Political Lesson: Run Against the Banks

Don’t wait until we find out what Trump really means to do as President. We should make up his mind and express outrage to him and all sitting Senators, Congressman, Governors, State legislators, law enforcement, County and City Government and even the Courts. This election is not over, unless we let it be over and accept more of the same.
Ever since I took my first peek at what was going on in the marketplace for residential mortgage loans, I have been saying that if politicians want to win and be loved, they should run against the banks. The election last night was determined by hatred and disgust. The pundits tells us it was because of bigotry. But if you take the long view you can easily see how most of the population of the U.S., and indeed around the world, has been subjected to the overall view that they don’t matter. If the election of Obama told us anything it was that as a whole we are NOT a bigoted country. We are an indifferent country, if you measure that by who leads us. The arrogance with which average working people have been treated has been virtually unprecedented. The voters were not indifferent last night. Any politician who continues to be aloof and arrogant about the little guy who doesn’t matter should be challenged at the polls in the next election cycle.
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While the politicians refused to see it, comfortable in their world view and talking points, the anger of working class Americans has grown rather than diminished by the recognition that the banks and other big businesses pulled the rug out from under us by patently illegal acts — and price gouging — especially in drugs and medical services. The anger consumers felt when the financial system was portrayed as collapsing in 2008-2009 grew, rather than diminished in time.
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Consumer/voter rage is directly related to the fact that government did nothing about it except to allow working families to bear the entire brunt of a loss created by the banks. People lost their homes, their jobs, their lifestyle while government touted all the progress we were making. That progress never reached tens of millions of Americans. Meanwhile the banks received trillions upon trillions of dollars from the U.S. Treasury, the Federal reserve, and the theft of investor money capped by the bonus of getting ownership of homes that should never have been subjected to foreclosure proceedings.
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If this election is being called an upset, ask Bernie Sanders whose meteoric rise in the polls was only tempered by the view that he couldn’t win. He couldn’t win because the democratic party apparatus had already set up a rigged system that made it impossible for Hillary Clinton to lose. Between the 400 “super delegates” already pledged before the primaries began, and tipping the procedures and scales by the DNC in so many ways, no candidate stood a chance of becoming the nominee against Hillary Clinton.
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Up until now politicians have been largely successful at misdirection: instead of accepting blame for failure to do their job in office, they have succeeded in getting us to blame each other. Between the Trump and Sanders supporters we actually have a vast majority of Americans who are now insisting that the system change for the benefit of all its citizens. The consistent surveys of people who think the country is headed in the wrong direction clearly point to the fact that their lives are not getting better, their hope is diminished and their world view arises from despair over their economic position in the world.
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Trump was right: this was an election of the people versus a corrupt, aloof and arrogant establishment. Despite the obvious advantages of allowing a fair fight in which Sanders could have won the Democratic nomination and possibly the general election, the Democrats chose a candidate who was deeply flawed and deeply indebted to Wall Street. The Democrats may well have selected the only candidate who would lose against Trump. Such is the “wisdom” at the top.
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While Trump was also literally indebted to Wall Street through his loans, he never lost track of the fact that people were mad as hell. The party apparatus of both major political parties ignored that, which made the angry voters even angrier. A review of the numbers shows that in virtually every county and precinct the strength of that hatred resulted in lop-sided support for Trump as high as 80% or more.
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We have all heard the scream. Now it is time to inform those who are still in Washington DC know that the rigged system has expired. It is the follow through by voters that will determine how the country goes- writing to Congressman and Senators, law enforcement and even the courts, will seal the deal. Let them know that you were voting for real change where the average American citizen is priority #1. There is nothing like an active, informed citizenry to make changes that throw out old self-serving ideas and the politicians who espouse them.
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Don’t wait until we find out what Trump really means to do as President. We should make up his mind and express outrage to him and all sitting Senators, Congressman, Governors, State legislators, law enforcement, County and City Government and even the Courts. This election is not over, unless we let it be over and accept more of the same.

Banks Targeting LivingLies?

There is an old expression which I may have used on this site before says “you know that you are over the target when you start getting flack.”

