Will State AGs in Shining Armor Slay the Bank Dragons?

Joe Nocera has a very hopeful piece at the New York Times on the potential scope and impact of the investigation by all 50 state attorneys general into the robo signing scandal. Nocera stresses that the leader of this effort, Tom Miller of Iowa, and a core group of assistant AGs with long standing working relationships, are using the probe into what banks would have you believe are mere paperwork problems to delve into more serious abuses, with an eye to forcing the servicers to make serious loan modifications:

And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.

Rather, they hope to use their investigation as a cudgel to force the big banks and servicers to do something they’ve long resisted: institute widespread, systematic loan modifications. “Instead of paying a huge fine,” Mr. Miller posited to me the other day, on his way to an election rally, “maybe have the servicers adequately fund a serious modification process.” Getting the banks and servicers to take loan modification seriously is another in a series of areas where the Obama Treasury Department has failed miserably.

Nocera recounts how some of the AGs were early onto abuses by subprime bank lenders, and mounted successful efforts against First Alliance (in 2002!), Household Financial, and Ameriquest.

But the story also describes how the state prosecutors were blocked from going after bigger banks:

During the bubble, it was the state attorneys general who first saw the problems in subprime lending. But whenever they tried to do something to halt the predatory lending and outright fraud, they were stopped cold by the federal bank regulators, who consistently sided with the banks in court. It is not too much to say that if the states had succeeded, the subprime crisis might never have occurred…..

On the contrary, the O.C.C. and the Office of Thrift Supervision, the two primary federal regulators of the banking industry, viewed their role, incredibly, as protecting banks from consumers rather than the other way around.

They consistently went to court to block efforts by states to put a stop to predatory lending. Their primary weapon was the doctrine of pre-emption, which said, in effect, that because the national banks were governed by federal rules, they were immune from state consumer protection laws. The success of both agencies in asserting pre-emption — which they also used as a marketing tool to make their charters more attractive to potential bank “clients” — actually forced some states to roll back their antipredatory lending laws.

Nocera also believes the passage of Dodd-Frank and the difference in national sentiment mean the AGs will have a clear field in which to operate:

One advantage they have this time is that foreclosure is a state matter, not a federal one. The O.C.C. couldn’t intervene even if it wanted to.

Of course they have another advantage this time around: times have changed. No federal regulator would have the nerve, post-financial crisis, to try to block the states from investigating the mortgage foreclosure scandal.

The law has changed too. As a result of the Dodd-Frank law, it will be much harder for a federal regulator to use pre-emption to shut down a state investigation into a financial institution. Under the new law, states can enforce their own state consumer laws against nationally chartered banks — even when those laws are stronger than any parallel federal law. And state attorneys general have been given the explicit right under the new law to enforce the rules and regulations that will soon emerge from the new Consumer Financial Protection Bureau.

Yves here. As much as I would like to believe this optimistic scenario, do not underestimate the banking industry’s ability to regain the upper hand, and from the public’s perspective, snatch defeat from the jaws of victory. While a bold move by the Ohio attorney general to stymie bank efforts to continue with business as usual in the wake of the robo signing scandal is a good early salvo, this battle has only recently been joined. Because the banks don’t yet appear to realize how much jeopardy they are in, they have not yet geared up for a serious fight.

One factor very much in the AGs favor is the degree of denial operative in the financial services industry and Washington. We’ve (and by this I mean me plus the mortgage and legal experts I confer with) have been gobsmacked by the lame defenses offered by securitization industry professionals, and more important, major law firms. They appear not to understand the nature of their clients’ transgressions; there remarks, when you parse them, amount to “The procedures were proper, what are you folks, idiots?”

But the issue, as we have described in gruesome detail, is the procedures set forth in the securitization documents were not followed, and it appears the lapses were significant and widespread. Now we’ve been told by some experts in close contact with investors that these white shoe law firms are so removed from what is happening in local courts, and have not been consulted by clients who really haven’t turned over the rocks in their own organization, that they are badly behind facts on the ground. While that may be true, there is a more cynical explanation: that investors relied on big firm opinions, which were crafted very narrowly (the form was “if everyone does what they committed to do, everything is swell). These attorneys are bound to come under the spotlight, and their emphasis on the soundness of the procedures, as opposed to what actually took place, is very consistent their likely “see no evil” defense.

The longer that bankers, their lawyers, and their lapdog regulators keep saying “nothing to see here”, the harder it will be for them to reverse gear and demand that Congress or Federal regulators intervene on their behalf. But don’t kid yourself that discussion of that possibility is not underway. I happened to chat with a staffer to a not-terribly-bank-friendly Senator about the foreclosure mess. He matter of factly said he though concerns were overblown (this was about a month ago, before additional shoes had dropped) but then volunteered that if anything serious were amiss, Congress would intercede, relying on pre-emption. Now does Congress have the nerve to trample on state law and run the risk of a Constitutional challenge? I suppose it depends on how high the stakes are perceived to be.

Similarly, we’ve had this worrying trail balloon:

The chairperson of the Federal Deposit Insurance Corporation recently suggested a solution to the on-going mortgage and foreclosures scandal. FDIC Chair Sheila Bair proposed that the banks involved would be granted “legal protection from lawsuits” in exchange for granting struggling homeowners a minimum of 25 percent reduction in monthly mortgage payments.

First, the idea of a broad based exemption from liability is heinous and undermines the operation of a capitalist society. What good are contracts if you can mess up on a grand enough scale so as to receive a Federal waiver? Second, mere payment reductions are inadequate, and serve to protect servicers, whose fees are based on unpaid principal balances. Most investors favor principal mods to viable borrowers because their losses are lower than what they experience through the costs of foreclosure and the process of selling the home (there would need to be disciplined processes for verifying income and putting together household budget information; NACA has a process that could be adapted to this purpose). And remember, many borrowers losing their homes now were not profligate borrowers, but normal credit losses, as in individuals suffering from job losses or cutbacks in hours worked, as well as those on the wrong end of servicing errors.

So I’d be delighted to be wrong and see Nocera’s scenario pan out, but state attorneys general have been hemmed in before. If the foreclosure mess turns out to be as serious as we believe, the banks will push Congress and its friendly regulators hard to call off those nasty state AGs. This saga has a long way to run before anyone can start forecasting outcomes.

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  1. attempter

    the two primary federal regulators of the banking industry, viewed their role, incredibly, as protecting banks from consumers rather than the other way around.

    Reminds me of the guy I was arguing with in the other thread.

    I forecast that they’ll have the intent to retroactively “legalize” all this and will pass some legislation, but this won’t fix their little problem.

    (So are the Bair fans still going to keep defending her? Her plan here is worthy of Summers or Geithner.)

    As much as the banksters would like to have Congress unconstitutionally declare that MBS trusts are legal and tax-exempt no matter when or if the note is ever conveyed, and for the corrupt courts to uphold that “law”, they themselves still can’t keep going amid such chaos. How can any of them ever deal with one another again? For as long as the zombie system still finds strength to stagger along, all anyone’s ever going to do is cheat everyone else and then rush to get the con retroactively legalized and a kangaroo court to support the conman. How could anyone ever “invest” under those conditions?

    It seems to me that autocratic Congressional action or not, the completely brazen overthrow of even the simulacrum of the rule of law or not, the end is in sight here. The banksters are running up against the inherent limits of their own psychopathic greed and mania for fraud. It’s just like the way two ornery homicidal maniacs who are heavily armed won’t be able to cooperate forever.

    And all that’s not even taking into account the decent chance that the people, so meek and passive so far, will finally be roused to resistance as they become aware that as things are, anyone from the FIRE sector who can trump up any kind of fraudulent claim that he has the right to foreclose upon you can try to seize your house, even if you own it free and clear, and have a decent chance of prevailing in court, no matter how absurd his claim. If the government moves to “legally” validate this criminal chaos, that will only reinforce the lesson that this system is nothing but organized crime and must be resisted and rejected.

  2. john c. halasz

    “First, the idea of a broad based exemption from liability is heinous and undermines the operation of a capitalist society. What good are contracts if you can mess up on a grand enough scale so as to receive a Federal waiver?”

    Yves, the fact of the matter is that mortgage reductions are needed, (and would go a long way toward facilitating recovery, in the way that monetary policy stimulus is supposed to, but effectively can’t, do), and working that through each particular case at a time, observing all the niceties of each contract utterly stymies that prospect. Some sort of broader, mass procedure is necessary, which would over-ride willy-nilly the stipulations of particular contracts. And if “capitalist society” throws up a gaggle of mutually contradictory, effectively unworkable contracts, then too bad for it and its “principles”. (The fact of the matter is that such over-riding, aggregating procedures have frequently been implemented in resolving IMF “structural adjustment” programs before, all in the name of “capitalist society” and its “imperatives”.) A functionally efficacious rather than a “morally sound” resolution is what’s desirable, the alleged “sanctity” of “capitalist society” and its system of contracts, (which has in fact generated such massive externalities through corrupt and exploitative behavior by its principals), be damned.

    That said, of course, I mean that the over-riding process should be centered on principal reductions, own-to-rent, and letting house prices return to lower sustainable levels, while sticking the losses to the banks, come what may, even if it forces them into public receivership and public recapitalization. But the issue shouldn’t be hung on any phony moralism about the “rule of law”, (which has already been corrupted by “capitalist society”), but rather should focus on the power struggle of establishing the new content of such “rule” going forward.

