bailed out major banks by assuming the downside risk of major banks when those risks were very large, for minimal compensation. In particular, the government 1) offered regulatory forbearance and tolerated generous valuations; 2) lent to financial institutions at or near risk-free interest rates against sketchy collateral (directly or via guarantee); 3) purchased preferred shares at modest dividend rates under TARP; 4) publicly certified the banks with stress tests and stated “no new Lehmans”. By these actions, the state assumed substantially all of the downside risk of the banking system. The market value of this risk-assumption by the government was more than the entire value of the major banks to their “private shareholders”. On commercial terms, the government paid for and ought to have owned several large banks lock, stock, and barrel. Instead, officials carefully engineered deals to avoid ownership and control.
But still. Everything worked out, right? It turns out that banks didn’t need to use the government’s giant insurance policy. It was just a panic after all!
Bullshit.
Suppose my kid’s meth habit got the best of him. He’s needs to come up with $100K quick or his dealer’s gonna whack him. But he’s a good kid, really! Coulda happened to anyone. So I “lend” him the money, even though he has no visible means of support and the sketchiest loan sharks in town wouldn’t give him the time of day. Now I believe in bootstraps and hard work, individualism and self-reliance. So I tell my son. “Son, you are going to pay me back every penny of that loan. You are going to work it off. I have arranged with one of my golf buddies, a guy who owes me a favor or three, a job that pays $200K a year. You’d better show up every day at 9 a.m. and sit behind that desk, and get me back my money!” And he does! After a year, he’s made me whole. What a good kid.
No bail out, right? He paid me back every penny! Worked it off!
Bullshit. The opportunity I provided him, the $200K job that he would not otherwise received without my intercession was a huge grant. On the open market, if I were to accept bribes from the highest bidder to wangle the job from my friend, that opportunity would be worth more than the $100K advanced. I paid my son’s loan with my own money. I just obscured the cash flows, so my son and I can pretend and sustain our mutual self-regard and our righteous disdain for the moochers and the hippies and the riff-raff.
After assuming the banking system’s downside risk, the US government engineered a wide variety of favorable circumstances that helped banks “earn” their way back to quasi-health. The government provided famous and obvious transfers like paying unwinding AIG swaps at 100¢ on the dollar. It forced short-term yields to zero and created an environment in which medium-term interest rates would be capped for several years, granting banks a near-risk-free arbitrage for a while. It emitted trillions in excess reserves on which it continues to pay interest. It forewent investigations and prosecutions that by law it should actively pursue, and settled what enforcement it could not avoid for token fees. Then there are the things conspiracy theorists and cranks like me suspect but cannot prove: that the government and the Fed have been less than aggressive in minimizing their costs when they or entities they controls (AIG, Fannie, Freddie) transact with large banks, that they have left money on the table where doing so could be hidden in arcane accounts or justified as ordinary transaction expenses and trading losses. Large banks have enjoyed some rather extraordinary results for allegedly efficient markets, quarters with large trading profits and no or very few losing days. Government housing policy is pretty overtly subject to a constraint that interventions must not provoke loss realizations for banks carrying bad loans at inflated values, or interfere with servicing revenues. (If you think I am overconspiratorial, I’m still waiting for an innocent explanation of this, from 1991.)
Pulling back from a shell game whose details are, by design, labyrinthine, check out the big picture. Since the beginning of the 3rd quarter of 2008 (Lehman quarter), US debt held by the public increased by 84%, from $5.28T to $9.75T (as of the end of Q2 2011). Depending on where you start, the growth rate of publicly held US debt prior to Q3 2008 had been ~8% per year (starting in 1970 or 1980) or ~4.5% (starting in 1990 or 2000). The growth rate since Q3-2008 has been 22.6% per year. The United States has issued between $3T and $4T more debt than would have been predicted by any reasonable estimate prior to the financial crisis. So far.
Hyman Minsky famously described crisis stabilization as a two-step process: First, the state/central-bank steps in as lender of last resort to halt the panic. Then the state must underwrite a program of massive deficit spending in order to “validate” — Minsky’s word — the fragile capital structures and the “innovative” business practices that proliferate during periods of tranquility.
Translating into current buzzwords, when the trouble begins there is a solvency crisis. It is converted into a liquidity crisis ex post by a firehose of net spending by the state. The current crisis has followed Minsky’s script perfectly. Banks’ ability to “pay back” bailouts has depended upon continued regulatory forbearance, tacit expectations of support if shit hits the fan again, and massive government debt issuance which resuscitated assets that would otherwise be worthless.
But who has lost anything from the bailouts? Wasn’t it a win-win? This all sounds very abstract. Where are the transfers?
If the government borrowed or printed a trillion dollars and gave the money to me, would there be any losers? If you don’t think there has been a wealth transfer, if you don’t think ordinary people have lost, please call your Congressperson and ask her to cut me a trillion dollar check. In some abstract sense, this policy of giving me money would push government debt higher. But that is so very vague a cost! I promise I’d do great things with a trillion dollars. My ideas are so much cooler than Goldman Sachs’, despite all the wholesome commercials they are running.
During the run-up to the financial crisis, bank managers, shareholders, and creditors paid themselves hundreds of billions of dollars in dividends, buybacks, bonuses and interest. Had the state intervened less generously, a substantial fraction of those payouts might have been recovered (albeit from different cohorts of stakeholders, as many recipients of past payouts had already taken their money and ran). The market cap of the 19 TARP banks that received more than a billion dollars in assistance is about 550B dollars today (even after several of those banks’ share prices have collapsed over fears of Eurocontagion). The uninsured debt of those banks is and was a large multiple of their market caps. Had the government resolved the weakest of those banks, writing off equity and haircutting creditors, had it insisted on retaining upside commensurate with the fraction of risk it was bearing on behalf of stronger banks, the taxpayer savings would have run from hundreds of billions to a trillion dollars. We can get into all kinds of arguments over what would have been practical and legal. Regardless of whether the government could or could not have abstained from making the transfers that it made, it did make huge transfers. Bank stakeholders retain hundreds of billions of dollars against taxpayer losses of the same, relative to any scenario in which the government received remotely adequate compensation first for the risk it assumed, and then for quietly moving Heaven and Earth to obscure and (partially) neutralize that risk.
The banks were bailed out. Big time.
Wednesday, November 30, 2011
Michael Olenick: Are Remotely-Processed Mortgage Assignments Another Smoking Gun?
By Michael Olenick, founder and CEO of Legalprise
Assignments of mortgages are the legal instruments that transfers ownership of a mortgage from one party to another. In a securitized mortgage, a trust holds thousands of mortgages on behalf of investors. The investors in the various bonds that get cash flows from a single trust expect the trust to be in a position to take advantage of the rights conferred by the mortgages when certain events occur, usually payoff or default.
I used my crowd-sourced online software, www.findthefraud.com, to help categorize 2,500 assignments in Palm Beach County, FL, which were recorded in late 2008 and early 2009. Palm Beach County, like any Florida county, is a high foreclosure state and, thanks to strong public records laws in Florida, serves as a good bellwether about bank business practices both in Florida and around the country.
Common sense would say that an assignment should be executed either by a lawyer for the trustee for the trust, or an agent of the trust, which in this case would be a servicer or a lawyer working for the servicer. Lawyers should be geographically close to the foreclosed property, because they will need to eventually appear in court. Bankers should be close to major banking operations, since they almost always sign as senior officials: Vice President is the most typical title.
We know from the robo-signing scandal that the signers don’t read what they’re signing, but it is also apparent that they’re scattered almost randomly around the country.
In my 2,500 sample size I studied the county of notarization, which indicates where the primary signers are since the notary attests the documents were signed in front of him or her. This batch of assignments were signed in 35 different states, and 101 different counties. So much for consistency.
The most common county is San Bernardino, CA, which filed 746 mortgage assignments, 29.8% of the total. California overall notarized 815 Florida assignments, 32.6% of the total. Florida, which you’d expect, came next with 610 assignments, or 24.4% of the total, followed by Minnesota (9.3%), Texas (7.3%), Ohio (4.8%), Georgia (4.5%), Louisiana (2.8%), and Nebraska (2.6%). All other states had less than 2%.
Certain counties really stood out from others.
It isn’t clear why San Bernardino, a large portion which consists of the Mojave desert, signed off on almost one in three assignments for Palm Beach County, FL, a tropical oasis on the other side of the country. The overwhelming majority of these assignments involved HSBC or US Bank. Virtually every assignment from San Bernardino had the notarization page entirely separate from the actual assignment, despite more than adequate space for the notarization on the first page, the practice virtually everywhere else. The notary is signing, under penalty of perjury, that the document was signed in front of them and that everything on it is kosher. If I didn’t know better — and, actually, I don’t — it almost looks like the notarization pages and the assignments were being prepared separately then put together after the fact.
After California and San Bernardino comes Florida. Of the 610 assignments inked in a more reasonable state 330, over half, were signed in Broward County. Broward, which adjoins Palm Beach County, seems more reasonable except that the overwhelming majority of these assignments were executed either by the law firms of David J. Stern or Marshall Watson.
Stern’s firm, the poster child of foreclosure fraud, was shut down after the GSEs banned him. That resulted in a mad dash by banks and the GSEs to recover about 100,000 files. Edward DeMarco, head of the FHFA that oversees the GSEs, Stern’s largest client, testified to Congress a couple weeks ago he was “puzzled” why crooked lawyers hadn’t yet been disciplined, a clear reference to Stern. Like DeMarco, every person I know in FL is also puzzled, and many are more than a little annoyed with our state’s bar association. Marshall Watson, the other high-volume signer, paid a $2 million fine to the FL Attorney General then was dropped by Freddie Mac. OK, so maybe closer geographic proximity does not lead to higher quality.
Next comes the 219 assignments inked in Dakota County, MN, out of a total of 233 signed in MN. Dakota County is apparently home to a branch of Lender Processing Services (LPS), an organization that, as Matt Stoller pointed out earlier this week, appears to be perennially in trouble yet which — except for a large decline in their stock price — seems to miraculously escape unfazed. To summarize, mortgage assignments for homes in a tropical paradise are being assigned in the desert and a frozen tundra; maybe this is an odd climate diversity experiment? The Dakota County assignments, like the Broward assignments, are from a hodge-podge of banks; none stood out.
Fulton County, GA had 105 assignments, out of 113 signed in GA, all but one from LPS-owned and now defunct DocX. Of those, the overwhelming majority involved American Home Mortgage Servicing, Inc. or American Brokers Conduit. DocX is the now-shuttered company that was featured on 60 Minutes because they employed teenagers to act as “surrogate signers” for infamous robosigner Linda Green.
Another notable county is Franklin County, OH, with 89 assignments, out of 120 signed in OH. Franklin County was singled out by the former Ohio Secretary of State, Jennifer Bruner, for notary fraud related to foreclosures. Bruner went so far as to refer foreclosure fraud to the US Dept. of Justice and publicly urged President Obama to take a leadership position on foreclosure fraud. Bruner’s appeal fell on deaf ears by the President that promised Hope but instead delivered HAMP, the disastrous program that tricks borrowers into foreclosure via fake modifications.
Two other interesting counties in the top-ten are Ouachita Parish, LA (65 assignments), and Scotts Bluff County, NE (64 assignments). Ouachita is the larger of the two counties, with 150,051 people, and includes Monroe, LA. Scotts Bluff, which Wikipedia touts having the third largest airport in Nebraska, and the census says contains 36,970 people. It isn’t clear why these two tiny counties seem to be cranking out mortgage assignments for far-away Palm Beach County. All but one of the Ouachita assignments involved JP Morgan/Chase Home Finance. Similarly, all but one of the Scotts Bluff assignments involved Aurora Home Loans.
I don’t know if these assignments are illegal, or even if they’re unethical, but stealthily moving vast amounts of property for far away communities seems strange: an eye popping amount of mortgages changed hands with these assignments.
Robosigning is not a victimless crime. The reason we have careful, document-intensive processes for handling real property is that it is the foundation of a nation’s wealth. A home is most families’ biggest asset. The practice of having independent parties verify the validity of signatures dates back to the 1677 Statute of Frauds. It was implemented because the lax evidentiary standards of the early 1600s allowed rich people to hire experts who would swear falsely in court about the ownership of property. The result was court-sanctioned theft and rising disorder.
There are plenty of legal, ethical, economic, and financial problems with document abuses and fraud. But more than any single problem, robos rob trust. Banks are using faceless robos in rural California, Louisiana, and Nebraska to rob the people of Palm Beach County of the protection of the law and in many cases, their homes. This irrevocably destroys trust, not only with the banks that employ the robos but with everybody else too. Since banks are realistically a commodity but-for trust, you’d think that banks, especially brand-aware consumer banks, would have moved long ago to stem these practices.
Indeed, many banks now claim that they have changed or are in the process of changing. As the new documents roll in to public records we’ll find out. But while banks may have “moved on” plenty of families who lost their homes to these documents have moved out. Parents shelter their children with family, friends, in motels that rent rooms by the night, or in cars. These banks — who have received trillions of dollars of bailout money — can’t simply decry, again, “whoops – our bad,” then expect yet another Get Out of Jail Free card.
