Gretchen Morgenson Strikes Again: A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie

The charge began under Michael D. Berman, who has served not only as chairman of the Mortgage Bankers Association, one of the industry’s most influential lobbying organizations, but also as a senior adviser to Shaun Donovan, who was the secretary of Housing and Urban Development from 2009 to 2014.

Conversely, Mr. Berman recruited David H. Stevens — who was one of the lead architects of the Obama administration’s proposal to phase out Fannie and Freddie — to the mortgage bankers group, where Mr. Stevens is now president and chief executive.

Many in Congress believe Fannie and Freddie contributed to the collapse of the housing bubble, and they still rest on a shaky financial foundation, largely because of actions taken by the Treasury and the companies’ regulator.

In and Out of the Revolving Door

Moving back and forth between private practice and public service, several people had central roles inside the Obama administration in developing a new housing finance policy that would phase out Fannie Mae and Freddie Mac, the huge government-backed mortgage firms. After leaving office, three of these former officials, now with connections to various large financial institutions, met several times with government officials to discuss issues related to Fannie and Freddie.

For all the problems associated with Fannie and Freddie, some housing experts say, allowing the nation’s largest banks to assume greater control of the mortgage market would most likely increase costs for borrowers. It would also reduce participation and competition from smaller lenders, and could imperil taxpayers because of the potential for even greater bailouts for financial institutions that Washington considers too important to be allowed to fail.

Elise J. Bean is among those who are troubled by the quiet advances Wall Street is making toward Fannie and Freddie’s turf. A former chief counsel for the Senate Permanent Subcommittee on Investigations, Ms. Bean oversaw a bipartisan investigation into the causes of the financial crisis, playing a central role in the committee’s four hearings and helping produce a revealing 650-page report.

“Fannie and Freddie have their flaws, but that doesn’t mean the answer is to hand over their business to the banks,” Ms. Bean said. “Their role in the mortgage market is too important to put under the thumb of banks with a history of toxic mortgages, structured finance abuse and consumer maltreatment.”

Behind the Bailout

Decades ago, Fannie Mae and Freddie Mac were created by the government to provide prospective home buyers with financing in both good times and bad. Fannie was born in 1938 during the Depression, when bank lending dried up. The company didn’t make mortgage loans outright; it bought them from other entities. Later, it pooled loans in securities that it sold to investors.

If credit was scarce, the thinking went, banks would be more inclined to lend knowing they could sell a loan to Fannie or to Freddie, a competitor company created in 1970. A bank could then turn around and make another loan, earning fees while keeping the housing finance wheels spinning.

In addition to benefiting borrowers, this system enabled small community lenders to sell their loans to Fannie and Freddie as easily as even the biggest guns in banking. This gave borrowers a choice of lenders, encouraging competition and keeping costs down.

Although government creations, Fannie and Freddie also had public shareholders. Fannie sold shares for the first time in 1968 and Freddie followed suit two decades later. As the nation’s economy grew and homeownership expanded, Fannie and Freddie became increasingly powerful and profitable institutions.

The unusual hybrid of shareholder-owned companies carrying the government’s imprimatur worked well for a long time. But the combination turned sour in the 1990s when Fannie executives began using the company’s lush profits to finance lobbying efforts that enhanced their stature and independence in Washington.

Throughout these years, Fannie and Freddie’s mounting profits, generated in part by their special ties to the government, which put them at a financial advantage, also drew resentment from the nation’s largest banks.

Fannie’s success wound up being a double-edged sword. Its enfeebled overseer, the Office of Federal Housing Enterprise Oversight, allowed its enormous operations to rest on the tiniest sliver of capital, increasing profits during the fat years. But when the financial crisis hit, expected loan losses at both Fannie and Freddie overwhelmed the small amount of capital the companies had on hand.

About a week before Lehman Brothers collapsed in September 2008, the government stepped in. It put Fannie and Freddie into conservatorship under the Federal Housing Finance Agency, a new and stronger regulator created that summer in the Housing and Economic Recovery Act. The companies ultimately drew about $187.5 billion from taxpayers in the bailout. They were put on a tight leash by their government minders and were viewed as political poison by Democrats and Republicans alike.

