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Tom Ice Uncovers Robowitness Script!


It was no surprise that the script existed for the “corporate representatives” who testify in court. And it shouldn’t be any surprise that Tom Ice uncovered it. These are robo-witnesses. In nearly all cases, the witness never worked for the bank or servicer other than testifying to facts they knew nothing about. If you sit in any foreclosure courtroom you will hear the exact same questions and the exact same answers every time for every bank and every servicer.

As many of us have previously pointed out — these scripts are obviously prepared by lawyers and used by lawyers who treat these witnesses like trained monkeys. Some lawyers have gotten into trouble for fabricated documents. Now it looks like they will get into trouble for fabricating testimony.

So you have a witness who might never have worked for any bank or servicer testifying as to their confidence that the information and documents presented in court are correct. Why do they say that? Because it is in the script and for no other reason. They are actors that cannot withstand a thorough cross examination. And that is the whole point. If you do the numbers, the banks and servicers lose a lot of cases now but the overwhelming majority of cases filed in Florida end up with a Foreclosure Judgment based upon the testimony of an incompetent witness.

In order to be a competent witness, the person MUST have all four of the following attributes:

  • Willing to take an oath
  • Personal knowledge of the matters asserted. The witness must have seen or heard something. And that “something” must be probative of the claims.
  • Personal recollection
  • Ability to communicate those perceptions

Next Week on the Neil Garfield Show: HUGE DECISION Expected in Arizona Federal Court

Personal commitments have forced me to take the day off from the show this week, but I’ll be back next week.

I have learned of a court proceeding in which the Judge expressed the opinion that in order for any of the mortgages to be valid (where MERS is involved) they would have to redraft the mortgage without MERS and get the borrower to sign a new one. Exactly what I said in 2007. Only now we have over 7 million illegal foreclosures based upon fraudulent and illegal mortgages and notes. MERS’ attorney estimated that the total number of mortgages affected could be 100 million. The Judge basically said it wasn’t his problem — it was the problem of the banks and MERS who devastated title records.

The question asked in Arizona Federal Court: Is there any case or statute under which MERS could be beneficiary of a deed of trust? The answer is no. Thus they cannot be the beneficiary, even for one second. Their title as “nominee” is as good as saying Donald Duck is the lender. MERS and Donald share something: they are both fictional characters.

LIBOR Manipulation May Nullify Adjustable Rate

For more information please call my administrative assistant, Susan at 954-495-9867 or 520-405-1688.

Please note: Danielle and Geordan are no longer working for livinglies or my law firm. With the change in personnel and some problems with our systems, it is possible for orders to have been placed without being processed. If you have placed an order that is unfulfilled, please call the numbers above. Have your receipts for payment available when you call.



Many of the alleged mortgage loans have documents that provide for adjustment of the interest rate and the monthly payment — some as early as 30 days and some as far out as 5 years. These adjustments are expressly stated in the note as being based on changes on certain indexes. LIBOR (London Interbank Offered Rate is usually a component of the basis for the adjustment. But, as we have seen on multiple occasions (such as the one in the link above) LIBOR was manipulated and fabricated by the Banks whose reports are used to determine the LIBOR index.

Many Banks have been fined as a result of their illegal activities. My opinion, as an expert, is that the adjustment to rates and payments on notes and mortgages based at least in part on LIBOR are definitely inaccurate. AND there is no way of knowing the true rate without finding out the exact manipulations that occurred and the effect on the index. The note was drafted by the “lender.” So it is to be construed against the party who wrote it — either by or for the originator.

If the actual adjustment cannot be computed because the index upon which it is based was fatally flawed, then the adjustment should not occur unless the parties agree on the amount of adjustment. If I am right, most of the adjustments that have been declared by servicers and banks are (a) wrong and (b) illegal — as a result of their own illegal activities in manipulating LIBOR. Even if they did not participate in such illegal activity, though, the fact remains that the Index is wrong.

This could mean that borrowers who have an adjustable rate mortgage may be able to (a) reduce their payments and (b) seek disgorgement of the amount they paid over the initial monthly payment.

California Court Pierces the Curtain of Secrecy on WAMU Deals

For further information please call 954-495-9867 or 520-405-1688

NOTE: My new administrative assistant is Susan Rose. Danielle and Geordan no longer work for livinglies or my law practice.