    1. Richard Kline

      So John, Yves has posted _very_ extensively on loan mods, especially two years ago though I don’t know if you followed all those threads at the time. There isn’t a site on the web that hosted more, better, or more innovative discussion of the desirability and and possibility of doing mods. The problem two years ago, one year ago, now, and for the forseeable future is that it the securitization servicers, the MBS holders, and most especially the Robberbank issuers of these securities just don’t see it in their interest to grant ANY mods. This is not because mods wouldn’t improve the recovery on loans but because a) doing mods reveals the pervasive rottenness of the securities, b) revealing that rottenness drives down the formal valuation of those securities, and hence c) the true markdown on those securities reveals the utter bankruptcy of the Big Banks. The hope was that the government would, for the sake of sanity and the economy, drag the dead bodies from the pond and let nature restore the system. Instead, goverment is involved in the most deranged effort imaginable to paste over the pond with a cement cap and shoddy tarpaulins to hide the foulness. Since the government won’t act, the citizenry’s only recourse is to turn to the courts where, in fact, existing law going back to the 19th century favors them, not the banks, not that you’d know it from the reaction of the media and the government.

      Regarding your remarks on the rule of law, I can only respond that they are exceedingly naive. It’s not that the law is always right, nor that powerful interests don’t routinely flout the law, nor even that powerful interests can’t buy laws or at least judges with some regular success. The rule of law is a buffer against institutional abuse. This isn’t some moral abstraction as you are prepared to put it so dismissively. I invite you to live for any length of time in a land where law doesn’t function. One depends on patronage, i.e. a quasi-feudal alignment. Or ones own networks of graft and force, haveing no other recourse. There’s a lot more to that. I would far rather live in a country without a military than one without an effective court system. The issues with the banks not following legal obligations in this particular instance aren’t the minor matter, _they’re the heart of the matter_. Securitiaztion and the corruptive, explosive, corrosive mania it fed, would not have been possible if even the basic existing laws had been followed: that is why the letter of the law matters here. Criminals ran amok, and not are handing society the bill for their behavior. We can invade their residences with firearms, live in servitude, or take them to court; those are, largely, the options. Taking them to court is much the best. But one has to believe in a nation of laws rather than a nation of deals. Which one would you favor? You see my choice.

      1. Sufferin' Succotash

        Marcus Crassus, the late Roman Republic’s equivalent of a multi-billionaire, once remarked that no one in Rome could be considered rich unless they had enough money to recruit at least one legion. Needless to say, Crassus could recruit as many legions as he wanted.
        If you’re not Crassus, then you’d better rely on the law because that’s the only legion you can afford.

      2. john c. halasz

        No need for the condescending lecture, Richard. I’ve been keeping up on the developing issues for years. (I first called for preparations to nationalize the mega-banks here on 4/05/08. IIRC Yves started to raise the prospect in late May. And Roubini was calling for HOLC-like mass mod procedures in 2007). The only thing new here really is the possibility, as yet unproven in any significant measure, that the I-banks might have been so incredibly stupid,- (it’s not their arrogance that matters here),- as to have failed to properly convey mortgage notes into the securitization trusts, leaving them legally empty. That, at least, opens up the possibility of another crack at the issue, if the banks are forced to buy back securitizations, which would remove the obstacles and conundrums imposed by securitizations. But that, of course, assuming the bond holders were to massively prevail in their law suits, would, in the first instance, be just a transferring of the losses from one wealthy group to another. Hardly a triumphal upholding of the perfect Eden of the Rights of Man.

        As to the generalizations of your second graph, the liberal slogan of the “rule of law, not men” makes sense, as you indicate, as distinguishing the medium of law from personal rule, but it tends toward the illusion that law is an autonomously self-regulating medium. To the contrary, law is always embedded in political power-relations, which it, in fact, serves to make operational, such that a legal system always depends upon a political “supplement”, both in terms of its legitimation and its functionality. Law, after all, requires a coercive enforcement power, which means it is always anchored in some sovereign power, as the organized monopoly on legitimate violence, which it serves to partly constitute and articulate. So, in other words, insofar as it is not a sheerly technical medium, law is mostly a codification of extant relations of property and power, whose relation to anything like “justice” can be quite adventitious. So “the rule of law is a buffer against institutional abuse” could just as well be matched by “the law is the means of institutional abuse”, which is just another way of saying that institutional structures can’t be simply identified with legal forms. And that “securitiaztion and the corruptive, explosive, corrosive mania it fed, would not have been possible if even the basic existing laws had been followed” is entirely wrong: the legal forms promulgated by lawyers, legislators, courts and regulators were all over the machinery of securitization and derivatives that blew the massive bubble. That we are relying on a technical, legal failure as the last recourse against the financial juggernaut could be taken as an index of just how abject our political condition is. And talk of it being all about “corruption” just reiterates the pseudo-moralism of legalistic ideology.

        But the most basic general point here is that there is no system of contracts “perfecting” property rights that would guarantee a fully functional economic order. In fact, it tends to be the over-elaboration of such property “rights” that generates accumulating externalities. But it’s that extolling of the virtues of property that forms a prime piece of the ideology of “capitalistic society”, no? Which is why that political “supplement” comes to the fore, what in the antique idiom was called “class struggle”.

        1. Richard Kline

          Halasz: “the liberal slogan of the “rule of law, not men” makes sense, as you indicate, as distinguishing the medium of law from personal rule, but it tends toward the illusion that law is an autonomously self-regulating medium.” You seem to be arguing with yourself here rather than anything in the post or reality, John. Who’s talking about self-regulating process other than you? The law becomes involved more from public agitation than from technical autopoeisis. I’d certainly agree that the liberal vision is that someone _else_ should get their hands dirty with the politics to make the system work for _them_. If your point is to decry liberal vapidity, it’s odd that you choose to make it by decrying the medium—law—for settlement. Who here (or anywhere) doesn’t think the law can be abused by the state? Pseudo-morality? Why sure, but the alternative is bribes or force, so the ‘honesty trap or unpleasant snares of the law,’ while having little of absolute truth and much of balance of power in it, is a medium to oppose concentrations of power. That is why the letter of the law matters, not the morality but the functionality. And you can talk all you want about nationalizing the banks, John, but it comes down to four ways: the banks hand over title; somebody buys them out; someone else (institutional, popular, or private), seizes them; a law is passed by a constituted structure with jurisdiction. You just tell me which one you think has the best chance, which the best result, and how you would accomplish that end. And supposing that you’re happy to, rather contemptuously, throw out ‘the law’ to achieve your end, it’s worth recalling that those of power have far more money and guns at their disposal than you or I. Where is your counterbalance to that?

          Halasz: “And talk of it being all about “corruption” just reiterates the pseudo-moralism of legalistic ideology . . . But the most basic general point here is that there is no system of contracts “perfecting” property rights that would guarantee a fully functional economic order.” Yes, that’s right: import a Cloud Cuckooland set of definitions into a functional discussion of politics and dispute. Chain of title as an impediment to outright theft by the powerful (which has worked to some degree to that result)? Why talk about that when you can show us all how deluded we are to think the system cares about our property. (Not that I own any. I’m the radical who doesn’t believe in personal property.) The seminar on legal philosophy is across the green, they’re handing out soapboxes now. Even in a world without property, not that we’ll ever have one, abuses of power are still a major, and indeed THE major issue. Legal constraint has as much a place there as others, unless you would prefer to reduce every petty dispute to group conflict. The function of consensual law is as a ‘baffle’ against unchecked power or interest. Why are you so ready to dispense with that buffer for, evidently, ideological reasons of your own? And what would you replace it with? Since we both agree the law is about power rather than ideology, if the power of the law as an operative force is something you’re in the mood to comment on I rather think that is the focus of remark under this post.

          1. john c. halasz

            O.K. Since I’m tired and ready for bed now, I’ll just try to reduce the “theoretical” issues,- (to which I took objection),- to an OT point, rather than a tussle about personal narcissism. Let’s suppose that all the i’s and t’s had been dotted by the banksters and their lawyers from origination through securitization and onto servicing and foreclosure. Would “we” be better off now? In some marginal number of cases, (involving gross and obvious miscarriages of “justice”), yes! But “on the whole”, no! In fact, the banksters’ case would be, all the more, legally, “iron-clad”
            (I’ve asked twice now here, just why the banksters would have failed to adequately closed the trusts, but, other than agreeing with the point, I’ve received no answer).

            So the only “real” issue here,- (aside from your astonishing lack of understanding,- ya!,- of sociological theory about the structural-functional differentiation of both institutional and discursive orders in emergent modern societies),- is just why such an enormous stupidity would have occurred, if it, indeed, did. Answer that , Richard or Yves, and you might gain some further credibility, rather than raising objections based on re-enforcing a fictitious status quo ante!

          2. Skippy


            RE Gideon: “It certainly wasn’t that of hiding in the winepress threshing wheat!”

            Skippy…Are we being fked straight style (vanilla greed) or sideways (pernicious greed) is bad case of “De reductione artium ad theologiam”…LMAO

      3. Transor Z

        Valuation. Rule of law and sanctity of contracts, particularly as it concerns issues of arms-length dealing, like required disclosures and transparency (i.e., the opposite of complexity-as-opacity) provide a measure of certainty in economic affairs. They also provide certainty and a kind of level playing field among competitors regarding the costs of compliance. If larger companies can achieve economies of scale without sacrificing compliance, more power to them. But at least we all have an idea of layers of oversight (personnel costs, privacy- and GAAP-compliant IT systems, etc.)