The federal government has obviously decided not to bother investigating the extent of the fraud, so I’ll continue my studies, hoping from help from the public and publishing results as the datasets expand. But hopefully, one day, law enforcement and regulators — government employees funded by taxpayer who are trained and tasked to do this type of work — will pick up the burden on their own.
Assignments of mortgages are the legal instruments that transfers ownership of a mortgage from one party to another. In a securitized mortgage, a trust holds thousands of mortgages on behalf of investors. The investors in the various bonds that get cash flows from a single trust expect the trust to be in a position to take advantage of the rights conferred by the mortgages when certain events occur, usually payoff or default.
I used my crowd-sourced online software, www.findthefraud.com, to help categorize 2,500 assignments in Palm Beach County, FL, which were recorded in late 2008 and early 2009. Palm Beach County, like any Florida county, is a high foreclosure state and, thanks to strong public records laws in Florida, serves as a good bellwether about bank business practices both in Florida and around the country.
Common sense would say that an assignment should be executed either by a lawyer for the trustee for the trust, or an agent of the trust, which in this case would be a servicer or a lawyer working for the servicer. Lawyers should be geographically close to the foreclosed property, because they will need to eventually appear in court. Bankers should be close to major banking operations, since they almost always sign as senior officials: Vice President is the most typical title.
We know from the robo-signing scandal that the signers don’t read what they’re signing, but it is also apparent that they’re scattered almost randomly around the country.
In my 2,500 sample size I studied the county of notarization, which indicates where the primary signers are since the notary attests the documents were signed in front of him or her. This batch of assignments were signed in 35 different states, and 101 different counties. So much for consistency.
The most common county is San Bernardino, CA, which filed 746 mortgage assignments, 29.8% of the total. California overall notarized 815 Florida assignments, 32.6% of the total. Florida, which you’d expect, came next with 610 assignments, or 24.4% of the total, followed by Minnesota (9.3%), Texas (7.3%), Ohio (4.8%), Georgia (4.5%), Louisiana (2.8%), and Nebraska (2.6%). All other states had less than 2%.
Certain counties really stood out from others.
It isn’t clear why San Bernardino, a large portion which consists of the Mojave desert, signed off on almost one in three assignments for Palm Beach County, FL, a tropical oasis on the other side of the country. The overwhelming majority of these assignments involved HSBC or US Bank. Virtually every assignment from San Bernardino had the notarization page entirely separate from the actual assignment, despite more than adequate space for the notarization on the first page, the practice virtually everywhere else. The notary is signing, under penalty of perjury, that the document was signed in front of them and that everything on it is kosher. If I didn’t know better — and, actually, I don’t — it almost looks like the notarization pages and the assignments were being prepared separately then put together after the fact.
After California and San Bernardino comes Florida. Of the 610 assignments inked in a more reasonable state 330, over half, were signed in Broward County. Broward, which adjoins Palm Beach County, seems more reasonable except that the overwhelming majority of these assignments were executed either by the law firms of David J. Stern or Marshall Watson.
Stern’s firm, the poster child of foreclosure fraud, was shut down after the GSEs banned him. That resulted in a mad dash by banks and the GSEs to recover about 100,000 files. Edward DeMarco, head of the FHFA that oversees the GSEs, Stern’s largest client, testified to Congress a couple weeks ago he was “puzzled” why crooked lawyers hadn’t yet been disciplined, a clear reference to Stern. Like DeMarco, every person I know in FL is also puzzled, and many are more than a little annoyed with our state’s bar association. Marshall Watson, the other high-volume signer, paid a $2 million fine to the FL Attorney General then was dropped by Freddie Mac. OK, so maybe closer geographic proximity does not lead to higher quality.
Next comes the 219 assignments inked in Dakota County, MN, out of a total of 233 signed in MN. Dakota County is apparently home to a branch of Lender Processing Services (LPS), an organization that, as Matt Stoller pointed out earlier this week, appears to be perennially in trouble yet which — except for a large decline in their stock price — seems to miraculously escape unfazed. To summarize, mortgage assignments for homes in a tropical paradise are being assigned in the desert and a frozen tundra; maybe this is an odd climate diversity experiment? The Dakota County assignments, like the Broward assignments, are from a hodge-podge of banks; none stood out.
Fulton County, GA had 105 assignments, out of 113 signed in GA, all but one from LPS-owned and now defunct DocX. Of those, the overwhelming majority involved American Home Mortgage Servicing, Inc. or American Brokers Conduit. DocX is the now-shuttered company that was featured on 60 Minutes because they employed teenagers to act as “surrogate signers” for infamous robosigner Linda Green.
Another notable county is Franklin County, OH, with 89 assignments, out of 120 signed in OH. Franklin County was singled out by the former Ohio Secretary of State, Jennifer Bruner, for notary fraud related to foreclosures. Bruner went so far as to refer foreclosure fraud to the US Dept. of Justice and publicly urged President Obama to take a leadership position on foreclosure fraud. Bruner’s appeal fell on deaf ears by the President that promised Hope but instead delivered HAMP, the disastrous program that tricks borrowers into foreclosure via fake modifications.
Two other interesting counties in the top-ten are Ouachita Parish, LA (65 assignments), and Scotts Bluff County, NE (64 assignments). Ouachita is the larger of the two counties, with 150,051 people, and includes Monroe, LA. Scotts Bluff, which Wikipedia touts having the third largest airport in Nebraska, and the census says contains 36,970 people. It isn’t clear why these two tiny counties seem to be cranking out mortgage assignments for far-away Palm Beach County. All but one of the Ouachita assignments involved JP Morgan/Chase Home Finance. Similarly, all but one of the Scotts Bluff assignments involved Aurora Home Loans.
I don’t know if these assignments are illegal, or even if they’re unethical, but stealthily moving vast amounts of property for far away communities seems strange: an eye popping amount of mortgages changed hands with these assignments.
Robosigning is not a victimless crime. The reason we have careful, document-intensive processes for handling real property is that it is the foundation of a nation’s wealth. A home is most families’ biggest asset. The practice of having independent parties verify the validity of signatures dates back to the 1677 Statute of Frauds. It was implemented because the lax evidentiary standards of the early 1600s allowed rich people to hire experts who would swear falsely in court about the ownership of property. The result was court-sanctioned theft and rising disorder.
There are plenty of legal, ethical, economic, and financial problems with document abuses and fraud. But more than any single problem, robos rob trust. Banks are using faceless robos in rural California, Louisiana, and Nebraska to rob the people of Palm Beach County of the protection of the law and in many cases, their homes. This irrevocably destroys trust, not only with the banks that employ the robos but with everybody else too. Since banks are realistically a commodity but-for trust, you’d think that banks, especially brand-aware consumer banks, would have moved long ago to stem these practices.
Indeed, many banks now claim that they have changed or are in the process of changing. As the new documents roll in to public records we’ll find out. But while banks may have “moved on” plenty of families who lost their homes to these documents have moved out. Parents shelter their children with family, friends, in motels that rent rooms by the night, or in cars. These banks — who have received trillions of dollars of bailout money — can’t simply decry, again, “whoops – our bad,” then expect yet another Get Out of Jail Free card.
The federal government has obviously decided not to bother investigating the extent of the fraud, so I’ll continue my studies, hoping from help from the public and publishing results as the datasets expand. But hopefully, one day, law enforcement and regulators — government employees funded by taxpayer who are trained and tasked to do this type of work — will pick up the burden on their own.
Tuesday, November 29, 2011
The 1%’s “leaders” allow a million children to die every month from preventable poverty
by Carl Herman
Despite the investment to save a million children’s lives from preventable poverty being just 0.7% of our gross national income, despite that every historical case of ending poverty reduces population growth rates, and despite US promises to make that investment at global summits, the 1% “leadership” in government and corporate media renege on all promises and allow this crushing torture, these excruciating and prolonged death spirals of children.
Since the 1%’s reneged promises from just 1996, the total deaths from preventable poverty is conservatively greater than from all wars, revolutions, murders, accidents, and suicides in the 20th century.* In the past 20 years, and since the 1990 World Summit for Children where the promise to end poverty was again sincerely pledged, total deaths from poverty eclipse all the above categories of death in all known human history.**
The leverage point to remove the 1% is for those of us among the 99% with arrest authority to exercise it for “emperor has no clothes” obvious War Crimes, torture, murder of state residents as US soldiers who were lied-into criminal wars, and massive economic fraud in the trillions of our dollars every year.
As an academic in government, history and economics, here are my strongest resources to explain, document, and prove the “emperor has no clothes” obvious CRIMES. This is the best contribution I have at the moment for the 99%:
Open proposal for US revolution: end unlawful wars, criminal economics (4-part series)
Occupy This: US History exposes the 1%’s crimes then and now (6-part series)
Below is my assignment for high school students on ending poverty with all of the documentation. You are welcome to share it:
The Economics of Ending Poverty
*Assuming 15 years of poverty deaths totaling 300 million and 20 years at 400 million (poverty deaths have decreased over the past 20 years) compared to the estimates from Scaruffi, P. “Wars and Genocides of the 20th Century.” http://www.scaruffi.com/politics/massacre.html (along with the relatively smaller numbers for murders, accidents, and suicides) and from Wikipedia: http://en.wikipedia.org/wiki/List_of_wars_and_disasters_by_death_toll.
** Probably a safe estimate given the population growth rate of the 20th century and a global population of ~1.6 billion in 1900.
Despite the investment to save a million children’s lives from preventable poverty being just 0.7% of our gross national income, despite that every historical case of ending poverty reduces population growth rates, and despite US promises to make that investment at global summits, the 1% “leadership” in government and corporate media renege on all promises and allow this crushing torture, these excruciating and prolonged death spirals of children.
Since the 1%’s reneged promises from just 1996, the total deaths from preventable poverty is conservatively greater than from all wars, revolutions, murders, accidents, and suicides in the 20th century.* In the past 20 years, and since the 1990 World Summit for Children where the promise to end poverty was again sincerely pledged, total deaths from poverty eclipse all the above categories of death in all known human history.**
The leverage point to remove the 1% is for those of us among the 99% with arrest authority to exercise it for “emperor has no clothes” obvious War Crimes, torture, murder of state residents as US soldiers who were lied-into criminal wars, and massive economic fraud in the trillions of our dollars every year.
As an academic in government, history and economics, here are my strongest resources to explain, document, and prove the “emperor has no clothes” obvious CRIMES. This is the best contribution I have at the moment for the 99%:
Open proposal for US revolution: end unlawful wars, criminal economics (4-part series)
Occupy This: US History exposes the 1%’s crimes then and now (6-part series)
Below is my assignment for high school students on ending poverty with all of the documentation. You are welcome to share it:
The Economics of Ending Poverty
*Assuming 15 years of poverty deaths totaling 300 million and 20 years at 400 million (poverty deaths have decreased over the past 20 years) compared to the estimates from Scaruffi, P. “Wars and Genocides of the 20th Century.” http://www.scaruffi.com/politics/massacre.html (along with the relatively smaller numbers for murders, accidents, and suicides) and from Wikipedia: http://en.wikipedia.org/wiki/List_of_wars_and_disasters_by_death_toll.
** Probably a safe estimate given the population growth rate of the 20th century and a global population of ~1.6 billion in 1900.
The Journal Doesn't Like Rakoff's Ruling: Tough
by Karl Denninger
As I pointed out yesterday:
The only way you will get the truth is when there are hundreds of Judge Rakoffs and they all refuse to allow any so-called "settlement" to cross their desk without a determination of guilt or innocence being entered.
The fact of the matter is that fraud is a business model on Wall Street and has been for far, far too long.
Today, it got formal, judicial recognition and a resounding rejection to go along with it it.
Oh boo hoo says the Wall Street Journal on Judge Rakoff:
Joseph Grundfest, a law professor at Stanford University, said there could be serious consequences if other courts adopted the same approach as Judge Rakoff by refusing to endorse a settlement unless the firm admitted wrongdoing—something "no rational defendant" would do.
"Judge Rakoff's decision will likely be troubling to the entire federal government, and not just the SEC," said Mr. Grundfest, who from 1985 to 1990 was a commissioner at the agency. "By his logic, it's hard ever to support any settlement without a trial. So, will the federal courts be jammed with trials so that judges can know the 'truth' because they are unwilling to accept allegations negotiated in the shadow of a trial?"
This very process happens every single day in courtrooms across this nation. Every day defendants in our courtrooms enter guilty pleas that include negotiated penalties.
There are myriad and very-valid reasons for those pleas. Sometimes it rests on the uncertainty of a trial -- you never know how solid your allegedly "rock-hard" case will look to a jury and sometimes it rests on other factors, such as charging a bunch of people but realizing late in the justice game that one or more of them wasn't really "involved" at a level sufficient to justify the charges laid.
A big part of the problem is that we continue to refuse to issue criminal indictments against these firms where the penalty can include revocation of a charter. Were we to do so then the same sort of plea agreement would be operative here, and we'd have them entered all the time for lesser penalties but they'd still establish criminal guilt, and thus be grist for the civil lawyers -- as they should.