Hat Tip to Dan Edstrom, DTC Systems, our senior forensic analyst.

This decision finally brings the real issue to the forefront: who, if anyone, actually has the legal status of creditor or the right to claim ownership of the debt, loan, note or mortgage? In this case the Court correctly centered on the real issue: if WAMU had ALREADY sold the loan before it “sold” the loan to a trust or anyone else, then the entire chain is not just defective, or corrupted, it is void. And then you have quiet title, wrongful foreclosure and probably RICO although that does not seem to be in the pleadings for this case.

Lawyers take note: This Judge still doesn’t like the rambling shotgun approach seen in so many of these pleadings. If you have 50 good arguments, then take courage, pick two and run with them.



Case No. 13-4249 SC.United States District Court, N.D. California.May 11, 2015.


FAC ¶ 12. Plaintiffs provide significant detail regarding the process through which
 allegedly sold their loan. See id. ¶¶ 12-19.


Plaintiffs allege that on or before August 22, 2008, their mortgage loan was contributed to a mortgage backed security (“MBS”) identified as JPMorgan Mortgage Trust 2008 R-2 Pass-through Certificates Series 2008-R2 (“JPMMT 2008R2″), of which Wells Fargo is the trustee. Id. ¶ 12. Plaintiffs allege that WaMu sold their mortgage loan temporarily to the depositor of the JPMMT 2008-R2, but that the sale failed to assign the DOT. Id. ¶ 16. As Plaintiffs, put it, “[t] his was the first sale of the Plaintiff’s mortgage loan, but without effectively assigning the [DOT] and indorsing the underlying original Promissory Note to the interim loan purchaser. . . .” Id. Next, JP Morgan Acceptance Corporation “sold and securitized the pooled mortgages (including Plaintiffs’ mortgage loan) into the JPMMT 2008-R2 Trust” on or before the trust’s “closing date” on August 22, 2008. Id. Plaintiffs allege that this sale, too, failed to properly assign the DOT or original note. Id.
. . . . .


Though Plaintiffs’ FAC is verbose, unclear, and at times appears internally inconsistent, Plaintiffs now allege, at the very least, that:

WAMU irrevocably sold all right, title and interest in Plaintiffs’ mortgage loan, for value received, to the JPMorgan Mortgage Trust 2008-R2 Mortgage Pass-through Certificates Series 2008-R2 (“JPMMT 2008-R2″), a private label mortgage-backed securities trust with a Real Estate Mortgage Investment Conduit election and continuing qualification.

FAC ¶ 12. Plaintiffs provide significant detail regarding the process through which WaMu allegedly sold their loan. See id. ¶¶ 12-19.

Plaintiffs now sufficiently allege that WaMu not only had no beneficial interest in the Loan, but that it was no longer the mortgagee when JPMorgan purchased its assets. Because Plaintiffs now allege that WaMu sold its entire interest in the Loan, the facts render plausible the possibility that Defendants lack standing to foreclose on the mortgage. See, e.g., Subramani, 2013 WL 5913789, at *4Javaheri v. JPMorgan Chase Bank, N.A., No. CV10-08185 ODW FFMX, 2011 WL 2173786, at *5 (C.D. Cal. June 2, 2011) (“the above mentioned [similar] facts regarding the transfer of Plaintiff’s Note prior to JPMorgan’s acquisition of WaMu’s assets raise Plaintiff’s right to relief above a speculative level”).  . . . .
. . . . It is true that “[t]here is no stated requirement in California’s non-judicial foreclosure scheme that requires a beneficial interest in the Note to foreclose. Rather, the statute broadly allows a trustee, mortgagee, beneficiary, or any of their agents to initiate non-judicial foreclosure.” Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1099 (E.D. Cal. 2010). However, Plaintiffs now sufficiently allege that WaMu not only had no beneficial interest in the Loan, but that it was no longer the mortgagee when JPMorgan purchased its assets. Because Plaintiffs now allege that WaMu sold its entire interest in the Loan, the facts render plausible the possibility that Defendants lack standing to foreclose on the mortgage. See, e.g., Subramani, 2013 WL 5913789, at *4Javaheri v. JPMorgan Chase Bank, N.A., No. CV10-08185 ODW FFMX, 2011 WL 2173786, at *5 (C.D. Cal. June 2, 2011) (“the abovementioned [similar] facts regarding the transfer of Plaintiff’s Note prior to JPMorgan’s acquisition of WaMu’s assets raise Plaintiff’s right to relief above a speculative level”). The Court proceeds to discuss the effect of this finding on each of Plaintiffs’ claims in turn.

