Tag: banks

The Home of the Banks

It will be interesting to see how the White House and the Congress intervene to keep their masters in business and out of prison:

“The Massachusetts Supreme Court just dealt a negative ruling to the banks in the closely-followed Ibanez case, which challenged securitization standards. It’s pretty straightforward: The banks didn’t have the proper parwork to foreclose, says the court. Hence, no legitimate foreclosure.”

Oh oh. That’s exactly what I argued at the time.

If the details look like what this appears to be, the banks are totally ****ed on their securitized paper. This decision is from the State Supreme Court and thus is final within the State, and makes it likely that MBS holders will now sue en-masse for the sale of fraudulently-constituted securities (that is, there are no mortgages in the MBS they were sold!)

It’s perfectly clear that the mortgage banks and sellers of “mortgage-backed” securities that were not, in fact, backed by actual mortgages have committed the second-biggest financial fraud in American history. The amount of money that they have stolen from investors and the IRS absolutely dwarfs the amounts that are enough to imprison smaller fish for more than a decade.

Needless to say, it is highly unlikely that a single banker will ever do any prison time despite the fact that they are absolutely and provably guilty of massive criminal fraud and tax evasion because the USA is now an aristocracy with democratic trappings. The financial elite are, quite literally, above the law. If you steal $100 from a convenience store, there is no question that you will be punished much more severely than a banker who steals billions of dollars.

It is hard to escape the observation that America has become the Land of the Frauds and the Home of the Banks. But in the meantime, Zerohedge has more details on the Massachusetts bank-slapping.

“Plaintiffs’ claims that the Land Court’s ruling will cause widespread confusion or significant cost to innocent parties are greatly exaggerated, and such reasoning does not warrant ignoring the plain requirements of the law designed to protect Massachusetts consumers. Indeed, it is the foreclosing entities themselves who will bear the greatest cost of clearing titled from their invalid foreclosures. Having profited greatly from practices regarding the assignment and securitization of mortgages not grounded in the law, it is reasonable for them to bear the cost of failing to ensure that such practices conformed to Massachusetts law.”

Cue the Commerce Clause….

There is no law in America anymore

Karl Denninger notes what is fast becoming apparent to everyone:

“The 50 state attorneys general probing U.S. foreclosure practices will first settle with the five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., Iowa Attorney General Tom Miller said.”

Oh, so 150,000+ bogus affidavits – each an alleged count of perjury (and perhaps forgery) will lead to a felony criminal charge, right?

“The group isn’t pursuing a criminal investigation, Miller said. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” he said.”

I see. So the standard is that if you’re a bank, you can break the law…. This is sorta like how it wasn’t criminal to launder drug money – if you’re a bank, or wire money to a prohibited nation (for alleged terrorist uses) – if you’re a bank, or to be involved in a massive bribery and other associated events scheme over a sewer system – if you’re a bank, or to rig bids in the municipal debt markets – again, if you’re a bank.

Well, it seems to me that if this is the standard for a bank, then the people are well within their rights to decide that the precise same standard shall apply to conduct directed at a bank.

So Crowley was right and do what thou wilt is now the whole of the law. And you wonder why I am so convinced that America is on the verge of collapse. The present US combines the worst of the aristocratic system with the worst of the democratic one. All that it really lacks is the worst of monarchical system. I have little doubt that will come along soon enough. It didn’t take long for the American financial aristocrats to exempt themselves from the law, after all.

The high water mark

The bank industry claims the worst is over:

As the financial crisis of recent years recedes, the FDIC has been predicting that 2010 will be the high-water mark for bank implosions. “Going forward, the FDIC looks to see fewer failures,” agency spokesman Greg Hernandez said.

Some industry observers agreed. “I think we’re over the hump of the problem but far from the end,” banking consultant Bert Ely said. Gary B. Townsend, president of Hill-Townsend Capital, said the industry is not just out of the woods, “we are far beyond the woods.”

By one measure, the trouble is already abating. On average, the banks that failed this year were much smaller than those that failed last year. The banks that failed this year had assets totaling $92.1 billion, a decrease of 45.7 percent from the $169.7 billion in assets of the banks that failed in 2009.

It’s true that the average assets and deposits held by FDIC-seized banks were much smaller in 2010 (157 banks, $587 million assets, $500 million deposits) than either 2009 (140, $1.2 billion, $995 million) or 2008 (25, $14.9 billion, $9.4 billion). Average assets also declined in a similar manner. However, the number of unofficial problem banks has grown from 545 banks at the end of 2009 to 919 now. That represents about 12 percent of all the banks in the country and does not include the four giant banks that are facing enormous putback penalties thanks to the fraudulent unbacked-securities they sold during the housing bubble.

