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.

George W. Mantor Runs for Public Office on “No More Dirty Deeds”

Mantor for Assessor/Recorder/Clerk of San Diego County

Editor’s note: I don’t actually know Mantor so I cannot endorse him personally — but I DO endorse the idea of people running for office on actual issues instead of buzz words and media bullets.

Mantor is aiming straight for his issue by running for the Recorder’s Position. I think his aim is right and he seems to get the nub of some very important issues in the piece I received from him. I’d be interested in feedback on this campaign and if it is favorable, I might give a little juice to his campaign on the blog and my radio show.

His concern is my concern: that within a few years, we will all discover that most of us have defective title, even if we didn’t know there was a loan subject to claims of securitization in our title chain. This is not a phenomenon that affects one transaction at a time. It affects every transaction that took place after the last valid loan closing on every property. It doesn’t matter if it was subject to judicial or non-judicial sale because real property is not to be settled by damages but rather by actual title.

Many investors are buying up property believing they have eliminated the risk of loss by purchasing property either at or after the auction sale of the property. They might not be correct in that assumption. It depends upon the depth and breadth of the fraud. Right now, it seems very deep and very wide.

Here is one quote from Mantor that got my attention:

Despite the fact that everyone knows, despite the fact that they signed consent decrees promising not to steal homes, they go right on doing it.

Where is law enforcement, the Attorneys General, the regulators? They all know but they only prosecute the least significant offenders.

Foreclosures spiked 57% in California last month. How many of those were illegal? Most, if not all.

An audit of San Francisco County revealed one or more irregularities in 99% of the subject loans. In 84% of the loans, there appear to be one or more clear violations of law.

Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010.  There were130 cases where the Bank of New York was foreclosing on behalf of a Countrywide mortgage-backed security.  In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature.  Two-thirds of the loans made by other banks also lacked bank endorsements.  The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.

No_More_Dirty_Deeds

Barofsky Challenges Geithner Doctrine: Crushing the Bank Oligopoly

See Financial Times for full article

Editor’s Comment: Barofsky’s characterization of the Geithner doctrine is accurate and appalling at the same time. The decision was made across the board that the stability and illusion of financial health on Wall Street was and is more important than anything else is what led to a prolonged recession and, from the reports being published it could be another 10-20 years before we work our way out of this mess.

President Obama made TRUTH a cornerstone of his campaign but the public wasn’t told the truth at any point. In fact the government was actively complicit in creating illusion and fraud. In doing so, they have created a precedent that will inevitably lead to bank behavior that will escalate the fraud and the damage on the world’s economies.

A creature of Wall Street, Geithner assumed that the money making machines on Wall Street were essential to stabilizing the financial system. He merely took over where Hank Paulson left off. At the point where the investment banks were converted to commercial banks, THAT was the time to strike with receivers, resolution of the megabanks that were holding trillions out of the U.S. economy and doing the same around the world.

The assumption by Paulson was that with a capital infusion the banks would lend more thus propping up the economy. It never happened. Instead people got notices in the mail freezing their home equity lines of credit and lowering their borrowing limits on all sorts of loans including credit cards. If the proof is in the pudding, then Geithner and Paulson were dead wrong.

The fraud extended from the closing tables where fictitious loans were documented and real loans were undocumented, to the diversion of investor money from the investment pools and to the investment banks. In short, the money was sucked out of the economy and the government, regulators and courts are either not doing doing anything about it, or making it easier for banks to get away with it, encouraging the moral hazard that occurs when greed fails to meet consequences.

The devastating effects on millions of homeowners and tens of millions of consumers, social services and taxpayers are not even on the table. Victims of fraud, pension funds, sovereign wealth funds, and individual retirement funds were stuck paying for Wall Street lies.

The same fraud — appraisal fraud, ratings fraud, and fraud in the inducement, fraud in the execution occurred with each of the borrowers, who never saw the benefit of the bargain they thought they had reached with what turned out to be a series of nominees (fictitious lenders). The Geithner doctrine stopped the government from intervening, stopped anything that smelled of restitution for the pension funds, dismissed the claims and losses of homeowners as though they didn’t matter and prevented an influx of wealth and capital that was badly needed by the economy.

The problem is that the central bankers have been scared into accepting a shadow banking system that is literally ten times the size of the real banking system. It’s a lie 10:1. The banks we call healthy are in fact subject to closure and receivership because the assets they are showing on their balance sheets are not worth nearly what they are reporting — and they never will be unless we all expand the money supply by ten times the current world monetary supplies.

But the existence of another curative solution is systematically disregarded on “moral”or “practical grounds.” Following the law, the banks should be forced into receivership if they don’t have the capital necessary to stay open, based upon the inflated values that started with appraisal fraud and ratings fraud, and now is sitting in bank balance sheets as accounting fraud.

By clawing back as much money as possible for investors in the bogus mortgage bonds, the amount owed to the investors would be reduced by payment instead of loss. And account receivables to each investor would be correspondingly reduced. And the accounts payable by the borrowers would be correspondingly reduced due directly to payment instead of forgiveness. It is simple arithmetic.

