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Tying it Together: Massive, Pernicious Fraud
market ticker ^ | October 16, 2009 | Karl Denninger

Posted on 10/16/2009 12:34:44 PM PDT by Attention Surplus Disorder

Let's not mince words here:

The entire finance and real-estate "industry" is filled with massive, pernicious fraud, and we now have only one question remaining - will The Government do its lawful and mandated job, that of prosecuting the bad actors, or has it joined with the fraudsters, become one with them, and thus, declare itself as a gang of mobsters rather than a legitimate government? The latter, of course will beg only the question of what should be an ordinary American's response.

Let's start with what may be one of the most outrageous yet least-actionable examples: Alan Greenspan.

Alan Greenspan, the former Federal Reserve chairman, said Thursday that banking regulators should consider breaking up large financial institutions considered “too big to fail.”

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always back them up. That squeezes out competition and creates a danger to the financial system, Mr. Greenspan told the Council on Foreign Relations in New York, according to Bloomberg News.

This is the "former Fed President" who winked and nodded at what he knew was an unlawful merger of Citibank and Travelers, then personally advocated and lobbied for the passage of Gramm-Leach-Bliley - the law that not only tore down Glass-Steagall but retroactively made that merger legal.

Citibank, may I remind everyone, has been the largest of the "too big to fail" banks, and has received what is arguably somewhere around $2 trillion in "support", both formal and informal, over the last 20 years. Today, Citibank has outstanding hundreds of billions of dollars in formal government backstops.

Let us next progress to the mess in our Real Estate markets. And here I will take a page from history:

Yes, the public bought. By 1925 they were buying anything, anywhere, so long as it was in Florida. One had only to announce a new development, be it honest or fraudulent, be it on the Atlantic Ocean or deep in the wasteland of the interior, to set people scrambling for house lots. "Manhattan Estates" was advertised as being "not more than three fourths of a mile from the prosperous and fast-growing city of Nettie"; there was no such city as Nettie, the name being that of an abandoned turpentine camp, yet people bought.

Uh huh. And what did they buy with?

During the 1920s and into the early 30s, many of the citizenry of this country chose to live above their means. They chose the interest only loan because it allowed them to purchase a larger home for less money. What happened when the stock market crashed and jobs were scarce, and there was no income? Many of these people were left without homes; as they had chosen to simply pay the interest on their mortgage there was no equity built into their homeownership. When no equity builds, and the income ceases, the bank forecloses and residents are forced from their homes.

Of course in the 1920s there were no computers, and therefore whatever you wanted to sell you had to be able to record in a ledger book and work on a piece of paper or adding machine. This made the concept of 100,000-page "offering documents" impossible, but it sure didn't stop people from "inventing" interest-only loans that would never have their principal paid off.

This sort of fraudulent financial game is nothing new. Indeed, it has featured prominently in every major financial collapse. The 1873 and 1929 market crashes and subsequent Depressions were both caused by such games - in railroads in the 1873s in the US and in real estate in Europe, and in literally everything in the US in the 1920s.

Nor are games with titles and other illegalities new:

Speculation was easy-and quick. No long delays while titles were being investigated and deeds recorded; such tiresome formalities were postponed.


The binder, of course, did not complete the transaction. But few people worried much about the further payments which were to come. Nine buyers out of ten bought their lots with only one idea, to resell, and hoped to pass along their binders to other people at a neat profit before even the first payment fell due at the end of thirty days. There was an immense traffic in binders-immense and profitable.

Uh huh.

And what do we have banks demanding today?

Oct. 13 (Bloomberg) -- Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co.

You mean "seeking to rip off more homeowners and steal their house", right?

Let's continue to be blunt:

A "mortgage" sold to someone without an actual asset backing, where the only "security" is the belief that the price will continue to rise and the "owner" will in fact pay only the interest (or in many cases less than the interest) is not a mortgage at all. An Interest-Only note is not legally a mortgage as no principal paydown is contemplated or made and at the end of the term no conveyance to the putative owner takes place; likewise a "mortgage" where the borrower is qualified on a teaser rate for an "Option ARM" should have brought immediate criminal fraud charges to the purveyor, since there was no reasonable expectation by the firm writing it that the principal would be paid. Indeed, such "buyers" were never homeowners, but rather were simply renting their properties from the bank!

But of course this didn't happen, as that would have upset the "finance" owners of our Congress and Government...... just as it would have in the 1920s....

Now we discover that the same sort of title games common in Florida in the 1920s were being played again. Assignments never recorded, improper assignments "in blank" (in what amounts to a bearer instrument) that do not comport with state law and more.

Let us not forget that under "TEFRA" passed in 1982 "bearer debt instruments" are unlawful at the Federal Level, and as such a "bearer instrument", or an "endorsement in blank", is likely a violation of federal law as well as state laws that require an identified assignee for all such instruments.