In an interview on CNBC on Sept. 8, 2008, Henry M. Paulson, the Treasury secretary, talked about the government’s rescue of Fannie and Freddie as a steppingstone to a new housing finance system. “Heaven help us and our nation if we don’t figure out what the right structure is going forward,” he said.

Devising Alternatives

Photo

Michael Berman, former chairman of the Mortgage Bankers Association, has also worked at Housing and Urban Development. He recruited another government official to succeed him at the mortgage bankers group. Credit Ryan Stone for The New York Times

The ink was barely dry on the Fannie and Freddie bailout when the Mortgage Bankers Association got busy. Mr. Berman, then vice chairman of the lobbying group and founder of CWCapital, a commercial real estate lender and management firm specializing in multifamily housing projects, was tapped to organize a campaign to privatize the nation’s broken home mortgage system.

With the housing market in collapse and Fannie and Freddie weakened and reviled, it was the perfect time to push the mortgage bankers’ plan to take over the companies’ business and divide their prized assets.

But with banks’ popularity plummeting after the financial crisis, their proposal had to be carefully framed as a way to protect taxpayers from future bailouts.

When President Obama entered office in 2009, taking Fannie Mae and Freddie Mac off government life support was far down his administration’s to-do list. But when officials began turning their attention to the matter in 2010, the industry-sponsored coalition was ready.

Its answer was to create new mortgage guarantors, backed by private capital, to take the place of Fannie and Freddie. These entities would issue mortgage securities with government guarantees, a report issued by the 22-member Council on Ensuring Mortgage Liquidity in late summer 2009 proposed.

The White Paper

“The centerpiece of federal support for the secondary mortgage market should be a new line of mortgage-backed securities.”

The language in the Mortgage Bankers Association’s white paper about the future of housing finance.

The council, overseen by Mr. Berman, was made up of mostly large banks and mortgage insurers. It also recommended that assets belonging to Fannie and Freddie “be used as a foundation” by the new entities.

Chief among these assets were the mortgage underwriting systems the government-sponsored enterprises had built to bundle loans into securities to be sold to investors.

“The M.B.A.’s position literally was: Get rid of Fannie and Freddie and create these new entities,” Mr. Berman said in a recent interview. “But there were extraordinary amounts of value in the enterprises to be reused in different ways in the new system.”

Photo

Michael Berman, then chairman of the Mortgage Bankers Association, testifying in March 2011 before the Senate Banking Committee on the future of the housing finance system. Credit Scott J. Ferrell/Congressional Quarterly, via Getty Images

At first, the industry’s views gained little traction. The economy was in tatters, and lawmakers were not yet ready to tackle the nation’s enormous and complex housing finance system.

Besides, Fannie and Freddie were providing virtually the only access American borrowers had to mortgages during this period. Yes, they were still drawing money from taxpayers, but at least the companies were financing loans as they always had, while big banks were withdrawing from the market.

Throughout 2009 and 2010, Mr. Berman and his colleagues pitched the mortgage bankers’ ideas, saying that their plan would prevent the need for future bailouts and keep the home loan spigot open.

To access the remaining article please go here.

NewYorkTimes: How ‘Consumer Relief’ after Mortgage Crisis can Enrich Big Banks

Gretchen Morgenson: In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses

John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.

But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.

This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers.

“Wells didn’t intentionally educate judges. They didn’t raise their hand and say, ‘Judge, we’re sorry,’” said O. Max Gardner III, a prominent foreclosure defense lawyer who teaches consumer counsel how to represent troubled borrowers. “It was people really digging in and having the resources and the time to ask the right questions about what they were doing with the money.” Those practices included levying improper fees and incorrectly foreclosing on homes.

Tom Goyda, a Wells Fargo spokesman, said: “The housing downturn was a challenging time for our nation, and Wells Fargo has acknowledged that we made mistakes in the handling of mortgage foreclosures along the way. Lenders, investors, along with policy makers and regulators — all sides — learned foreclosure processes had to be addressed, and Wells Fargo made significant improvements to the way we work with customers when they fall behind in their payments and during the foreclosure process.”