        Instead, deregulation/regulatory capture yields the complete opposite: products (financial, tangible, services) that are deliberately harder to value through complexity-as-opacity. Cartel behavior in industries foster attitudes of customer-as-mark, conspiracies against the laity. Lost in all of this is any notion of intrinsic value of the product. That idea is a laughable relic of the primitive magical belief that God sees what is hidden.

        Food product flavoring is engineered to play taste buds and the brain; entertainment products addict us like dogs stimulated to perpetually chase cars. Personally, I attribute all of this to rampant nihilism rather than a coherent Grand Plan.

        One thing I don’t like is that the powers represented by Republicans and Democrats seem content to denigrate the political process. Elected representatives are portrayed as slippery, self-parodying clowns whose essential tasks boil down to signing documents prepared by others, correctly saying “Yea” or “Nay” at the appropriate time, and parroting simple talking points emanating from a central source.

        This isn’t actually true; some politicians are true stars and some “government bureaucrats” are bona fide heroes. It should be offensive that Jon Stewart addressed Obama as “dude.” But again, we’ve become unmoored from respecting intrinsic value.

        In the vein of complexity-as-opacity, there are memes that portray the U.S. as so diverse geographically and ethnically as to be “ungovernable.” Government is “so large” that it necessarily dysfunctionally stumbles over itself. Instead of fostering respect for the essential seriousness of government functions, broad-brush clownish caricatures predominate. Mockery becomes acceptable. Of course, mockery is so much easier than working to understand and fix — or fostering the belief that intelligent engagement in the political process can yield productive results. Any jackass can knock down a barn.

        In reality, a big part of the fundamental problem is not complex or anything new: undue influence leading to cynical corruption of process. I am old enough to remember a time when most Americans smoked, consuming an under-regulated product with devastatingly negative intrinsic value.

        Another rotten meme engenders disrespect for fellow citizens and a belief that social problems are intractable. We are to accept as a given that Americans are stupid, lazy, entitled, arrogant and, to the extent that we have any ability to collectively focus at all, we focus our energies on the celebrity gossip industry, crazy religious beliefs, unjust wars, evil credit derivatives, heedlessly burning fossil fuels, universal access to internet porn and World of Warcraft.

        One thing I have learned is that brilliant, learned, accomplished folk are every bit as susceptible to being taken in by memes (f/k/a “The Unexamined Life”) as are hoi polloi. Combatting our own biases is a neverending fight.

        1. Externality

          “In the vein of complexity-as-opacity, there are memes that portray the U.S. as so diverse geographically and ethnically as to be ‘ungovernable.’ Government is ‘so large’ that it necessarily dysfunctionally stumbles over itself.”

          America _is_ too large and complex to have every major issue decided in NYC and DC; this was true when the Constitution was written and it is even more true now. Not only is DC incapable of resolving domestic problems, its attempts to micromanage Americans’ day-to-day behavior has left it incapable of winning wars or resolving other problems that are primarily within the provenance of the federal government (e.g., immigration).

          The globalists and international bankers want to create an American monoculture that is governed and financed by a small elite in NY, DC, and a few Ivy League schools. Whether it is setting a national speed limit, or forcing states have uniform policies in the War on (Alcohol and) Drugs, or preempting state regulation of the financial system, our elites seem convinced that they are the best situated to govern places they have never been to and people whom they have not met (and do not want to meet). When did the people of South Dakota become incapable of setting speed limits? Why are Californians incapable of deciding that state and local funds and employees should not be used to arrest adults for smoking a joint? Why are states like Texas and California, with larger economies that most countries, incapable of prosecuting crooked bankers?

          For nearly nearly thirty years, most successful progressive activism has been done at the state and local level, often overcoming resistance from DC. LGBT rights have progressed despite the federal government’s hostility. Local programs to require employers to cover the cost of their employees’ health care become so successful that Obamacare was passed, in part, to preempt them. Medical marijuana legislation and a deescalation in the War on (Alcohol and) Drugs is occurring at the state level despite federal efforts to force states to prosecute more prescribers and users of prescription drugs and otherwise expand the war.

          The more the federal government tries to impose uniform policies on the states, the more resentment it will incur from the left and right. I recently read an interesting book explaining how, as governments lose their ability to control events abroad, they increasingly focus on micromanaging the actions of their citizens at home, using opposition to justify increasingly forceful crackdowns. __Anti-Drugs Policies of the European Union: Transnational Decision-Making and the Politics of Expertise__ http://www.amazon.com/Anti-Drugs-Policies-European-Union-Decision-Making/dp/0333982134 Governments, in other words, act like parents who, losing authority at work, come home and beat the kids so they still feel in charge. This is, I think, the route the elites are beginning to follow.

          “Another rotten meme engenders disrespect for fellow citizens and a belief that social problems are intractable”

          This is deliberate. The elites and their mouthpieces resort to the same, increasingly tired accusations to quash opposition to and explain the failures of their policies. Just as Soviet elites once vilified opponents as wreckers, kulaks, and imperialist stooges, our elites vilify opponents as racists, populists, and deadbeats. The government has perfected using identity politics to turn Americans against each other. Why accept responsibility for the banking mess, or unemployment, when you can shift the blame to “racist Whites [in poor communities]” or “illegal [Hispanic] immigrants” or some other demographic group that is not part of the NY/DC/Ivy League elite?

    2. attempter

      But the issue shouldn’t be hung on any phony moralism about the “rule of law”, (which has already been corrupted by “capitalist society”), but rather should focus on the power struggle of establishing the new content of such “rule” going forward.

      However fundamentally corrupt you are, there’s nothing “phony” about my morality. It’s precisely what informs my position in the power struggle going forward, not to establish whatever nightmarish “new content” you have in mind, but to redeem the basic values of honesty and fairness all human beings have always valued. By definition law has to be based upon those or else it’s not law at all, but a fig leaf for might makes right, the legitimation of which it sounds like you’re calling for here.

      1. Skippy

        “redeem the basic values of honesty and fairness”

        Too whom…the individual victim[s, the perp[s, the community[s, the state[s, the republic? Personally I would be ok with just having the gun pointed at everyone’s head with the same aim.

        Skippy…shes supposed to be blind for a reason, we just have to put the blind fold back on and leave the emotions to vote whores, and religious seminars.

    3. Richard Smith

      The banks must be held legally liable, however belatedly.

      You can call that prudence rather than morals if you like, but it’s hard to sustain that distinction when you look at the possible consequential effects of deciding not to enforce very well-established laws simply because the banks have already acted pre-emptively, on a large scale, to ignore them. It is a question about who is to be master – the law or the banks. It shouldn’t be the banks. See the comments by messrs Kline and Attempter for an idea of where choosing the banks would take you.

      The low incidence of fraud investigation is another alarming sign of the times that sends the same disastrous message.

      You appear to think think that Yves is against loan mods (perhaps I am misreading you). If I read you right, that is a straw man.

      The point is this: the banks must be held legally liable, *and* they must also be compelled make principal mods. At least it looks as if compulsion is required; nothing else seems to be working, for reasons that are obvious when you consider the power and incentives of the servicers.

      The legal liability may help with the compulsion. *That* is the only way those two issues are coupled together: it’s just a tactic (which Bair, BTW, is attempting to *defuse* with her ridiculous soft offer). Let go of the legal compulsion and you will instantly lose one useful bit of leverage that might help get proper mods made.

      In every other respect, the mods and the liability are entirely distinct issues.

      Letting the banks off legal liability in exchange for meaningless loan mods simply tells them one more time that if they take the right hostages (in this case, underwater home owners, the US housing market, and the domestic economy) they can pretty much get away with anything. TBTF, redux.

      I would certainly class Bair’s disgracefully compromised offer (which inflicts no deterrent legal nor financial pain on the banks, does nothing whatsoever to help homeowners or labour mobility or the US economy, and apparently gives retrospective carte blanche for any misdeeds in the mortgage business, whatever they might be) as ‘letting the banks get away with it’. If she’s putting a stake in the ground, it is in the wrong damn place. She might as well be a spokesperson for the banks on this one.

      1. Richard Smith

        …I meant the earlier comments by Attempter and Richard K. but I see they have weighed in again. Obviously I agree about the stakes.

      2. anon48

        Agree with most of your comments. I would only suggest more precision regarding identifying the real perps. Banks by their very nature (creature of the state), like corporations, have no conscience, self awareness or ability to control their own destiny. They are nothing more than tools, used by those in control at the time, to achieve a specific end.

        Name the people in charge and pursue them!!!

        Would it have made sense pursuing the Madoff firm and not the person who actually controlled the fraud?

    4. DownSouth

      john c. halasz,

      I was trying to think up a metaphor to illustrate the difference between progressivism and fascism, because there seem to be quite a few commenters on this blog that don’t know the difference between the two. I came up with the following.

      Say we have a big, muscular bully who goes around, picks on and beats up on the weaklings.

      Progressivism is when the police, upon being made aware of the bully’s behavior, intervene to regulate and punish the bully.

      Now let’s say the police fail in this regard, and don’t step in to regulate and punish the bullying. And let’s say the weaklings band together to protect themselves against the bully. Together they can overpower the bully.

      Fascism would be if the police intervene on the part of the bully to regulate and punish the weaklings for protecting themselves, or for the mere act of banding together.

      So to sum up, progressivism is where the police intervene to protect the weaklings in society when they are bullied. Fascism is where the police intervene to protect the bullying.