In a variety of ways, we have uncovered a number of strategies being employed by the large banks on Wall Street directed at discrediting the discussion on this blog and making it as difficult as possible for us to do business. One of the ways that they do this is by planting articles in various periodicals which make it seem as though the housing crisis is behind us and that the banks are doing everything possible to alleviate the suffering of homeowners who are under the gun of wrongful foreclosures that amount to nothing less than outright theft.

Another way they do it is by posting “comments” on the blog that are designed to take up a lot of space and interfere in serious discussion between the readers. The latest round of spamming from the banks has been pointed out to us by a reader and the way that we are handling this is by eliminating the comments from those people who are clearly interfering in intelligent conversation and bona fide research that appears in the comment section in each blog article. To those whom we suspect are paid spammers from the banks, we are sending the following email:

“We received numerous complaints from other followers of the blog  regarding comments that you have posted. We are now blocking any comments from you and we will be watching for any variations used by you to post comments that are designed to confuse and chase people away from the blog. We are very much aware of the effort of banks to interfere with our operations and we must be extremely careful to stop any activity on the site that appears to be spawned by people who are paid by the banks to discredit the blog. If you wish to appeal this decision please send an email to NeilfGarfield@Hotmail.com.”

As for the attempts to interfere in our business I will not give any details here nor will I state how we are staying one step ahead of the banks who would like to see the blog taken down in the business destroyed. I am no stranger to fighting with these banks. And they are no stranger to losing the fight when the issues finally appear on the radar screen.

For my part I will continue to provide increasing depth, suggestions, strategies and tactics for lawyers to use against these banks. There is no doubt in my mind that these banks will eventually fall despite all attempts by government and central bankers to create the illusion of strength when in fact both the financial condition of the banks and the financial condition of the economy continued to be bankrupt beyond repair.

There is only so far that you can kick the can down the road. Now that I have so much company in this effort in the form of attorneys, government officials, and pro se litigants, it can be fairly said that my efforts have spawned  a cottage industry in which these banks will find themselves the target as real people represented by real lawyers seek money damages and other relief. The outcome of this is very clear to me. There are many economists who have seen and recently made comments based upon their analysis of government issued economic statistics; in particular there are concerned that financial services was at equilibrium with the rest of the economy when it accounted for only 16% of economic activity.

Now at a time when unemployment and underemployment combined with those people who have given up completely may have reached an all-time high, it is apparent to those economists that the alleged growth of our gross domestic product is in large measure due to our willingness to treat the trading of worthless paper as economic activity. The proof is in the pudding. The only way we can say that our gross domestic product is improving at a low rate of 2.5% is by ignoring the fiction of economic activity in the financial sector.

Financial services are now counted in gross domestic product at around 48% versus the 16% when financial services were at equilibrium with the volume of actual production of products and delivery of services. While unemployment grows and while wages continue to stagnate and even decline, we invite a social catastrophe caused by graphic economic inequality supported by fictitious numbers and arrogant policies controlled by those who have received the largest benefit from the largest crime in human history.

Thus the question being answered by this blog and others like it is how long we will listen to government statistics showing an increase in economic activity of 2.5% which is a complete illusion, and when will we start acting on the fact that comparable economic activity has declined by 32%. Think about it.

And by the way, those people who think that they can earn easy money by acting on behalf of the banks should realize that they are extremely expendable and will definitely be thrown under the bus once the plan of action has been disclosed. To the extent that you have any written confirmation of instructions from the banks as to how to interfere with this blog and other discussion sites, I suggest you make copies and have them distributed in different geographic locations. Otherwise, in the event of a lawsuit for interference in our contractual relations with customers and prospective customers, you might end up being the lead defendant.

 

Banks Get Amnesty in Pieces: Reviews to Be Halted

CHECK OUT OUR DECEMBER SPECIAL!

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 Comment: Hat tip to Brent Bertrim. The banks  have sought amnesty in dozens of attempts in legislation, judicial decisions, and with law enforcement. The multistate settlement effectively stopped the criminal investigation. The other “settlements” have effectively stopped other administrative actions that should have revoked bank charters and dismembered the mega banks.

Now even the review process intended to reveal the monetary damage and theft by the banks is about to be stopped by yet another “settlement” for $10 Billion — an amount that is less than the interest earned in one month by the major bank players under current “bailout” deals with the Federal Reserve. This money will do nothing for most people but because it sounds like a lot of money, some are expressing happiness over it. The government just didn’t do its job on the most pressing problem in American economic history caused by criminal conduct.