The list of problems with these practices is almost too long to list. For those who were not part of the "bubble" they remain affected - indeed, essentially all mortgaged property is potentially under effect of these "policies."

If you pay off your mortgage you are supposed to receive an endorsed copy of your original mortgage note indicating a completed transaction and release of the deed to your name. The technicalities of how mortgages work vary from state to state, with some being a "Deed of Trust" (a third party holding the note in trust until satisfaction of the mortgage) and others (a minority) following the old English Common Law format where a mortgage effectively transfers title to the lender who is obligated to transfer it back on satisfaction.

But how do you get that legally-required satisfaction and sign-off of your original mortgage if the original document was destroyed (intentionally) and the chain of assignments has been broken - making it impossible for you to receive certification that you actually own your property free and clear?

That's a problem, right?

Of course in a world where banks and other finance companies never contemplate you actually owning your property, they wouldn't care about such things.

You, on the other hand, might.

For the "investors" in these MBS the problem is even more serious. If state law has not been complied with then the MBS holders were defrauded when they purchased those MBS, as the prospectuses in every case I've looked at represented that each of the loans held in the pool was conveyed in "recordable" form. If state law was not complied with then this representation was false and in fact these MBS holders may have bought not a secured interest in real property but instead a NAKED promissory note! To the extent this happened it is a massive, pervasive and pernicious fraud perpetrated upon the investing public to the tune of literal trillions of dollars.

Who holds MBS? Everyone! Pension funds, sovereign wealth funds, both foreign and domestic banks, foreign and domestic investors, mutual funds, everyone! Your "stable value" mutual fund or 401k investment probably has them in it and if you're covered by a pension that fund almost certainly has them in it.

If you think this is bad, how about those MBS holders who in addition are holding defective assignments to worthless homes that were sold as good, inhabitable places to live?

Thousands of homeowners nationwide who bought new houses constructed from the defective building materials are finding their hopes dashed, their lives in limbo. And experts warn that cases like the Ivorys', in which insurers drop policies or send notices of non-renewal based on the presence of the Chinese drywall, will become rampant as insurance companies process the hundreds of claims currently in the pipeline.

Let's once again not mince words:

These homes may be, quite literally, worthless, and what's worse is that the builders may not be able to be held to account for the use of these products.

See, builders typically incorporate each development into a separate LLC. That LLC of course holds no assets post-completion and minimal assets during construction. There is thus nothing to collect from post-construction, and many insurance policies exclude this sort of thing anyway, with the argument being that it is not defective workmanship but rather a supplier's problem. That supplier? A Chinese company - against which the putative "owner" cannot recover.

The cost of remediation of these homes is astronomical; a very rough estimate is that a 2,000 square foot house might cost some $50,000 or more to tear out all the fixtures, remove the drywall, replace and refinish it, then re-install all the fixtures. Kitchen surfaces in many cases will not be able to be salvaged and will have to be replaced (e.g. granite or corian countertops, etc) along with, in many cases, trim such as crown moldings, baseboards and door/window surrounds. With homeowners insurance companies refusing to cover this, no recovery from the builders and the supplier being in a foreign nation that our government will not force to cough up remittance, the "owner" is left with an uninhabitable house and the MBS holder is left with a worthless note - not only will it default but the home will have to be gutted at minimum. If the framing has become contaminated by exposure to these materials the only solution will be to bulldoze the property - a total loss.

Folks, none of this was an accident and still isn't:

We still have banks that are holding worthless (or "worth less") paper on their books at or near "par" and employing all sorts of games to avoid recognition of already-taken losses, including refusing to foreclose on delinquent notes (ref: Sarasota Tribune among countless others as I have previously documented)

We have what appears to be systematic and pernicious fraud in mortgage assignments, including (if the document sent to me is correct) documents alleged to be executed by an officer of an entity that in fact is an employee of the receiving entity in what appears to be a clear case of "uttering" (forgery.) This does not appear, based on my quick perusal of public records, to be an isolated incident either - it instead appears to be a pattern of intentional conduct.

We have a judgment out of Boston in which it appears that not only have lenders and securitizers not complied with the requirements of State Law but that they may have violated Federal Anti-Money-Laundering Law in that the issuance of "bearer" instruments has been illegal in The United States since 1982! An endorsement "in blank" is, from a standpoint of the effect of such an endorsement, the creation of a bearer instrument.