In other words, color me very skeptical.

The WSJ discovers a banking problem

It’s only three years into the crisis. They’re clearly on the cutting edge of business journalism with their groundbreaking news of a growing number of failing banks. At this rate, they’ll discover the Great Depression 2.0 towards the end of 2013:

Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing. The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program….

Seven TARP recipients have already failed, resulting in more than $2.7 billion in lost TARP funds. Most of the troubled TARP recipients are small, plagued by wayward lending programs from which they might not recover. The median size of the 98 banks was $439 million in assets as of Sept. 30.

This little table shows the real problem at hand. It’s from the spreadsheet of bank failures that I’ve maintained for the last two years and shows the number of failed banks along with the number of problem banks with a high risk of failure published by Calculated Risk. These “problem banks” are an unofficial tally, but the list tends to precede the official FDIC list of problem banks with a fair degree of accuracy.

2007: 76 problem banks, 0 failed banks
2008: 252 problem banks, 25 failed banks (33%)
2009: 545 problem banks, 140 failed banks (56%)
2010: 919 problem banks, 157 failed banks (29%)

This is why I expected more than 200 failed banks in 2010. I didn’t expect a seizure rate of 56%, but I did assume it would be over 40% given the continuously rising number of problem banks. However, the percentage of problem banks that were seized by the FDIC fell from 56% to only 29% this year. However, the number of problem banks continued to rise, so even if the percentage of problem banks seized by the FDIC remains around 30% in 2011, that would indicate 276 bank failures in 2011. And at the 2010 average of 262 million in bad assets per bank failure, there would be $72.3 billion in bad bank assets going up in smoke and $130 billion+ in deposits, nearly 2% of total deposits, put in jeopardy.

In other words, don’t trust the recovery crowd. Temporarily papering over a problem is not the same thing as fixing it.

Sharpening the red pencil

Ron Paul isn’t backing down:

Audit the Fed in 2011

Since the announcement last week that I will chair the congressional subcommittee that oversees the Federal Reserve, the media response has been overwhelming. The groundswell of opposition to Fed actions among ordinary citizens is reflected not only in the rhetoric coming out of Capitol Hill, but also in the tremendous interest shown by the financial press. The demand for transparency is growing, whether the political and financial establishment likes it or not. The Fed is losing its vaunted status as an institution that somehow is above politics and public scrutiny. Fed transparency will be the cornerstone of my efforts as subcommittee chairman.

Ron Paul is correct. What Congress can make, Congress can unmake. And since the Federal Reserve has destroyed more than 95% of the purchase value of the dollar despite its mandate to maintain price stability, it cannot reasonably hide its books behind its self-serving, self-declared need for independence any longer.

Negative equity

One in four mortgages shouldn’t be confused with one in four houses, but it’s still an awful lot of homes underwater:

CoreLogic reports that 10.8 million, or 22.5 percent, of all residential properties with mortgages were in negative equity at the end of the third quarter of 2010, down from 11.0 million and 23 percent in the second quarter. This is due primarily to foreclosures of severely negative equity properties rather than an increase in home values.

During this year the number of borrowers in negative equity has declined by over 500,000 borrowers. An additional 2.4 million borrowers had less than five percent equity in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.5 percent of all residential properties with a mortgage nationwide.

This isn’t over. This isn’t even CLOSE to being over, no matter what the market enthusiasts would have you believe. They’re like starving sharks desperately shouting about how warm and wonderful the water is, hoping you’ll ignoring the billowing clouds of blood underneath them.

Monday column

Audit Bernanke

Not all of the news out of Washington, D.C., is bad. Despite the Republican flirtation with earmarks, the tax deal that increases the federal deficit and the speedy betrayal of the tea party by new South Dakota Sen. Kristi Noem (she’s already endorsed ethanol subsidies), the indefatigable Ron Paul, sound money champion and author of “End the Fed,” has been named chairman of the House subcommittee for monetary policy.

Note to Paul: I am your biggest fan at WorldNetDaily, but put up or shut up time has now officially arrived. There is no time for meandering lectures on the theoretical advantages of a gold standard or esoteric soliloquies regarding the correct definition of money. The American people just want the facts about their money and where it has gone. They need the facts. And then they need action.

Central bank or teenage girl?

In which Jon Stewart attempts to figure out if Ben Bernanke is printing money or not:

A Congress of Suckers

In which Washington D.C. is shocked, shocked, to learn that greater part of the money that was so desperately needed to save the American banks that were deemed too big to fail actually went to their European counterparts:

Foreign banks were among the biggest beneficiaries of the $3,300bn in emergency credit provided by the Federal Reserve during the crisis, according to new data on the extraordinary efforts of the US authorities to save the global financial system.