The loss of income and wealth by the majority of homeowners is and will continue to be devastating to the families of this flagrant abuse of power and trust by the nation’s largest banks. Correcting the corruption of title records will take decades alone. And income and wealth disparity caused by bank theft will take the same amount of time except for those who fight and win, one case at a time.

This effectively leaves the homeowner out in the cold and it does damage to the investors who put up the money for bogus mortgage bonds. Bottom Line: It’s all on a case by case basis one battle at a time for homeowners who in many cases lack resources or have just moved on —- with the knowledge the viewpoint that that the system is rigged. So much for the shining city on the hill.

Settlement Expected on Past Abuses in Home Loans

Published:31-Dec’12 01:39 ET

By:Jessica Silver-Greenberg

Banking regulators are close to a $10 billion settlement with 14 banks that would end the government’s efforts to hold lenders responsible for foreclosure abuses like faulty paperwork and excessive fees that may have led to evictions, according to people with knowledge of the discussions.

Under the settlement, a significant amount of the money, $3.75 billion, would go to people who have already lost their homes, making it potentially more generous to former homeowners than a broad-reaching pact in February between state attorneys general and five large banks. That set aside $1.5 billion in cash relief for Americans.

Most of the relief in both agreements is meant for people who are struggling to stay in their homes and need the banks to reduce their payments or lower the amount of principal they owe.

The $10 billion pact would be the latest in a series of settlements that regulators and law enforcement officials have reached with banks to hold them accountable for their role in the 2008 financial crisis that sent the housing market into the deepest slump since the Great Depression . As of early 2012, four million Americans had been foreclosed upon since the beginning of 2007, and a huge amount of abandoned homes swamped many states, including California, Florida and Arizona.

Federal agencies like the Securities and Exchange Commission and the Justice Department are continuing to pursue the banks for their packaging and sale of troubled mortgage securities that imploded during the financial crisis.

Housing advocates were largely unaware of the latest rounds of secret talks, which have been occurring for roughly a month. But some have criticized the government for not dealing more harshly with bankers in light of their lax standards for making loans and packaging them as investments, as well as their problems with modifying troubled loans and processing foreclosures.

A deal could be reached by the end of the week between the 14 banks and the nation’s top banking regulators, led by the Office of the Comptroller of the Currency, four people with knowledge of the negotiations said. It was unclear how many current and former homeowners would receive money or when it would be distributed.

Told on Sunday night of the imminent settlement, Lynn Drysdale, a lawyer at Jacksonville Area Legal Aid and a former co-chairwoman of the National Association of Consumer Advocates, said: “It’s certainly a victory for consumers and could help entire neighborhoods. But the devil, as they say, is in the details, and for those people who have had to totally uproot their lives because of eviction it may still not be enough.”

In recent weeks within the upper echelons of the comptroller’s office, pressure was mounting to negotiate a banner settlement with the banks, according to people with knowledge of the matter. The reason was that some within the agency had started to realize that a mandatory review of millions of bank loans was not yielding meaningful examples of the banks’ wrongfully evicting homeowners who were current on their payments or making partial payments, according to the people.

Representative of banking regulators did not return calls for comment on Sunday.

The biggest action against the banks for foreclosure-related abuses has been the $26 billion settlement between the five largest mortgage servicers and the state attorneys general, Justice Department and the Department of Housing and Urban Development after allegations arose in 2010 that bank employees were churning daily through hundreds of documents used in foreclosure proceedings without properly reviewing them for accuracy.

The same banks in that settlement — JPMorgan Chase , Bank of America , Wells Fargo , Citigroup and Ally Financial — are included in the current negotiations.

Under the terms of the settlement being negotiated, $6 billion would come from banks to be used for relief for homeowners, including reducing their principal, helping them refinance and donating abandoned homes, the people said.

The proposed settlement would also halt a separate sweeping review of more than four million loan files that the comptroller’s office and the Federal Reserve required the banks undertake as part of a consent order in April 2011.

Under the terms of the order, the 14 banks had to hire independent consultants to pore through the loan records to determine whether the banks illegally charged fees, forced homeowners to take out costly insurance or miscalculated loan payment amounts. Consultants initially estimated that each loan would take about eight hours, at a cost of up to $250 an hour, to go through.