Look, one of the principles of justice is that if you screw someone and get charged as a consequence you are frequently ordered to make restitution in the amount of the theft or fraud you engaged in. Were this to become the standard when it comes to corporate lawbreaking then there would be little reason for civil lawsuits, but if a defendant corporation managed to evade a restitution order then the civil lawyers would circle the carcass and take bites from it as well they should.
At its root illegal behavior by corporations will never stop so long as the only risk is a civil charge that is expected to result in both a small monetary penalty and no admission of guilt so that those abused have no predicate with which to go after the wrong-doer in civil court via private recovery actions.
Our current "justice system", in short simply makes fraud a business model that has costs dramatically smaller than what the offenders can steal through their misconduct.
Judge Rakoff is exactly correct in refusing to endorse this model, as despite the claims that this is an "effective" model for discipline of wrong-doing we have decades of experience with it now and all it has produces is serial re-offenders.
Were this a violent criminal context we would have protests on the courthouse steps demanding "three strikes" and similar laws, and we'd get them, exactly as we did years ago.
It is well beyond the time that we should have a "three strkes" rule for corporate misconduct and put a stop to the "neither admit or deny" negotiated settlement.
Plea the charges -- perhaps -- but you should have to admit guilt to do so.
As I pointed out yesterday:
The only way you will get the truth is when there are hundreds of Judge Rakoffs and they all refuse to allow any so-called "settlement" to cross their desk without a determination of guilt or innocence being entered.
The fact of the matter is that fraud is a business model on Wall Street and has been for far, far too long.
Today, it got formal, judicial recognition and a resounding rejection to go along with it it.
Oh boo hoo says the Wall Street Journal on Judge Rakoff:
Joseph Grundfest, a law professor at Stanford University, said there could be serious consequences if other courts adopted the same approach as Judge Rakoff by refusing to endorse a settlement unless the firm admitted wrongdoing—something "no rational defendant" would do.
"Judge Rakoff's decision will likely be troubling to the entire federal government, and not just the SEC," said Mr. Grundfest, who from 1985 to 1990 was a commissioner at the agency. "By his logic, it's hard ever to support any settlement without a trial. So, will the federal courts be jammed with trials so that judges can know the 'truth' because they are unwilling to accept allegations negotiated in the shadow of a trial?"
This very process happens every single day in courtrooms across this nation. Every day defendants in our courtrooms enter guilty pleas that include negotiated penalties.
There are myriad and very-valid reasons for those pleas. Sometimes it rests on the uncertainty of a trial -- you never know how solid your allegedly "rock-hard" case will look to a jury and sometimes it rests on other factors, such as charging a bunch of people but realizing late in the justice game that one or more of them wasn't really "involved" at a level sufficient to justify the charges laid.
A big part of the problem is that we continue to refuse to issue criminal indictments against these firms where the penalty can include revocation of a charter. Were we to do so then the same sort of plea agreement would be operative here, and we'd have them entered all the time for lesser penalties but they'd still establish criminal guilt, and thus be grist for the civil lawyers -- as they should.
Look, one of the principles of justice is that if you screw someone and get charged as a consequence you are frequently ordered to make restitution in the amount of the theft or fraud you engaged in. Were this to become the standard when it comes to corporate lawbreaking then there would be little reason for civil lawsuits, but if a defendant corporation managed to evade a restitution order then the civil lawyers would circle the carcass and take bites from it as well they should.
At its root illegal behavior by corporations will never stop so long as the only risk is a civil charge that is expected to result in both a small monetary penalty and no admission of guilt so that those abused have no predicate with which to go after the wrong-doer in civil court via private recovery actions.
Our current "justice system", in short simply makes fraud a business model that has costs dramatically smaller than what the offenders can steal through their misconduct.
Judge Rakoff is exactly correct in refusing to endorse this model, as despite the claims that this is an "effective" model for discipline of wrong-doing we have decades of experience with it now and all it has produces is serial re-offenders.
Were this a violent criminal context we would have protests on the courthouse steps demanding "three strikes" and similar laws, and we'd get them, exactly as we did years ago.
It is well beyond the time that we should have a "three strkes" rule for corporate misconduct and put a stop to the "neither admit or deny" negotiated settlement.
Plea the charges -- perhaps -- but you should have to admit guilt to do so.
Dylan Ratigan: To Eric Holder – A Simple Way To Prosecute Bank Crimes
By Dylan Ratigan
Shahien Nasiripour has a great scoop in the FT – bank regulators have uncovered up to 5000 military families who were foreclosed on illegally by mortgage servicers. Foreclosures on active duty troops is usually a big no-no, for a lot of reasons – for instance, when your credit rating is damaged by a foreclosure, it can impact your national security clearance. In addition, there’s enormous stress that the soldier goes through when his or her family is facing a threat of eviction, and it’s the kind of stress that makes him or her less equipped to be ready in a warzone. Congressman Bob Filner has even accused banks of “homicide” against American troops, blaming the banks for suicides resulting from the increased stress brought on by aggressive debt collection techniques.
There have been laws to protect troops from unscrupulous lending practices going all the way back to the First World War. The most recent revision to these laws is the Servicemember Civil Relief Act, which was signed in 2003. Congressman Brad Miller, who helped author the most recent version of this law, explained the rationale for the law as follows:
The Service Members Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.
Miller is a Democrat from North Carolina, but the bill was signed by George W. Bush, so there’s a bipartisan consensus on not foreclosing on troops fighting in wars.
Yet, as the FT story shows, it has become clear that big banks are routinely ignoring the law. Miller noted,
The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, and consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.
In all likelihood, these banks simply never set up their management processes to handle anything but an aggressive foreclosure steam-roller. And so, they are breaking the law.
Banks admit this. JP Morgan apologized back in February in a Congressional hearing for overcharging 4000 military families and illegally foreclosing on 18 of them. In that hearing, one foreclosure defense attorney pointed out that jail time for officials of the bank doing the foreclosing would be a deterrent to these practices, an apology would not be.
Much has been made of President Obama’s argument that the banks did nothing illegally, and various other scholars and officials have argued that prosecuting the banks is far too expensive and difficult. Yet, the SCRA is a simple law with teeth; it carries real jail time, and the parties have already confessed to the crime. Here’s Section 303(d)(1) of that law, which spells out penalties. (PDF)
(1) MISDEMEANOR.—A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
Interestingly, the Department of Justice seems to agree with this interpretation. Here’s a press release from the Department of Justice on a settlement of some of these claims, from Bank of America. I’ve bolded the important part.
The Justice Department announced today that, as part of its settlement with BAC Home Loans Servicing LP, a subsidiary of Bank of America Corporation, servicemembers whose homes were unlawfully foreclosed upon will each receive a minimum $116,785 plus compensation for any equity lost to compensate them for the bank’s alleged violation of the Servicemember Civil Relief Act (SCRA).
Note the use of the word “alleged.” Bank of America isn’t admitting anything, and the Eric Holder’s Department of Justice isn’t making them admit anything. Otherwise, the penalties might come into play. Sometimes, law can get very complex. But sometimes, it isn’t. JP Morgan admitted to violating the law. There are up to 5000 more cases, and each one carries up to a year in jail.
Eric Holder and various US Attorneys around the country aren’t prosecuting bank foreclosures on active duty troops, even though they know it is happening. Bank regulators know about the problem. Congress knows about the problem. Certainly, the Pentagon knows about the problem. Where are the prosecutions? Is there an internal policy that certain crimes are not to be prosecuted? Isn’t that something the public should be aware of?
As Congressman Miller put it, “The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.”
Shahien Nasiripour has a great scoop in the FT – bank regulators have uncovered up to 5000 military families who were foreclosed on illegally by mortgage servicers. Foreclosures on active duty troops is usually a big no-no, for a lot of reasons – for instance, when your credit rating is damaged by a foreclosure, it can impact your national security clearance. In addition, there’s enormous stress that the soldier goes through when his or her family is facing a threat of eviction, and it’s the kind of stress that makes him or her less equipped to be ready in a warzone. Congressman Bob Filner has even accused banks of “homicide” against American troops, blaming the banks for suicides resulting from the increased stress brought on by aggressive debt collection techniques.
There have been laws to protect troops from unscrupulous lending practices going all the way back to the First World War. The most recent revision to these laws is the Servicemember Civil Relief Act, which was signed in 2003. Congressman Brad Miller, who helped author the most recent version of this law, explained the rationale for the law as follows:
The Service Members Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.
Miller is a Democrat from North Carolina, but the bill was signed by George W. Bush, so there’s a bipartisan consensus on not foreclosing on troops fighting in wars.
Yet, as the FT story shows, it has become clear that big banks are routinely ignoring the law. Miller noted,
The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, and consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.
In all likelihood, these banks simply never set up their management processes to handle anything but an aggressive foreclosure steam-roller. And so, they are breaking the law.
Banks admit this. JP Morgan apologized back in February in a Congressional hearing for overcharging 4000 military families and illegally foreclosing on 18 of them. In that hearing, one foreclosure defense attorney pointed out that jail time for officials of the bank doing the foreclosing would be a deterrent to these practices, an apology would not be.
Much has been made of President Obama’s argument that the banks did nothing illegally, and various other scholars and officials have argued that prosecuting the banks is far too expensive and difficult. Yet, the SCRA is a simple law with teeth; it carries real jail time, and the parties have already confessed to the crime. Here’s Section 303(d)(1) of that law, which spells out penalties. (PDF)
(1) MISDEMEANOR.—A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
Interestingly, the Department of Justice seems to agree with this interpretation. Here’s a press release from the Department of Justice on a settlement of some of these claims, from Bank of America. I’ve bolded the important part.
The Justice Department announced today that, as part of its settlement with BAC Home Loans Servicing LP, a subsidiary of Bank of America Corporation, servicemembers whose homes were unlawfully foreclosed upon will each receive a minimum $116,785 plus compensation for any equity lost to compensate them for the bank’s alleged violation of the Servicemember Civil Relief Act (SCRA).
Note the use of the word “alleged.” Bank of America isn’t admitting anything, and the Eric Holder’s Department of Justice isn’t making them admit anything. Otherwise, the penalties might come into play. Sometimes, law can get very complex. But sometimes, it isn’t. JP Morgan admitted to violating the law. There are up to 5000 more cases, and each one carries up to a year in jail.
Eric Holder and various US Attorneys around the country aren’t prosecuting bank foreclosures on active duty troops, even though they know it is happening. Bank regulators know about the problem. Congress knows about the problem. Certainly, the Pentagon knows about the problem. Where are the prosecutions? Is there an internal policy that certain crimes are not to be prosecuted? Isn’t that something the public should be aware of?
As Congressman Miller put it, “The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.”
Monday, November 28, 2011
U.S. Foreclosure Fraud in a Nutshell, How Average Joe's Home Was Stolen
By: LewRockwell
Bill Butler writes: The untold story in the foreclosure crisis unfolding across America is that, following a foreclosure perpetrated by one of the October 2008 Bailout Banks (e.g. Bank of America, Citibank, JPMorgan, Wells Fargo) Fannie Mae or Freddie Mac suddenly appear as the record owner of Average Joe’s home. These federal government sponsored entities then go into local housing court and get a court order authorizing them to evict Joe. If Joe resists, these supposedly charitable institutions obtain a writ ordering the local sheriff to forcibly remove Joe from his home.
Newt Gingrich recently admitted to accepting $1.8 million from Freddie Mac ($25,0000 to $30,000 a month during one span of time) for advising this proto-fascist entity. Gingrich claims that he supports Fannie and Freddie because he believes the federal government "should have programs to help low income people acquire the ability to buy homes." But Fannie and Freddie don’t do this and never have. When government "helps" someone by subsidizing the purchase of something (through easy credit or lower-than-market rates), it makes that something more expensive. Helping someone buy something that is overpriced because of your help is not help. Fannie/Freddie subsidies not only hurt the low income people they intend to help, they hurt everyone by subsidizing, and therefore distorting, the entire housing market. Fannie/Freddie’s charity has now taken a dark turn. Like their Depression-era New Deal predecessor the Regional Agricultural Credit Corp., Fannie/Freddie are now repossessing homes at an increasing and alarming rate.
Mr. Gingrich either does not understand economics – government subsidies make things more expensive, not less expensive, and therefore hurt their intended beneficiaries – or he is a vain, selfish, and cynical man with no interest in actually helping his neighbor.
You decide.
THE OCTOBER 2008 BAILOUT PAID OFF THE HOLDERS OF MORTGAGE BACKED SECURITES AND DERIVATIVE INSUREDS
The facts indicate that the Federal Reserve "printed" at least 16 trillion dollars as part of the 2008 bailouts. The bigger questions, however, who got it, why and what did the Fed get in return? The Fed doesn’t just print money. It prints money to buy stuff. Most often this is U.S. Treasuries. That changed in October of 2008. In and after October 2008 the Fed printed new money to buy mortgage-backed securities (MBS) that were defaulting at a rapid rate. Want proof? Here is a link to the Federal Reserve balance sheet which shows that the Fed is holding over a trillion dollars in mortgage backed securities that it began acquiring in 2008.