. . . . .

A. Wrongful Foreclosure

Defendants argue that Plaintiffs’ first cause of action must be dismissed because Plaintiffs do not allege any irregularity or illegality in the foreclosure process. As discussed above, however, the Court finds that Plaintiffs now sufficiently allege that WaMu ceded any interest upon which it might foreclose when it sold the Loan in 2008. To the extent that Plaintiffs allege wrongful foreclosure because Defendants were not the “trustee, mortgagee or beneficiary or any of their authorized agents,” Plaintiffs state a claim and Defendants’ motion is DENIED. See Cal. Civ. Code § 2924(a)(1).

B. Quiet Title

Defendants argue that Plaintiffs’ claim for wrongful foreclosure must be dismissed because “the allegations concerning the `holder of the note’ have been invalidated.” Mot at 5. Because the Court finds that Plaintiffs have sufficiently alleged that Defendants are not the holders of the note, this argument fails. The motion is DENIED as to Plaintiffs’ second claim, to the extent that claim is premised on the allegations that Defendants do not have any interest in the note as a result of WaMu’s sale of the Loan.

. . . . .

E. Cancellation of Instruments

Defendants’ argument that Plaintiffs’ cancellation of instruments claim should be dismissed is again premised on the assumption that Plaintiffs fail to allege WaMu’s sale of the loan. See Opp’n at 8-9. Because the Court finds that Plaintiffs now adequately allege that their loan was sold, this argument fails. Defendants’ motion is DENIED as to the cancellation of instruments claim.

. . . . .


For the foregoing reasons, Defendants JPMorgan Chase Bank, N.A and Wells Fargo Bank, N.A.’s Motion to Dismiss is GRANTED in part and DENIED in part. All of Plaintiffs’ claims are DISMISSED with prejudice to the extent they are premised on deficiencies in the securitization process. Plaintiffs’ claim for violation of the Fair Credit Reporting Act is DISMISSED with prejudice. Plaintiffs’ claims for breach of contract and violation of the Equal Credit Opportunity Act are DISMISSED without prejudice. Plaintiffs’ claims for wrongful foreclosure, quiet title, cancelation of instruments, violation of Section 2923.5, and unjust enrichment survive to the extent that they are premised on the theory that WaMu sold its entire interest in the Loan in 2008.

Plaintiffs’ claims for slander of title, fraud, and unfair competition are DISMISSED with leave to amend. Plaintiffs may amend those claims to add allegations sufficient to allege fraud under the standards set out by Federal Rule of Civil Procedure 9(b). If plaintiffs choose to amend their complaint to add such allegations, they must do so within thirty (30) days of the signature date of this Order. Failure to amend within thirty days may result in dismissal of those claims with prejudice.


[1] Plaintiffs also allege that Washington Mutual Bank, FA changed its name to Washington Mutual Bank in April of 2005. See id. Plaintiffs apparently assert that WaMu therefore ceased to exist as a legal entity and that JPMorgan knew it could not buy any assets (including Plaintiffs’ loan) from WaMu. Plaintiffs in foreclosure cases like this one have repeatedly advanced that theory, and courts have repeatedly rejected it. See, e.g., Lanini v. JPMorgan Chase Bank, No. 2:13-CV-00027 KJM, 2014 WL 1347365, at *3 (E.D. Cal. Apr. 4, 2014) (“Plaintiffs have cited nothing to support their claim that the bank’s change of name means the bank itself ceased to exist.”). The Court agrees with the numerous other judges who have rejected this theory and holds that Plaintiffs’ claims regarding JPMorgan’s chain of title to the mortgage and Defendants’ knowledge of their lack of interest in the Loan may not be premised on WaMu’s name change in 2005.
[2] It is unclear why Defendants make this argument only in opposition to Plaintiffs’ Section 2923.5 claim and not all of Plaintiffs’ claims. Regardless, some of the Court’s reasons for rejecting Defendants’ argument apply to all of Plaintiffs’ claims.

