Foreclosuregate is the big one

At least, the biggest fraud exposed to date. And I have no doubt there will be more. Notice that as I concluded in yesterday’s column, it is the states, not the Feds, who are leading the charge on this:

The Texas Attorney General’s office called for a halt on all foreclosures today amid widespread scrutiny over the way foreclosures are processed nationwide. Notices to suspend foreclosures were sent to 27 loan servicers doing business in Texas, including Bank of America and JPMorgan Chase & Co

Here’s hoping that they follow up with the appropriate prosecutions. Not only of the bankers, but their regulatory enablers such as Ben Bernanke and Tim Geithner as well.

UPDATE: In which we are given a lesson in how the defenders of the banks are going to play this one:

“Judge Jack S. Cox of the 15th Judicial Circuit ruled that Attorney General Bill McCollum lacked standing to file his subpoena against Shapiro & Fishman law firm of Boca Raton, effectively blocking an investigation of that firm’s foreclosure practices.”

Notice what was ruled here – a Judge ruled that consumer protection laws do not apply if the person defrauding you is an attorney.

The Law of Rule is at work again. It’s become increasingly apparent how the courts are utilizing that “no standing” concept in order to throw out damaging lawsuits that threaten the favored classes. No doubt some court will discover that the laws don’t apply if the corporation defrauding you is a bank.


WND column

An Ugly Autumn

For more than two years, I have been tracking the fraud being committed on an ongoing basis by America’s largest banks. As I described in a June column titled “The bank-failure recovery,” all of America’s largest banks have been inaccurately reporting the value of their assets. Based on the information revealed by the FDIC regarding the 129 bank failures this year, it is safe to conclude that around 45 percent of the value of the financial assets reported by the banks are, in fact, completely worthless.

UPDATE: Karl Denninger has a lot more details on the burgeoning banking scandal I described in today’s column:

REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The “Trustee” can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.

57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the “Trust” and legally collect money from investors, who bought into the REMIC, the “Trustee” or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.

58. Most importantly for this action, the “Trustee”/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS “closed.” Every mortgage in the MBS should have been publicly recorded in the Kentucky County where the property was located with a mortgage in the name similar to “2006 ABC REMIC Trust on behalf of the beneficiaries of the 2006 ABC REMIC Trust.” The mortgages in the referenced example would all have had to been publicly recorded in the year 2006.

59. As previously pointed out, the ¡°Trusts¡± were never set up or registered as Trusts. The Promissory Notes were never obtained and the mortgages never obtained or recorded.

60. The “Trust” engaged in a plethora of “prohibited activities” and sold the investors certificates and Bonds with phantom mortgage backed assets. There are now nationwide, numerous Class actions filed by the beneficiaries (the owners/investors) of the “Trusts” against the entities who sold the investments as REMICS based on a bogus prospectus.

61. In the above scenario, even if the attorney for the servicer who is foreclosing on behalf of the Trustee (who is in turn acting for the securitized trust) produces a copy of a note, or even an alleged original, the mortgage loan was not conveyed into the trust under the requirements of the prospectus for the trust or the REMIC requirements of the IRS.

62. As applied to the Class Members in this action, the end result would be that the required MBS asset, or any part thereof (mortgage note or security interest), would not have been legally transferred to the trust to allow the trust to ever even be considered a “holder” of a mortgage loan. Neither the “Trust” or the Servicer would ever be entitled to bring a foreclosure or declaratory action. The Trust will never have standing or be a real party in interest. They will never be the proper party to appear before the Court.

63. The transfer of mortgage loans into the trust after the “cut off date” (in the example 2006), destroys the trust’s REMIC tax exempt status, and these “Trusts” (and potentially the financial entities who created them) would owe millions of dollars to the IRS and the Kentucky Revenue Cabinet as the income would be taxed at of one hundred percent (100%).

This is really big and is likely to dwarf the Lehman Bros. collapse in terms of its consequent effects. While the federal government’s response is almost surely going to be an attempt to forgive all of the tax income owed and wave off all of the criminal violations, the desperate states whose laws were violated aren’t going to be easily persuaded to go along with the whitewashing and give up all of that legitimate tax income.