Why is the Federal Reserve holding all these MBS? Because when "the market" collapsed in September of 2008, what really collapsed is the Fannie/Freddie/Wall Street mortgage "daisy chain" securitization scheme. As increasing numbers of MBS went into default, the purchasers of derivatives (naked insurance contracts betting on MBS default) began filing claims against the insurance writers (e.g. AIG) demanding payment. This started in February 2007 when HSBC Bank announced billions in MBS losses, gained momentum in June of 2007 when Bear Stearns announced $3.8 billion in MBS exposure in just one Bear Stearns fund, and further momentum with the actual collapse of Bear Stears in July and August of 2007. By September of 2008, the Bear Stearns collapse proved to be the canary in the coal mine as the claims on off-balance sheet derivatives became the cascading cross defaults that Alan Greenspan warned could collapse the entire Western financial system.
Part of what happened in October 2008 is that the Federal Reserve paid AIG's and others’ derivative obligations to the insureds (pension funds, hedge funds, major banks, foreign banks) who held the naked insurance contracts guaranteeing Average Joe's payments. To understand this, imagine that a cataclysmic event occurred in the U.S. that destroyed nearly every car in the U.S. and further that Allstate insured all of these cars. That is what happened to AIG. When the housing market collapsed and borrowers began defaulting on their securitized loans, AIG’s derivative obligations exceeded its ability (or willingness) to pay. So the Fed stepped in as the insurer of last resort and bailed out AIG (and probably others). When an insurer pays on a personal property claim, it has "subrogation" rights. This means when it pays it has the right to demand possession of the personal property it insured or seek recovery from those responsible for the loss. In Allstate’s case this is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the trillions of MBS on the Fed’s balance sheet represent: wrecked cars that Fannie and Freddie are now liquidating for scrap value.
Thank you Mr. Gingrich. Great advice.
BUT FANNIE/FREDDIE WASN’T MY LENDER AND WASN’T MY MORTGAGEE, SO HOW CAN THEY TAKE MY HOUSE?
To understand how it came to be that the Fed has paid Average Joe’s original actual lender (the MBS purchaser) and now Fannie and Freddie are trying to take Joe’s home, you first have to understand some mortgage law and securitization basics.
The Difference Between Notes and Mortgages
When you close on the purchase of your home, you sign two important documents. You sign a promissory note that represents your legal obligation to pay. You sign ONE promissory note. You sign ONE promissory note because it is a negotiable instrument, payable "to the order of" the "lender" identified in the promissory note. If you signed two promissory notes on a $300,000 loan from Countrywide, you could end up paying Countrywide (or one of its successors) $600,000.
At closing you also sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may sign more than one Mortgage. You may sign more than one Mortgage because it does not represent a legal obligation to pay anything. You could sign 50 Mortgages relating to your $300,000 Countrywide loan and it would not change your obligation. A Mortgage is a security instrument. It is security and security only. Without a promissory note, a mortgage is nothing. Nothing.
You "give" or "grant" a mortgage to your original lender as security for the promise to pay as represented by the promissory note. In real estate law parlance, you "give/grant" the "mortgage" to the "holder" of your "promissory note."
If you question my bona fides in commenting on the important distinction between notes and mortgages, I know what I am talking about. I tried and won perhaps the first securitized mortgage lawsuit ever in the country in First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95-1919).
In FNBER v. IMS a mortgage assignee (IMS) claimed the ownership of two mortgages relating to loans (promissory notes) held by my client, the First National Bank of Elk River (FNBER). After a three-day trial where IMS was capably represented by a former partner of the international law firm Dorsey & Whitney, my client prevailed and the Court voided the recorded mortgage assignments to IMS. My client prevailed not because of my great skill but because it had actual, physical custody of the original promissory notes (payable to the order of my client) and had been "servicing" (receiving payments on) the loans for years notwithstanding the recorded assignment of mortgage. The facts at trial showed that IMS rejected the loans because they did not conform to their securitization parameters. In short, IMS, as the "record owner" of the mortgages without any provable connection to the underlying notes, had nothing. FNBER, on the other hand, had promissory notes payable to the order of FNBER but did not have "record title" to the mortgages. FNBER was the winner because its possession of and entitlement to enforce the notes made it the "legal owner" of the mortgages.
The lesson: if you have record title to a mortgage but cannot show that you have possession of and/or entitlement to enforce the promissory notes that the mortgage secures, you lose.
This is true for 62 million securitized loans.
Securitization – The Car That Doesn’t Go In Reverse
There is nothing per se illegitimate about securitization. The law has for a long time recognized the rights of a noteholder to sell off pro-rata interests in the note. So long as the noteholder remains the noteholder he has the right to exercise rights in a mortgage (take the house) when there is a default on the note. Securitization does not run afoul of traditional real estate and foreclosure law when the mortgage holder can prove his connection to the noteholder.
But modern securitization doesn’t work this way.
The "securitization" of a "mortgage loan" today involves multiple parties but the most important parties and documents necessary for evaluating whether a bank has a right to foreclose on a mortgage are:
(1) the Borrower (Average Joe);
(2) the Original Lender (Mike's Baitshop and Mortgages or Bailey Savings & Loan – whoever is across the closing table from Joe);
(3) the Original Mortgagee (could be Mike's B&M, but could be anyone, including Fannie's Creature From the Black Lagoon, the mortgagee "nominee" MERS);
(4) the "Servicer" of the loan as identified in the PSA (usually a Bank or anyone with "servicer" in its name, the entity to whom Joe makes his payments);
(5) the mortgage loan "pooling and servicing agreement" (PSA) and the PSA Trust created by the PSA;
(6) the "PSA Trust" is the "special purpose entity" created by the PSA. The PSA Trust is the heart of the PSA. It holds all securitized notes and mortgages and also sells MBS securities to investors; and
(7) the "Trustee" of the PSA Trust is the entity responsible for safekeeping of Joe's promissory note and mortgage and the issuer of MBS.
The PSA Servicer is essentially the Chief Operating Officer and driver of the PSA. Without the Servicer, the securitization car does not go. The Servicer is the entity to which Joe pays his "mortgage" (really his note, but you get it) every month. When Joe's loan gets "sold" multiple times, the loan is not actually being sold, the servicing rights are. The Servicer has no right, title or interest in either the promissory note or the mortgage. Any right that the Servicer has to receive money is derived from the PSA. The PSA, not Joe's Note or Joe's Mortgage, gives the Servicer the right to take droplets of cash out of Joe's monthly payments before distributing the remainder to MBS purchasers.
The PSA Trustee and the sanctity of the PSA Trust are vitally important to the validity of the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman Bros., Merrill, Deutchebank, Barclays, etc.) persuaded MBS purchasers to part with trillions of dollars based on the idea that they would ensure that Joe's Note would be properly endorsed by every person or entity that touched it after Joe signed it, that they would place Joe's Note and Joe's Mortgage in the vault-like PSA Trust and the note and mortgage would remain in the PSA Trust with a green-eyeshade, PSA Trustee diligently safekeeping them for 30 years. Further, the PSA promoters hired law firms to persuade the MBS purchasers that the PSA Trust, which is more than100 percent funded (that is, oversold) by the MBS purchasers, was the real owner of Joe's Note and Joe's Mortgage and that the PSA Trust, using other people’s money, had purchased or soon would purchase thousands of similar notes and mortgages in a "true sale" in accordance with FASB 140.
The PSA does not distribute pool proceeds that can be tracked pro rata to identifiable loans. In this respect, in the wrong hands (e.g. Countrywide’s Angelo Mozilo) PSAs have the potential to operate like a modern "daisy chain" fraud whereby the PSA oversells the loans in the PSA Trust, thus defrauding the MBS investors. The PSA organizers also do not inform Joe at the other end of the chain that they have sold his $300,000 loan for $600,000 and that the payout to the MBS purchasers (and other derivative side-bettors) when Joe defaults is potentially multiples of $300,000.
The PSA organizers can cover the PSA’s obligations to MBS purchasers through derivatives. Derivatives are like homeowners’ fire insurance that anyone can buy. If everyone in the world can bet that Joe’s home is going to burn down and has no interest in preventing it, odds are that Joe’s home will burn down. This is part of the reason Warren Buffet called derivatives a "financial weapon of mass destruction." They are an off-balance sheet fiat money multiplier (the Fed stopped reporting the explosive expansion of M3 in 2006 most likely because of derivatives and mortgage loan securitization fraud), and create incentive for fraud. On the other end of the chain, Joe has no idea that the "Lender" across the table from him has no skin in the game and is more than likely receiving a commission for dragging Joe to the table.
A serious problem with modern securitization is that it destroys "privity." Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his "bank" (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious "investor" will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.
Joe’s ultimate "investor" is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now "own" 80 percent of all U.S. "mortgage loans," Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a "record title" right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.
Record Title and Legal Title
Virtually all 62 million securitized notes define the "Noteholder" as "anyone who takes this Note by transfer and who is entitled to receive payment under this Note…" Very few of the holders of securitized mortgages can establish that they both hold (have physical possession of) the note AND are entitled to receive payments on the notes. For whatever reason, if a Bailout Bank has possession of an original note, it is usually endorsed payable to the order of some other (often bankrupt) entity.
If you are a Bailout Bank and you have physical possession of an original securitized note, proving that you are "entitled to receive payment" on the note is nearly impossible. First, you have to explain how you obtained the note when it should be in the hands of a PSA Trustee and it is not endorsed by the PSA Trustee. Second, even if you can show how you obtained the note, explaining why you are entitled to receive payments when you paid nothing for it and when the Fed may have satisfied your original creditors is a very difficult proposition. Third, because a mortgage is security for payments due to the noteholder and only the noteholder, if you cannot establish legal right to receive payments on the note but have a recorded mortgage all you have is "record" title to the mortgage. You have the "power" to foreclose (because courts trust recorded documents) but not necessarily the legal "right" to foreclose. Think FNBER v. IMS.
The "robosigner" controversy, reported by 60 Minutes months ago, is a symptom of the banks’ problem with "legal title" versus "record title." The 60 Minutes reports shows that Bailout Banks are hiring 16 year old, independent contractors from Backwater, Georgia to pose as vice presidents and sign mortgage assignments which they "record" with local county recorders. This is effective in establishing the Bailout Banks’ "record title" to the "mortgage." Unlike real bank vice presidents subject to Sarbanes-Oxley, Backwater 16-year olds have no reason to ask: "Where is the note?"; "Is my bank the noteholder?"; or "Is my Bank entitled to receive payments on the note?"
The Federal Office of the Comptroller of the Currency and the Office of Thrift Supervision agree with this analysis. In April of 2011 the OCC and OTS reprimanded the Bailout Banks for fraudulently foreclosing on millions of Average Joe’s:
…without always ensuring that the either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time…
The OCC and OTS further found that the Bailout Banks "failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services."
Finally, Bailout Banks consented to the OCC and OTS spanking by admitting that they have engaged in "unsafe and unsound banking practices."
In these "Order and Consent Decrees," the OCC and the OTS reprimanded all of the usual suspects: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, MERSCorp, PNC Bank, US Bank, Wells Fargo, Aurora Bank, Everbank, OneWest Bank, IMB HoldCo LLC, and Sovereign Bank.
Although the OCC and OTS Orders are essentially wrist slaps for what is a massive fraud, these orders at least expose some truth. In response to the OCC Order, the Fannie/Freddie-created Mortgage Electronic Registration Systems (MERS), changed its rules (see Rule 8) to demand that foreclosing lawyers identify the "noteowner" prior to initiating foreclosure proceedings.
NEWT’S FANNIE/FREDDIE ENDGAME: PLANTATION USA
Those of us fighting the banks began to see a disturbing trend starting about a year ago. Fannie and Freddie began showing up claiming title and seeking to evict homeowners from their homes.
The process works like this, using Bank of America as an example. Average Joe had a securitized loan with Countrywide. Countrywide, which might as well have been run by the Gambino family with expertise in "daisy chain" fraud, never followed the PSA, did not care for the original notes and almost never deposited the original notes in the PSA Trust. Countrywide goes belly up. Bank of America (BOA) takes over Countrywide in perhaps the worst deal in the history of corporate America, acquiring more liabilities than assets. Bank of America realizes that it has acquired a big bag of dung (no notes = no mortgages = big problem) and so sets up an entity called "BAC Home Loans LLP" whose general partner is another BOA entity.
The purpose of these BOA entities is to execute the liquidation the Countrywide portfolio as quickly as possible and, at the same time, isolate the liability to two small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the foreclosure on Joe’s home. BAC Home Loans LLP feeds local foreclosure lawyers phony, robosigned documents that establish an "of record" transfer of the Countrywide mortgage to BAC Home Loans LLP. BAC Home Loans LLP, "purchases" Joe’s home at a Sheriff’s sale by bidding Joe’s debt owed to Countrywide. BAC Home Loans LLP does not have and cannot prove any connection to Joe’s note so BAC Home Loans LLP quickly deeds Joe’s property to Fannie and Freddie.