During the financial crisis, Wells Fargo was at a remove from Wall Street and was not a big player in creating toxic and complex mortgage securities that were engineered to fail. But the bank’s ability to emerge from the crisis with a relatively good reputation is something of a mystery to anyone who paid attention to its aggressive foreclosure activities.

There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now. And some of the elements of both scandals — improper fees and forgeries — are the same.

  The only difference: Mr. Stumpf, who was named Wells’s chief executive in 2007, has apologized to the customers his bank harmed with its account opening charade. Lawyers who represented troubled borrowers say no such apology came from Mr. Stumpf during the foreclosure mess.

“I sure as heck haven’t seen it,” said Linda Tirelli, a longtime foreclosure defense lawyer at Garvey Tirelli & Cushner in White Plains, who has often battled Wells Fargo. “I don’t remember ever hearing him apologize, because that would admit wrongdoing, and that’s not part of Wells Fargo’s corporate culture. Their culture is about not holding anybody at the top accountable.”

Some judges tried to hold Wells Fargo to account for its foreclosure practices. One was Elizabeth W. Magner, a federal bankruptcy judge in the Eastern District of Louisiana. She was among the first judges to identify problematic patterns in Wells Fargo’s foreclosure practice and to respond with vigor.

In an early 2008 case, she assessed damages and sanctions against Wells Fargo after concluding that the bank had levied fees on Dorothy Chase Stewart, a widowed borrower, without notifying her. This had the effect of pushing Ms. Stewart deeper into default and increasing the amounts she owed.

Judge Magner highlighted Wells’s “abusive imposition of unwarranted fees and charges” and its improper calculation of escrow payments. And, she added, Wells Fargo’s practice of not telling borrowers about the fees they were being charged “is not peculiar to loans involved in a bankruptcy.” Wells had also failed to credit Ms. Stewart with $1,800 that it had charged her for an eviction that did not occur.

An especially egregious aspect of the case involved Wells Fargo’s regular appraisals of the Stewart property. Banks conduct such appraisals when a property is in default to ensure that it is being maintained properly.

But in the Stewart case, the court cast doubt on two of the appraisals Wells Fargo charged Ms. Stewart for in 2005, noting that they were said to have been completed on the same day that Jefferson Parish, the location of the Stewart home, was under an evacuation order because of Hurricane Katrina. In addition, the court found that a unit of Wells had done the appraisals, charging double its costs for them.

In a 2013 Massachusetts case, William G. Young, a Federal District Court judge overseeing a foreclosure, was so distressed by Wells Fargo’s litigation tactics that he required the bank to provide him with a corporate resolution signed by its president and a majority of its board stating that they stood behind the conduct of the bank’s lawyers in the case.

“The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme,” Judge Young wrote. “A quick visit to Wells Fargo’s website confirms that it vigorously promotes itself as consumer-friendly,” he continued, “a far cry from the hard-nosed win-at-any-cost stance it has adopted here.”

In Tuesday’s Senate hearing, Elizabeth Warren, Democrat of Massachusetts, made a similar observation, comparing Wells Fargo’s stated rules of the road — respecting its customers — with its improper account-opening activities.

When judges criticized Wells Fargo in foreclosure cases, bank officials either maintained that the situation was unusual or that the judge was being unreasonable. Only occasionally did the bank concede that it had handled a case badly.

Responses like these also ring a bell today.

One remarkable foreclosure ruling against Wells Fargo came in January 2015, in a Missouri state court. Judge R. Brent Elliott ordered Wells to pay more than $3 million in punitive damages and other costs for harming David and Crystal Holm, borrowers in Holt, Mo., who fought the bank’s improper foreclosure of their home for more than six years.

“Defendant Wells Fargo’s deceptive and intentional conduct displayed a complete and total disregard for the rights” of the couple, wrote Judge Elliott, a circuit judge in the 43rd Judicial District of Missouri. “Wells Fargo took its money and moved on, with complete disregard to the human damage left in its wake.”

