Neil Garfield Show Next Week
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We are starting rising activity by investors who are drilling down on their “investment” that was not just handled negligently but was the largest fraud of its kind in human history. Investors are starting to realize that they were screwed the moment they deposited money with the investment banks. Those Banks took the money as an involuntary gift, and the proceeds were partially used to pay for mortgages to cover-up the fraud. And the worse the loan the better for the banks; because when you are telling the investor that the return is 5% and you are giving 10% loans that will likely default, you only have to lend out half the money that the investors gave you (provided of course that the loan fails).
The only theoretical risk for the Banks, they thought, was if the bad loans didn’t default. Well that was no problem. Anyone paying more than 7-8% is probably going to have a problem keeping the mortgage current once they start paying the full amount die for PITI (principal, interest, taxes and insurance). And since they knew they had flooded the market with money and the effect of the flood was housing prices floating at twice their value, they could bet on the market crashing. So it all worked out fine for them — or so they thought.
Fund managers who were buying the mortgage backed securities initially refused to believe they had been so stupid or refused to disclose it to keep their jobs. The evidence is piling in and all analyses point to the same thing — the fund managers who did the research and the due diligence all concluded that the pricing of the mortgage bonds was delusional and the infrastructure was a disaster. The fund managers who relied upon the reputation of the sellers (Wells Fargo, BOA, Citi, Chase etc.) had their clocks cleaned by Wall Street sharks.
It has taken years for the truth to come out but the investment community is kind of like Facebook — once information is out, everyone knows it. And investors of all sorts are suing the banks who were sliding pure crap into the loan pools that the investors thought were so safe. Just take a look at SunTrust cases. They insist that they originated the loan but somehow immediately after the closing they were only the servicer — something you don’t fund out until you press them against the wall in litigation.
So now ResCap is mad they got duped into buying worthless paper. And like hundreds of other investors is bringing claims for malfeasance and misfeasance in the management of the money given to the banks and the representations about what kind of loans the investors were getting. What they still have not quite realized is that the investors made the loans but didn’t have a single document to assert a claim for collection or a claim of being secured by a mortgage. All that went to the banks. Why? Because that was part of the fraud. Approximately $13 trillion of American wealth disappeared by virtue of this game. But now the banks are starting to feel the heat. It won’t be long before they are fully cooked — and all the efforts by the government to prop up these banks will have failed the moment when the ratings companies state that the value of those holdings in derivatives are zero or nearly zero. That’s when the balance sheet becomes clear.
Filed under: foreclosure