When it is time to kick Joe out of his home, Fannie Mae shows up in the eviction action. When compelled to show its cards, Fannie will claim title to Joe’s house via a "quit claim deed" or an assignment of the Sheriff’s Certificate of sale. Adding insult to injury, while Joe may have spent years trying to get BOA to "modify" his loan, and may have begged BOA for the right to pay BOA $1000 a month if only BOA will stop the foreclosure, Fannie now claims that BOA deeded Joe’s property to Fannie for nothing. That right, nothing. All county recorders require that a real estate purchaser claim how much they paid for the property to determine the tax value. Fannie claims on these recorded documents that it paid nothing for Joe’s home and, further, falsely claims that it is exempt because it is a US government agency. It isn’t. It is a government sponsored entity that is currently in conservatorship and run by the US government.
Great advice Newt.
CONCLUSION
It is apparent that the US government is so broke that it will do anything to pay its bills, including stealing Average Joe’s home.
That’s change that both Barack Obama and Newt Gingrich can believe in.
APPENDIX
More and more courts are agreeing that the banks "inside" the PSA do not have legal standing (they have no skin in the game and so cannot show the necessary "injury in fact"), are not "real parties in interest" (they cannot show that they followed the terms of the PSA or are otherwise "entitled to enforce" the note) and that there are real questions of whether any securitized mortgage can ever be properly perfected.
The banks' weakness is exposed most often in bankruptcy courts because it is there that they have to show their cards and explain how they claim a legal right, rather than the "of record" right, to foreclose the mortgage. More and more courts are recognizing that, without proof of ownership of the underlying note, holding a mortgage means nothing.
The most recent crack in the Banks’s position is evidenced by the federal Eight Circuit Court of Appeals’ decision in In Re Banks, No. 11-6025 (8th Cir., Sept. 13, 2011). In Banks, a bank attempted to execute a foreclosure within a bankruptcy case. The bank had a note payable to the order of another entity; that is, the foreclosing bank was "Bank C" but had a note payable to the order of "Bank B" and endorsed in blank by Bank B. The bank, Bank C, alleged that, because the note was endorsed in blank and "without recourse," that it had the right to foreclose. The Court held that this was insufficient to show a sufficient chain of title to the note, reversed the lower court’s decision and remanded for findings regarding when and how Bank C acquired the note.
See also, In Re Aagard, No. 810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams MERS as lacking standing, working as both principal and agent in same transaction, and exposes MERS' alleged principal US Bank as unable to produce or provide evidence that it is in fact the holder of the note); In Re Vargas, No. 08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly applied rules of evidence and held that MERS could not establish right to possession of the 83-year old Mr. Vargas' home through the testimony of a low-level employee who had no foundation to testify about the legal title to the original note); In Re Walker, Bankr. E.D. Cal. No. 10-21656-E-11 (May 20, 2010) (holding that neither MERS nor its alleged principal could show that they were "real parties in interest" because neither could provide any evidence of the whereabouts of, much less legal title to, the original note); Landmark v.Kesler, 216 P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the most cogent state court analysis of the problem created by securitization – the "splitting" of the note and the mortgage and the real party in interest and standing problems that the holder of the mortgage has when it cannot also show that it has clean and clear legal title to the note); U.S. Bank Nat'l Ass'n v. Ibanez, 941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two banks' attempts to "quiet title" following foreclosure because the banks' proffered evidence did not show ownership of the mortgages – or for that matter, the notes – prior to the Sheriff's sale); and Jackson v. MERS, 770 N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head – certified question from federal court asking for state court blessing of its already decided ruling – to the Minnesota Supreme Court is most notable for the courageous dissent of NFL Hall of Fame player and only popularly elected Justice Alan Page who opined that MERS should pound sand and obey state recording standards).
http://www.marketoracle.co.uk/Article31789.html
Bill Butler writes: The untold story in the foreclosure crisis unfolding across America is that, following a foreclosure perpetrated by one of the October 2008 Bailout Banks (e.g. Bank of America, Citibank, JPMorgan, Wells Fargo) Fannie Mae or Freddie Mac suddenly appear as the record owner of Average Joe’s home. These federal government sponsored entities then go into local housing court and get a court order authorizing them to evict Joe. If Joe resists, these supposedly charitable institutions obtain a writ ordering the local sheriff to forcibly remove Joe from his home.
Newt Gingrich recently admitted to accepting $1.8 million from Freddie Mac ($25,0000 to $30,000 a month during one span of time) for advising this proto-fascist entity. Gingrich claims that he supports Fannie and Freddie because he believes the federal government "should have programs to help low income people acquire the ability to buy homes." But Fannie and Freddie don’t do this and never have. When government "helps" someone by subsidizing the purchase of something (through easy credit or lower-than-market rates), it makes that something more expensive. Helping someone buy something that is overpriced because of your help is not help. Fannie/Freddie subsidies not only hurt the low income people they intend to help, they hurt everyone by subsidizing, and therefore distorting, the entire housing market. Fannie/Freddie’s charity has now taken a dark turn. Like their Depression-era New Deal predecessor the Regional Agricultural Credit Corp., Fannie/Freddie are now repossessing homes at an increasing and alarming rate.
Mr. Gingrich either does not understand economics – government subsidies make things more expensive, not less expensive, and therefore hurt their intended beneficiaries – or he is a vain, selfish, and cynical man with no interest in actually helping his neighbor.
You decide.
THE OCTOBER 2008 BAILOUT PAID OFF THE HOLDERS OF MORTGAGE BACKED SECURITES AND DERIVATIVE INSUREDS
The facts indicate that the Federal Reserve "printed" at least 16 trillion dollars as part of the 2008 bailouts. The bigger questions, however, who got it, why and what did the Fed get in return? The Fed doesn’t just print money. It prints money to buy stuff. Most often this is U.S. Treasuries. That changed in October of 2008. In and after October 2008 the Fed printed new money to buy mortgage-backed securities (MBS) that were defaulting at a rapid rate. Want proof? Here is a link to the Federal Reserve balance sheet which shows that the Fed is holding over a trillion dollars in mortgage backed securities that it began acquiring in 2008.
Why is the Federal Reserve holding all these MBS? Because when "the market" collapsed in September of 2008, what really collapsed is the Fannie/Freddie/Wall Street mortgage "daisy chain" securitization scheme. As increasing numbers of MBS went into default, the purchasers of derivatives (naked insurance contracts betting on MBS default) began filing claims against the insurance writers (e.g. AIG) demanding payment. This started in February 2007 when HSBC Bank announced billions in MBS losses, gained momentum in June of 2007 when Bear Stearns announced $3.8 billion in MBS exposure in just one Bear Stearns fund, and further momentum with the actual collapse of Bear Stears in July and August of 2007. By September of 2008, the Bear Stearns collapse proved to be the canary in the coal mine as the claims on off-balance sheet derivatives became the cascading cross defaults that Alan Greenspan warned could collapse the entire Western financial system.
Part of what happened in October 2008 is that the Federal Reserve paid AIG's and others’ derivative obligations to the insureds (pension funds, hedge funds, major banks, foreign banks) who held the naked insurance contracts guaranteeing Average Joe's payments. To understand this, imagine that a cataclysmic event occurred in the U.S. that destroyed nearly every car in the U.S. and further that Allstate insured all of these cars. That is what happened to AIG. When the housing market collapsed and borrowers began defaulting on their securitized loans, AIG’s derivative obligations exceeded its ability (or willingness) to pay. So the Fed stepped in as the insurer of last resort and bailed out AIG (and probably others). When an insurer pays on a personal property claim, it has "subrogation" rights. This means when it pays it has the right to demand possession of the personal property it insured or seek recovery from those responsible for the loss. In Allstate’s case this is wrecked cars. In the case of AIG and the Fed, it is MBS. That is what the trillions of MBS on the Fed’s balance sheet represent: wrecked cars that Fannie and Freddie are now liquidating for scrap value.
Thank you Mr. Gingrich. Great advice.
BUT FANNIE/FREDDIE WASN’T MY LENDER AND WASN’T MY MORTGAGEE, SO HOW CAN THEY TAKE MY HOUSE?
To understand how it came to be that the Fed has paid Average Joe’s original actual lender (the MBS purchaser) and now Fannie and Freddie are trying to take Joe’s home, you first have to understand some mortgage law and securitization basics.
The Difference Between Notes and Mortgages
When you close on the purchase of your home, you sign two important documents. You sign a promissory note that represents your legal obligation to pay. You sign ONE promissory note. You sign ONE promissory note because it is a negotiable instrument, payable "to the order of" the "lender" identified in the promissory note. If you signed two promissory notes on a $300,000 loan from Countrywide, you could end up paying Countrywide (or one of its successors) $600,000.
At closing you also sign a Mortgage (or a Deed of Trust in Deed of Trust States). You may sign more than one Mortgage. You may sign more than one Mortgage because it does not represent a legal obligation to pay anything. You could sign 50 Mortgages relating to your $300,000 Countrywide loan and it would not change your obligation. A Mortgage is a security instrument. It is security and security only. Without a promissory note, a mortgage is nothing. Nothing.
You "give" or "grant" a mortgage to your original lender as security for the promise to pay as represented by the promissory note. In real estate law parlance, you "give/grant" the "mortgage" to the "holder" of your "promissory note."
If you question my bona fides in commenting on the important distinction between notes and mortgages, I know what I am talking about. I tried and won perhaps the first securitized mortgage lawsuit ever in the country in First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95-1919).
In FNBER v. IMS a mortgage assignee (IMS) claimed the ownership of two mortgages relating to loans (promissory notes) held by my client, the First National Bank of Elk River (FNBER). After a three-day trial where IMS was capably represented by a former partner of the international law firm Dorsey & Whitney, my client prevailed and the Court voided the recorded mortgage assignments to IMS. My client prevailed not because of my great skill but because it had actual, physical custody of the original promissory notes (payable to the order of my client) and had been "servicing" (receiving payments on) the loans for years notwithstanding the recorded assignment of mortgage. The facts at trial showed that IMS rejected the loans because they did not conform to their securitization parameters. In short, IMS, as the "record owner" of the mortgages without any provable connection to the underlying notes, had nothing. FNBER, on the other hand, had promissory notes payable to the order of FNBER but did not have "record title" to the mortgages. FNBER was the winner because its possession of and entitlement to enforce the notes made it the "legal owner" of the mortgages.
The lesson: if you have record title to a mortgage but cannot show that you have possession of and/or entitlement to enforce the promissory notes that the mortgage secures, you lose.
This is true for 62 million securitized loans.
Securitization – The Car That Doesn’t Go In Reverse
There is nothing per se illegitimate about securitization. The law has for a long time recognized the rights of a noteholder to sell off pro-rata interests in the note. So long as the noteholder remains the noteholder he has the right to exercise rights in a mortgage (take the house) when there is a default on the note. Securitization does not run afoul of traditional real estate and foreclosure law when the mortgage holder can prove his connection to the noteholder.
But modern securitization doesn’t work this way.
The "securitization" of a "mortgage loan" today involves multiple parties but the most important parties and documents necessary for evaluating whether a bank has a right to foreclose on a mortgage are:
(1) the Borrower (Average Joe);
(2) the Original Lender (Mike's Baitshop and Mortgages or Bailey Savings & Loan – whoever is across the closing table from Joe);
(3) the Original Mortgagee (could be Mike's B&M, but could be anyone, including Fannie's Creature From the Black Lagoon, the mortgagee "nominee" MERS);
(4) the "Servicer" of the loan as identified in the PSA (usually a Bank or anyone with "servicer" in its name, the entity to whom Joe makes his payments);
(5) the mortgage loan "pooling and servicing agreement" (PSA) and the PSA Trust created by the PSA;
(6) the "PSA Trust" is the "special purpose entity" created by the PSA. The PSA Trust is the heart of the PSA. It holds all securitized notes and mortgages and also sells MBS securities to investors; and
(7) the "Trustee" of the PSA Trust is the entity responsible for safekeeping of Joe's promissory note and mortgage and the issuer of MBS.
The PSA Servicer is essentially the Chief Operating Officer and driver of the PSA. Without the Servicer, the securitization car does not go. The Servicer is the entity to which Joe pays his "mortgage" (really his note, but you get it) every month. When Joe's loan gets "sold" multiple times, the loan is not actually being sold, the servicing rights are. The Servicer has no right, title or interest in either the promissory note or the mortgage. Any right that the Servicer has to receive money is derived from the PSA. The PSA, not Joe's Note or Joe's Mortgage, gives the Servicer the right to take droplets of cash out of Joe's monthly payments before distributing the remainder to MBS purchasers.