The costs of the reviews have ballooned, though, according to people with knowledge of the reviews, in part because each loan file is taking up to 20 hours to review. Since its inception, the reviews have cost the banks about $1.5 billion, according to those people.

Pressure to reach a settlement with the banks has been building, particularly within the Office of the Comptroller of the Currency, amid widespread frustration that the banks’ mandatory review of loan files was arduous and expensive, and would not yield promised relief to homeowners, according to five former and current banking regulators.

In private meetings with top bank executives, these people said, regulators have admitted that the reviews had gone awry. At one point this month, an official from the comptroller’s office said the agency had “miscalculated” the scope and requirements of the reviews, according to the people with knowledge of the negotiations.

When the settlement discussions heated up this month, some banking executives said they felt they would be vindicated by the regulators. These executives said that they had raised objections to the reviews early on, but those concerns were largely dismissed by regulatory officials, according to the people with knowledge of the negotiations.

Instead, officials from the comptroller’s office, these people said, have used the loan reviews as a negotiating tool, telling banks that they can either sign on to a large settlement or be forced to pay billions over several more years until the consultants finish the reviews.

When regulators approached the banks to broach a settlement this month, they met first with Wells Fargo and proposed that the banks pay $15 billion, according to the people familiar with the discussions. After negotiations, though, the regulators agreed to $10 billion.

All of the 14 banks are expected to sign on.

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.

mers-is-dead-can-be-sued-for-fraud-wa-supreme-court.html

Barofsky: We Are Headed for a Cliff Because of Housing

Editor’s Note: Hera research conducted an interview with Neil Barofsky that I think should be  read in its entirety but here the the parts that I thought were important. The After Words are from Hera.

After Words

According to Neil Barofsky, another financial crisis is all but inevitable and the cost will be even higher than the 2008 financial crisis. Based on the way that the TARP and HAMP programs were implemented, and on the watering down of the Dodd-Frank bill, it appears that big banks are calling the shots in Washington D.C. The Dodd-Frank bill left risk concentrated in a few large institutions while doing nothing to remove perverse incentives that encourage risk taking while shielding bank executives from accountability. Neither of the two main U.S. political parties or presidential candidates are willing to break up “too big to fail” banks, despite the gravity of the problem. The assumption that another financial crisis can be prevented when the causes of the 2008 crisis remain in place, or have become worse, is unrealistic. In the mean time, what Mr. Barofsky describes as a “parade of scandals” involving highly unethical and likely criminal behavior is set to continue unabated. Although the timing and specific areas of risk are not yet known, there is no doubt that U.S. taxpayers will be stuck with another multi-trillion dollar bill when the next crisis hits.

*Post courtesy of Hera Research. Hera Research focuses on value investing in natural resources based on original geopolitical, macroeconomic and financial market analysis related to global supply and demand and competition for natural resources

Excerpts from Interview:

HR: Did the TARP help to restore confidence in U.S. institutions and financial markets?

Neil Barofsky: Yes, but it was intended and required by Congress to do much more than that and Treasury said that it was going to deploy the money into banks to increase lending, which it never did.

HR: Were the initial goals of the TARP realistic?

Neil Barofsky: First, if the goals were unachievable, Treasury officials should never have promised to undertake them as part of the bargain. Second, even if the goals were not entirely achievable, it would have been worth trying. Treasury officials didn’t even try to meet the goals.

HR: Can you give a specific example?

Neil Barofsky: The justification for putting money into banks was that it was going to increase lending. Having used that justification, there was an obligation, in my view, to take policy steps to achieve that goal, but Treasury officials didn’t even try to do it. The way it was implemented, there were no conditions or incentives to increase lending.

HR: What policy steps could the U.S. Department of the Treasury have taken to help the economy?

Neil Barofsky: There are all sorts of things that Treasury could have done. For example, they could have reduced the dividend rate—the amount of money that the banks had to pay in exchange for being bailed out—for lending over a baseline, which would have decreased the bank’s obligations. Or, they could have insisted on greater transparency so that banks had to disclose what they were doing with the funds. Treasury chose not to do any of these things.

HR: Weren’t there other housing programs like the Home Affordable Modification Program (HAMP)?

Neil Barofsky: Yes, but there were choices made to help the balance sheets of struggling banks rather than homeowners. The HAMP program was a massive failure but it wasn’t preordained. It was the result of choices made by Treasury officials.