The madness of the monetarists

Citi’s chief economist takes the concept of financial insanity to new heights:

To restore monetary policy effectiveness in a low interest rate environment when confronted with deflationary or contractionary shocks, it is necessary to get rid of the zlb completely. This can be done in three ways: abolishing currency, taxing currency and ending the fixed exchange rate between currency and bank reserves with the Fed. All three are unorthodox. The third is unorthodox and innovative. All three are conceptually simple. The first and third are administratively easy to implement.

The first method does away with currency completely. This has the additional benefit of inconveniencing the main users of currency—operators in the grey, black and outright criminal economies. Adequate substitutes for the legitimate uses of currency, on which positive or negative interest could be paid, are available.

The second approach, proposed by Gesell, is to tax currency by making it subject to an expiration date. Currency would have to be “stamped” periodically by the Fed to keep it current. When done so, interest (positive or negative) is received or paid.

The third method ends the fixed exchange rate (set at one) between dollar deposits with the Fed (reserves) and dollar bills. There could be a currency reform first. All existing dollar bills and coin would be converted by a certain date and at a fixed exchange rate into a new currency called, say, the rallod. Reserves at the Fed would continue to be denominated in dollars. As long as the Federal Funds target rate is positive or zero, the Fed would maintain the fixed exchange rate between the dollar and the rallod.

This helps explain why gold prices have remained so strong despite declining debt and the deflationary environment. The one scenario that makes sense for the price of gold to continue to rise despite deflation (an increase in the value of money due to a decrease in the available supply of it) is if the “store of value” aspect of that money is increasingly under threat. Gold prices rising during deflation indicates that the increasing value of gold as denominated in non-gold goods and services is rising faster than the increasing value of money is rising against them, which is basically what we have been observing for the last two years.

All three of these Citi-endorsed suggestions go significantly beyond the Helicopter Ben’s conventional Keynesian lunacy. It wouldn’t only destroy the global economy, but as Mike Shedlock points out, it wouldn’t even accomplish the increase in credit that the banks are attempting to create in the first place. Implementing any of these three measures, but especially the first, would be rather like burning down the house to collect on fire insurance when you haven’t bothered with the minor step of taking out an insurance policy on the place first.

So this proposal to abolish currency should eliminate any last vestiges of doubt that the banks are a) insane with greed, b) incompetent, and c) totally uninterested in the well-being of the rest of the country. It seems increasingly obvious that abolishing the banking industry would be a much better idea.


Another banking bailout

In AFGHANISTAN?

As depositors thronged branches of Afghanistan’s biggest bank, Mahmoud Karzai, the brother of the Afghan president and a major shareholder in beleaguered Kabul Bank called on Thursday for intervention by the United States to head off a financial meltdown.

“America should do something,” said Karzai in a telephone interview, suggesting that the U.S. Treasury Department guarantee the funds of Kabul Bank’s clients, who number about a million and have more than a billion dollars on deposits with the bank.

Kabul Bank handles salary payments for soldiers, police and teachers. It has scores of branches across Afghanistan and holds the accounts of key Afghan government agencies. The collapse of the bank would likely spread panic throughout the country’s fledgling financial sector and wipe out nine years of effort by the United States to establish a sound Afghan banking system, seen as essential to the establishment of a functioning economy.

Good luck selling that one to the American people. Even the most rabid neocons won’t want to touch it. It’s insanity squared.


Not exactly confidence-inspiring

The purported defection of China’s chief central banker would not appear to bode well for the so-called recovery:

Rumors have circulated in China that People’s Bank of China Gov. Zhou Xiaochuan has left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBOC, including Zhou.

I doubt it’s going to help the animal spirits much either if he quietly turns up dead. Of course, if he did defect to Panama or some other offshore center, one has to wonder if Ben Bernanke is giving some thought to joining him soon.

UPDATE – STRATFOR says Zhou hasn’t defected after all:

People’s Bank of China governor Zhou Xiaochuan has not defected from China to the United States, authoritative sources have informed STRATFOR. The Washington Post has also spoken with unnamed officials who said there was no indication that Zhou had defected, that he was not in U.S. custody and that the rumors on Chinese internet discussion forums should be ignored.


By the banks, for the banks

Is anyone genuinely surprised that the White House’s foreclosure plan is designed to help the banks, and not the homeowners as advertised?