The PSA Trustee and the sanctity of the PSA Trust are vitally important to the validity of the PSA. The PSA promoters (the usual suspects, Goldman Sachs, Lehman Bros., Merrill, Deutchebank, Barclays, etc.) persuaded MBS purchasers to part with trillions of dollars based on the idea that they would ensure that Joe's Note would be properly endorsed by every person or entity that touched it after Joe signed it, that they would place Joe's Note and Joe's Mortgage in the vault-like PSA Trust and the note and mortgage would remain in the PSA Trust with a green-eyeshade, PSA Trustee diligently safekeeping them for 30 years. Further, the PSA promoters hired law firms to persuade the MBS purchasers that the PSA Trust, which is more than100 percent funded (that is, oversold) by the MBS purchasers, was the real owner of Joe's Note and Joe's Mortgage and that the PSA Trust, using other people’s money, had purchased or soon would purchase thousands of similar notes and mortgages in a "true sale" in accordance with FASB 140.
The PSA does not distribute pool proceeds that can be tracked pro rata to identifiable loans. In this respect, in the wrong hands (e.g. Countrywide’s Angelo Mozilo) PSAs have the potential to operate like a modern "daisy chain" fraud whereby the PSA oversells the loans in the PSA Trust, thus defrauding the MBS investors. The PSA organizers also do not inform Joe at the other end of the chain that they have sold his $300,000 loan for $600,000 and that the payout to the MBS purchasers (and other derivative side-bettors) when Joe defaults is potentially multiples of $300,000.
The PSA organizers can cover the PSA’s obligations to MBS purchasers through derivatives. Derivatives are like homeowners’ fire insurance that anyone can buy. If everyone in the world can bet that Joe’s home is going to burn down and has no interest in preventing it, odds are that Joe’s home will burn down. This is part of the reason Warren Buffet called derivatives a "financial weapon of mass destruction." They are an off-balance sheet fiat money multiplier (the Fed stopped reporting the explosive expansion of M3 in 2006 most likely because of derivatives and mortgage loan securitization fraud), and create incentive for fraud. On the other end of the chain, Joe has no idea that the "Lender" across the table from him has no skin in the game and is more than likely receiving a commission for dragging Joe to the table.
A serious problem with modern securitization is that it destroys "privity." Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his "bank" (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious "investor" will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.
Joe’s ultimate "investor" is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now "own" 80 percent of all U.S. "mortgage loans," Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a "record title" right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.
Record Title and Legal Title
Virtually all 62 million securitized notes define the "Noteholder" as "anyone who takes this Note by transfer and who is entitled to receive payment under this Note…" Very few of the holders of securitized mortgages can establish that they both hold (have physical possession of) the note AND are entitled to receive payments on the notes. For whatever reason, if a Bailout Bank has possession of an original note, it is usually endorsed payable to the order of some other (often bankrupt) entity.
If you are a Bailout Bank and you have physical possession of an original securitized note, proving that you are "entitled to receive payment" on the note is nearly impossible. First, you have to explain how you obtained the note when it should be in the hands of a PSA Trustee and it is not endorsed by the PSA Trustee. Second, even if you can show how you obtained the note, explaining why you are entitled to receive payments when you paid nothing for it and when the Fed may have satisfied your original creditors is a very difficult proposition. Third, because a mortgage is security for payments due to the noteholder and only the noteholder, if you cannot establish legal right to receive payments on the note but have a recorded mortgage all you have is "record" title to the mortgage. You have the "power" to foreclose (because courts trust recorded documents) but not necessarily the legal "right" to foreclose. Think FNBER v. IMS.
The "robosigner" controversy, reported by 60 Minutes months ago, is a symptom of the banks’ problem with "legal title" versus "record title." The 60 Minutes reports shows that Bailout Banks are hiring 16 year old, independent contractors from Backwater, Georgia to pose as vice presidents and sign mortgage assignments which they "record" with local county recorders. This is effective in establishing the Bailout Banks’ "record title" to the "mortgage." Unlike real bank vice presidents subject to Sarbanes-Oxley, Backwater 16-year olds have no reason to ask: "Where is the note?"; "Is my bank the noteholder?"; or "Is my Bank entitled to receive payments on the note?"
The Federal Office of the Comptroller of the Currency and the Office of Thrift Supervision agree with this analysis. In April of 2011 the OCC and OTS reprimanded the Bailout Banks for fraudulently foreclosing on millions of Average Joe’s:
…without always ensuring that the either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time…
The OCC and OTS further found that the Bailout Banks "failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services."
Finally, Bailout Banks consented to the OCC and OTS spanking by admitting that they have engaged in "unsafe and unsound banking practices."
In these "Order and Consent Decrees," the OCC and the OTS reprimanded all of the usual suspects: Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, MERSCorp, PNC Bank, US Bank, Wells Fargo, Aurora Bank, Everbank, OneWest Bank, IMB HoldCo LLC, and Sovereign Bank.
Although the OCC and OTS Orders are essentially wrist slaps for what is a massive fraud, these orders at least expose some truth. In response to the OCC Order, the Fannie/Freddie-created Mortgage Electronic Registration Systems (MERS), changed its rules (see Rule 8) to demand that foreclosing lawyers identify the "noteowner" prior to initiating foreclosure proceedings.
NEWT’S FANNIE/FREDDIE ENDGAME: PLANTATION USA
Those of us fighting the banks began to see a disturbing trend starting about a year ago. Fannie and Freddie began showing up claiming title and seeking to evict homeowners from their homes.
The process works like this, using Bank of America as an example. Average Joe had a securitized loan with Countrywide. Countrywide, which might as well have been run by the Gambino family with expertise in "daisy chain" fraud, never followed the PSA, did not care for the original notes and almost never deposited the original notes in the PSA Trust. Countrywide goes belly up. Bank of America (BOA) takes over Countrywide in perhaps the worst deal in the history of corporate America, acquiring more liabilities than assets. Bank of America realizes that it has acquired a big bag of dung (no notes = no mortgages = big problem) and so sets up an entity called "BAC Home Loans LLP" whose general partner is another BOA entity.
The purpose of these BOA entities is to execute the liquidation the Countrywide portfolio as quickly as possible and, at the same time, isolate the liability to two small BOA subsidiaries. BOA uses BAC Home Loans LLP to conduct the foreclosure on Joe’s home. BAC Home Loans LLP feeds local foreclosure lawyers phony, robosigned documents that establish an "of record" transfer of the Countrywide mortgage to BAC Home Loans LLP. BAC Home Loans LLP, "purchases" Joe’s home at a Sheriff’s sale by bidding Joe’s debt owed to Countrywide. BAC Home Loans LLP does not have and cannot prove any connection to Joe’s note so BAC Home Loans LLP quickly deeds Joe’s property to Fannie and Freddie.
When it is time to kick Joe out of his home, Fannie Mae shows up in the eviction action. When compelled to show its cards, Fannie will claim title to Joe’s house via a "quit claim deed" or an assignment of the Sheriff’s Certificate of sale. Adding insult to injury, while Joe may have spent years trying to get BOA to "modify" his loan, and may have begged BOA for the right to pay BOA $1000 a month if only BOA will stop the foreclosure, Fannie now claims that BOA deeded Joe’s property to Fannie for nothing. That right, nothing. All county recorders require that a real estate purchaser claim how much they paid for the property to determine the tax value. Fannie claims on these recorded documents that it paid nothing for Joe’s home and, further, falsely claims that it is exempt because it is a US government agency. It isn’t. It is a government sponsored entity that is currently in conservatorship and run by the US government.
Great advice Newt.
CONCLUSION
It is apparent that the US government is so broke that it will do anything to pay its bills, including stealing Average Joe’s home.
That’s change that both Barack Obama and Newt Gingrich can believe in.
APPENDIX
More and more courts are agreeing that the banks "inside" the PSA do not have legal standing (they have no skin in the game and so cannot show the necessary "injury in fact"), are not "real parties in interest" (they cannot show that they followed the terms of the PSA or are otherwise "entitled to enforce" the note) and that there are real questions of whether any securitized mortgage can ever be properly perfected.
The banks' weakness is exposed most often in bankruptcy courts because it is there that they have to show their cards and explain how they claim a legal right, rather than the "of record" right, to foreclose the mortgage. More and more courts are recognizing that, without proof of ownership of the underlying note, holding a mortgage means nothing.
The most recent crack in the Banks’s position is evidenced by the federal Eight Circuit Court of Appeals’ decision in In Re Banks, No. 11-6025 (8th Cir., Sept. 13, 2011). In Banks, a bank attempted to execute a foreclosure within a bankruptcy case. The bank had a note payable to the order of another entity; that is, the foreclosing bank was "Bank C" but had a note payable to the order of "Bank B" and endorsed in blank by Bank B. The bank, Bank C, alleged that, because the note was endorsed in blank and "without recourse," that it had the right to foreclose. The Court held that this was insufficient to show a sufficient chain of title to the note, reversed the lower court’s decision and remanded for findings regarding when and how Bank C acquired the note.
See also, In Re Aagard, No. 810-77338-reg (Bankr. E.D.N.Y., Feb. 10, 2011) (Judge Grossman slams MERS as lacking standing, working as both principal and agent in same transaction, and exposes MERS' alleged principal US Bank as unable to produce or provide evidence that it is in fact the holder of the note); In Re Vargas, No. 08-17036SB (Bankr. C.D. Cal., Sept. 30, 2008) (Judge Bufford correctly applied rules of evidence and held that MERS could not establish right to possession of the 83-year old Mr. Vargas' home through the testimony of a low-level employee who had no foundation to testify about the legal title to the original note); In Re Walker, Bankr. E.D. Cal. No. 10-21656-E-11 (May 20, 2010) (holding that neither MERS nor its alleged principal could show that they were "real parties in interest" because neither could provide any evidence of the whereabouts of, much less legal title to, the original note); Landmark v.Kesler, 216 P.2d 158 (Kan. 2009) (in this case the Kansas Supreme Court provides the most cogent state court analysis of the problem created by securitization – the "splitting" of the note and the mortgage and the real party in interest and standing problems that the holder of the mortgage has when it cannot also show that it has clean and clear legal title to the note); U.S. Bank Nat'l Ass'n v. Ibanez, 941 NE 40 (Mass. 2011), (the Massachusetts Supreme Court denied two banks' attempts to "quiet title" following foreclosure because the banks' proffered evidence did not show ownership of the mortgages – or for that matter, the notes – prior to the Sheriff's sale); and Jackson v. MERS, 770 N.W.2d 489 (Minn. 2009) (this federal-gun-to-the-head – certified question from federal court asking for state court blessing of its already decided ruling – to the Minnesota Supreme Court is most notable for the courageous dissent of NFL Hall of Fame player and only popularly elected Justice Alan Page who opined that MERS should pound sand and obey state recording standards).
http://www.marketoracle.co.uk/Article31789.html
COMFORTABLY NUMB
theburningplatform.com
As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators.
Both the Tea Party movement and the Occupy Wall Street movement are a reflection of the mood change in the country, which is a result of government overreach, political corruption, dysfunctional economic policies, and a financial system designed to enrich the few while defrauding the many. The common theme is anger, frustration and disillusionment with a system so badly broken it appears unfixable through the existing supposedly democratic methods. The system has been captured by an oligarchy of moneyed interests from the financial industry, mega-corporations, and military industrial complex, protected by their captured puppets in Washington DC and sustained by the propaganda peddling corporate media. The differences in political parties are meaningless as they each advocate big government solutions to all social, economic, foreign relations, and monetary issues.
There is confusion and misunderstanding regarding the culprits in this drama. It was plain to me last week when I read about a small group of concerned citizens in the next town over who decided to support the Occupy movement by holding a nightly peaceful march to protest the criminal syndicate that is Wall Street and a political system designed to protect them. My local paper asked for people’s reaction to this Constitutional exercising of freedom of speech and freedom of assembly. Here is a sampling of the comments:
“What are those Occupy people thinking?! The whole concept is foreign to me. There are always going to be the haves and the have nots. Get over it. Blame yourself for not paying more attention in school or not working hard enough. Just wish people would take responsibility.”
“If they worked half as hard actually working as they do being a pain in everyone else’s ass, they’d be rich! Being born does not guarantee success or wealth. Only hard work does. Maybe we should let them all occupy a jail cell or two.”
“If the goal is to irritate hardworking suburban commuters on their way home, that sounds like the perfect time and location.”
“Let’s hope they don’t pitch tents and trash Lansdale. They need to look for a job, not occupy the streets.”
“I work, and even if I wasn’t working I wouldn’t (march); I would be out looking for a JOB!”
I was dumbfounded at the rage directed towards mostly young people who haven’t even begun their working careers and have played no part in the destruction of our economic system underway for the last 30 years. The people making these statements are middle aged, middle class suburbanites. They seem to be just as livid as the OWS protestors, but their ire is being directed towards the only people who have taken a stand against Wall Street greed and Washington D.C. malfeasance. I’m left scratching my head trying to understand their animosity towards people drawing attention to the enormous debt based ponzi scheme that is our country, versus their silent acquiescence to the transfer of trillions in taxpayer dollars to the criminal bankers that have destroyed the worldwide financial system. I can only come to the conclusion the average American has become so apathetic, willfully ignorant of facts and reality, distracted by the techno-gadgets that run their lives, uninterested in anything beyond next week’s episode of Dancing with the Stars or Jersey Shore, and willing to let the corporate media moguls form their opinions for them through relentless propaganda, the only thing that will get their attention is an absolute collapse of our economic scheme. Uninformed, unconcerned, intellectually vacant Americans will get exactly that in the not too distant future.
read the rest of the post here:
http://www.theburningplatform.com/?p=25234
As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators.