The banking oligopoly would be crushed and government could go back to being influenced by much smaller competing special interests. The pensioners would be assured that their pensions will keep coming, and homeowners could be restored to their homes or and possibly receive cash payments or credits for payment on the accounts receivable thus providing an enormous fiscal stimulus to an economy that is 70% based upon consumer spending.

If I understand this, along with Neil Barofsky and a gaggle of economists and financiers, why won’t the government even consider it?

Neil Barofsky: Geithner Doctrine Lives on in Libor Scandal

By Neil Barofsky, the former special inspector-general of the troubled asset relief programme and is currently a senior fellow at NYU School of Law. He is the author of ‘Bailout’, released in paperback this week.

Now that Tim Geithner has resigned as US Treasury secretary, it is time to survey the damage wrought from four years of his approach to the financial crisis. The “Geithner doctrine” made the preservation of the largest banks, no matter the consequences, a top priority of the US government. Aside from moral hazard, it has also meant the perversion of the US criminal justice system. The US faces a two-tiered system of justice that, if left unchecked by the incoming Treasury and regulatory teams, all but assures more excessive risk-taking, more crime and more crises. (e.s.)

The recent parade of banking scandals, such as the manipulation of Libor rates by Barclays, Royal Bank of Scotland and other major banks, can be traced back to the lax system of regulation before the financial crisis – and the weak response once disaster struck.

Take the response of the New York Federal Reserve to Barclays’ admission in 2008 that it was submitting false Libor rates and was not alone in doing so. Mr Geithner’s response was to in effect bury the tip. He sent a memo to the Bank of England suggesting some changes to the rate-setting process and then convened a meeting of regulators where he reportedly described only the risk but not the actual manipulation of the rate. He then put the government imprimatur on the rate via bailout programmes. His inaction helped permit a global crime to continue for another year.

When it was UBS’s turn to settle its Libor charges, even though a significant amount of the illegal activity took place at the parent company level, only a Japanese subsidiary was required to take a plea. Eric Holder, US attorney-general, demonstrated his embrace of the Geithner doctrine (a phrase coined by blogger Yves Smith) in explaining the UBS decision. He said that a more aggressive stance against the parent company could have a negative “impact on the stability of the financial markets around the world”.

This week we saw the latest instalment of the saga. In fining RBS £390m, the DoJ only indicted one of the bank’s Asian subsidiaries, avoiding the more damaging result that would have stemmed from charging the parent company.

Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail.

The lack of robust enforcement is of course not limited to the Libor scandal. It was seen in the recent settlement talks with HSBC, when Treasury officials reportedly pressed the DoJ to consider the broad economic consequences that would follow an indictment. After hearing these arguments the DoJ chose not to criminally charge HSBC.

And, of course, it is seen in the stunning dearth of criminal prosecutions arising out of the crisis. This was all but preordained given who the government turned to when the crisis struck: the same captured regulators who had blindly advanced bankers’ self-serving calls for a “light touch” before the crisis and who unsurprisingly embraced the Geithner doctrine afterwards. Having done so, of course, there would be no criminal prosecutions while the banks still teetered on the brink of collapse. The risk of causing them to fail, and thereby undoing all of the bailout efforts, was too high.

But that these arguments continue to resonate with officials in 2013 shows that the Geithner doctrine, perhaps justified by the conditions in 2008-09, has planted deep roots in our system of government.

This forbearance will have potentially devastating long-term effects, as each settlement on favourable terms reinforces the perception that, for a select group of executives and institutions, crime pays. It is only rational. They know that they will get to keep all of the ill-gotten profits if they go undetected, and on the small chance that they’re caught, most probably only the shareholders will pay – and only a relatively minor fine at that. The lack of meaningful consequences for those committing these frauds encourages future fraudulent conduct. Ultimately, the financial crisis was a game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.

Breaking those incentives requires ditching the Geithner doctrine, which has led to the banks becoming even larger and more systemically significant than they were before the crisis. As a result, the DoJ’s fear of destabilising the global economy through aggressive prosecutions may indeed be well-founded. But that must not be the end of the story.

To reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all.

Advice to Politicans: Run Against the Banks, not Foreclosures

GOOD CAMPAIGN SLOGANS:

“I will fight to bring the mega-banks under control”
” I will fight for reporting requirements that reveal insolvent banks before they threaten our financial system again.”
” I will fight for audits of reporting to identify exotic financial instruments that are cover-ups for PONZI schemes”

” I will fight to recover the losses that threaten the solvency of our retirement funds.”

I am Neil F Garfield, Esq., author and editor of Livinglies.wordpress.com, now approaching 8 million visits. In South Florida I was a Democratic political strategist and was invited to run for Congress, which I declined. I  would like to brin attention an issue that will help in the polls and the election: housing — without talking about housing. Talking about the banks.

Like most candidates, Candidates staying away from the issue of housing and the relationship of the housing crisis to the economy of the State of Arizona and the nation. The problem is that attacking foreclosure sounds to some voters that you are looking to give a free ride to people who don’t deserve it. It is easier and more effective to attack the banks generally and not the specific subject of foreclosures.