      Now many argue that the mere existence of the police, regardless of whether their power is wielded to protect the weaklings or to protect the bullies, is fascism. Others make a more subtle argument, claiming that, because of man’s sinful nature, and despite good intentions, it is inevitable that at the end of the day the police will end up working for the bullies. Both of these ideological camps assert that the power of the police should therefore be either greatly curtailed or entirely eliminated. But if we look a little bit closer at the people making these arguments, Ronald Reagan and Milton Friedman being perfect examples, what we find is that they only give lip service to a disemboweled police force. If we follow their actions, and not their empty rhetoric, what they really are striving for is a powerful police force in service of the bullies.

      Other key tenets of progressivism are:

      1) Powerful, centralized government
      2) Efficiency trumps all, including old inefficient institutions, which should be done away with or ignored (such as religious institutions; cumbersome constitutional divisions of power between the executive, judiciary and legislative, or between the central government and the states)
      3) The market system is the best way to maximize efficiency in the economic realm
      4) In the political realm, a professional, expert class of scientists can and will manage public affairs for the general welfare (that is for the benefit of all, not just the bullies)

      John, from your comments I take it you believe a progressive state still exists in the United States. By looking at everything that has happened in the last fifty years, however, and especially in the last ten years, I come to a very different conclusion. I believe what we have in the United States is no longer a progressive state, but a fascist state.

      Now granted, it can be argued that a fascist state is efficient. But I believe we should reexamine our priorities and ask whether “making the trains run on time” should be our cardinal priority, and especially in light of the fact that only a select few are allowed to board the train.

      1. Siggy

        Ya’ll pissin into the wind here. In the securitization process a great many notes were not properly conveyed to the trust. Effectively, the trust is an empty bag. If a financial services person represented to you that the trust had enforceable title to the note, then, a fraud was perpetrated. This is all about due process.

        You can argue all you want about the philopsy of whether we have some form of ism or another, it matters not. What we have is fraud.

        As to loan modifications, socially that sounds like a nice idea. But then is it? The house was priced at $500,000; the loan balance was $475,000. The house price has declined some 35% to 45%, say 40%. That $500,000 house is now priced at $300,000. That’s a 37% loss to the lender. Now the lender would like to sell that house. It’s an REO, ah comes now the stigmata of distress. In the market we’ll see the price of the house go to $150,000 in a heart beat.

        If you do a loan modification, what is the appropriate percentage discount to be applied? It’s not a set rate, it’s probably something like a loan balance that is 80% of the current price level. Viewed another way, the owner of the note is looking at a 50% haircut against the oustanding balance. That fact is driving the banksters propaganda. That fact is driving related activity in the foreign exchange markets. Too many people are holding paper that is at best worth $0.50 on the dollar.

        Much as I dislike QEx, name the iteration, it may be that QE is the only way to devalue the dollar and to make the entire society poorer so as to ratifiy that which is a fact in the market place.

        The only point of concern worthy in all this mess is: when the hell are we going to see some prosecutions? Dithering about philopsy won’t get you there!

        1. anon48

          Wasn’t it a former State AG, at the turn of the millennium, that forced the SEC to take action against the large accounting firms for their audit failures arising from the Enron, WorldCom, Global Crossing fiascos? The refs at the federal agencies decided not to call any fouls and the game got out of hand, resulting in one of the largest stock market crashes in history.

          Recall that former SEC Chair Harvey Pitt, who by the way had the same audit firms as clients prior to joining the SEC, was nothing more than a lump of clay until Elliot Spitzer’s investigations embarrassed the SEC so thoroughly, that it had no choice but to start to pursue the large audit firms. (Query, other than Enron and Anderson, how many of the senior guys at the other large audit firms actually paid any significant penalties for those massively large failures? I can’t recall any).

          It seems past experience with the SEC along with their prior struggle against big tobacco has made the state AG’s much more effective in knowing how and when to pick their spots. They’ll have to be the ones who collect scalps of those who perpetrated the securitization frauds (both on the front and back end). Past experience shows the feds are almost worthless at that, unless of course you count the loud horn honking they do whenever small fry are caught.

        2. DownSouth


          You make it sound as if everything is so cut and dry. “The only point of concern worthy in all this mess is: when the hell are we going to see some prosecutions?” you admonish. “Dithering about philopsy won’t get you there!”

          But if what you are saying is true, then why the all-out effort, and the huge amounts of money being spent, to influence economic and legal philosophy? Bill Black discusses the phenomenon here :

          Yves noted that the Chamber of Commerce was leading the effort to elect CEO-friendly judges. The Chamber is one of the points of intersection in the discussions about electing judges and whether law and economics has played a perverse role in causing catastrophic policy, regulatory, and judicial blunders. The Chamber distributed a plan for a hostile takeover of university departments of economics and finance (and the courts and the media) proposed by Lewis Powell (the soon to be Supreme Court Justice). Extremely conservative “law and economics” proved to be central to this effort. The law and economics movement began as a non-ideological approach to explaining and aiding judicial decision-making. The scholars leading the movement had diverse views. The Olin Foundation transformed law and economics into an ultra ideological field dominated almost exclusively by passionate opponents of government “interference” in “free enterprise.” Olin specialized in creating well-funded positions in academia for scholars that had an “Austrian” approach to economics. Austrian economics has, generally, become more extreme since its formative years when Hayek warned that mixed economies (e.g., the U.S. and Europe) were inevitably consigned to the Road to Serfdom. Here is how the National Review praised the Olin’s takeover of the field:

          Law and Economics: The John M. Olin Foundation has devoted more of its resources to studying how laws influence economic behavior than any other project. The law schools at Chicago, Harvard, Stanford, Virginia, and Yale all have law-and-economics programs named in honor of Olin. “You should not forget that without all the work in Law and Economics, a great part of which has been supported by the John M. Olin Foundation, it is doubtful whether the importance of my work would have been recognized,” said Ronald Coase, who won the 1991 Nobel Prize in economics.

          In addition to these centers specializing in law and economics, Olin created scores of endowed chairs at a wide range of universities. Some of these are in economics departments and others are in law. Olin also indirectly funded the “boot camps” at which U.S. judges were taught Austrian economics as if it were undisputed science. The academic journals in law and economics are dominated by virulent opponents of regulation. The textbooks used to teach law and economics treat economic theory as having demonstrated conclusively the folly of most government actions purportedly designed to help the public. (I say “purportedly” because Austrians almost always claim that the government intervention was really designed to benefit a special interest rather than a substantial portion of the public.)


          Law and economics has, for over two decades, been dominated by theorclassical economic dogmas that have proved false. These dogmas are premised on an ideological hate for regulation – even by democratic governments. The Olin Foundation did not buy the souls of the economists and lawyers to whom it provided fellowships and endowed chairs. It simply selected true believers for its largess. It knew how desperately eager universities were to raise funds. There are now tens of thousands of law and economics graduates that have taken a class in theoclassical law and economics. They were taught that theoclassical economic assertions (often falsified decades ago) were objective facts devoid of ideological content. They have been taught that economics has proven that regulation is unnecessary, hopeless, and harmful. Some students accept this dogma as revealed truth, but many reject it. (If your goal as a professor is to indoctrinate students you should prepare for a life of disappointment.) Few economics, business school, or law students have been introduced to effective regulation or economic/finance theories that have proven to have predictive strength. It is the non-ideologues we need to reach and inform them about the reality-based alternative to the faith-based version of economics they were taught.

          Siggy, when you make pronouncements like “a fraud was perpetrated” as if it were sure truth, it demonstrates a total ignorance of what is being taught in our leading universities these days. You very much need to read Robert H. Nelson’s Economics as Religion: from Samuelson to Chicago and Beyond, and especially the chapter titled “Chicago versus the Ten Commandments,” and the section called “THOU SHALT STEAL (IF IT PAYS)”:

          It says in the Ten Commandments in the Bible, Thou shall not steal (Exodus 20:15). For Becker, however, understanding (and preventing) crime is explained not by such Christian homilies, but by hard economic motives. Indeed, stealing is simply another form of rational maximization of individual income and utility. Most people refrain from stealing because it would not be profitable for them; for some people it happens to be profitable and they become thieves. Economically, a theft is a “redistribution” of resources, in much the same broad category, technically speaking, as a government welfare program.


          Becker’s treatment of crime highlight the absence of any absolute social concepts such as “justice” or “mority” in the framework or thought that he applies to human behavior.


          The real influence—-the meaningful existence—-of any collective “values,” “religion,” “culture,” or “justice” that go beyond maximization of individual benefits and costs does not exist anywhere.

          Now you might say: Gary Becker is some fringe nut case. Not so. In fact, he won a Nobel Prize in 1992 for such formulations and teaches at The University of Chicago, where he holds joint appointments with the departments of economics, sociology, and the Booth School of Business. And another of the leading advocates of the Law-and-economics movement, Richard Posner, who is probably an even more effective evangelist than Becker, is currently a judge on the United States Court of Appeals for the Seventh Circuit in Chicago and a Senior Lecturer at the University of Chicago Law School.

          Siggy, you may believe that ideas, organized ideologies, religion and philosophy have no power to influence human behavior, that it’s all about maximizing self-interest. If so, then you are in concert with what Becker and Posner say. But if you look at what Becker and Posner do, and the fact they expend so much time and effort evangelizing their philosophy, you might come to a different conclusion.