Both the Tea Party movement and the Occupy Wall Street movement are a reflection of the mood change in the country, which is a result of government overreach, political corruption, dysfunctional economic policies, and a financial system designed to enrich the few while defrauding the many. The common theme is anger, frustration and disillusionment with a system so badly broken it appears unfixable through the existing supposedly democratic methods. The system has been captured by an oligarchy of moneyed interests from the financial industry, mega-corporations, and military industrial complex, protected by their captured puppets in Washington DC and sustained by the propaganda peddling corporate media. The differences in political parties are meaningless as they each advocate big government solutions to all social, economic, foreign relations, and monetary issues.
There is confusion and misunderstanding regarding the culprits in this drama. It was plain to me last week when I read about a small group of concerned citizens in the next town over who decided to support the Occupy movement by holding a nightly peaceful march to protest the criminal syndicate that is Wall Street and a political system designed to protect them. My local paper asked for people’s reaction to this Constitutional exercising of freedom of speech and freedom of assembly. Here is a sampling of the comments:
“What are those Occupy people thinking?! The whole concept is foreign to me. There are always going to be the haves and the have nots. Get over it. Blame yourself for not paying more attention in school or not working hard enough. Just wish people would take responsibility.”
“If they worked half as hard actually working as they do being a pain in everyone else’s ass, they’d be rich! Being born does not guarantee success or wealth. Only hard work does. Maybe we should let them all occupy a jail cell or two.”
“If the goal is to irritate hardworking suburban commuters on their way home, that sounds like the perfect time and location.”
“Let’s hope they don’t pitch tents and trash Lansdale. They need to look for a job, not occupy the streets.”
“I work, and even if I wasn’t working I wouldn’t (march); I would be out looking for a JOB!”
I was dumbfounded at the rage directed towards mostly young people who haven’t even begun their working careers and have played no part in the destruction of our economic system underway for the last 30 years. The people making these statements are middle aged, middle class suburbanites. They seem to be just as livid as the OWS protestors, but their ire is being directed towards the only people who have taken a stand against Wall Street greed and Washington D.C. malfeasance. I’m left scratching my head trying to understand their animosity towards people drawing attention to the enormous debt based ponzi scheme that is our country, versus their silent acquiescence to the transfer of trillions in taxpayer dollars to the criminal bankers that have destroyed the worldwide financial system. I can only come to the conclusion the average American has become so apathetic, willfully ignorant of facts and reality, distracted by the techno-gadgets that run their lives, uninterested in anything beyond next week’s episode of Dancing with the Stars or Jersey Shore, and willing to let the corporate media moguls form their opinions for them through relentless propaganda, the only thing that will get their attention is an absolute collapse of our economic scheme. Uninformed, unconcerned, intellectually vacant Americans will get exactly that in the not too distant future.
read the rest of the post here:
http://www.theburningplatform.com/?p=25234
“Many Americans Are Struggling To Understand Why Banks Deserve Such Preferential Treatment While Millions of Homeowners Are Being Denied Assistance And Are At Increasing Risk Of Foreclosure”
by WashingtonsBlog
The Fed Threw $7 Trillion at the Big Banks, Without Telling Congress or Shareholders
The Hill notes:
A top House Democrat is calling for a hearing with Federal Reserve Chairman Ben Bernanke following a report that the central bank secretly committed more than $7 trillion to save banks during the financial crisis.
House Oversight and Government Reform Committee ranking member Elijah Cummings (Md.) sent a letter on Monday to panel Chairman Darrell Issa (R-Calif.) requesting the committee look into how banks “benefitted from trillions of dollars in previously undisclosed government loans provided at below-market rates.”
“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Cummings said.
***
The request comes on the heels of a Bloomberg report that said the Fed secretly committed more than $7 trillion as of March 2009 to rescuing the nation’s top financial institutions, and that these banks “reaped an estimated $13 billion of income” on the below-market rates.
“Unfortunately, officials from many of these financial institutions declined to comment about these loans, including officials from Goldman Sachs, JPMorgan, Bank of America, Citigroup, and Morgan Stanley,” Cummings writes.
Information about the loans was withheld from Congress as lawmakers debated and passed the Dodd-Frank financial regulatory reform bill and Consumer Protection Act of 2010, Cummings said. Banks also failed to disclose the information to their shareholders.
***
This “secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble,” according to economists cited in the report.
Indeed, as I’ve repeatedly noted, virtually all of the so-called help for homeowners is actually yet another bailout for the banks at the expense of homeowners.
All of this might make sense if throwing money at the banks would help the economy, but it is actually destroying the economy. Also, a large portion of bailout funds went to foreign banks. And we may be getting ready to do it again.
But since the banks have bought and sold Washington D.C., the perpetual, stealth bailouts will continue forever unless We the People stand up and “just say no”.
http://www.washingtonsblog.com/2011/11/%e2%80%9cmany-americans-are-struggling-to-understand-why-banks-deserve-such-preferential-treatment-while-millions-of-homeowners-are-being-denied-assistance-and-are-at-increasing-risk-of-foreclosure.html
The Fed Threw $7 Trillion at the Big Banks, Without Telling Congress or Shareholders
The Hill notes:
A top House Democrat is calling for a hearing with Federal Reserve Chairman Ben Bernanke following a report that the central bank secretly committed more than $7 trillion to save banks during the financial crisis.
House Oversight and Government Reform Committee ranking member Elijah Cummings (Md.) sent a letter on Monday to panel Chairman Darrell Issa (R-Calif.) requesting the committee look into how banks “benefitted from trillions of dollars in previously undisclosed government loans provided at below-market rates.”
“Many Americans are struggling to understand why banks deserve such preferential treatment while millions of homeowners are being denied assistance and are at increasing risk of foreclosure,” Cummings said.
***
The request comes on the heels of a Bloomberg report that said the Fed secretly committed more than $7 trillion as of March 2009 to rescuing the nation’s top financial institutions, and that these banks “reaped an estimated $13 billion of income” on the below-market rates.
“Unfortunately, officials from many of these financial institutions declined to comment about these loans, including officials from Goldman Sachs, JPMorgan, Bank of America, Citigroup, and Morgan Stanley,” Cummings writes.
Information about the loans was withheld from Congress as lawmakers debated and passed the Dodd-Frank financial regulatory reform bill and Consumer Protection Act of 2010, Cummings said. Banks also failed to disclose the information to their shareholders.
***
This “secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble,” according to economists cited in the report.
Indeed, as I’ve repeatedly noted, virtually all of the so-called help for homeowners is actually yet another bailout for the banks at the expense of homeowners.
All of this might make sense if throwing money at the banks would help the economy, but it is actually destroying the economy. Also, a large portion of bailout funds went to foreign banks. And we may be getting ready to do it again.
But since the banks have bought and sold Washington D.C., the perpetual, stealth bailouts will continue forever unless We the People stand up and “just say no”.
http://www.washingtonsblog.com/2011/11/%e2%80%9cmany-americans-are-struggling-to-understand-why-banks-deserve-such-preferential-treatment-while-millions-of-homeowners-are-being-denied-assistance-and-are-at-increasing-risk-of-foreclosure.html
Secret Fed Loans Helped Banks Net $13B
By Bob Ivry, Bradley Keoun and Phil Kuntz
Bloomberg Markets Magazine.
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
‘Change Their Votes’
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”
The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.
The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.
$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”
Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
‘Motivate Others’
JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.
Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment.
The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.
‘Core Function’
“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”
The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland.
The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.
The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
Big Six
The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment.
The six -- JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley -- accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.
Bank Supervision
While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says.
Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”
On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.
‘Need Transparency’
Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup.
“I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee.
Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark.
“We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs.
“We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”
Disclose Lending
Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival.
It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank.
“The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.”
The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.
Protecting TARP
TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says.
“Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says.
Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.
No Clue
Lawmakers knew none of this.
They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.
Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs.
Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.
Moral Hazard
Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard -- the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers.
If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks.
Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.
“Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.
Getting Bigger
Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.
Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.
For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”
Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.
‘Wanted to Pretend’
“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”
Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.
Prevent Collapse
Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase.
“These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo.
JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.
‘Regulatory Discretion’
“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.”
The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms.
“When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”
Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.
‘Can We Survive?’
“The amount of pain that people, through no fault of their own, had to endure -- and the prospect of putting them through it again -- is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?”
Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up -- a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported.
Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF.
The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.
‘Serious Burden’
In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.
“The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.”
Dearie says his group didn’t mean to imply that Williamson endorsed big banks.
Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.
Geithner, Kaufman
On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission.
At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman.
Anthony Coley, a spokesman for Geithner, declined to comment.
‘Punishing Success’
Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says.
The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble.
Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner.
“Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”
Below Market
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter -- getting loans at below-market rates during a financial crisis -- is quite a gift.”
The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.
The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest.
Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.
Added Income
The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.
The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.
“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.
While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out.
Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.
Standing Access
Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.
“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”
In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise -- to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).
Occupy Wall Street
The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California.
The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor.
“The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”
In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries.
They take full effect in 2019.
Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”
Bloomberg Markets Magazine.
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
‘Change Their Votes’
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”
The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.
The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma -- investors and counterparties would shun firms that used the central bank as lender of last resort -- and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.
$7.77 Trillion
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”
Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
‘Motivate Others’
JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.
Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment.
The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.
‘Core Function’
“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”
The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland.
The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.
The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
Big Six
The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment.
The six -- JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley -- accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.
Bank Supervision
While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says.
Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”
On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.
‘Need Transparency’
Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup.
“I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee.
Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark.
“We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs.
“We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”
Disclose Lending
Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival.
It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank.
“The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.”
The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.
Protecting TARP
TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says.
“Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says.
Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.
No Clue
Lawmakers knew none of this.
They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.
Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs.
Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.
Moral Hazard
Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard -- the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers.
If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks.
Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.
“Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.
Getting Bigger
Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.
Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.
For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”
Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.
‘Wanted to Pretend’
“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”
Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.
Prevent Collapse
Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase.
“These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo.
JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.
‘Regulatory Discretion’
“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.”
The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms.
“When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”
Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.
‘Can We Survive?’
“The amount of pain that people, through no fault of their own, had to endure -- and the prospect of putting them through it again -- is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?”
Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up -- a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported.
Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF.
The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.
‘Serious Burden’
In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.
“The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.”
Dearie says his group didn’t mean to imply that Williamson endorsed big banks.
Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.
Geithner, Kaufman
On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission.
At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman.
Anthony Coley, a spokesman for Geithner, declined to comment.
‘Punishing Success’
Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says.
The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble.
Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner.
“Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”
Below Market
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter -- getting loans at below-market rates during a financial crisis -- is quite a gift.”
The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.
The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest.
Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.
Added Income
The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.
The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.
“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.
While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out.
Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.
Standing Access
Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.
“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”
In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise -- to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).
Occupy Wall Street
The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California.
The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor.
“The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”
In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries.
They take full effect in 2019.
Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”
Saturday, November 26, 2011
Assassinating the Rule of Law
BY Leonard C. Goodman
inthesetimes.com
President Obama has carried on where former President George W. Bush left off.
Of all the promises made by candidate Barack Obama, it was his promise to end the lawlessness of the Bush years by closing Guantanamo, ending torture and restoring the United States’ reputation for justice that got me out in the streets and knocking on doors. And it is President Obama’s failure to keep these promises that makes it impossible for me to support him again.
President Bush’s foreign policy was roundly criticized by most of the world and by candidate Obama. Following 9/11, Bush’s foreign policy was simple: If my administration decides that you are a terrorist or a terrorist supporter, we reserve the right to invade and occupy your country, kill you or send you halfway around the world to a prison camp.
To implement this policy, administration lawyers wrote memos making it all legal for their masters. First, Bush’s lawyers declared that the one-sentence “Authorization for Use of Military Force” enacted by a frightened Congress one week after September 11, 2001, authorized undeclared wars and the mass incarceration of terror suspects.
But Bush’s team wanted still more power—they wanted legal authority to torture suspects. So Bush’s lawyers wrote memos stating that torture under the president’s command would not violate federal law (which proscribes “torture”), or the U.N. Convention Against Torture, as long as the torturer lacks the intent to cause “prolonged mental harm” or “death or organ failure.” One of these memos, authored by Office of Legal Councel attorney Jay Bybee, included a convenient section called “Interpretation to Avoid Constitutional Problems.”
Bush’s lawyers also wrote memos authorizing the incarceration of U.S. citizens suspected of terror links without charge or trial. But here the Supreme Court drew the line. In the case of U.S. citizen Yaser Hamdi, a terror-suspect born in Louisiana, raised in Saudi Arabia, captured in Afghanistan and sent to Guantanamo, government lawyers argued that it would be “constitutionally intolerable” to require the government to submit any evidence to support its claim that Hamdi is a terrorist. The Supreme Court disagreed. While the court permitted the government to strip Hamdi of most of his constitutional rights, it nevertheless ordered the government to give Hamdi a hearing at which it must present some minimal amount of evidence. But because the government had no evidence that Hamdi was a terrorist, it sent him back to Saudi Arabia—on the condition that he renounced his citizenship.