Candidates who have listened to my advice have followed this guidance: run against the banks, not foreclosure. Too many politicians are getting money from the banking lobby and making Wall Street off limits. People are still seething from the bailouts and tricks of “securitization” (which never actually happened) of defective, botched, mortgage closings. I am prepared to bring together hundreds of people in a free seminar at which Carmona is featured as the man who who understands the problem and the man who will fight to correct it. I have a big following.

The facts are that the defaults resulting in actual losses are still less than $2 trillion, but bailouts and purchases are now near $20 trillion (50% more than the principal of ALL mortgages); yet the federal government has failed to act on that because of the fear that if the shadow banking system collapses, it will bring the legitimate banking system with it.

This is not true. There are more than 7,000 community banks and credit unions who can easily pick up the functions of the mega banks thanks to the backbone of electronic funds transfer. All of these institutions are small enough to regulate using existing resources. Leaving insolvent mega-banks alone means that we either increase the regulatory budget geometrically or wait for the next, bigger collapse. 40% of the wealth of  America’s hardworking citizens and retirees was lost, but the question that is not being asked is where did it go?

The shadow system dwarfs the actual monetary system. The shadow system consisting of derivative contracts and insurance amounts to over $800 trillion in private contracts that are treated as cash equivalent. The actual amount of actual, real money issued by fiat by all countries across the globe is less than $80 trillion. Do the Math. But most of the $800 trillion is pure fiction that will not take one penny out of the economy of any nation, state or city, because they are offset by bets in the other direction. Yet the bets are counted cumulatively with the intention of holding a hammer over the heads of government agencies and officials — so their threat appears (shadow) than it really is.

Permitting the shadow banking to stay on the books without adequate reporting and transparency is an invitation to disaster. It is a disaster waiting to happen whenever it suits the banks to go after bailouts again. This is what is allowing the currently insolvent mega banks to show fictitious assets of their balance sheet and leave off $ trillions in liabilities resulting from their diversion of money from innocent investor-lenders and diversion of paperwork from those investors and the borrowers.

Next year, because of the reporting requirements currently allowed, pension benefits are going to get slashed against existing retirees. The “underfunded” status of these retirement funds has already been sent up as trial balloon. The follow up is “no money, no benefits” (or a reduction in benefits). Nobody wants to talk about that until the election is over. Jack Kennedy won the 19060 election because of a perceived missile gap. This is real. There is a gap between the money that should be in the economy and the investors who bought bogus mortgage bonds from REMICS trusts that never had the money or the loans. This gap will result in the inability of these funds to continue payments at current levels or require another federal bailout. Do your fact checking on underfunded retirement funds.

These insolvent banks are going to collapse — a prediction we have made through simple arithmetic, just as I did in 2007 when I predicted the banks that would fail, and the order in which they would fail.  People know it already and will not be surprised by a politician bringing up the fact that our economy is improving despite the downward pressure of sham transactions, sham assets and the non-disclosure of liabilities. A politician who brings the fight to Flake and other Republicans who have voted solidly with the banks, will strike a cord in even the most right wing “Conservative” republican.

Should you wish to receive any further assistance on the economy, housing or Wall Street, I am available by email and my cell phone 954-494-6000. Do a few focus groups, as I have. Include people from all parts of the political spectrum and you will find that one are of universal agreements is that the banks are to blame for our crisis. And government has not failed to properly regulate, they have failed to collect taxes and fees that would go a long way to balancing local, state and federal budgets.

When the American electorate is awake, they are pretty smart. They are awake now and most of them are waiting to hear from someone who wants to deal with the improper reporting from the mega banks who are insolvent but pretending to contribute to the nations GDP and employment. Just try it out — stop people on the street at random. Politicians are missing a golden opportunity to trounce their opponents. The issue is hidden only because everyone is afraid of it and it appears too complex to explain. It can be boiled down to a few simple phrases:

“I will fight to bring the mega-banks under control”
” I will fight for reporting requirements that reveal insolvent banks before they threaten our financial system again.”
” I will fight for audits of reporting to identify exotic financial instruments that are cover-ups for PONZI schemes”

” I will fight to recover the losses that threaten the solvency of our retirement funds.”

Politics Diverting Us From the Real Issues

“The bottom line is that conservatives don’t conserve anything. They have their hand deeper into the public purse than anyone else. Liberals don’t liberate anyone either, providing the tools to prospects for progress and prosperity. The terms should not be used because nobody means what they say.” Neil F Garfield livinglies.me

Editor’s Comment: Romney’s latest gaffe is only a mistake in terms of him having said it, not that that he didn’t mean it. To set the record straight the 47% pay payroll taxes that the rich don’t pay, have incomes under $50,000 per year, and one third of them are seniors and disabled with incomes lower than $20,000 per year getting Social Security and similar benefits that they paid for when they were working. But isn’t really the problem.

The problem is that what Romney gave voice to was a feeling amongst the elite Democrats and Republicans who look at the bottom economic half of the country with disdain. Although they are working, paying Social Security and Unemployment taxes most of these people are treated as though they are trash to be taken out and cleaned somehow. Those taxes amount to over 12% of their income whereas the income from wealth, escape those taxes altogether.