REMIC Trusts: VOID means VOID — Not Voidable

For further information please call 954-495-9867 or 520-405-1688

Rod Ciferri’s Telephone is 650-346-3741


Rod Ciferri, who was the guest on the Neil Garfield Show last week, has nailed the issue with extensive research and a highly articulate explanation of why the cutoff date and other requirements of the Trust Instrument (the Pooling and Servicing Agreement) are absolute and not subject to interpretation from the Bench. He goes back to basics — starting with the point we lawyers learn in law school in our first year. Statutes may not be construed unless there is a specific finding that the statute is ambiguous in some way. The New York statute says that any act in contravention of the express terms of the Trust instrument is void.

I would only add that none of the Trusts actually come to own the debt, loan, note or mortgage anyway. The creation of “assignments” and “powers of attorney” merely create the illusion of a transaction that never occurred.

Rod Ciferri is licensed in New York State. I strongly recommend that lawyers read the following excerpt from Rod Ciferri carefully and incorporate it into the argument and memos.

  1. New York Law Prohibits Plaintiff-In-Intervention’s Late    Acceptance Of The Loan And Deems The Same To Be Void Ab Initio

Estates, Powers & Trusts Law § 7-2.4 (“§ 7-2.4”) states that acts of a trustee in contravention of the trust agreement are void.[1] Here the act of Plaintiff-In-Intervention which is void is its late acceptance of the loan into the trust. Although Defendant is aware of cases holding such acts are merely voidable, such cases rest upon a misunderstanding of New York law.

First, § 7-2.4 was preceded by a statute of nearly identical language[2] – 1 R.S. 730, § 65. That statute was first considered by the highest court in New York, the Court of Appeals, in 1852. Powers v. Bergen (1852) 6 N.Y. 358, found a sale of certain real property held in trust under the direction that the real property would be a life estate for the beneficiary was void under that statute – despite the fact that the beneficiary did not object and that the legislature made a private statute specifically to facilitate such sale. The high court of New York found neither the ratification of the beneficiary, nor private statute of the legislature made the act of the trustees in contravention of the trust agreement anything less than void. Other cases of the New York Court of Appeals followed that literal interpretation of the statute.[3] Given that the statute under consideration by the New York Court of Appeals is identical to the current statute as to its terms that are material to the issues herein, these cases are mandatory authority on the meaning of § 7-2.4: “void” actually means void.

Finally, the California Supreme Court confirmed that the New York Court of Appeals ruled the predecessor statute to § 7-2.4 voided acts of the trustee in contravention of the trust agreement.[4] In fact, that case considered California’s own statute, former Civil Code § 870, that had identical language as New York’s former statute, except that it was limited to real estate, whereas, the New York statute applied to all estates. Significantly, the Firato Court acknowledged a trustee’s acts in contravention of a trust agreement are void, however, in consideration of another section of the Civil Code, it recognized that was not necessarily the case with regard to title to property thereby obtained by purchasers for value without notice. Subsequently, the California legislature repealed Civil Code § 870.[5] Therefore, the California Supreme Court has recognized that that the word “void” used in its own almost identical former statute means void, except in cases where the trustee conveys property to an innocent purchaser.[6]

However, should the Court determine that these cases are not mandatory authority herein because of differences between § 7-2.4 and the prior statutes, despite the dearth of New York Court of Appeals cases considering the legal effect of § 7-2.4, the intermediate appeals courts have established the rule of law in this regard that must be followed by trial courts. In the absence of an on point ruling by the New York Court of Appeals, it is the decisions of the intermediate appeals courts, the Appellate Divisions, which are to be followed by the trial courts. See, Mountain View Coach Lines, Inc. v. Storms (1984) 102 A.D.2d 663 (If only one Appellate Division has ruled on a point not ruled on by the Court of Appeals, that ruling is binding on trial courts).   The only Appellate Division that has specifically dealt with § 7-2.4 is the Second Department. In the matter of Doman (2d Dept. 2013) 110 A.D.3d 1073 (distributions from trust not authorized by the trust agreement must be returned to the trust); Pepi v. Petrella (2d Dept. 2000) 268 A.D.2d 477 (conveyance made in contravention of the trust void). Just as a trustee’s acts in contravention of the trust were adjudged void under the old statute, the Appellate Division, Second Department, has determined the same are void under § 7-2.4.

