Deny and Discover — Where the Rubber Meets the Road


What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Analysis: The banks are broke and this rule properly applied will reveal exactly how badly they fall short of capital requirements. It can be found at Volume 77, No. 169 of the Federal Register dated, Thursday, August 30, 2012 2012-16759 Capital Risk Disclosure Requirements Under Dodd Frank.

Admittedly this is not for the feint of heart or those with limited literacy in economics, accounting and finance; but if you find yourself in the position of not understanding, then go to any economist or banker or finance specialist or accountant  and they will explain it to you.

Lewtan which produces ABSnet is offering a service to banks that will give the banks and plausible deniability when the figures come up all rosy for the banks. Lewtan should be careful in view of the action being taken against the ratings companies, which is the start of an assault on the citadel of evil intent on Wall Street.

The fundamental aspect of these new rules are that the bank must report on the degree of risk it has taken on in any activity or holding. They must also  show how they arrived at that assessment and under the Freedom of Information Act (FOIA) you might be able to get copies of their filing whether they do it themselves (doubtful) or hire someone like Lewtan which is obviously going to do the bidding of its paying clients.

The main problem for the banks is that they are holding overvalued assets and some non-existent assets on their balance sheet. A review to assess risk if properly conducted, will definitely turn up both kinds of assets reported on the balance sheet of the banks, which in turn will reduce their reported capital reserves, which in turn will result in changing the ratio between capital and risk.

This might sound like gumbo to you. But here is the bottom line: the banks were using investor money. We all know that. In baby language, the question is if they were using someone else’s money how did the banks lose any money?

They did receive the money from investors like pension funds, and other managed funds for retirement or contingencies. But they diverted the money and the documents to make it appear that the bank owned the assets that were intended to be purchased for the REMIC trusts. The Banks then purchased and claimed to be an insured or a party who had sustained a loss when in fact the loss was incurred by the investors and the mortgage bonds and loans were owned collectively by the investors.

By doing that the insurance proceeds were paid to the banks creating an instant liability to the investors to whom they owed a common law and contractual duty to provide an accounting and distribution based upon the insurance recovery. At no time did the banks ever have a risk of loss nor an insurable interest in their own name. And at not time were they bound by the REMIC documents because they ignored the REMICs and conducted transactions through an entirely different superstructure.

As agents of the investors they should have followed the REMIC documents and purchased the insurance and CDS protection for the benefit of the investors. But they didn’t do that. They kept the money for the bank who never had any proof of loss, proof of payment and was a mere intermediary claiming the rights of the principal. The same thing happened with Credit Default Swaps and Federal bailouts.

That is why the definition of toxic assets changed over a weekend when TARP was started. It was thought that the mortgages had gone bad for the banks.

Then they realized that the mortgages weren’t going bad to the extent reported and that the bank was suffering no loss because they were using investor money to create the funding of loans and the funding of proprietary trading in which they masked the theft of trillions from investors.

So the government quietly changed the definition of toxic assets to mortgage bonds — but that ran into the same problem, to wit: the mortgage bonds were underwritten by the banks but purchased by the investors (pension funds etc.).

Now the rubber meets the road. The claim that somehow the banks got stuck with mortgage bonds is patently absurd. If they have mortgage bonds it is not because they bought them, it is because they created them but were unable to sell them because the market collapsed and the PONZI scheme fails whenever the suckers stop buying.

The actual proceeds from theft from the investors and the borrowers is parked off shore around the world. The Banks having been feeding the money back in very slowly because they want to create the appearance of an increasingly profitable bank, when in fact, their revenues sand earnings are slipping away quickly — except for the bolstering they get from repatriating stolen money from investors and borrowers and calling them “proprietary trades.”

Nobody on Wall Street is making that kind of money on trades, proprietary or otherwise, but the banks are claiming ever increasing profits, raising their stock price, defrauding their stockholders. So against each overvalued and non-existent asset claimed by the mega banks on their balance sheet is a liability of far exceeding the assets or even the combined assets of the banks. Treasury knows, this, the Fed knows this and central bankers around the world know it. But they have been drinking the Kool-Aid believing that if they call out the mega banks on this fake accounting, the entire financial system will collapse.

So yes there is a consensus between those who pull the levers of power that they will allow the banks to pretend to have assets, that their liabilities are fairly low, and that the risks associated with their business activities, assets and liabilities are minimal even while knowing the converse is true. The system’s foundation is a loose amalgamation of lies that will eventually collapse anyway but everyone likes to kick the can down the road.

You are getting in this article a sneak peek into why the banks all rushed to foreclose rather than modify or settle on better terms. What is important from the practice point of view is that (1) the “Consideration” mandated by HAMP is not happening and you can prove it with the right allegations and discovery and (2) the reports tendered to OCC and the Fed under this rule will reveal that the issue of proof of loss, risk of loss, proof of payment and ownership is completely muddled — unless you follow the money trail (see yesterday’s article). You can subpoena the reports given by the banks from both the bank itself or the agency. My opinion is that you fill find a treasure trove of information very damaging to the banks and the Treasury Department.

There will be caveats in the notes that express the risk of inaccuracy and which reveal the possibility that the banks neither own nor control the mortgages except as agents for the investors, that the liability to the investors is equal to the money received from insurance, CDS, and bailouts, and that the borrower’s loan payable balance was corresponding reduced as to the investor and increased to entities that are not or cannot press any claims against the borrowers. Educate yourself and persist — the tide is turning.

Excerpt from attached section of Federal Register:

The bank’s primary federal supervisor may rescind its approval, in whole or in part, of the use of any internal model and determine an appropriate regulatory capital requirement for the covered positions to which the model would apply, if it determines that the model no longer

complies with the market risk capital rule or fails to reflect accurately the risks of the bank’s covered positions. For example, if adverse market events or other developments reveal that a material assumption in an approved model is flawed, the bank’s primary federal supervisor may require the bank to revise its model assumptions and resubmit the model specifications for review. In the final rule, the agencies made minor modifications to this provision in section 3(c)(3) to improve clarity and correct a cross-reference.

Financial markets evolve rapidly, and internal models that were state-of-the- art at the time they were approved for use in risk-based capital calculations can become less effective as the risks of covered positions evolve and as the industry develops more sophisticated modeling techniques that better capture material risks. Therefore, under the final rule, as under the January 2011 proposal, a bank must review its internal models periodically, but no less frequently than annually, in light of developments in financial markets and modeling technologies, and to enhance those models as appropriate to ensure that they continue to meet the agencies’ standards for model approval and employ risk measurement methodologies that are, in the bank’s judgment, most appropriate for the bank’s covered positions. It is essential that a bank continually review, and as appropriate, make adjustments to its models to help ensure that its market risk capital requirement reflects the risk of the bank’s covered positions. A bank’s primary federal supervisor will closely review the bank’s model review practices as a matter of safety and soundness. The agencies are adopting these requirements in the final rule.

Risks Reflected in Models. The final rule requires a bank to incorporate its internal models into its risk management process and integrate the internal models used for calculating its VaR-based measure into its daily risk management process. The level of sophistication of a bank’s models must be commensurate with the complexity and amount of its covered positions.


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