Punctuating his view, Judge Elliott cited the testimony of a bank employee who told the court: “I’m not here as a human being. I’m here as a representative of Wells Fargo.”

Wells Fargo said it was appealing the case.

Finally, there was the scathing 2010 contempt ruling in a Wells Fargo foreclosure case by Jeff Bohm, a federal bankruptcy judge in Houston. To the bank’s argument that unintentional errors, including a computer malfunction, had caused Wells to demand money from two borrowers who had previously settled with the lender, Judge Bohm conceded that mistakes could happen.

“However, when mistakes happen not once, not twice, but repeatedly,” he continued, “and when actions are not taken to correct these mistakes within a reasonable period of time, the failure to right the wrong — particularly when the basis for the problem is a monthslong violation of an agreed judgment — the excuse of ‘mistakes happen’ has no credence.”

Seems as though Judge Bohm was onto something.

Twitter: @gmorgenson


People Who Were Wrong Are the Winners — SO FAR

First of all I don’t think Geithner caused the financial crisis. He certainly contributed to it but it probably would have happened even if he had not undercut Sheila Bair at every opportunity; and yes he should have listened to other people who were saying that the corruption on Wall Street had reached epic proportions.

Second, I think that neither Geithner nor his predecessor, Hank Paulson, as Treasury secretaries, had a real understanding of the crisis at any time up through today. And their bosses, Presidents Bush and Obama were even more clueless. And while they are probably culpable for their negligence and mismanagement of the crisis, the foreclosure madness would have occurred anyway.

Third, it is my belief that the culprits on Wall Street with all their tentacles stretched out across the globe were unstoppable by anyone except a good government with the resources to actually get to the bottom of it. What was missing was the desire to get rid of the problem and the naivete of the leaders in government in failing to notice that the entire banking industry was engaged in faking transactions and documents — and failing to ask why that was necessary.

Fourth my opinion is that the fault lies with the failure of anyone in government to learn anything relevant about the industries they were supposed to be regulating. If they had done so, starting in 1983 when derivatives became adolescent, the adult would have been far more tame and the crises would have been averted entirely.

Homeowners did not create the crisis. Tens of millions of homeowners did not congregate in a room thinking up 450 loan products when there were only 4 or 5. And saying they had bad judgment would absolve almost any perpetrator of economic crime because his victim was too stupid.

The laws were already in place. It was knowledgeable people that were missing. We needed and had faithful servants of the people — but as a society and as a nation each country contributed to the enormous problem that has now been created. And we will keep paying for it as banks take over all commodities we hold dear and “legally” corner the markets with stolen cash and property.

In Nocera’s article on Bankrupt Housing Policy, he points out that ” in the course of perusing another new book about the financial crisis, “Other People’s Houses,” by Jennifer Taub, an associate professor at Vermont Law School, I was reminded of an effort that took place in the spring of 2009 that could have made an enormous difference to homeowners, one that would have required no taxpayer money and might well have become law with a little energetic lobbying from the likes of, well, Tim Geithner. That was an attempt, led by Dick Durbin, the Illinois senator, to change the bankruptcy code so that homeowners who were underwater could modify their mortgages during the bankruptcy process. The moment has been largely forgotten; Taub has done us a favor by putting it back on the table.”

He goes on to say that he had correspondence with Sheila Bair who was undermined and stomped on by the Obama administration for even thinking about relief to homeowners. She was head of the FDIC and prevented from doing her job by a bankrupt policy of save the banks and damn the homeowners. “Because, as Bair told me in an email, “It would have been a powerful bargaining chip for borrowers.” Without the ability to file for bankruptcy, underwater homeowners unable to pay their mortgages were helpless to prevent foreclosures. With it, however, servicers and banks were far more likely to negotiate the debt load. And if they weren’t, a bankruptcy judge would rule on the appropriate debt to be repaid. For all the talk about the need for principal reduction, this change would have been the easiest way to get it.”

According to Adam Levitin, in the same article by Nocera, this should have been a “no-brainer.” I take that too mean that as I have explained above, brains were in short supply during the worst of what we have yet seen of the economic crisis that most of us think is not even half over. Obama may be leaving the crisis as his legacy not because he caused it but because he didn’t do anything about it — or at least anything right.