And THAT is the reason it is so easy for banks to manipulate politicians, law enforcement and regulators into doing nothing about the cancer growing on our society — fake mortgages, fake foreclosures, fake evictions, and fake income and assets reported for the banks. Some of the media are picking up on the fact that the stolen money from investors is not being recognized as taxable income, which it is, and that the IRS isn’t pursuing hundreds of billions of income taxes that are due from the Banks. Talk about getting a free ride.

Today’s conference call (7 PM EDT) with members will touch on this along with the usual report on what is getting traction and what tactics and strategies might be used to confront the banks who are faking ownership of the loans when they neither loaned the money nor purchased the loan with money.

My take on the political landscape is this: I speak with people from the so-called far right political spectrum to the far left political spectrum. I speak to members of fringe groups too.

The overwhelming consensus amongst all of them from one end to the other is that government is corrupt, banks are corrupt and that our society is in the wrong hands mostly without candidates who will speak to these issues. We need a new crop of politicians who are no so encumbered with loyalties to the bank oligopoly because at some time, the ticking time bomb is going to blow. I speak of economic meltdown, caused by fabricated transactions and assets that our counted as part of our national wealth and GDP.

If you ask people specific questions about what is fair, just, moral, ethical and legal nearly all of them respond with the same answers. So why are we a divided nation? Why to we listen to sound bites instead of forcing the candidates to speak to us about our issues, about our stress and anxiety — whether we will have a roof over our heads, whether we will have food on the table, whether our children will be educated well enough so that they can fill the jobs that are ready to be filled. Right now there are 3 million such jobs.

You would think that someone would want to do something about it. Obama tried to put through a bill to do something about that but he didn’t push hard enough. Republicans scoffed at it because of their allegiance to the super rich whose boatloads of money are floating nearly all the republicans and many of the democrats in local, state and Federal elections.

But we can’t blame one or even a group of politicians if we, the Boss, as the voters who control who governs us, don’t do our job and get educated about issues, educated about candidates and exercise our absolute right to vote in the elections.

The current crop of incumbents doesn’t worry about our reaction because we don’t have any reaction tot heir stupid policies, bills and laws. We are a nation of apathy where vote turnout has been going lower and lower. The reason is the same as the unemployment situation. The figures would be worse if we added those back who simply gave up. Don’t give up your vote. Use it and mean it!

We Are Drowning in False Debt While Realtors Push “Recovery”

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Editor’s Comment:

The figures keep coming in while the words keep coming out the mouths of bankers and realtors. The figures don’t match the words. The net result is that the facts show that we are literally drowning in debt, and we see what happens as a result of such conditions with a mere glance at Europe. They are sinking like a stone, and while we look prettier to investors it is only when we are compared to other places — definitely not because we have a strong economy.

Iceland and other “players” crashed but stayed out of the EU and stayed away from the far flung central banking sleeping arrangements with Banks. Iceland knows that banks got us into this and that if there is any way out, it must be the banks that either lead their way out or get nationalized so their assets can take the hit of these losses. In Phoenix alone, we have $39 BILLION in negative equity. 

This negative equity was and remains illusory. Iceland cut the household debt in each home by 25% or more and is conitinuing to do so. The result? They are the only country with the only currency that is truly recovering and coming back to real values. What do we have? We have inflated property appraisals that STILL dominate the marketplace. 

The absence of any sense of reality is all around us in Arizona. I know of one case where Coldwell Banker, easily one of the most prestigious realtors, actually put lots up for sale asking $40,000 when the tax assessed value is barely one quarter of that amount and the area has now dried up — no natural water supply without drilling thousands of feet or hauling water in by truck. Residents in the area and realtors who are local say the property could fetch at most $10,000 and is unsalable until the water problem is solved. And here in Arizona we know the water problem is not only not going to get solved, it is going to get worse because of the “theory” of global climate change.

This “underwater” mess is political not financial. It wouldn’t exist but for the willingness of the government to stay in bed with banks. The appraisals they used to grant the loan were intentionally  falsified to “get rid of” as much money as possible in the shortest time possible, to complete deals and justify taking trillions of dollars from investors. The appraisals at closing were impossibly high by any normal industry accepted standard and appraisers admit it and even predicted it it in 2005. Banks coerced appraisers into inflating appraisers by giving them a choice — either come in with appraisals $20,000 over the contract price or they will never get work again.

The borrower relied upon this appaisal, believing that the property value was so hot that he or she couldn’t lose and that in fact, with values going so high, it would be foolish not to get in on the market before it went all the way out of reach. And of course there were the banks who like the cavalry came in and provided the apparently cheap money for people to buy or refinance their homes. The cavalry was in a movie somewhere, certainly not in the marketplace. It was more like the hordes of invaders in ancient Europe chopping off the heads of men, women and children and as they lie dying they were unaware of what had happened to them and that they were as good as dead.