Moreover, the lower court decisions holding that the word void actually means voidable are of little authority because none of them actually found the wording of § 7-2.4 to have been ambiguous – a prerequisite to judicial construction and interpretation – whether analyzed under California or New York law.[7]

Where a statute is unambiguous, the courts must interpret its words in accordance with their ordinary meaning and not engage in statutory construction. Kimmel v. Goland (1990) 51 Cal.3d 202, 208 (To determine the intent of legislation, courts first consult the words themselves, giving them their usual and ordinary meaning); Rojo v. Kliger (1990) 52 Cal.3d 65, 73 (When statutory language is clear and unambiguous there is no need for construction, and courts should not indulge in it); PBA v. City of New York (1976) 41 NY 2d 205, 208 (“where the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used.”). Clearly the courts that have determined “void” means “voidable” did not follow these elementary rules prohibiting judicial construction absent an ambiguous statute.

Also, cases that don’t cite § 7-2.4 that find unauthorized acts of a trustee are “voidable” are of dubious authority herein for not considering that statute’s effect on such acts.[8] Finally, none of these cases analyze the substantially similar statutes that existed in both New York and California, nor the cases decided by the high courts of those respective states correctly interpreting them.

Therefore, this Court should follow the sound mandatory authority of the plain meaning of § 7-2.4, the New York Court of Appeals decisions that considered § 7-2.4’s predecessor statute, the California Supreme Court’s interpretation of a substantially similar statute and the Appellate Division, Second Department cases that specifically considered § 7-2.4. Whether void or voidable, the issue is not an academic one. The legislature’s purpose in enacting § 7-2.4 was “to protect trust beneficiaries from unauthorized actions by the trustee.” Turano, Practice Commentaries, McKinney’s Consolidated Laws of New York, Book 17B, EPTL §7-2.4. That statutory purpose is particularly important in the instant case, since the certificate holder beneficiaries under the trust herein are prohibited by the Agreement from voting on or challenging such unauthorized actions except in certain sharply circumscribed circumstances.[9] In short, “void” means void.

[1] The verbatim language of § 7-2.4 is: “If the trust is expressed in the instrument creating the estate of the trustee, every sale, conveyance or other act of the trustee in contravention of the trust, except as authorized by this article and by any other provision of law, is void.”

[2] “where the trust shall be expressed in the instrument creating the estate, every sale, conveyance or other act of the trustees in contravention of the trust shall be absolutely void.”   See Briggs v. Davis (1859) 20 N.Y. 15, 21.

[3] See Briggs v. Davis (1859) 20 N.Y. 15 (grantees of land in trust for the payment of debts reconveyed to the grantor, reciting that the trusts had been executed. In fact, the debts had not all been paid. The debtor then mortgaged the land to one having no actual notice of the trust. It was held that the reconveyance, being in contravention of the trust, was void, and that the legal estate remained in the trustees.); Genet et al. v. Hunt et al. (1889) 113 N.Y. 158 (“The statute makes every conveyance or other act of the trustees of an express trust in lands, in contravention of the trust, absolutely void…”); Russell v. Russell (1867) 36 N.Y. 581 (Transfer in contravention of the trust agreement void, despite mutual assent to it by the trustee and beneficiary).

[4] Firato v. Tuttle (1957) 48 Cal.2d 136 (“In 1859 it was held by a divided court in Briggs v. Davis, 20 N.Y. 15 [75 Am.Dec. 363], that this statute made a wrongful reconveyance under a deed of trust absolutely void even as to an innocent purchaser.”).

[5] For the history of Civil Code § 870, see Schiavon v. Arnaudo Brothers (2000) 84 Cal.App.4th 374.