          1. i on the ball patriot


            I’m with Siggy but would take it even further …

            Buying the instillation in the public psyche of the ideology — the philosophy dithered about — through; deceptive foundations, co-opting universities, awarding of bogus Nobel prizes, etc., is itself a fraud perpetrated upon the people. But it takes money to perpetrate that fraud, and that money comes from Control Driven Pernicious Greed, who have hijacked ALL of our societal institutions (including the now blatant scam ‘rule of law’). Institutions that were only a few short years ago controlled by old fashioned Profit Driven Vanilla Greed, who, if you examined them carefully were not such warm and wonderful folks themselves.

            You can dither all you want about philosophy, and Siggy can rightfully call for prosecutions, and others can seek remedial measures in the courts, but it is not going to happen because you don’t have the resources to implement what ever remedial philosophy it is that you dither up or remedial measure that you call for.

            Beyond your scant resources problem you also make the mistake of believing that those you direct your fair and brilliant ideas to will be receptive to them. That is truly naive and laughable and it is a hallmark of the old Profit Driven Vanilla Greed crowd that still wants to believe so badly.

            You will get what ever it takes to feed the intentional perpetual conflict in the masses. No less, no more. Sheila Bair feeds the process.

            Consider, just as Japan has been a research and development pilot program for many of the economic and societal programs being rolled out across the globe, Mexico, and its ‘drug wars’ is now a pilot program for what is being rolled out across scamerica.

            This is a war of the elite rich against ALL others. You have to figure out how to make these decision makers become personally inconvenienced by events. It won’t be done in the framework of the existing system.

            Deception is the strongest political force on the planet.

        3. Yves Smith Post author


          Remember, investors (the ones that are not in denial) know that they are looking at loss severities on foreclosures of 70%. And if more homeowners fight, the average loss severity goes to the moon (I’ve seen what look like pretty simple cases where the legal cost to the foreclosing bank goes way over the loan balance). So they welcome 35% top 50% principal mods, that’s a ton better than the losses they are seeing now. It’s the banks,the foreclosure mills, and the junior bondholders (the junior benefit from extend and pretend because the banks advance interest and principal, so the juniors get continued payout on paper that ought to be a big fat zero) who don’t like mods. The junior bondholders represent what was what, 20% amount of the original face amount and typically picked it up as distressed paper? They are big risk oriented grown ups, I’m not sympathetic with the idea of coddling them, and their commitment does not represent big bucks in aggregate.

          The banks, not the investors, are the real obstacle here.

          1. Siggy

            Indeed, the prime responsibility lays on the banks, secondarily, the investors. I cannot give a pass to an investor who buys a big coupon with a AAA rating. There’s a fundamental rule: Big coupon, Big Risk! Violate that rule and you get to lose.

            I enjoy your work and generally agree with that which you posit. I especially marvel at the likes of that Down South fella, his citations are marvelous if not infrequently ponderous. Some of his stuff is, to my mind, philopsy, some philosophy. And philosophy does matter because not infrequently philosophy is the capsule that contains the fraud. And it is the fraud that I find so reprehensible.

            I’ll take at face the 70% loss figure and from that I’ll conclude that all of the TBTF institutions are insolvent. Sadly, they are insolvent by their own choice, not mine. But then, I and the general public will be made to bear the cost of their profligacy. That’s a propostion that strikes me as lacking equity in the sense that by bailing them out, we are denying them their God given right to go bankrupt.

            I want bankruptcies, I want prosecutions, I want heads on pikes! Want to introduce some philopsy to muddy the picture, fine, avoid the prosecutions and you invite even more fraud.

  3. Ina Deaver

    The Congress is not concerned about a constitutional challenge — look at the Supreme Court. It was O’Connor who could be reliably counted on to be concerned about states’ rights. She and Stevens were pretty much always together there. Now corporations are full-fledged people, remember?

    If the regulatory agencies and congress had any juevos, or if they had any scruples for that matter, there would be no offering the banks all the cards and then politely asking for one back: the conversation would go something more like “you will now modify loans, or we will shut off all funds and turn over your assets to some other scary clown.” Truly, I cannot understand how an entire class of people who are in positions of “power” can be so utterly cowed by the banks.

    1. DownSouth

      “Now corporations are full-fledged people, remember?” Ina Deaver

      We really have created a monster, haven’t we?

      It isn’t that the problems didn’t predate the advent of corporations. But the corporations have certainly exacerbated the problems.

      Despite the delusions of the libertarians, there is no way the lone individual can muster the political or economic power to stand up against these behemoths.

      Prior to the Civil War in the United States, there were few business corporations. By 1900, two-thirds of all U.S. manufacturing activity was being carried on in businesses operating under corporate ownership. Apparently, the survival of the fittest in the new industrial world would often mean the survival of the largest, a lesson that American businesses took newly to heart and for which the ideas of Spencer* could offer a seemingly scientific justification. The workings of evolutionary biology that Darwin had discovered must surely also be the natural law of economic affairs.
      –Robert H. Nelson, Economics as Religion, from Samuelson to Chicago and Beyond

      *For Herbert Spencer and his disciple in the United States, Yale economist William Graham Sumner, the most important conclusion to be drawn from Darwin’s On the Origin of Species was a doctrine called “survival of the fittest,” and the most important form of evolutionary survival of the fittest took place in the competition of the marketplace. It was a doctrine that was not only embraced wholeheartedly by fascist regimes of Europe, but by American businessmen as well, and was the creed that inspired the Gilded Age and the Roaring Twenties.

  4. F. Beard

    Principle reductions? Sure, that would be great. Debt forgiveness is Biblical (Deuteronomy 15).

    However, the nature of government backed fractional reserve banking is that it cheats savers too. (To hear the Austrians talk, it ONLY cheats savers). So a bailout of the entire population would be fairer, imo.

    And no new debt is needed. Just stick to the banks with new, debt and interest free legal tender fiat, United States Notes combined with leverage restrictions to preclude serious inflation from the new, high powered money.

    If we wanted to, we could eliminate all consumer debt with a big enough distribution of the new legal tender and 100% reserve requirements. No serious inflation and no consumer debt; we would simply replace M1 with real money. Even the banks would be fixed in nominal terms.

    1. Matt

      With a different cast of players and play books a Jubilee should be more effective. With the current set of mammon lovers it would just be enabling them to continue and expand their frauds.

      With 40 Billion in FRB reserves, the US banking system is more a zero reserve banking system today, and the big banks act like it too. Creating all sorts of “money” with esoteric products, the FRB requires them to have reserves in “name” only, so they have gone on to create SIVs and derivatives with a similar amount of leverage.

      I suspect the rot is substantially larger than the fraction of the 10 Trillion dollar mortgage market that is underwater.

  5. Richard Kline

    Yves: “. . . [S]ecuritization industry professionals, and more important, major law firms. They appear not to understand the nature of their clients’ transgressions; there remarks, when you parse them, amount to “The procedures were proper, what are you folks, idiots?” ” What I suspect the attitude behind this amounts to is, “These behaviors were normative, and the appropriate regulators passed on them all. When are all you little people going to get with the program and stop spattering our chariot wheels with our pitiful crushed brains?” That is why the industry doesn’t get it, the entire system has been so wired to their enrichment and protection that it’s not conceivable that that isn’t the _intent_ of the whole process.

    And speaking of enriching and protecting the banks, it is dismal indeed to see even Sheila Bair (!) talk of granting the oligarchy absolution on what has been the largest and most profitable racketeering operation in American history by an order of magnitude. It is clear that the Federal government will stick at nothing in protecting and defending these colossal financial criminal enterprises. Not the rule of law; not self-preservation; not the functioning of the government; not the interest, safety, or property of the 99% of the citizenry; not anything is getting through to the political class on this. The political class has sewn itself more closely to the profit and survival of the oligarchy than to any god of choice including Mammon. We’re observing raging religious mania here, wannabe politicos begging to join the power elite, with the rest of the citizenry as so much dead weight. . . . Even the Ancien Regime had more sense of obligation to their respective national territories that the political class of the US as of 2010 BCE.

  6. R Foreman

    Getting the banks to play nice with borrowers and do actual principle mods is a great idea, but other events are about to bury these banks into long-term dirt naps before they will have a chance to reform their ways.. I am speaking specifically about the mortgage put-backs due to all the MBS trust pooling fraud, selling the same loans to multiple parties, and creating multiple default insurance contracts on the same loans, unforeclosability and title clouding, etc.

    Within about 3-6 months it will become quite apparent that the largest banks will have to be nationalized.. not sure about the smaller banks, probably the same situation for them. Zirp, fraud, and owning/managing millions of homes, along with collapsing demand for borrowing, are all conspiring to turn the entire banking system into a super-massive black hole.

    Bernanke should’ve let that insoluble debt be defaulted, because what he’s trying to do is rewrite basic mathematics.. 1+1 will never equal 20, sorry Ben.

    1. Richard Kline

      ” . . . [A] super-massive black hole.” I _like_ it; the best analogy yet. Once liquid money encounters the event horizon of the Anglo-American FIRE system, its destructive engulfment is inescapable. OR: The banking system: a neutron bomb that kills the money but leaves the debt intact. OR: I-banks and their Shadows: the anti-matter to the matter of a money economy.

      All are welcome to add on below . . . .

      1. Richard Kline

        The FIREdrake: a boojum the size of the Lesser Magellenic Cloud to the collective corpus of the bourgeoisie, who were all promised a snark in every plot.

        1. R Foreman

          Yep, a hole so massive and dense that nothing will escape, not even Ben Bernanke. Maybe it’ll suck Congress, the Executive, and SCOTUS in too and we can get a new band of crooks in there with some new ideas on theft.