So many people have chosen death. They see the writing on the wall that once was their own, and they cannot cope with the loss of home, lifestyle and dignity. They take their own lives and the lives of those around them. Citi contributes a few million to a suicide hotline as a PR stunt while they are causing the distress through foreclosure and collection procedures that are illegal, fraudlent, and based upon forged, robosigned documents with robo-notarized attestations  that the recording offices still won’t reject and the judges still accept.

There is no real real economic recovery without reality in housing. Values never went up — but prices did. Now the prices are returning back to the values left in the dust during the big bank push to “get rid of” money advanced by investors. It’s a game to the banks where the homeowner is the lowly deadbeat, the bottom of the ladder, a person who doesn’t deserve dignity or relief like the bank bailouts. When a person gets financial relief from the government it is a “handout.” When big banks and big business get relief and subsidies in industries that were already profitable, it is called economic policy. REALITY CHECK: They are both getting a “handout” and economic policy is driven by politics instead of common sense. French arisocrats found that out too late as their heads rolled off the guillotine platforms.  

But Iceland and other places in the world have taught us that in reality those regarded as deadbeats are atually people who were herded into middle class debt traps created by the banks and that if they follow the simple precept of restoring victims to their previous state, by giving restitution to these victims, the entire economy recovers, housing recovers and everything resumes normal activity that is dominated by normal market forces instead of the force of huge banks coercing society and government by myths like too big too fail. The Banks are doing just fine in Iceland, the financial system is intact and the government policy is based upon the good of the society as a whole rather the banks who might destroy us. Appeasement is not a policy it is a surrender to the banks.

Cities with the Most Homes Underwater

Michael B. Sauter

Mortgage debt continues to be a major issue in the United States, nearly six years after home prices peaked, according to a report released Thursday by online real estate site Zillow. Americans continue to owe more on their homes than they are worth. Nearly one in three mortgages are underwater, amounting to more than 15 million homes and a total negative equity of $1.19 trillion.

In some of America’s largest metropolitan regions, however, the housing crash dealt a far worse blow. In these areas — most of which are in California, Florida and the southwest — home values were cut in half, unemployment skyrocketed, and 50% to 70% of borrowers now find themselves with a home worth less than the value of their mortgage. 24/7 Wall St. reviewed the 100 largest housing markets and identified the 10 with the highest percentage of homes with underwater mortgages. Svenja Gudell, senior economist at Zillow, explained in an interview with 24/7 Wall St. that the markets with the highest rates of underwater borrowers are in trouble now because of the rampant growth seen in these cities prior to the recession. Once home prices peaked, which was primarily in late 2005 through 2006, all but one of these 10 housing markets lost at least 50% of their median home value.

Making matters worse for families with high negative equity in these markets is the increased unemployment. “If you have a whole lot of unemployment in an area, you’re more likely to see home values continue to decline in the area as well,” says Gudell. While in 2007 many of these markets had average or below average unemployment rates, the recession took a heavy toll on their economies. By 2011, eight of the 10 markets had unemployment rates above 10%, and three — all in California — had unemployment rates of above 16%, nearly double the national average.

24/7 Wall St. used Zillow’s first-quarter 2012 negative equity report to identify the 10 housing markets — out of the 100 largest metropolitan statistical areas in the country — with the highest percentage of underwater mortgages. Zillow also provided us with the decline in home values in these markets from prerecession peak values, the total negative equity value in these markets and the percentage of homes underwater that have been delinquent on payments for 90 days or more.

These are the cities with the most homes underwater.

10. Orlando, Fla.
> Pct. homes w/underwater mortgages: 53.9%
> Number of mortgages underwater: 205,369
> Median home value: 113,800
> Decline from prerecession peak: -55.9%
> Unemployment rate: 10.4% (25th highest)

In 2012, Orlando moved into the top 10 underwater housing markets, bumping Fresno, Calif., to number 11. From its prerecession peak in June 2006, home prices fell 55.9% to $113,800, a loss of roughly $90,000. In 2007, the unemployment rate in the region was just 3.7%, the 17th-lowest rate among the 100 largest metros. By 2011, that rate had increased to 10.4%, the 25th highest. As of the first quarter of this year, there were more than 205,000 underwater mortgages in the region, with total negative equity of $16.7 billion.

9. Atlanta, Ga.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 581,831
> Median home value: $107,500
> Decline from prerecession peak: 38.8%
> Unemployment rate: 9.6% (37th highest)

Atlanta is the largest city on this list and the eighth-largest metropolitan area in the U.S. But of all the cities with the most underwater mortgages, it has the lowest median home value. In the area, 55.5% of homes have a negative equity value. With more than 500,000 homes with underwater mortgages, the city’s total negative home equity is in excess of $38 billion. Over 48,000 of these underwater homeowners, or nearly 10%, are delinquent by at least 90 days in their payments, which is also especially troubling. With home prices down 38.8% since June, 2007, the Atlanta area certainly qualifies as one of the cities hit hardest by the 2008 housing crisis.

