Commentary By Ron Beasley
I don't really understand why the Republicans or the Democrats would want to win this election cycle and be forced to take responsibility for the next collapse of the financial system. Yesterday because of stories that spread from the blogosphere (both left and right) to the MSM Obama pocket vetoed a stealth bank bailout bill that had been rushed through the Senate before they adjourned. I fear Michelle Malkin probably gets it right.
Er, let�s take this up again when no one�s paying attention.
There is an ugly truth that no one wants you to know - the worst is yet to come and there is nothing anyone can do about it. Ellen Brown writing at Truthout:
The swift passage and the president's subsequent veto of this bill come on the heels of an announcement that Wall Street banks are voluntarily suspending foreclosure proceedings in 23 states.
By most reports, it would appear that the voluntary suspension of foreclosures is underway to review simple, careless, procedural errors - errors which the conscientious banks are hastening to correct. Even Gretchen Morgenson in The New York Times characterizes the problem as "flawed paperwork."
However, those errors go far deeper than mere sloppiness; they are concealing a massive fraud. They cannot be corrected with legitimate paperwork, and that was the reason the servicers had to hire "foreclosure mills" to fabricate the documents. These errors involve perjury and forgery - fabricating documents that never existed and swearing to the accuracy of facts not known.
Phony document mills:
Yves Smith of Naked Capitalism has uncovered a price list from a company called DocX that specializes in "document recovery solutions." DocX is the technology platform used by Lender Processing Services to manage a national network of foreclosure mills. The price list includes such things as "Create Missing Intervening Assignment," $35; "Cure Defective Assignment," $12.95; "Recreate Entire Collateral File," $95. Notes Smith:
[C]reating ... means fabricating documents out of whole cloth, and look at the extent of the offerings. The collateral file is ALL the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage backed security holder. This means most importantly the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.
How do you recreate the original note if you don't have it? And all for a flat fee, regardless of the particular facts or the supposed difficulty of digging them up.
The details are can be found at Brown's article but in a nutshell financial institutions gave loans to people that any many case they knew would default. They then securitized those loans in insturments called Morgage Backed Securities (MBS) and sold them to investors. The paper trail is so flawed that those who own the MBS's cannot prove the hold title. Ultimately they may try to hold the financial institutions accountable. The result - banks will fail.
Karl Denninger concurs. He writes:
Those who bought MBS from institutions that improperly securitized this paper can and should sue the securitizers to well beyond the orbit of Mars.... [I]f this bankrupts one or more large banking institutions, so be it. We now have "resolution authority," let's see it used.
The resolution authority Denninger is referring to is in the new Banking Reform Bill, which gives federal regulators the power and responsibility to break up big banks when they pose a "grave risk" to the financial system - which is what we have here. CNBC's Larry Kudlow calls it "the housing equivalent of the credit financial meltdown," something he says could "go on forever."
Financial analyst Marshall Auerback suggests calling a bank holiday. He writes:
Most major banks are insolvent and cannot (and should not) be saved. The best approach is something like a banking holiday for the largest 19 banks and shadow banks in which institutions are closed for a relatively brief period. Supervisors move in to assess problems. It is essential that all big banks be examined during the "holiday" to uncover claims on one another. It is highly likely that supervisors will find that several trillions of dollars of bad assets will turn out to be claims big financial institutions have on one another (that is exactly what was found when AIG was examined - which is why the government bail-out of AIG led to side payments to the big banks and shadow banks).... By taking over and resolving the biggest 19 banks and netting claims, the collateral damage in the form of losses for other banks and shadow banks will be relatively small.
What we need to avoid at all costs is "TARP II" - another bank bailout by the taxpayers. No bank is too big to fail. The giant banks can be broken up and replaced with a network of publicly-owned banks and community banks, which could do a substantially better job of serving consumers and businesses than Wall Street is doing now.
TARP didn't fix anything just postponed the inevitable and not even the banksters will be able to overcome political pressure so there will be no TARP II. It's going to get a lot worse before it gets better. Keep an eye on the banksters - when they start heading for their bolt holes in Costa Rica you will know the collapse is near.
As the New York Times reports the flawed titles are making it dificult to purchase foreclosed houses which will further impact the banks bottom line and the housing recovery.
Update:
Ezra Klein interviews Janet Tavakoli who thinks we can save ourselves by taking the big banks down.
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