HR: What could have been done differently in the HAMP?

Neil Barofsky: HAMP was deeply flawed with conflicts of interest baked into the program. The management of the program was outsourced to the mortgage servicers, which were thoroughly unprepared and ill equipped. The program encouraged servicers to extend out trial modifications. It was supposed to be a three month period but it often turned into more than a year. The servicers, because they could accumulate late fees for each month during the trial period, were incentivized to string the trial periods out then pull the rug out from under the homeowner, putting them into foreclosure, without granting a permanent mortgage modification. The servicers could make more money doing that then by doing mortgage modifications. If they had done permanent mortgage modifications, the banks couldn’t have kept the late fees.

HR: Are you saying that the program encouraged banks to extract as much cash as possible from homeowners before foreclosing on them anyway?

Neil Barofsky: Yes. The mortgage servicers exploited the conflicts of interest that were in the program, and blatantly broke the rules, and Treasury did nothing.

HR: When you were serving as Inspector General for TARP, you issued a report indicating that government commitments totaled $23.7 trillion. What was that about?

Neil Barofsky: $23.7 trillion was simply the sum of the maximum commitments for all the financial programs related to the financial crisis. The number was misconstrued as a liability but the government never stood to lose that much. For example, the government guarantee of money market funds was a multi-trillion dollar commitment. Of course, not all of that money could have been lost because it would have required every fund to go to zero. The government guaranteed commercial paper but, again, for that commitment to have been wiped out, every company would have had to have defaulted. But the numbers were very important in terms of transparency. All of the data were provided by the agencies responsible for the various programs, so the $23.7 trillion number was simple arithmetic. It was important to understand the scope of the extraordinary actions that were being taken.

HR: What are the potential future losses that the U.S. government—that taxpayers—might have to absorb?

Neil Barofsky: The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system. We still have banks that are “too big to fail.” Standard & Poor’s estimated last year that the up-front cost of another crisis, including bailing out the biggest banks yet again, would be roughly 1/3 of the U.S. gross domestic product (GDP) or about $5 trillion. The resulting problems will be even bigger.

HR: What were the problems resulting from the 2008 financial crisis?

Neil Barofsky: When you look at the fiscal impact of the 2008 crisis, you have to look at it not only in terms of lost tax revenues and increased government debt, but also in terms of the loss of household wealth. People who became unemployed suffered tremendous losses and the government’s social benefit costs expanded accordingly. One of the reasons we had the debt ceiling debate last year, when the U.S. credit rating was downgraded, and why we are facing a fiscal cliff ahead is the legacy of the 2008 crisis.

We have a lot less dry powder to deal with a new crisis and we almost certainly will have one.

HR: Why do you expect another financial crisis?

Neil Barofsky: It just comes down to incentives. A normally functioning free market disciplines businesses. The presumption of bailout for “too big to fail” institutions changes the incentives of a normally functioning free market. In a free market, if an institution loads up on risky assets with too little capital standing behind them, it will be punished by the market. Institutions will refuse to lend them money without extracting a significant penalty. Counterparties will be wary of doing business with companies that have too much risk and too little capital. Allowing “too big to fail” institutions to exist removes that discipline. The presumption is that the government will stand in and make the obligations whole even if the bank blows up. That basic perversion of the free market incentivizes additional risk.

HR: Are “too big to fail” banks taking more risks today than they did before?

Neil Barofsky: Bailouts give bank executives an incentive to max out short term profits and get huge bonuses, because if the bank blows up, taxpayers will pick up the tab. The presumption of bailout increases systemic risk by taking away the incentives of creditors and counterparties to do their jobs by imposing market discipline and by incentivizing banks to act in ways that make a bailout more likely to occur.

HR: Is it just a matter of the size of banking institutions?

Neil Barofsky: The big banks are 20-25% bigger now than they were before the crisis. The “too big to fail” banks are also too big to manage effectively. They’ve become Frankenstein monsters. Even the most gifted executives can’t manage all of the risks, which increases the likelihood of a future bailout.

HR: Since bank executives are accountable to their shareholders, won’t they regulate themselves?