[6] Plaintiff-In-Intervention, as a party to the Agreement, had knowledge that its late acceptance of the instant loan into the trust res was unauthorized, and, consequently, cannot be deemed an innocent purchaser. In fact, Plaintiff-In-Intervention unequivocally covenants in the Agreement at Section 3.02, the following: “REMIC-Related Covenants. For as long as any 2007-AR4 REMIC shall exist, the Trustee shall act in accordance herewith to assure continuing treatment of such 2007-AR4 REMIC as a REMIC, and the Trustee shall comply with any directions of the Depositor or the Servicer to assure such continuing treatment.” RJN, Exh. A. See also, Section 11.01 of the Agreement:   “Intent of Parties. The parties intend that each 2007-AR4 REMIC shall be treated as a REMIC for federal income tax purposes and that the provisions of this Agreement should be construed in furtherance of this intent.” Id. See also, 26 U.S.C. §§ 860A–860G; see also Real Estate Investment Trusts. Securities Law Series, Vol. 29. Thomson West (2007): 6-22 (Late transfers to the trust result in forfeiting the pass through of taxation to the investors and subjects the trust to a 100% tax of the loan amount). Plaintiff-In-Intervention certainly cannot show it was without notice that its late acceptance of the instant loan was unauthorized by its Agreement.

[7] See, e.g., the odd case of a lower court (Appellate Term) that actually considered § 7-2.4 and found that a trustee could have apparent authority to bind the trust to the trustee’s unauthorized act: Feldman v. Torres (2011) 34 Misc.3d 47.

[8] People v. Toro (1989) 47 Cal.3d 966, 978, fn. 7 (“…cases are not authority for propositions not considered therein.”).

[9] See Section 11.04 of the Agreement: “…no Certificateholders shall have any right to vote or in any manner otherwise control the operation and management of the Trust… No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon, under or with respect to this Agreement against the Depositor, the Trustee, the Servicer or any successor to any such parties…”

6th Circuit Reverses Trial Court on RICO Against BofA, Law firm, et al

For more information please call 954-495-9867 or 520-405-1688





The key element here is the Court’s determination that the lawyers were misleading the court by characterizing the homeowner’s claim as seeking damages for a false assignment. The Sixth Circuit correctly analyzed the situation and arrived at the simple conclusion: if BOA didn’t have any right to foreclose the mortgage then it doesn’t matter whether or not the homeowner defaulted.

The importance of this finding, finally, in a somewhat conservative court cannot be understated. It might well be as important as the Jesinoski decision. The reason it is so important is that this means that the primary assumption by virtually all courts in the land is turned upside down. That assumption is that if the borrower defaulted it doesn’t matter who is foreclosing. This Federal Court has arrived at THE OPPOSITE CONCLUSION that cannot be argued — which I have been saying since 2007: If the party foreclosing has no right to do so then the alleged default of the alleged borrower doesn’t matter. And the reason for THAT is that the alleged default is irrelevant. Why is it irrelevant? Simple: it is irrelevant because the party foreclosing has no legal relationship with the loan as owner, holder, servicer or anything else. This is the first major decision where the court shows its understanding that the foreclosing parties have no injury, regardless of whether the homeowner stopped paying or not.

Just like the Jesinowski decision told thousands of Judges they had it wrong on rescission, so does this decision tell thousands of Judges they have it wrong on the burden of proof and the burden of pleading. This decision comes in no small part from the fact that after getting a foreclosure judgment, on the eve of a hearing in which the capacity of the person who executed affidavits was going to be examined, BOA dismissed the action and then vanished. Lesson: If BOA suddenly dismisses the action it can only be the result of their knowledge that they had no right to foreclose in the first place.

If that is the correct conclusion, as it was in this case, the homeowner has every right to sue for wrongful foreclosure. But this case goes further: the sixth circuit says, and I agree, that such conduct qualifies for a RICO lawsuit which makes punitive damages a lot easier.


Credit Death Watch

Recent economic reports show that the economic recovery, if it exists, is limping at best. This article explains why.

Once upon a time a single income household could provide a decent lifestyle. Household income was solid and so was savings. Then something happened. The bean counters took over. My favorite story about that is the hotel chain that allowed their bean counters to save money by not replacing the aging rugs in the lobby, hallways and rooms. In a short period of time, the hotels were empty and the chain was near bankruptcy. But the bean counters received bonuses for (a) saving money and more importantly (b) reporting higher earnings as a result of the “cost savings.” As obvious as that story is, the shareholders, directors, and Wall Street analysts went with the higher earnings and assumed forward earnings would be as management represented. The result was a run-up in the price of the stock at the same time that earnings were already declining because nobody was staying at their hotels.