Obama has carried on where Bush left off. Realizing that captured American-born terror suspects must be given a hearing, Obama decided it would be more convenient to kill them. And he asked the lawyers at the Office of Legal Counsel to write memos stating that killing Anwar al-Awlaki, the American-born Muslim cleric living in Yemen, would not violate the Constitution or federal statutes banning murder and assassinations. Once again, the lawyers set aside the most fundamental rules of legal ethics to serve their master.
The Obama administration has not released these assassination memos, but it did leak an outline of the memos’ legal reasoning to the New York Times. Their analysis is every bit as shoddy as that found in the torture memos. Obama’s lawyers concluded that the administration could legally kill al-Awlaki so long as the CIA says he is playing an operational role in al-Qaeda and that it was not feasible to capture him. The lawyers don’t actually analyze any of the evidence against al-Awlaki—they just declare that Obama may accept the word of the CIA, which is able to bury evidence so it can never be second-guessed.
Al-Awlaki was killed September 30 by a drone strike in Yemen. Presumably his executioner was a CIA agent rather than a soldier in uniform, but the Obama lawyers said that this would also be lawful. The drone strike also killed a second American named Samir Khan, who had produced a jihadist web magazine titled Inspire. Two weeks after killing al-Awlaki and Khan, the administration used its newfound powers to kill another American: al-Awlaki’s 16-year-old son, Abdulrahman al-Awlaki. This strike also killed eight other human beings.
As of this writing, the administration has not come forward with any explanation for the killing of the American juvenile or his companions. Presumably, an unprincipled government lawyer is at work on the justification memo right now.
inthesetimes.com
President Obama has carried on where former President George W. Bush left off.
Of all the promises made by candidate Barack Obama, it was his promise to end the lawlessness of the Bush years by closing Guantanamo, ending torture and restoring the United States’ reputation for justice that got me out in the streets and knocking on doors. And it is President Obama’s failure to keep these promises that makes it impossible for me to support him again.
President Bush’s foreign policy was roundly criticized by most of the world and by candidate Obama. Following 9/11, Bush’s foreign policy was simple: If my administration decides that you are a terrorist or a terrorist supporter, we reserve the right to invade and occupy your country, kill you or send you halfway around the world to a prison camp.
To implement this policy, administration lawyers wrote memos making it all legal for their masters. First, Bush’s lawyers declared that the one-sentence “Authorization for Use of Military Force” enacted by a frightened Congress one week after September 11, 2001, authorized undeclared wars and the mass incarceration of terror suspects.
But Bush’s team wanted still more power—they wanted legal authority to torture suspects. So Bush’s lawyers wrote memos stating that torture under the president’s command would not violate federal law (which proscribes “torture”), or the U.N. Convention Against Torture, as long as the torturer lacks the intent to cause “prolonged mental harm” or “death or organ failure.” One of these memos, authored by Office of Legal Councel attorney Jay Bybee, included a convenient section called “Interpretation to Avoid Constitutional Problems.”
Bush’s lawyers also wrote memos authorizing the incarceration of U.S. citizens suspected of terror links without charge or trial. But here the Supreme Court drew the line. In the case of U.S. citizen Yaser Hamdi, a terror-suspect born in Louisiana, raised in Saudi Arabia, captured in Afghanistan and sent to Guantanamo, government lawyers argued that it would be “constitutionally intolerable” to require the government to submit any evidence to support its claim that Hamdi is a terrorist. The Supreme Court disagreed. While the court permitted the government to strip Hamdi of most of his constitutional rights, it nevertheless ordered the government to give Hamdi a hearing at which it must present some minimal amount of evidence. But because the government had no evidence that Hamdi was a terrorist, it sent him back to Saudi Arabia—on the condition that he renounced his citizenship.
Obama has carried on where Bush left off. Realizing that captured American-born terror suspects must be given a hearing, Obama decided it would be more convenient to kill them. And he asked the lawyers at the Office of Legal Counsel to write memos stating that killing Anwar al-Awlaki, the American-born Muslim cleric living in Yemen, would not violate the Constitution or federal statutes banning murder and assassinations. Once again, the lawyers set aside the most fundamental rules of legal ethics to serve their master.
The Obama administration has not released these assassination memos, but it did leak an outline of the memos’ legal reasoning to the New York Times. Their analysis is every bit as shoddy as that found in the torture memos. Obama’s lawyers concluded that the administration could legally kill al-Awlaki so long as the CIA says he is playing an operational role in al-Qaeda and that it was not feasible to capture him. The lawyers don’t actually analyze any of the evidence against al-Awlaki—they just declare that Obama may accept the word of the CIA, which is able to bury evidence so it can never be second-guessed.
Al-Awlaki was killed September 30 by a drone strike in Yemen. Presumably his executioner was a CIA agent rather than a soldier in uniform, but the Obama lawyers said that this would also be lawful. The drone strike also killed a second American named Samir Khan, who had produced a jihadist web magazine titled Inspire. Two weeks after killing al-Awlaki and Khan, the administration used its newfound powers to kill another American: al-Awlaki’s 16-year-old son, Abdulrahman al-Awlaki. This strike also killed eight other human beings.
As of this writing, the administration has not come forward with any explanation for the killing of the American juvenile or his companions. Presumably, an unprincipled government lawyer is at work on the justification memo right now.
Bankers Have Seized Europe: Goldman Sachs Has Taken Over
By Paul Craig Roberts
On November 25, two days after a failed German government bond auction in which Germany was unable to sell 35% of its offerings of 10-year bonds, the German finance minister, Wolfgang Schaeuble said that Germany might retreat from its demands that the private banks that hold the troubled sovereign debt from Greece, Italy, and Spain must accept part of the cost of their bailout by writing off some of the debt. The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.
Obviously, the German government got the message from the orchestrated failed bond auction. As I wrote at the time, there is no reason for Germany, with its relatively low debt to GDP ratio compared to the troubled countries, not to be able to sell its bonds.
If Germany’s creditworthiness is in doubt, how can Germany be expected to bail out other countries? Evidence that Germany’s failed bond auction was orchestrated is provided by troubled Italy’s successful bond auction two days later.
Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.
In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.
My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.
If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.
Certainly, President Obama does not want to go into an election year facing this prospect of high profile US financial failure. So, without any doubt, the US Treasury wants Germany out of the way of a European bailout.
The private French, German, and Dutch banks, which appear to hold most of the troubled sovereign debt, don’t want any losses. Either their balance sheets, already ruined by Wall Street’s fraudulent derivatives, cannot stand further losses or they fear the drop in their share prices from lowered earnings due to write-downs of bad sovereign debts. In other words, for these banks big money is involved, which provides an enormous incentive to get the German government out of the way of their profit statements.
The European Central Bank does not like being a lesser entity than the US Federal Reserve and the UK’s Bank of England. The ECB wants the power to be able to undertake “quantitative easing” on its own. The ECB is frustrated by the restrictions put on its powers by the conditions that Germany required in order to give up its own currency and the German central bank’s control over the country’s money supply. The EU authorities want more “unity,” by which is meant less sovereignty of the member countries of the EU. Germany, being the most powerful member of the EU, is in the way of the power that the EU authorities desire to wield.
Thus, the Germans bond auction failure, an orchestrated event to punish Germany and to warn the German government not to obstruct “unity” or loss of individual country sovereignty.
Germany, which has been browbeat since its defeat in World War II, has been made constitutionally incapable of strong leadership. Any sign of German leadership is quickly quelled by dredging up remembrances of the Third Reich. As a consequence, Germany has been pushed into an European Union that intends to destroy the political sovereignty of the member governments, just as Abe Lincoln destroyed the sovereignty of the American states.
Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.
The new president of the European Central Bank is Mario Draghi. This person was Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs’ Management Committee. Draghi was also Italian Executive Director of the World Bank, Governor of the Bank of Italy, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and a member of the boards of governors of the International Bank for Reconstruction and Development and the Asian Development Bank, and Chairman of the Financial Stability Board.
Obviously, Draghi is going to protect the power of bankers.
Italy’s new prime minister, who was appointed not elected, was a member of Goldman Sachs Board of International Advisers. Mario Monti was appointed to the European Commission, one of the governing organizations of the EU. Monti is European Chairman of the Trilateral Commission, a US organization that advances American hegemony over the world. Monti is a member of the Bilderberg group and a founding member of the Spinelli group, an organization created in September 2010 to facilitate integration within the EU.
Just as an unelected banker was installed as prime minister of Italy, an unelected banker was installed as prime minister of Greece. Obviously, they are intended to produce the bankers’ solution to the sovereign debt crisis.
Greece’s new appointed prime minister, Lucas Papademos, was Governor of the Bank of Greece. From 2002-2010. He was Vice President of the European Central Bank. He, also, is a member of America’s Trilateral Commission.
Jacques Delors, a founder of the European Union, promised the British Trade Union Congress in 1988 that the European Commission would require governments to introduce pro-labor legislation. Instead, we find the banker-controlled European Commission demanding that European labor bail out the private banks by accepting lower pay, fewer social services, and a later retirement.
The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.
On November 25, two days after a failed German government bond auction in which Germany was unable to sell 35% of its offerings of 10-year bonds, the German finance minister, Wolfgang Schaeuble said that Germany might retreat from its demands that the private banks that hold the troubled sovereign debt from Greece, Italy, and Spain must accept part of the cost of their bailout by writing off some of the debt. The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.
Obviously, the German government got the message from the orchestrated failed bond auction. As I wrote at the time, there is no reason for Germany, with its relatively low debt to GDP ratio compared to the troubled countries, not to be able to sell its bonds.
If Germany’s creditworthiness is in doubt, how can Germany be expected to bail out other countries? Evidence that Germany’s failed bond auction was orchestrated is provided by troubled Italy’s successful bond auction two days later.
Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.
In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.
My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.
If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.
Certainly, President Obama does not want to go into an election year facing this prospect of high profile US financial failure. So, without any doubt, the US Treasury wants Germany out of the way of a European bailout.
The private French, German, and Dutch banks, which appear to hold most of the troubled sovereign debt, don’t want any losses. Either their balance sheets, already ruined by Wall Street’s fraudulent derivatives, cannot stand further losses or they fear the drop in their share prices from lowered earnings due to write-downs of bad sovereign debts. In other words, for these banks big money is involved, which provides an enormous incentive to get the German government out of the way of their profit statements.
The European Central Bank does not like being a lesser entity than the US Federal Reserve and the UK’s Bank of England. The ECB wants the power to be able to undertake “quantitative easing” on its own. The ECB is frustrated by the restrictions put on its powers by the conditions that Germany required in order to give up its own currency and the German central bank’s control over the country’s money supply. The EU authorities want more “unity,” by which is meant less sovereignty of the member countries of the EU. Germany, being the most powerful member of the EU, is in the way of the power that the EU authorities desire to wield.
Thus, the Germans bond auction failure, an orchestrated event to punish Germany and to warn the German government not to obstruct “unity” or loss of individual country sovereignty.
Germany, which has been browbeat since its defeat in World War II, has been made constitutionally incapable of strong leadership. Any sign of German leadership is quickly quelled by dredging up remembrances of the Third Reich. As a consequence, Germany has been pushed into an European Union that intends to destroy the political sovereignty of the member governments, just as Abe Lincoln destroyed the sovereignty of the American states.
Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.
The new president of the European Central Bank is Mario Draghi. This person was Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs’ Management Committee. Draghi was also Italian Executive Director of the World Bank, Governor of the Bank of Italy, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and a member of the boards of governors of the International Bank for Reconstruction and Development and the Asian Development Bank, and Chairman of the Financial Stability Board.
Obviously, Draghi is going to protect the power of bankers.
Italy’s new prime minister, who was appointed not elected, was a member of Goldman Sachs Board of International Advisers. Mario Monti was appointed to the European Commission, one of the governing organizations of the EU. Monti is European Chairman of the Trilateral Commission, a US organization that advances American hegemony over the world. Monti is a member of the Bilderberg group and a founding member of the Spinelli group, an organization created in September 2010 to facilitate integration within the EU.
Just as an unelected banker was installed as prime minister of Italy, an unelected banker was installed as prime minister of Greece. Obviously, they are intended to produce the bankers’ solution to the sovereign debt crisis.
Greece’s new appointed prime minister, Lucas Papademos, was Governor of the Bank of Greece. From 2002-2010. He was Vice President of the European Central Bank. He, also, is a member of America’s Trilateral Commission.
Jacques Delors, a founder of the European Union, promised the British Trade Union Congress in 1988 that the European Commission would require governments to introduce pro-labor legislation. Instead, we find the banker-controlled European Commission demanding that European labor bail out the private banks by accepting lower pay, fewer social services, and a later retirement.
The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.
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