          Here is an idea.

          “Governors of 35 states have filed suit against the Federal Government for imposing unlawful burdens upon them. It only takes 38 (of the 50) States to convene a Constitutional Convention.

          For too long we have been too complacent about the workings of Congress. Many citizens had no idea that members of Congress could retire with the same pay after only one term, that they specifically exempted themselves from many of the laws they have passed (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under those laws.The latest is to exempt themselves from the Healthcare Reform that passed… in all of its forms.Somehow, that doesn’t seem logical. We do not have an elite that is above the law. I truly don’t care if they are Democrat, Republican, Independent or whatever. The self-serving must stop.

          Proposed 28th Amendment to the United States Constitution: “Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States .”

          1. DownSouth

            Well as long as we’re making our wish list, I’d put these on mine:

            1)Campaign reform: No candidate may accept campaign contributions from outside their distrinct; campaign contributions shall be limited to a reasonable amount; corporations shall be proscribed from participating in political process in any way, form or fashion, including contributing goods, services or cash to campaigns.

            2) No corporation shall have the same rights as a flesh and blood person.

            3) Institute new form of districting to eliminate gerrymandering.

            4) No person who works in government shall ever be allowed to lobby, and there shall be a ten year waiting period for any person who worked in a regulatory capacity to go to work in the industry she regulated.

            4) Create a third legislative body at precinct level that has the same powers as the house and senate.

          2. steve

            Good idea, R Foreman, but I’d take it even further. No political speech or spending at all unless it’s first approved by a neutral government commission. If we can raise the barrier of entry for political speech high enough we can eventually have only publicly financed campaigns and only publicly funded political speech (on NPR, in the New York Times, other government approved news outlets, etc.)

            Our democracy is too important to let people, companies, and other organizations freely spend their money and enage in an unregulated debate to influence voters!

          3. SidFinster

            I’d agree with campaign finance reform, I’d agree that investment banks and certain other regulated financial institutions be required to be organized as partnerships or sole proprietorships. There are lots of things I’d agree with.

            But the idea of forcing private citizens to mediate political speech through a government organ is straight outta 1984.

      2. Skippy

        For visual play time I prefer whence a sun starts to produce Iron SEE:

        During their helium-burning phase, very high mass stars with more than nine solar masses expand to form red supergiants. Once this fuel is exhausted at the core, they can continue to fuse elements heavier than helium.

        The core contracts until the temperature and pressure are sufficient to fuse carbon (see carbon burning process). This process continues, with the successive stages being fueled by neon (see neon burning process), oxygen (see oxygen burning process), and silicon (see silicon burning process). Near the end of the star’s life, fusion can occur along a series of onion-layer shells within the star. Each shell fuses a different element, with the outermost shell fusing hydrogen; the next shell fusing helium, and so forth.[70]

        The final stage is reached when the star begins producing iron. Since iron nuclei are more tightly bound than any heavier nuclei, if they are fused they do not release energy—the process would, on the contrary, consume energy. Likewise, since they are more tightly bound than all lighter nuclei, energy cannot be released by fission.[68] In relatively old, very massive stars, a large core of inert iron will accumulate in the center of the star. The heavier elements in these stars can work their way up to the surface, forming evolved objects known as Wolf-Rayet stars that have a dense stellar wind which sheds the outer atmosphere.


        Its all there RK…expansion, derivatives of energy, the tidal forces of denial and ultimately death, in which new possibilities arise.

        Skippy…so many AG’s and lower judges to wrangle…which will wish their names to echo after their gone…ummmm…who wants to go out with style…

      3. i on the ball patriot

        … a massively explosive two tiered fake orgasm where the prudent felt nothing, the screwed marks felt all of the bliss, and ending in a super deflationary perpetual conflict over who will pay for the love child …

        Deception is the strongest political force on the planet.

    2. Cedric Regula

      I’m worried that Ben will never believe 20 big banks = 1 (Fed) + 1 (nationalized banking system).

      So the Fed will announce QE2, initially that they will buy $100B in treasuries every month until hell freezes over, then in month two quietly start buying back private label MBS until it’s all gone. To keep mortgage interest rates low of course. Then, since F%F%FHA won’t be able to sell any new MBS to finance their operations, Timmay and Congress decide the time is right to “reform” these institutions. They drop all pretense that these are not government programs and just finance them with treasury bond sales. Then they will move on and work on “deficit reduction”, which will have something to do with reneging on paying back the social security trust fund ($2.5 trillion).

      But at least we will still have all our big banks.

    3. Yves Smith Post author

      I’ve written at some length re these putback cases. They are way overhyped. They are VERY VERY costly to pursue, because you have to show the losses are due to the rep and warranty breach (the selling of loans that violated the underwriting standards) and not normal credit losses.

      I guarantee if you put ANY risk manager in the industry on the stand and made him tell you what his model would have predicted with home prices falling 25-45% and unemployment at 10%, he’d be forced to admit he would have expected losses very much like what you see now.

      Oh, and these cases are argued on a loan by loan basis, as in they look at each borrower to determine why he defaulted. Even if you sample, within the sample you do a loan by loan analysis. And the defendant is going to insist on a methodology that leads to a big sample to make sure it really is unbiased.

      Plus it won’t be hard to find evidence that the pipeline (as in the investors and packagers) were screaming for more volume, particularly “spready” meaning really risky crap. I detail in ECONNED how the subprime shorts were actually massively distorting the market and creating demand for the worst sort of paper. I bet every firm suing has damaging e-mails that show they knew they were buying or insuring, as the case may be, dreck.

      Now the GSEs are different, they have pretty clear putback rights, the bar they have to pass is low, but everyone else has a much tougher time than all this media hype will lead you to believe. They’ll get something, but the GSEs were mainly in the prime mortgage business, where the loss % is still low, and their participation in subprime and Alt-A wasn’t all that great. The payday for the bond insurers and other players will be way smaller than the numbers being tossed about now.

      1. R Foreman

        Chris Whalen said the same thing, that put-backs of mortgages from the MBS is very expensive and time-consuming. This may be different (still related), but since many of these foreclosures are being hamstrung and stuck in limbo, we must conclude that banks (servicers) continue to forward monies to the MBS trusts even though they have stopped receiving payment from the borrower, correct ? I would think that would get very, very expensive for these banks.. and this on top of all their property management and legal expenses. They literally will need unlimited infusions of government money to continue operating (granted they very nearly are with the borrow and lend-back to the Fed).

        1. Skippy

          “we must conclude that banks (servicers) continue to forward monies to the MBS trusts even though they have stopped receiving payment from the borrower, correct?”

          Cough…Fed window…cough…QEI&II…cough…alphabet shenanigans…etc…

          Skippy…the CPR being applied to this class of investment is going to kill the caregiver in the end.

  7. par4

    It seems pretty apparent to me that capitalism is the problem. I think we need to try a democratic economy,along with democratic laws and democratic foreign policy. P.S. Those lower case d’s are not a typo,I don’t mean the ‘Democratic Party’.

    1. F. Beard

      It seems pretty apparent to me that capitalism is the problem. par4

      Except we don’t really have free market capitalism in the US. Instead we have a “government backed fractional reserve banking cartel using the government enforced monopoly money supply” as the base of our economy.

      The US has been fascist since 1913 at the latest.

      We really should try genuine capitalism in the US; how else will we ever be able to compete with China and India now that they are fascist too?

      1. attempter

        There’s a reason textbook capitalism has never existed in reality. That’s because it’s impossible in reality. It’s impossible to encourage greed and sociopathy as the only values, but nevertheless expect them to adhere to certain “rules”.

        I always laugh at how those who claim to have faith in “capitalism” scoff at alternative economic arrangements as “unrealistic”, “ignoring human nature” and so on, while there’s nothing of which such accusations are more true than textbook capitalism. (Adam Smith himself, BTW, recognized that and prescribed all sorts of government interventions in the market in order to maximize how “free” it was, since he knew if you left it exposed to total license it would simply become a pit of gangsters. Which is exactly what it has become for us. Smith was simply deluding himself that government itself could hold out indefinitely in the face of such corrupting forces. As long as they’re allowed to exist at all, the rackets will always win the war of attrition.)

        So par4 is right. We need a democratic economy. An economy of democratic participation, ownership, management, distribution, and consumption. AKA, anarchism.

        1. F. Beard

          So par4 is right. We need a democratic economy. An economy of democratic participation, ownership, management, distribution, and consumption. AKA, anarchism. attempter

          My favorite form of private money is common stock. Without the government backed counterfeiting cartel to borrow from, corporations would be forced to issue new common stock to purchase assets and perhaps labor thereby sharing wealth at the same time it is consolidated for economies of scale.

          Our problems all go backed to the government backed counterfeiting cartel,imo. Occam’s Razor* says we should not needlessly multiply causes for a set of effects.

          Gee wiz folks, we allow government backed theft of purchasing power from the poor and that’s not the cause of our economic problems?!!

          * Occam’s Razor

  8. lambert strether

    Yves asks:

    [I]f anything serious were amiss, Congress would intercede, relying on pre-emption. Now does Congress have the nerve to trample on state law and run the risk of a Constitutional challenge?

    Simple answers to simple questions:


    And by “yes,” I mean, “Yes, of course.”

    After all, that’s exactly what happened in 2008 under FISA “reform,” when Congress voted to grant the telcos retroactive immunity for their illegal participation in Bush’s program of warrantless surveillance. Obama, of course, flip-flopped on that, voting for it after promising to vote against it, thereby signaling that the rule of law no longer applied to large corporations.