Banks will get the biggest benefit from an Obama administration housing program designed to help unemployed homeowners escape foreclosure. Housing experts expressed concern that banks, not homeowners, will be helped by the White House’s $3 billion funding infusion — $2 billion from the Treasury Department and another $1 billion from the Housing and Urban Development Department — going to those states hit hardest by the housing market crash and unemployment.

This is exactly the same trickle-down assistance approach that was previously taken by Ben Bernanke and the Federal Reserve and failed miserably. The fact of the matter is that the only reason foreclosures are a concern to the admininstration and the central bank is because they threaten to expose the insolvency of the banks. As is quite clearly the case, they are indifferent to the fate of the homeowning peasantry, otherwise they would have simply used that trillion in bailout cash to pay off problem mortgages.


The inflation test

Inflationistas have long insisted that the Fed can “print” all the money it wants. Deflationistas argue that it can’t. And now, we are beginning the process of finding out who is correct:

Fed Looks to Spur Growth by Buying Government Debt. Federal Reserve officials decided to reinvest principal payments on mortgage holdings into long-term Treasury securities, making their first attempt to bolster growth since March 2009 to keep the slowing U.S. economy from relapsing into recession.

The conventional inflationist argument is that the government can print as much paper as it wants. The problem with that is that in the US system, the government doesn’t print any paper, the Fed prints it and the government borrows from the Fed. So, the revised inflationist argument is that the purchase of Federal government debt is effectively the same thing as simply printing paper. I am dubious of this, as I am confident that the addition of these two intermediary steps with all the various complications they likely entail will derail the assumed equivalence. And then, of course, there is the question of whether the government can create debt as fast as it can print money even with the Fed promising that it will buy some of that debt. It is, after all, a mistake to assume that because the Fed has shown a willingness to buy a small portion of the newly-issued Federal debt, it will be willing to buy all of the newly-issued debt for an indefinite period of time. Which, you will note, is necessary if the equivalence is to hold.

I, for one, have seen absolutely no sign that the Federal Reserve is willing to put the interests of the national economy ahead of the health of its member banks, let alone itself. Have you? And remember, the $8 trillion in the M2 money supply is dwarfed by the $53 trillion in outstanding debt. The theoretical “printing” of the former will have to make up for the decline of the latter. Do the math.


Blowing more futility

For once, I agree with Megan McArdle:

If you want to know why us libertarian types are skeptical of the government’s ability to prevent housing market bubbles, well, I give you Exhibit 9,824: the government’s new $1000 down housing program. No, really. The government has apparently decided, in its infinite wisdom, that what the American economy really needs is more homebuyers with no equity.

While McArdle wouldn’t know what a real libertarian was if Murray Rothbard’s zombie bit her on her bony ass – she actually voted for Soebarkah – she is correct to point out the madness of this homebuying incentive program. It does not help the economy to encourage more poor people to buy homes they cannot afford to buy and take out mortgages on which they will almost surely default.

Glenn Reynold’s succinct summary is more astute: “These people are idiots. Idiots who’ve been entrusted with nuclear weapons, and their economic equivalents.” Of course, this insane program might not exist if “libertarians” like Megan McArdle hadn’t voted the people who created it into office.


When rape is inevitable

For a society that is supposedly free, open, and democratic, it is interesting to note that what little public oversight of the powerful financial institutions that exists is being rapidly eliminated:

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from “surveillance, risk assessments, or other regulatory and oversight activities.” Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

Why, it’s almost as if the executive and legislative branches of government believe that they have, or will have, something very important to hide from the public. The interesting question is if this new law was inspired by something that has happened already or something that is going to happen. On a tangential note, those who believe more regulation is going to solve anything would do well to keep the implications of this law in mind.


Where the money went

Even with permission from the relevant regulator, fraud is still fraud. This is why no government bailout should EVER be permitted:

Goldman Sachs sent $4.3 billion in federal tax money to 32 entities, including many overseas banks, hedge funds and pensions, according to information made public Friday night. Goldman Sachs disclosed the list of companies to the Senate Finance Committee after a threat of subpoena from Sen. Chuck Grassley, R-Ia.

Imagine that. Goldman should be closed down immediately and its executives investigated, and if necessary, prosecuted for fraud, theft, and any other crimes that apply here.