8. Phoenix, Ariz.
> Pct. homes w/underwater mortgages: 55.5%
> Number of mortgages underwater: 430,527
> Median home value: $128,000
> Decline from prerecession peak: 54.2%
> Unemployment rate: 8.6% (44th lowest)

At 55.5%, Phoenix has the same percentage of borrowers with underwater mortgages as Atlanta. Though Phoenix’s median home value is $21,500 greater than Atlanta’s, it experienced a far-greater decline in home prices from their prerecession peak in June 2007 of 54.2%. This has led to a total negative equity value of almost $39 billion. The unemployment rate also has skyrocketed in the Phoenix area from 3.2% in 2007 to 8.6% in 2011.

7. Visalia, Calif.
> Pct. homes w/underwater mortgages: 57.7%
> Number of mortgages underwater: 33,220
> Median home value: $110,500
> Decline from prerecession peak: 51.7%
> Unemployment rate: 16.6% (3rd highest)

Visalia is far smaller than Atlanta or Phoenix and has less than a 10th the number of homes with underwater mortgages. Nonetheless, the city has been especially damaged by a poor housing market. Home values have fallen dramatically since before the recession, and the unemployment rate, at 16.6% in the first quarter of 2012, is third-highest among the 100 largest metropolitan statistical areas, behind only Stockton and Modesto. Presently, almost 58% of homes are underwater, with these homes carrying a total negative equity of $2.6 billion dollars.

6. Vallejo, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 44,526
> Median home value: $186,200
> Decline from prerecession peak: 60.6%
> Unemployment rate: 11.4% (16th highest)

In the Vallejo metropolitan area, more than 60% of the region’s 73,800 homeowners are underwater. This is largely due to a 60.6% decline in home values in the region from prerecession highs. Through the first quarter of this year, homes in the region fell from a median value of more than $300,000 to just $186,200. Of those homes with underwater mortgages, more than 10% have been delinquent on mortgage payments for 90 days or more.

5. Stockton, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 60,349
> Median home value: $146,500
> Decline from prerecession peak: 64.3%
> Unemployment rate: 16.8% (tied for highest)

With an unemployment rate of 16.8%, Stockton is tied for the highest rate among the 100 largest metropolitan areas. Few cities have been hit harder by the sinking of the housing market than Stockton, where 60.3% of home mortgages are underwater. Though there are only 100,014 houses with mortgages in Stockton, 60,348 of these are underwater and have a total negative home equity of slightly more than $6.9 billion. Meaning, on average, homeowners in Stockton owe at least $100,000 more than their homes are worth.

4. Modesto, Calif.
> Pct. homes w/underwater mortgages: 60.3%
> Number of mortgages underwater: 46,598
> Median home value: $130,600
> Decline from prerecession peak: 64.5%
> Unemployment rate: 16.8% (tied for highest)

Since peaking in December 2005, home prices in Modesto have plunged 64.5%. This is the largest collapse in prices of any large metro area examined. As a result, 46,598 of 77,222 home mortgages in Modesto are underwater. Meanwhile, the unemployment rate rose to 16.8% in 2011. This number was 7.9 percentage points above the national average of 8.9% and almost double Modesto’s 2007 unemployment rate of 8.7%.

3. Bakersfield, Calif.
> Pct. homes w/underwater mortgages: 60.5%
> Number of mortgages underwater: 70,947
> Median home value: $116,700
> Decline from prerecession peak: 57.0%
> Unemployment rate: 14.9% (5th highest)

From its peak in May 2006, the median home value in Bakersfield has plummeted from more than $200,000 to just $116,700, or a 57% loss of value. From 2007 through 2011, the unemployment rate increased from 8.2% to 14.9% — the fifth-highest rate in the country. To date, more than 70,000 homes in the region have underwater mortgages, with total negative equity of just over $6 billion.

2. Reno, Nev.
> Pct. homes w/underwater mortgages: 61.7%
> Number of mortgages underwater: 46,115
> Median home value: $150,600
> Decline from prerecession peak: 58.3%
> Unemployment rate: 13.1%

There are fewer than 75,000 households in Reno, Nevada. Yet 46,115 home mortgages in the city are underwater, accounting for 61.7% of mortgaged homes. From January 2006 through the first quarter of 2012, home prices were more than halved, and negative home equity reached $4.39 billion. Additionally, the unemployment rate almost tripled in rising from 4.5% in 2007 to 13.1% by 2011. In 2007, Reno had the 54th-worst unemployment rate among the 100 largest metros. By 2007, Reno had the eighth-worst unemployment rate.

1. Las Vegas, Nev.
> Pct. homes w/underwater mortgages: 71%
> Number of mortgages underwater: 236,817
> Median home value: $111,600
> Decline from prerecession peak: 63.2%
> Unemployment rate: 13.9%

At 71%, no city has a greater percentage of homes with underwater mortgages than Las Vegas. The area with the second-worst percentage of underwater mortgages, Reno, has less than 62% mortgages with negative. The corrosive effects the housing crisis had on Las Vegas are evident in the more than 200,000 home mortgages that are underwater, 14.3% of which are at least 90 days delinquent on payments. Additionally, home values have dropped 63.2% from their prerecession peak, the third-greatest decline among the nation’s 100 largest metropolitan areas. Largely because of the collapse of the area’s housing market, unemployment in the Las Vegas area has soared. In 2007, the unemployment rate was 4.7%, only marginally different from the nation’s 4.6% rate. Yet by 2011, the unemployment rate had increased to 13.9%, considerably higher than the nationwide 8.9% unemployment rat.e.