We have what appears to be a pattern of institutions willfully issuing MBS under false pretense where the requirements of the offering prospectus were wantonly and intentionally ignored, creating the potential for these MBS to be rendered utterly worthless. There were literally trillions of dollars of these MBS created in the United States over the last decade; this is not a minor issue. Key questions remain open and unanswered in regard to MBS issuance under these allegedly-false pretenses, chief among them being (1) whether The Fed and Treasury have monetized these in response to demands from China and other foreign banks who recognized their deficiencies, and (2) whether this constitutes a cover-up of outrageous and pernicious (and quite possibly felonious) behavior by mortgage originators, servicers and securitizers. It certainly appears that just as in the 1920s the "captains of finance and real estate" ran nothing more or less than sophisticated scams designed to separate Americans (and foreign investors) from not only their money but their property. These acts, now as then, appear to have been permeated with and enabled by a list of felonies as long as your arm.

Yet to date there have been no formal investigations, no indictments, no prosecutions - only bailouts, back-door monetizations and further scams perpetrated by our government in a puerile and outrageous attempt to cover up what certainly appears to be the biggest crime spree ever unleashed upon the American Public and indeed the world.

Bernie Madoff is a piker; We The People must demand that The Governments of this nation ENFORCE EXISTING LAW that has long made this conduct criminal.

If The Federal Government will not enforce the law we must insist that The States bring indictments and prosecutions against these "banksters" on their own initiative.

This is a nation of LAWS, not of Barons and Kings.

TOPICS: Business/Economy; Conspiracy
KEYWORDS: america2point0; asocialistamerica; bankingcrisis; counterfeit; criminalconspiracy; cultureofcorruption; democratscandals; fraud; howtostealanelection; insidejob
A fascinating and nightmarish sceanrio. In essence; the government found itself attempting to govern or regulate a cabal that grew to equal the size and influence of the government just on the basis of sheer financial power.

And the financial cabal turned around and said..."No, we'll buy YOU out".

1 posted on 10/16/2009 12:34:44 PM PDT by Attention Surplus Disorder
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To: Attention Surplus Disorder

WE still HAVE a legitimate government? I thought that was run out of town last January....

Oh, right. It was.

2 posted on 10/16/2009 12:40:20 PM PDT by alloysteel (....the Kennedys can be regarded as dysfunctional. Even in death.)
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To: Attention Surplus Disorder

Barney Frank should have been ANSWERING questions rather than ASKING them.

3 posted on 10/16/2009 12:41:28 PM PDT by a fool in paradise (The character assassination of Rush Limbaugh is worse than what the Left accused Joe McCarthy of.)
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To: Attention Surplus Disorder

Like a broken clock, Greenspan was right.

4 posted on 10/16/2009 12:44:32 PM PDT by steve8714 (There's a straight line from John Wilkes Booth through Paul Robeson to Sean Penn.)
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To: blam; FromLori


5 posted on 10/16/2009 12:51:25 PM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Attention Surplus Disorder
All planned. Insofar as a thing is like this is avoidable, it was planned.
6 posted on 10/16/2009 12:55:09 PM PDT by SMARTY ("Stay together, pay the soldiers and forget everything else" Lucius Septimus Severus)
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To: a fool in paradise
Barney Frank should have been ANSWERING questions rather than ASKING them.

Nah. You could never hope to get a "straight" (objective and factual)
answer out of Barney Frank.

If we lived in a just world, Rep. Frank would have been sentenced to 15-40 years of his own "personal cup of tea" behind bars.
I.e., more than he could have ever dreamed he'd want to get
during his time on this side of eternity.
Enough of that abuse and even he might be "scared straight"!!!
7 posted on 10/16/2009 1:04:57 PM PDT by VOA
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To: steve8714

Greenspan is the only man in history who can talk about his total failures in this ethereal third person, as if what actually happened never really happened, and could only happen on a theoretical basis that only he can understand, if and only if the odd conditions he saw and did nothing about came to pass.

Meanwhile, the whole world sees with perfect clarity that what Gspan said came true, exactly how he said it would, yet having utterly failed at even making the slightest attempt to control the out of control bubble blowing machine, now and always regards him as some kind of financial superhero.

It is singularly odd.

8 posted on 10/16/2009 1:16:27 PM PDT by Attention Surplus Disorder (It's better to give a Ford to the Kidney Foundation than a kidney to the Ford Foundation.)
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Comment #9 Removed by Moderator

To: alloysteel
I agree this Obama group is certainly proving to be the worst in my lifetime, but, the problems outlined in this article go back many years. Meaningful regulation and strict enforcement of laws in the financial arena was abandoned as far back as the 1980’s. Great fortunes have been made but it now looks like the bills are coming due and I doubt that the people who profited will be the ones to pay.
10 posted on 10/16/2009 2:26:27 PM PDT by etcb
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To: TopQuark
Here, you seem to be interested in Wall Street stuff.

I didn't even read the article and I'm pinging you.


11 posted on 10/17/2009 12:18:09 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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