    1. Francois T

      Of course?

      Not so fast grasshopper! We’re talking State rights here, something the current edition of the SCOTUS has a hugely favorable bias and warm feelings about.

      The warantless FISA-free affair was about Nazional Sekurity! There is no justification weak enough that would’ve sway the Supine Court to force obedience to the Rule of Law:

      Vee kant take any reesk vit dat, my vrend!
      Raison d’État…vous comprenez, n’est-ce pas?

    2. smells Like Chapter 11

      I think the bargain is simple. Repeal the provisions of the bankruptcy code that prohibit modifications of home loans in exchange for some relief on the foreclosure mess. This will allow the prices of houses to fall to their real values without the need of kicking most out of their homes. We had this right up till 2005, the world didn’t collapse. Because we don’t have it now, we have made it very hard for debtor’s to redeem their property at its value creating vast inefficiencies.

  9. Lyle

    As to the securitization side of the equation: All this was done under New York law, why pay extra for the congress to fix it. The New York legislature was known in the late 19th century as the best legislature money could buy, so get them to fix the issue in New York law. So all the issues with notes etc could be fixed by the NY legislature declaring that intent determines all in all trusts set up during some time frame. No need to involve the feds, and the cost of getting it done is so much less, (also much less press observation of the legislature, compare the number of reporters in Albany to those in Washington). Likewise for foreclosures if you are a bank use the state legislatures to fix your problems, why bother with the Feds? (Campaign contributions to legislators go futher also)

    1. Yves Smith Post author

      Only the trust law part is NY law, and all the NY trust experts that the state relies upon agree with the view that the problem is serious. And messing up NY trust law to save the banks will cause a ton of collateral damage. You’d be writing an invitation to massive trust fraud. This isn’t as easy to address as you assume.

      1. Lyle

        Lets assume that the state leg passes a law that says for the period from 2000 to 2008 if it is clear that the intent was to place instruments in a trust but the proceedure was not followed, the instruments will now be presumed by law to have been placed in the trust. You also might define the affected trusts to be those that securitized mortgages. That does not affect law going forward just in that time period. After all if they can write a law granting companies of a size that have headquarters in xyz county a tax break this is easy.

      2. Lyle

        I was perhaps less than clear on the foreclosure part you go to each of the 51 entities and get laws passed making retroactive changes (recall ex post facto applies only to criminal matters). It would be a massive exercise in what in the 13th and 14th century in England was called Equity. The sovereign thought he saw an injustice being done and ruled to fix it. (The injustice is from the point of view of the sovereign or in the old days the Chancellor who was a cleric). Of course back then since the king was the final appeal if he did not like you he would just chop off your head anyway.

  10. rd

    It is going to be fascinating to see how the combination of the “Tea PArtiers” and the Roberts court will perform on this issue.

    In theory, both groups should be focused on giving the state AGs lots of room to maneouver. The Tea Partiers are theoretically somewhat libertarian with a focus on small federal government. The Roberts court is full of “originalists” where it is clear that the original intentions of the Constitution authors would generally lean towards States’ and individuals’ rights unless there was a major over-riding national concern.

    Will the Tea Partiers be immediately captured by the bankers? Will the court that is becoming dominated by the Kelo dissenters turn around and say that the Federal government can over-ride state law on mortgage foreclosures, property transfers, and trust rules in order to serve a greater public purpose?

  11. AndyC

    Principle reductions and a get out of jail free card for the bankers doesn’t strike me as a good idea.

    They should use this opportunity to break these behemoths up and to make criminal prosecutions and enforce the law.

    Look at the derivatives market, its going to blow up again one day soon and if they don’t unwind these markets that blow up will make this one seem like a walk in the park.


    The experts say, oh those are just notional values, these positions net out, they are hedged, I ask, how can a dozen financial institutions hedge 100’s of trillions in positions with each other?

    Who will pay?

    This mortgage mess gives the government another chance to break these guys up and that’s what they should do.

    These AG’s should take the ball and run with it, the prosecutions will make a nice resume padder when they decide to run for Senate.


  12. Brian Longley

    Alas, we do not forget about the underlying crimes of; origination fraud, interest and penalty charges without merit, double/triple… selling of the note and or the deed for multiple repayments making the loan paper meaningless, insurance payments for claim as they bet everyone to lose when they realized they had to short America and the world.
    No, there is no accident. You can’t create 3 or 4 trillion dollars of pretense by inflating a bubble with hydrogen and then looking to see it closely with a match.

  13. Jim

    Transor Z:

    I’m not sure I understand the drift of your analysis.

    What are the origins of our “rampant nihilism”?

    What, in more detail, are the accepted memes of “the learned and accomplished folk”?

    How, in more detail, do we combat our biases?

    1. Transor Z


      I’m normally not a big fan of Cornell West but here’s an eloquent description of corporate nihilism:

      The public has good cause for disillusionment with the American democratic system. The saturation of market forces and market moralities has indeed corrupted our system all the way up. Our leadership elite have themselves lost faith in the efficacy of adhering to democratic principles in the face of the overwhelming power of those market forces. They are caught up in the corrupting influences of market morality. Our politicians have sacrificed their principles on the altar of special interests; our corporate leaders have sacrificed their integrity on the altar of profits; and our media watchdogs have sacrificed the voice of dissent on the altar of audience competition.

      Our leadership elite may still want to believe in democratic principles-they certainly profess that they do-but in practice they have shown themselves all too willing to violate those principles in order to gain or retain power. The flip side of the nihilism of despair is this nihilism of the unprincipled abuse of power. When the lack of belief in the power of principles prevails, the void is filled by the will to power of the market, by the drive to succeed at the cost of others rather than the drive to decency and integrity. In the poverty-stricken inner cities, this nihilism leads to street gangsterism, and in the halls of elite power it leads to elite gangsterism …

      The elites in the Democratic Party-especially in the Senate and the House-are not only liberal and centrist supporters of social equality and individual freedoms; more pointedly they are paternalistic nihilists who have become ineffectual by having bought into the corruptions of the power-hungry system. Though they may wish that the system could be made to serve more truly democratic purposes, they have succumbed to the belief that a more radical fight for a truer democracy, battling against the corruption of elites, is largely futile. So they’ve joined the game in the delusional belief that at least they are doing so in the better interests of the public.

      From Democracy Matters: Winning the Fight Against Imperialism

      As far as combatting bias goes, Freakonomics is probably as good a place as any to start:



  14. apachecadillac

    It used to be claimed that a criminal indictment of a financial institution was a death penalty, because of various statutory and regulatory consequences. If that remains or ever was true (and I’m unsure, given the latitude for regulatory forebearance) then there are fifty potential executioners out there, and any one of them could throw the switch, pull the trigger, start the IV drip (you chose the metaphor).

    And, of course, you have a legion of judges in whose case files there are reams of ‘defective’ affadavits and ‘remanufactured’ original documents. I believe judges do occasionally make criminsal referrals when confronted with perjury and forgery in their courtroom. When they do so, they generally refrain from issuing press releases.

    These actors are not subject to control or coordination. One of the beauties (or defects, if you prefer) of the federal system is the autonomy enjoyed by state and local officials in discharging their duties.

    This has the potential to just get more and more interesting.

  15. Rick Halsen

    Now let me ask this……

    What if TPTB stiff the MBS holders ala Chrysler bond holders?

    What if the banks weasel out of making them whole?

    What happens next?

  16. dejavuagain

    Yves says:
    “But the issue, as we have described in gruesome detail, is the procedures set forth in the securitization documents were not followed, and it appears the lapses were significant and widespread.”

    Yves, I am positive you did not mean it this way, but these are not just “procedures” – these are substantive. I would change the language so this is not used against your superb commentary.

    For example, forging the signature of vice president of an originator in bankruptcy and back dating the signature, and notarization, in order to prepare a chain of assignments curative document is not procedural at all. It is substantive, as well as criminal under the bankruptcy law.

    So, it would be better to avoid language which confirms the bias of your opponents by giving them a quote like this. It is not just “procedural”.

  17. Paul Tioxon

    Yves, the doctrine of pre-emption is not just some loopy technicality for National Bank charters. The National Bank Act was designed to create a nationwide banking system, a system not to be regulated by laws from state legislatures. However, the problem goes deeper than that. For example, CAPITAL ONE BANK has been repeatedly sued by State AGS for being a state bank and operating out of its state of Virginia bank license without obtaining other states bank licensing requirements. As a only a state bank, it is under the laws of the states, but as a National Bank, it is exempt. Capital One did not become a National Bank until March 1, 2008. As you know in your area of specialization, you can not give financial advice without appropriate SEC licenses and you can be banned for life, by being denied such licenses for serious civil and criminal violations. Like, operating without a license.

    Operating as ONLY a licensed Virginia state bank, does not allow you to conduct banking business in any capacity in most states, without that state’s specific state banking license. In particular, the state of PA requires a PA State Banking License for the particular line of banking you do if you are a non depository business. If you are a depository bank operation, you need a state license for that. Capital One, up until it converted to a National Bank Charter was not exempt under the National Bank Act.

    Here is an example from W Virginia, where the AG was given the green light to go after Cap1, not on the basis of pre-emption. Here is a link to the WV AG press release.


    “Until recently, the Attorney General was under a federal court injunction that prohibited him from suing the bank for its credit card practices; however, on January 4, 2010 United States District Court Judge Robert Goodwin granted the Attorney General’s motion to modify the injunction. Under the new order, the Attorney General is not prohibited from suing the bank to enforce non-preempted substantive state laws.”