Neil Barofsky: The big banks are not just “too big to fail,” they’re ‘too big to jail.’ We’ve seen zero criminal cases arising out of the financial crisis. The reality is that these large institutions can’t be threatened with indictment because if they were taken down by criminal charges, they would bring the entire financial system down with them. There is a similar danger with respect to their top executives, so they won’t be indited in a federal criminal case almost no matter what they do. The presumption of bailout thus removes for the executives the disincentive in pushing the ethical envelope. If people know they won’t be held accountable, that too will encourage more risk taking in the drive towards profits.

HR: So, it’s just a matter of time before there’s another crisis?

Neil Barofsky: Yes. The same incentives that led to the 2008 crisis are still in place today and in many ways the situation is worse. We have a financial system that concentrates risk in just a handful of large institutions, incentivizes them to take risks, guarantees that they will never be allowed to fail and ensures that the executives will never be held accountable for their actions. We shouldn’t be surprised when there’s another massive financial crisis and another massive bailout. It would be naïve to expect a different result.

HR: Didn’t the Dodd-Frank bill fix the financial system?

Neil Barofsky: Nothing has been done to remove the presumption of bailout, which is as damaging as the actual bailout. Perception becomes reality. It’s perception that ensures that counterparties and creditors will not perform proper due diligence and it’s perception that encourages them to continue doing business with firms that have too much risk and inadequate capital. It’s perception of bailout that drives executives to take more and more risk. Nothing has been done to address this. The initial policy response by Treasury Secretaries Paulson and Geithner, and by Federal Reserve Chairman Bernanke, was to consolidate the industry further, which has only made the problems worse.

HR: The Dodd-Frank bill contains 2,300 pages of new regulations. Isn’t that enough?

Neil Barofsky: There are tools within Dodd-Frank that could help regulators, but we need to go beyond it. The parade of recent scandals and the fact that big banks are pushing the ethical and judicial envelopes further than ever before makes it clear that Dodd-Frank has done nothing, from a regulatory standpoint, to prevent highly unethical and likely criminal behavior.

HR: Is the Dodd-Frank bill a failure?

Neil Barofsky: The whole point of Dodd-Frank was to end the era of “too big to fail” banks. It’s fairly obvious that it hasn’t done that. In that sense, it has been a failure. Dodd-Frank probably has been helpful in the short term because it increased capital ratios, although not nearly enough. If we ever get over the counter (OTC) derivatives under control, that would be a good thing and Dodd-Frank takes some initial steps in that direction. I think that the Consumer Financial Protection Bureau is a good thing.

Nonetheless, the financial system is largely in the hands of the same executives, who have become more powerful, while the banks themselves are bigger and more dangerous to the economy than before.

HR: How are OTC derivatives related to the risk of a new financial crisis?

Neil Barofsky: Credit default swaps (CDS) were specifically what brought down AIG, and synthetic CDOs, which are entirely dependent on derivatives contracts, contributed significantly to the financial crisis. When you look at the mind numbing notional values of OTC derivatives, which are in the hundreds of trillions, the taxpayer is basically standing behind the institutions participating in these very opaque and, potentially, very dangerous markets. OTC derivatives could be where the risks come from in the next financial crisis.

HR: Can anything be done to prevent another financial crisis?

Neil Barofsky: We have to get beyond having institutions, any one of which can bring down the financial system. For example, Wells Fargo alone does 1/3rd of all mortgage originations. Nothing can ever happen to Wells Fargo because it could bring down the entire economy. We need to break up the “too big to fail” banks. We have to make them small enough to fail so that the free market can take over again.

HR: Does the political will exist to break up the largest banks?

Neil Barofsky: The center of neither party is committed to breaking up “too big to fail” banks. Of course, pretending that Dodd-Frank solved all our problems, as some Democrats do, or simply saying that big banks won’t be bailed out again, as some Republicans have suggested, is unrealistic. Congress needs to proactively break up the “too big to fail” banks through legislation. Whether that’s through a modified form of Glass-Steagall, size or liability caps, leverage caps or remarkably higher capital ratios, all of which are good ideas, we need to take on the largest banks.

HR: Do you think the U.S. presidential election will change anything?

Neil Barofsky: No. There’s very little daylight between Romney and Obama on the crucial issue of “too big to fail” banks. Romney recently said, basically, that he thinks big banks are great and the Obama Administration fought against efforts to break up “too big to fail” banks in the Dodd-Frank bill. Geithner, serving the Obama White House, lobbied against the Brown-Kaufman Act, which would have broken up the “too big to fail” banks.