Pension and Union Funds Were Upside Down the Moment They Bought MBS

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Editor’s comment: Smith’s statement about the passivity of investors is well taken. Up until recently, they were content to let the Banks and servicers fight it out and they assumed they would get their fair share of the money that was due to them. Remember that these are NOT just “institutional investors” like banks — they are pension funds, unions, cities, counties and states that invested in what was thought to be investment grade securities Triple A rated and insured.

So it isn’t surprising that the investors are now going on the attack. It is obvious that the banks and servicers are having a field day feeding off the carcass of what was purported to be good collateral — the homes of the borrowers. The starting insult though was the money the banks took out of the funds advanced by investors before they started funding mortgages. In some cases the percentage is a staggering 40%. So for each million dollars that your pension fund put in, the banks immediately removed $400,000 and booked it as trading profits. Now with only $600,000 left, the pool was supposed to make enough money to pay the interest expected by investors plus the principal.

Those figures don’t work and Wall Street knew it. So all they needed was to place bets that the pool would fail and that is what they did under the guise of merely covering the “minor” risk of loss with yet another hedge. But the proceeds of insurance and credit default swaps were received by the banks who did not report those proceeds to investors, much less pay them. The whole thing was carried in a classic PONZI scheme where the money from the investor was paid to the investor without investing or funding any other income-producing asset.

So now Goldman Sachs has a genuine class action (approved by Federal Judge) on its hands, the major banks and MERS have a major lawsuit (Schneiderman) that will completely upend the mortgage transactions and foreclosures that have taken place, as well as eliminating the secured portion of the loans. The Banks are right where I predicted they would be when I projected the path of this long road. The banks and servicers are intermediaries and conduits with no interest in the loans other than some vague contractual rights that were long ago breached by the banks.

The interests of the investors and the interests of the homeowners have thus become strangely but inevitably aligned. Neither one would have entered into the deals if they knew the truth and both were defrauded by inflated appraisals, inflated securities ratings, misrepresentations about the loans, misrepresentations about the loan underwriting process, and neither want to be part of any large-scale foreclosure process. The investors want as much of their money back as possible and then the right to get the rest from the banks, who stole their money. The borrowers want to stay in their homes so much so that they are willing to accept mortgage balances in excess of the fair market value of the home.

Both the investors and the homeowners are underwater — some for the same reasons and some for different reasons. But the full accounting of all money in and all money out will restore far more of the original capital that was siphoned out of the nation’s economy than the current foreclosure process — even if the foreclosures were valid and enforceable which they clearly are not because they are based upon documentation that was intentionally fabricated, forged, misrepresented and a direct breach of the duties of the originators to perform due diligence.

The choice is the same one I stated 5 years ago — which will be more important — the power and wealth of these overs-zed banks or the rights guaranteed by the U.S. Constitution. We can’t have both. In order to give the banks what they want, with amnesty, further bailouts etc., we must surrender our sovereignty and consent to being subject to the rule of Banks without any governing charter. In order to ratify the millions of foreclosures that have already taken place and allow the millions more to proceed, we must abandon all notions of due process, equity and fairness.

by Yves Smith

Investors (and Others) Realizing Their Ox is About to be Gored in Mortgage Settlement

Investors have been remarkably passive as banks and servicers have taken advantage of them. We’ve heard numerous reports of servicer fee abuses that amount to stealing from investors (remember, if you overcharge a stressed borrower and that borrower loses his home, the money in the end comes out of pension funds and 401 (k)s when the excessive fees are deducted from the proceeds of the sale of the home). Investors can even see suspicious patterns in investor reports. We’ve also pointed out that they are guaranteed even more pain, since $175 billion of losses that have already recorded on loans in MBS pools have not yet been allocated to the related bonds.

But the fees to manage bond funds are pretty thin, and fixed income investors are generally a risk averse lot, and are not well set up to litigate. But the biggest obstacle to them Doing Something is that they don’t want to rile the banks. They think they need them for information and transaction execution.

So it shouldn’t be surprising that investors have sat on the sidelines during the mortgage settlement and “fix the housing market” debates, even as becomes clearer and clearer that the solution envisaged is to take from investors to make the banks whole. Remember, the major banks have very large second lien portfolios that should be written down. The banks claim the second loans, almost entirely home equity lines of credit, are current, but that is often an accounting fiction. The banks are often engaging in negative amortization (as in taking any trivial amount and deeming it to be acceptable and adding any shortfall to what should be a proper minimum payment to principal) and allowing customers to borrow in order to make their payments. MBS investors have told me that realistic marks on Bank of America’s second lien portfolio would exceed the market value of its equity, and would also take a big cut out of the equity bases of Citi, JP Morgan, and Wells.