The revelation of the scale of overseas lenders’ borrowing underlines the global nature of the turmoil and the crucial role of the Fed as the lender of last resort for the world’s banking sector. However, news that banks such as Barclays of the UK, Switzerland’s UBS and Dexia of Belgium borrowed billions of dollars at favourable terms from US authorities may further anger critics already enraged about the Fed’s rescue of Wall Street….

Barclays was the biggest cumulative borrower from TAF. The UK bank, which bought the US operations of Lehman Brothers out of bankruptcy in September 2008, borrowed a cumulative $232bn from the TAF through various subsidiaries.

It’s interesting to see that nearly four times more money went to the biggest European bank than to the biggest American bank. But as we’ve seen everywhere from Ireland and Iceland to the USA, this is always how the process of structural corruption plays out in a modern “representative democracy”. The legislature forces through a pig-in-a-poke by any means necessary, threatening everything from widespread cannibalism to tanks in the streets if the legislators don’t ignore the protests of the people and obediently “address the crisis”. Then, a few years after the fact, it is learned that the actual purpose of the law was entirely different than the one that was provided in order to push it through the legislature.

I don’t have much sympathy for the people, however. Because it doesn’t matter how many times this happens, they will fall for it just as readily the moment that another crisis is announced and another solution to avert it is presented.

Dissecting a defense of QE2

The Federal Reserve policy, that is, not the boat:

David Beckworth has offered a thoughtful, but I believe ultimately flawed, “conservative case” for the Federal Reserve’s latest round of quantitative easing. While I wholeheartedly share Professor Beckworth’s desire to see the economy improve, and share his concerns that if it does not we may end up with expanded government spending, it is hard to see QE2 as providing the environment of certainty the private sector needs in order to expand.

Professor Beckworth should be commended for clearly spelling out his assumptions. Public debate would be far more fruitful if others did the same. Let’s start with his core assumption: Because the monetary base has been expanding and there’s been little inflation and little increase in consumption, households must be hoarding money. The logic in this case is sound; I disagree with the facts.

First, the good professor argues that spending is far below trend. That is true enough as it goes, but this trend includes a massive housing bubble, where imaginary wealth fueled spending, aided by massive borrowing from abroad. The objective of our economic policies should not be to get back to the top of the previous bubble. It was this desire to replace the lost wealth of the dot-com crash that contributed to the Fed’s juicing of the housing market. All that said, consumption today is higher than at any time during the recent bubble. The primary problem facing our economy is not a lack of demand.

Like Ben Bernanke, Beckworth believes we have had no inflation. Again like the Fed, he arrives at this conclusion by subtracting out of the inflation numbers all the things that real people spend their money on, such as food and energy.

Articles like this and Beckworth’s underline the importance of definitions. The money supply has been going up considerably. The CPI has been increasing, but not rapidly. Therefore, there is no inflation! (Notice that in practice, they never take production into account for the obvious reason that it is impossible to measure in any way that would be meaningful.) If we are to believe these expert economists, it doesn’t matter what is happening to actual prices or outstanding debt levels, not so long as we squint very carefully at only those metrics that we believe to define the situation.

And this is why I pay attention to indicators beyond those that I personally believe to be significant, because unlike the Keynesians, I am more interested in knowing what is actually taking place than I am in manipulating the publicbolstering animal spirits. If I am incorrect and we are headed for hyperinflation rather than debt-deflation, I would certainly like to know as soon as possible. The speed and complexity of economic events means that every economist is going to be proven wrong on a regular basis. Therefore, it behooves anyone with an interest in economics to refuse to be unduly wedded to any specific understanding or definition. This does should not be confused with some sort of conceptual relativism, it is merely a recognition of the inability of even the best economic models to reflect observable reality.

In any event, Calabria is correct. There is no rational defense of quantitative easing, regardless of the way in which one chooses to define inflation. QE2 is not an economic policy, it is the bank rape of the global economy. And by the way, there is an easier way to blow apart Beckworth’s case than Calabria does.

“Because the monetary base has been increasing so rapidly and there has been very little inflation, it must be the case that demand for the money must be increasing even more.”

Very well. Where is that “significant portion of the money supply” upon which the dread hoarders are supposedly sitting? Have bank deposits increased significantly? Beckworth also makes a classic Keynesian blunder in saying: “It fails to recognize that for every debtor there must be a creditor.” (Keynesians absolutely love this macro equivalence nonsense.) Of course, what happens when the debtor defaults….

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