HR: What will it take for U.S. lawmakers to finally take on the largest banks?

Neil Barofsky: Some candidates have made reforms like reinstating Glass-Steagall part of their campaigns but the size and power of the largest banks in terms of lobbying campaign contributions is incredible. It may well take another financial crisis before we deal with this.

HR: Thank you for your time today.

Neil Barofsky: It was my pleasure.

Yves Smith Nails Obama on Failed Housing Policies

Editor’s Note: Yves wrote the piece I was going to write this morning. See link below. The salient points to me are mentioned below with comments. The principal point I would make is that Obama has been listening to people who are listening to Wall Street. The Wall Street spin is that this is just another housing bust. It isn’t. It is massive Ponzi scheme that was well-planned and executed with precision, sucking the life out of our economy. Normally Ponzi schemes (see Drier or Madoff) don’t get big enough to have that effect.

The bottom line is that the banks took money from investors under false pretenses and diverted the proceeds into their own pockets.

In order to cover that up they created false documents with false lenders and false secured parties, false creditors and false beneficiaries. They borrowed money from the lenders, then borrowed the identity of the lenders to declare it was the banks who were losing money from mortgage “defaults”, to receive proceeds of payouts from subservicers, payouts from insurance, payouts from credit default swaps and payouts from federal bailouts.

The plain fact is that under normal black letter law, the notes and mortgages were faked at origination based upon the false premise that the actual lender was named or protected. That was a lie. The loans are not secured and the investors have a mess on their hands figuring out who has what claim to what loan so they are suing the investment banks instead of going after the homeowners and striking deals that would undermine the hundreds of trillions of dollars in bets out there that is masquerading as shadow banking.

Instead the investors and the homeowners — the only true parties in interest — got screwed and the administration has yet to correct that basic injustice.

  1.  The proposals for the housing fix were predicated upon the fraud and other illegals activities of the parties in a mythological “securitization” scheme. They were not “unpopular” as Klein observes in the news. They were rejected because wall Street obviously rejected any plan that would take away their ill-gotten gains.
  2. Combat servicing operations using five times the staff of ordinary servicers are doing the work just fine. It was the lack of oversight and regulation that allowed the obfuscation of the truth by the servicers created for the sole purpose of covering up the fraud. These servicers never report the status of the loan receivable to anyone and they probably don’t have access to the loan receivable accounts. In fact, it is quite probable that no loan receivable account actually exists on the books of any creditor who loaned money through the vehicle of bogus mortgage bonds.
  3. Servicers were set up to foreclose, not service and not to assist in modification or settlement. Wall Street needed the foreclosure to be able to say to the investor, OK now the loan and the loss is yours, since we have drained all value out of it. Sorry.
  4. The administration had a ready tool available: enforcing the REMIC statute. They chose not to do this despite the obvious facts in the public domain that the banks were routinely ignoring both the law and the documents inducing investors to invest in non-existent bonds based upon non-existent loans.
  5. The CFPC had not trouble issuing a regulation that defined all parties as subject to regulation. Why did it take the formation of a new agency to do that? Treasury officials from the administration who argued that they had no authority over servicers were wrong and if they had done any due diligence, it would have been obvious that the banks were blowing smoke up their behinds.
  6. There are hundreds of billions of dollars, perhaps trillions of dollars in lost tax revenue that the ITS is not pursuing because the the policy of coddling the scam artists who manufactured this crisis. The deficit exists in large part because the administration has not pursued all available revenue, the bulk of which would have made a huge difference in the dynamics of the American economy and the election.
  7. Refusing the help the  victims by characterizing some of them as undeserving borrowers is like saying that a bank robber should be granted leniency because the bank he robbed was run poorly.
  8. The real issue is the solvency of the large banks which most economists and even bankers agree are in fact too big to manage, far too big to regulate. The administration is taking the view that even if the assets on the balance sheets of the big banks are fake, we can’t let them fail because they would bring the entire system down. That is Wall Street spin. Iceland and other places around the world have proven that is simply not true. The other 7,000 banks in this country would easily be able to pick up the pieces.

Yves Smith on Obama Failed Housing Policies

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