So the plan, which was messaged in an interview with William Dudley in the Financial Times in early January and is embodied in the mortgage settlement plan, is to write down first liens and leave seconds largely intact (there have been some indications that seconds might get a modest ding in the case of a principal mod on the first, but that is backwards. The second should be WIPED OUT before anything modification is made to the first mortgage). Any principal mods on the first lien that leaves the second in place amounts to a transfer from retirement plans to banks. Pensions are being raided to avoid exposing the insolvency of the big banks.

We are, rather late in the game, getting some plaintive bleats from investors as they are being led to slaughter. Reader Deontos sent us a statement from the Association of Mortgage Investors:

The state Attorneys General, federal agencies, and certain mortgage servicers have worked for approximately one year on developing a solution to address our national foreclosure crisis. The time now may be nearing for a settlement of claims of alleged wrongdoing by servicers. AMI and mortgage investors have neither been involved in the negotiations nor are aware of the ultimate settlement terms. In anticipation of a possible settlement, however, AMI cautions these negotiators not to rush into a settlement, but rather work to get a properly constructed settlement that helps distressed homeowners with the right solutions. “Investors in mortgage trusts, such as unions and pensions, do not service these loans and certainly did not create these woes for borrowers. The use of mortgage trust money (from pensions funds, unions and charities) to settle the investigation is tantamount to a bank bail-out. We expect that principal modifications of private mortgages made to satisfy any kind of settlement will involve only mortgages held by the settling parties and that the criteria for all additional principal modifications be firmly established,” explained Chris Katopis, AMI’s Executive Director.

AMI would only support such a resulting settlement, if any, if appropriately designed to address such alleged wrongdoing while not implicating innocent parties. AMI is on-record as supporting long-term, effective, sustainable solutions to the housing foreclosure crisis. It is generally supportive of a settlement if it ensures that responsible borrowers are treated fairly throughout the foreclosure process; while at the same time providing clarity as to investor rights and servicer responsibilities. The settlement should be designed in a way that ensures that investors, who were not involved in the alleged activities and, who likewise were not a participant in any negotiations, do not bear the cost of the settlement. Specifically, mortgage servicers should not receive credit for modifying mortgages held by third parties, which are often pension plans, 401K plans, endowments and “Main Street” mutual funds. To do otherwise, will damage the RMBS markets further and limit the ability of average Americans to obtain credit for homes for generations to come.

Erm, the fact that you weren’t given a seat at the table means the power that be thought you were dispensable.

More amusingly, a Bloomberg report reveals what most insiders know full well, that industry associations that supposedly represent the buy side and the sell side, like the American Securitization Forum and the Securities Industry and Financial Markets Association, really take care only of the sell side, meaning Wall Street. SIFMA’s Asset Management Group, which represents investors, wanted to issue a statement objecting to the use of investor funds to settle bank misdeeds, but it was squelched by management:

Wall Street’s biggest lobbying group is split over a proposed settlement of state and federal foreclosure probes, after a committee of money managers signaled it opposes terms letting banks push some costs onto bondholders.

The Securities Industry and Financial Markets Association’s Asset Management Group planned to release a statement last week urging government negotiators to protect innocent investors, amid reports that banks will get credit for lowering the balances of mortgages packaged into bonds, three people familiar with the matter said. Sifma’s leadership said no. The panel’s members oversee $20 trillion and include BlackRock (BLK) Inc. and Pacific Investment Management Co.

Sifma elected not to issue the statement “because the settlement surrounds potential legal issues involving the commercial interests of many of our members,” said Cheryl Crispen, a spokeswoman for the group in New York. “Sifma generally does not intervene in such matters and remains focused on matters of policy and advocacy.”

What bullshit. This is a “all animals are equal, but some are more equal than others” statement.

Needless to say, as the propagandizing gets louder, a few lonely voices are decrying the settlement. For instance, Daily Kos had a refreshing piece, “Stop the Delusional Celebration: Victims of Foreclosure Fraud Have Little to Celebrate.” Dave Dayen gets to an aspect of the settlement that I have not had time to cover, namely, that the enforcement is a joke. A story by Loren Berlin and D.M. Levine at Huffington Post remind us “Robo-Signing Settlement Might Not Provide Homeowners With Needed Help.” The short form of their story: the deal looks to be targeting mods to not that deeply underwater borrowers. Addressing a related Administration PR effort, Alan White at Credit Slips, in The Permanent Foreclosure Crisis and Obama’s Refinancing Obsession says, in no uncertain terms, that refis won’t solve the mortgage mess.

There is a possible saving grace here. I am told by a principal that if this settlement goes through, the odds are 100% that it will be challenged on Constitutional grounds, as a violation. Taking from the first lienholders to save the second lienholders to keep otherwise insolvent banks from going under amounts to a transfer from private parties to the government, as in it saves the FDIC from needing an emergency injection from Congress, as it did in the savings and loan crisis. So as much as I’d rather see this deal scuttled, it would terribly amusing to see Obama tidy’s efforts to generate pretend to help homeowners while really helping the banks sidetracked by litigation. The courts have stymied bank efforts to get away with their heist, and they may prove to be their bane yet again.

Topics: Banana republic, Banking industry, Credit markets, Investment management, Legal, Politics, Real estate, Regulations and regulators, The destruction of the middle class

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