    The link above has the court ruling which shows the rule governing pre-emption,i.e. having a National Bank Charter and not only operating under a state banking license.

    Additionally, Capital One could not receive FederalTARP money unless it was under the National Bank Act(NBA).

    How a bank under fire from across the nation by state Ags for conducting unlicensed banking activity as well as being in violation of consumer credit act laws for deception could get a National Charter under Federal approval is beyond belief. But, it was all just a lapse of technical paper work, a mere clerical error, rectified by its March 2008 transformation. How convenient.

  18. Benedict@Large

    By “widespread”, don’t we mean that these errors are only showing up on foreclosures, but actually exist (in equal proportions) on ALL mortgages that were securitized? Is anyone trying to approach this NOT as a foreclosure problem but rather as a title problem? I mean, it seems to me that if this is really a title problem, then even mortgage holders THAT ARE CURRENT could be suffering damages if and when they sold their homes, and even that this could occur long after the mortgage obligations had been satisfactorily extinguished.

    1. pdgrey

      I would love to know if anyone is looking into title problems of people not behind on their mortgages. I think this would hurt the PR of the banks and government, (deadbeat drum). It would also wake up a lot of people who are paying their mortgage on time to the truth that this fraud effects them too.

  19. Paul Repstock

    Posted previously on ‘tank a bank’
    With a deep nod to Richard Kline and his recognition of the importance of Rule of Law.

    Anarchism has been given a bad rap. Anarchism does not reject the Rule of Law, rather it supports ‘Moral Law’ as being superior to political law.

    Most of the supportive posters here are (whether they understand it or not), promoting anarchism.
    Anarchism is not a violent overthow of civilization, rather it is a refusal to participate in a centerist control structure which does not benifit it’s constituents. The violence arrises when the central authority uses force to reassert control.


    Yves has probably stepped over the line by just posting the story above. As you can tell by my use of my real name in public forum, I stand with her. This is not just about TBTF banks. It is about a failed governance structure which must be changed.

  20. Psychoanalystus

    These AGs just want to collect their bribes and kickbacks. That’s all. They are just as corrupt as the banks, if not worse. Anyone who still believes in this system, federal, state, or local, better cut down on whatever they’re smoking.


  21. frances snoot

    Don’t State Attorney Generals operate under US Federal jurisdiction? Why is the author of the essay indicating that the federal government is not backing the State Attorney Generals’ agenda concerning the foreclosure fraud? Does anyone wonder how fifty state attorney generals are apt to agree wholeheartedly on any issue, much less this one?

    1. Externality

      The MERs system allowed banks to bypass states’ traditional system of recording changes in land ownership and mortgages. In addition to diminishing state sovereignty, MERs allowed banks to avoid paying billions in recording fees, transfer taxes, and reassessments that normally would have gone into local (and sometimes state) coffers. State and local governments have a strong financial incentive to collect these fees, plus penalties and interest, to backfill holes in their budgets. Every cent they get from the banks is one less that must be raised through taxes or saved through budget cuts.

  22. frances snoot

    “We derive our answer from federal law. Under 18 U.S.C. � 4001, the United States Attorney General has sole authority to control and manage a federal penal and correctional institution. Under the Attorney General’s direction, the federal Bureau of Prisons has charge of the management and regulation of all federal penal and correctional institutions. [footnote 5] Federal law fixes the duty of care the Bureau of Prisons owes to federal prisoners, and that law prevails over an inconsistent state law. [footnote 6]”


    What jurisdiction do State Attorney Generals have concerning the statutes written by states framing foreclosure law? Isn’t that the intent of the writer: to indicate this area moot?

    If so, who benefits? What service is the opinion of the state attorney generals obligating in this instance?

    Are they merely wielding a big bazooka? Where is the teeth to their opinion?

    1. Externality

      State AGs usually have the authority to punish civil and criminal violations of state law occurring within their respective states.

      Bank employees and contractors who knowing signed or filed phony declarations (a/k/a affidavits) could be prosecuted, under state law, for perjury. The banks themselves _might_ also be liable to civil or criminal prosecution for violations of state law committed by their employees. AGs can also use subpoenas and search warrants to gain access to the records of banks and bank contractors to the extent that the records are relevant to the investigation.

      While the banks’ C-level officers are likely insulated from prosecution, they do not want to spend years watching as their employees are “perp walked” on the TV news and their internal documents are released or leaked to the newspapers and Internet.

      In short, the AGs can make life very miserable for banks and send numerous lower and middle tier bank employees to state prison for perjury, obstruction of justice, or other felonies.

  23. frances snoot

    “State AGs usually have the authority to punish civil and criminal violations of state law occurring within their respective states.”

    Under federal jurisdiction, of course, but not within the context of state statutes decided by common law. The only ‘punishment’ relates to a loss of federal bucks.

    1. Externality

      “the United States Attorney General has sole authority to control and manage a federal penal and correctional institution.”

      I think that you are confusing the United States attorney general with the state attorney generals of each of the 50 states.

      California, for example, has an elected attorney general whose authority is derived from the Constitution of the state of California. http://ag.ca.gov/about.php He enforces state laws. He acts under the jurisdiction of the state of California and can prosecute people for violating California law. He is not a subordinate of the US Attorney General, and cannot be fired by him. (The federal government can prosecute a state attorney general, just like it can any other citizen, through the federal court system for violation of federal criminal law.)

      The United States government also has an attorney general, who enforces federal laws and has authority over federal prisons. The US AG does not enforce state laws. There are a few rare exceptions, such as the Assimilative crimes act. http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm00667.htm

      (I am not an attorney; please do not construe to preceding as legal advice.)

      1. Externality

        The United States government also has an attorney general, who enforces federal laws and has authority over federal prisons. The US AG does does _not_ supervise the attorney generals of each state. Nor does the US AG enforce state laws. (There are a few rare exceptions, such as the Assimilative Crimes Act. http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm00667.htm) If the United States AG wants someone prosecuted, they either _ask_ state or local prosecutors to do it under _state_ law or _order_ federal employees in each state, called United States attorneys to do it under _federal_ law http://en.wikipedia.org/wiki/United_States_Attorney

        (I am not an attorney; please do not construe the preceding as legal advice.)

        1. frances snoot

          No, it is apparent that you are not an attorney. You merely forward the agenda of those aligned with the categorical elimination of states rights.

  24. JS

    Guaranteed, the Washington arm of Wall Street (Bernanke, Geithner, etc) will move to protect the banks from their fraudulent actions.

    Geithner already tipped his hand during a recent interview on the Charlie Rose show. He said “You’re seeing some banks suspend temporarily, the foreclosure process, so they can just make sure they aren’t causing any injustice to the borrowers.” Mr. Geithner doesn’t believe for a second that the banks suspended foreclosures as an act of good conscience. By characterizing it this way he tipped his hand as an agent for the financial institutions rather than the American people. I had tremendous respect for Geithner until he made this comment. Now I look at him with great disappointment and distrust.

    1. frances snoot

      Isn’t it true that Geithner operates under diplomatic immunity in his service to the IMF?

  25. razzz

    If you want to see some runs on banks just threaten to pull their charters due to fraud. Banks certainly deserve it in most cases. Eric H. Holder can’t be bothered with enforcing the law. Not sure States can recall federal charters but sure can make life miserable for banks in noncompliance. And so they should.

  26. nvlaw

    Here is where the Nevada AG, just re-elected, weighs in on the “tough on financial crimes” scale (from her blog):


    Las Vegas, NV – Three people, including a local attorney, were indicted today for allegedly operating a foreclosure rescue scam in Las Vegas during 2008 and 2009.

    The indictment alleges that Nevada attorney Ramon Dy-Ragos, along with his partners Jesus Baca a.k.a Jesse Baca, and Luis O. Baca operated a foreclosure rescue scam under the business name of “Save Your House.”

    Save Your House is alleged to have lured customers to pay large up-front fees – ranging from $1000.00 to $3995.00. The defendants informed the victims they could prevent foreclosure by having customers stop paying their mortgage and ceasing all contact with the bank holding their mortgage. The defendants falsely claimed they would modify mortgages through negotiation with the mortgage holders or suing the mortgage holders.

    “We need citizens to help identify mortgage fraud scams such as these so we can investigate and prosecute these individuals,” said Attorney General Catherine Cortez Masto. “If you feel you have been involved in a mortgage fraud scam, you should call my office at 702.486.3194. . . .”

    Now, maybe “Save Your House” isn’t as snappy-sounding as, say, HAMP, HAFA or the other purveyors of false hope, but which one is more of a scam than the others?

    Gretchen Morgenson at the NYT recently reported that the Nevada foreclosure mediation program prohibits the very principal modifications that the Nevada law expressly provides for and fires lawyers serving as mediators for following the law.

    Not one AG, including the AG of the State with the nation’s highest foreclosure rate, Nevada, has acted to prosecute any “control fraud” perpetrated by major banks who were, and are, hopelessly insolvent under any logical definition of the term. These banks will doubtless fail when the full brunt of the investment community enforces its buyback rights, regardless of the number of homes foreclosed, rightly or wrongly.

    Instead, the State Attorneys General seem to be the latest players of the “extend and pretend” game, getting free PR concerning the notion that they can somehow leverage lenders to modify loans — loans that these lenders will only have the right to modify when they buy them back from the MBS holders who themselves were defrauded.

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