The problem here is that many factors converge to create a disaster. That starts with the changes in accounting that began in the 1960″s that were described in detail in a long forgotten book called “Unaccountable Accounting”. Gradually management estimates of values on the balance sheet, income items, and projections were institutionalized as real even when they were patently false. And then we switched from valuing stock based upon current earnings to valuing stock at projections of forward earnings. The result is that management gets increasingly bold as to their projections in order to earn extra bonuses. The further result is that the price earnings ratio is twisted beyond recognition and more importantly beyond common sense.

Eventually the period starting in the early 1970’s and continuing to the present and beyond will be known as the period in which the American economy was completely undermined by a simple fact: in an economy based 70% on the spending by consumers, the consumers didn’t have any money. The “fix” was to offer credit on an increasingly stupid basis to replace real earnings, real savings and real household wealth, and real household income. Instead, household debt increased gradually and then more stupendously in the late 1990’s and the lead up to the 2008 crash.

Available credit amounted to an explosion of money into the housing and mortgage market. The result, according to the Case Schiller reports, was that median income and housing prices diverged on a scale never seen in human history. Hence housing PRICES launched suddenly to unsustainable heights (with the banks saying that housing NEVER goes down) while housing VALUE, related to median household income was going down. The whole credit affair was the equivalent as the crazy tulip bubble in the nineteenth century.

So now we have double income and triple income households that still can’t keep up with their expenses. It is all traceable to the decision in most companies to reduce or freeze wages and let the government make up the rest with food stamps or the banks make up the difference in available credit. This insanity looks good on paper at the beginning. But int he end, households run out of money, families break apart, people lose their homes to fraudulent foreclosures, while government adopts a policy that basically says that regardless of how the public was duped into accepting credit (under duress) in lieu of normally increasing wages, it is always the “borrower” who must bear the full weight of these mistaken policies and the failure of the American worker to make ends meet.

So despite lower gas prices and other inducements, people are NOT spending — because they don’t have the money they should have had if they were permitted to enjoy higher wages resulting from the fruits of their labor. They are out of money and out of credit alternatives and now, for good reason, have no faith in the economy, job security, fair wages, and they have nothing but household debt where they should have household wealth.

Hence that 70% consumer economy is falling apart. The consumers have no more money to spend. They can’t earn it and they can’t borrow enough to do anything other than repay the debt, this increasing their household debt without buying anything. Both the Bush administration and the Obama administration missed their cue. The tea partiers were right. The big banks should have been allowed to fail. Elizabeth Warren is right: the big banks should be split up like the AT&T monopoly.

The truth should have been told about the unenforceable mortgages that used sham entities or stand-in nominees to originate loans that were known by the underwriters to be certain to fail. It was a whole sale movement of wealth from homeowners who had homes in their families for generations to banks and servicers who didn’t spend one dime on the loans. And the banks did it using the pension money of the same borrowers they were tricking into loans that were falsely represented to be secured by mortgages.

The ONLY cure to our economic malaise is to actually react to reality, just like Iceland did. At the very least, a reduction of household debt at the expense of the banksters who caused this crisis would go a long way toward producing the stimulus necessary for our economy to really recover. But nothing replaces an honest wage — and that means honest from both sides of the table. Debt has become a cancer on our society. it needs treatment and cutting.

The current trend is to take all the wages that should have gone to the workers who produced the gross income and give it to managers, officers and directors and shareholders — as though they made the product or performed the services that produce gross revenue.

Going back to the previously successful policy of giving workers a fair share of the pie is the ONLY way out of this mess. Henry Ford understood that at the start of our economic revolution in America. He doubled worker wages while other car makers decried the move as suicidal. But he was right. He created a middle class that could afford to buy a lot of cars. By increasing wages, the workers were spending money throughout the communities in which they lived. Ford had both created and tapped into what we would later refer to as a consumer economy that drove 70% of GDP.

But for the mythological “derivatives” (and securitization) the credit market is already dead. It is only a matter of time before the reality of a debt economy sinks in and sinks the ship.


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