And I obviously agree with Nocera’s ending comment — “Why is it that the fear of moral hazard only applies to homeowners, and not to the banks?”

Gretchen Morgenson says Geithner admitted he was inept at times. ““We were human.” But this fails to address head-on the possibility that he was a captured regulator, a man locked into the mind-set of the very bankers he was supposed to oversee.”

Gretchen reports without objection from Geithner — “Last week, I asked Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, for her recollection of these events. She replied with an email recalling that in 2006, she attended her first Basel Committee meeting, the international negotiations that Mr. Geithner was referring to. While there, she pushed unsuccessfully to raise bank capital levels.

Why was she unsuccessful? “I was actively undermined by the Fed, the New York Fed and the comptroller of the currency,” she said. “I later complained to Tim about the way his representative on the Basel Committee had undermined me. He was unapologetic.”

Gretchen has not been given the resources to prove the corruption on Wall Street, but she knows it is there and as the fourth estate the NY Times should have provided her with a blank check for what would have been a Pulitzer or even a Nobel prize. for now we can only agree with her — “We were the lenders of last resort and should have been paid an enormous premium for the use of our money. We were not.”

There are suddenly a spate of articles on what went wrong because Geithner wrote a book and is selling it enhancing his own fortunes while he presided over the worst hit the middle class has had in our history.

Here is what investigators should have been looking for:

Behind door number 1 were the fools. These are the money managers who for reasons the defy explanation did no due diligence and bought empty mortgage bonds issued by a trust that was never going to receive the money, the loans or the property.

Behind door number 2 were the wolves of Wall Street including all the different brokers, dealers, banks, rating agencies and insurers, all the mortgage brokers, real estate brokers, and closing agents and title companies all in league to take as much money as they could out of the system and the hide it behind shadow money equivalent to ten times all the actual money in the world.

Behind door number 3 are the victims. These are the people who knew nothing about mortgages, derivatives or anything else. In the end they were convinced by super salespeople that they could never understand how they could afford the loan nor could they even understand why they must do it anyway. In Florida alone 10,000 such sales people were convicted felons. And yet when we talk of moral hazard we speak of people, and not banks. Why is that?

Gretchen Morgenson: Tide Turning as Judges Get Irritated by Bank and Lawyer Behavior

“Two recent rulings — one in New York involving Bank of America and one in Massachusetts involving Wells Fargo — serve as examples. In the Wells Fargo case, a ruling on Sept. 17 by Judge William G. Young of Federal District Court was especially stinging. In it, he required Wells Fargo to provide him with a corporate resolution signed by its president and a majority of its board stating that they stand behind the conduct of the bank’s lawyers in the case.”

Editor’s Comment: As I am litigating directly now I see evidence of the same trends discussed in the New York Times article. I adopted a different stance than most foreclosure defense attorneys whose strategies are not less valid than my own. They just don’t suit me. I am accustomed to being the aggressor. So I enter a cases in which the bank has been delaying prosecution of the foreclosure case and step up the pace. The Judges here in Tallahassee and elsewhere are taking note — that the banks are curiously opposing our attempts to move the case along. The resulting shift in perception is palpable. Judges are looking at the files and realizing that it is not because of borrowers who frankly did nothing in the file, but because of the banks who never prosecuted the case.

We ask for expedited discovery and a trial order. The bank attorneys inevitably back pedal and state they cannot agree to expediting the case — which has led the Judges to muse aloud about who is the Plaintiff and who is the defendant.

You would think that the bank would be anxious to produce its witnesses and exhibits for discovery. They are not. In one case the bank has been thwarting the deposition of the person who verified the complaint for over three months.  We only asked for the documents upon which the witness relied when she verified the complaint — something that obviously had to exist before they could file the complaint. So far, no witness nor documents.

When I was representing banks in foreclosures, if someone raised any kind of defense or objection I went out of my way to produce the records custodian,and all the records and proof of the receipt of the money including canceled checks and the bookkeeping records of the banks so there would be no mistake about the existence of the default. I would carefully confirm the figures and history of the borrower before I sent the notice of default, acceleration and right to reinstate because all my figures had to be correct — or else the notice was defective and I would have had to start all over again (something I learned the hard way).

Judges are sensing a disconnect between the banks and their alleged lawyers, and they are right to question that. The assignment usually comes from LPS and the Plaintiff bank usually has no direct knowledge of the action because LPS fabricates most of the documents. That is why Judge Young said that if you want to proceed, I want to see a resolution of the Board of Directors of Wells Fargo bank that they ratify and accept the actions taken by the the attorneys supposedly representing them.

You can almost feel the vibrations of a ship groaning as it makes a turn. The banks are in for a rude awakening.

Fair Game

Why Judges Are Scowling at Banks

By GRETCHEN MORGENSON

District court judges are not generally known as flamethrowers, but some seem to be losing patience with banks in cases involving lending practices.

Trustees on REMICs Face a World of Hurt

DID YOU EVER WONDER WHY TRUSTEES INSTRUCTED THE INVESTMENT BANKS TO NOT USE THEIR NAME IN FORECLOSURES?

Editor’s Comment: Finally the questions are spreading over the entire map of the false securitization of loans and the diversion of money, securities and property from investors and homeowners. Read the article below, and see if you smell the stink rising from the financial sector. It is time for the government to come clean and tell us that they were defrauded by TARP, the bank bailouts, and the privileges extended to the major banks. They didn’t save the financial sector they crowned it king over all the world.

Nowhere is that more evident than when you drill down on the so-called “trustees” of the so-called “trusts” that were “backed” by mortgage loans that didn’t exist or that were already owned by someone else. The failure of trustees to exercise any power or control over securitization or to even ask a question about the mortgage bonds and the underlying loans was no accident. When the whistle blowers come out on this one it will clarify the situation. Deutsch, US Bank, Bank of New York accepted fees for the sole purpose of being named as trustees with the understanding that they would do nothing. They were happy to receive the fees and they knew their names were being used to create the illusion of authenticity when the bonds were “Sold” to investors.

One of the next big revelations is going to be how the money from investors was quickly spirited away from the trustee and directly into the pockets of the investment bankers who sold them. The Trustee didn’t need a trust account because no money was paid to any “trust” on which it was named the trustee. Not having any money they obviously were not called upon to sign a check or issue a wire transfer from any account because there was no account. This was key to the PONZI scheme.

If the Trustees received money for the “trust” then they would be required under all kinds of laws and regulations to act like a trustee. With no assets in a named trustee they could hardly be required to do anything since it was an unfunded trust and everyone knows that an unfunded trust is no trust at all even if it exists on paper.

Of course if they had received the money as trustee, they would have wanted more money to act like a trustee. But that is just the tip of the iceberg. If they had received the money from investors then they would have spent it on acquiring mortgages. And if they were acquiring mortgages as trustee they would have peeked under the hood to see if there was any loan there. to the extent that the loans were non-confirming loans for stable funds (heavily regulated pension funds) they would rejected many of the loans.

The real interesting pattern here is what would have happened if they did purchase the loans. Well then — and follow this because your house depends upon it — if they HAD purchased the loans for the “trust” there would have no need for MERS, no trading in the mortgages, and no trading on the mortgage bonds except that the insurance would have been paid to the investors like they thought it would. The Federal Reserve would not be buying billions of dollars in “mortgage bonds” per month because there would be no need — because there would be no emergency.

If they HAD purchased the loans, then they would have a recorded interest, under the direction as trustees, for the REMIC trusts. And they would have had all original documents or proof that the original documents had been deposited somewhere that could be audited,  because they would not have purchased it without that. Show me the note never would have gotten off the ground or even occurred to anyone. But most importantly, they would clearly have mitigated damages by receipt of insurance and credit default swaps, payable to the trust and to the investment banker, which is what happened.

No, Reynaldo Reyes (Deutsch bank asset manager in control of the trustee program), it is not “Counter-intuitive.” It was a lie from start to finish to cover up a PONZI scheme that failed like all PONZI schemes fail as soon as the “investors” stop buying the crap you are peddling. THAT is what happened in the financial crisis which would have been no crisis. Most of the loans would never have been approved for purchase by the trusts. Most of the defaults would have been real, most of the debts would have been real, and most importantly the note would be properly owned by the trust giving it an insurable interest and therefore the proceeds of insurance and credit default swaps would have been paid to investors leaving the number of defaults and foreclosures nearly zero.

And as we have seen in recent days, there would not have been a Bank of America driving as many foreclosures through the system as possible because the trustee would have entered into modification and mitigation agreements with borrowers. Oh wait, that might not have been necessary because the amount of money flooding the world would have been far less and the shadow banking system would be a tiny fraction of the size it is now — last count it looks like something approaching or exceeding one quadrillion dollars — or about 20 times all the real money in the world.

At some point the dam will break and the trustees will turn on the investment banks and those who are using the trustee’s name in vain. The foreclosures will stop and the government will need to fess up tot he fact that it entered into tacit understandings with scoundrels. When you sleep with dogs you get fleas — unless the dog is actually clean.

Stay Tuned for more whistle blowing.

In Countrywide Case, Trustees Failed to Provide Oversight on Mortgage Pools

Screw the Pooch!!??

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Editor’s Comment:

Do some research, think about what you know and what you need to know. Come to my seminar or any seminar on securitization and you will understand the significance. Naked short-selling is the same as selling forward. In both cases you sell to an “investor” something where you have no asset and no money to back it up. You take the money from the investor and use it pretty much any way you like and account for it as “trading profits.” Then you take what is left and you create the illusion of transactions when in fact the documents refer to a virtual transaction in which the parties were different than those described on the closing documents and the terms of repayment of the loan are different than the terms disclosed to either the  investor or the borrower.

This sort of thing is unfathomable to most people, except those who spent a lot of time on Wall Street or doing Wall Street-type things, which is an adequate description of my background. If you sold a car to someone when you didn’t have the car or the money to buy it and then you took the money and put part of it in your pocket as your fee and then went out and bought a junker, you might be charged with civil or criminal fraud. Don’t you think? But on Wall Street these behaviors are permitted in the name of increasing liquidity.

What a country!

Joe Floren Screws the Pooch

by Patrick Byrne

The first time I heard Joe Floren speak I was standing behind him in an elevator in his law firm’s San Francisco office tower  as another lawyer informed him that the subpoena Joe Floren had served the previous day on a colleague of mine had reached her in the hospital, after a difficult delivery of her first child, while she was breastfeeding for the first time.

“Really? That’s beautiful. I love it!” He replied with glee.

Joseph E. Floren, Esq., is a lawyer at Morgan Lewis, the white shoe law firm defending Goldman Sachs against Overstock’s prime broker litigation, and tonight I celebrate the mistake Joe Floren made yesterday.  In filing Goldman’s response to Overstock’s motion to vacate the trial court judge’s decision to stay his own decision to unseal various documents related to this litigation (in more straightforward English: the trial court judge decided to unseal some documents while also deciding to delay acting on his decision, but we objected to this delay, and Goldman responded to our objections), Joe Floren screwed the pooch. He filed something containing an attachment he forgot to redact. That attachment is a previous filing of Overstock’s, a filing which contains but a sample of the shenanigans at Goldman and Merrill that has turned up over the course of five years and millions of pages of discovery, but which filing we had redacted when we made it (as good litigants do).

Fortunately for the cause of all that is good and right about America, Joe Floren’s goof came to the attention of a diligent 1st amendment attorney in California named Karl Olson, who represents the Economist, Bloomberg, the New York Times and Wener Publications (owners of Rolling Stone magazine) in their efforts to obtain the documents.  Karl Olson provided Joe Floren’s sloppy filing to his clients. Tonight these stories appeared:

Rolling Stone: Accidentally Released – and Incredibly Embarrassing – Documents Show How Goldman et al Engaged in ‘Naked Short Selling’

Bloomberg: Goldman, Merrill E-Mails Show Naked Shorting, Filing Says

Economist: An enlightening mistake

Really, Joe Floren?  That’s beautiful.  I love it.

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