Tom Deutsch of American Securitization Forum Finally Gets His Comeuppance: Pimco and Likely Other Investors Quit

Bloomberg reported a few weeks ago of a rift in the group that supposedly represents the mortgage securitization industry, the American Securitization Forum. We say “supposedly” because the interests of its two main types of members, the sell side, meaning the parties that put together deals, and the buy side, meaning investors, are now directly opposed.

That rift has now escalated to what looks like a fatal schism, as bond king Pimco has quit the ASF over the refusal of the ASF to send a letter voicing investors’ objection to concerns about the pending mortgage settlement. We are told by other investors that Pimco’s departure is likely to herald a wholesale exodus by investors who have long felt their views are not taken seriously by the ASF.

Although most readers probably have had no reason to take notice of the ASF, it is important to recognize its role in defending the worst practices of the mortgage originators and servicers. After the robosigning scandal broke in fall 2010, there was a series of Congressional hearing on the topic (my recollection is five, but it might have been six). Tom Deutsch appeared at several of them and is likely to have made more appearances over these hearings than any other individual.

This excerpt from a December 2010 post will give you a feel for the caliber of Deutsch’s performance:

Well, I suppose one can defend the lies testimony offered by American Securitization Forum executive director Tom Deutsch before the Senate Banking Committee yesterday if one subscribes to the Through the Looking Glass theory of usage:

When I use a word,’ Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean — neither more nor less.’

And we all know how well things turned out for Humpty Dumpty….

Seriously, though, as we will see shortly, Deutsch gave one of the most outrageously dishonest presentations I can recall ever seeing, and readers know I specialize in calling that sort of thing out…

Now mind you, the ASF is in a huge hole. Despite its claims otherwise, it’s a lobbying group for sell side firms; investors are also members, but their needs are not taken seriously (the ASF posture toward very sound reforms proposed by the FDIC proves where its true loyalties lie). It was already in a defensive position before this hearing. In November; as we discussed, it issued a long-awaited white paper to assail the critics’ arguments. But that paper was weak and unconvincing; indeed, the ASF effectively acknowledged its shortcomings by issuing it the same day as an unsympathetic Congressional Oversight Panel report was released and immediately prior to Senate and House hearings on mortgage documentation issues.

If the paper had been convincing, it would have made sense to publish it earlier, to force the COP and the hearings to incorporate its views. The late release was a tacit admission that the ASF regarded it as better off merely muddying the water than exposing its position to robust debate.

Investors, even the pro-bank sort, were not persuaded. Contacts of mine were getting calls from buy-side types, including those sympathetic to banks, who were dismissive of the ASF paper. And the fact that 13 law firms signed the article? As one investor sniffed, “This is meaningless. All those firms issued true sale opinions. They’ll say what they have to say to try to make this go away.”

There is a piece of the Pimco-ASF contretemps that Bloomberg appears to have missed. After the ASF refusal to send a letter on the mortgage settlement defending the views of its investor-members, Tom Deutsch and Bill Frey were both speakers on a panel at a close-door meeting hosted by Representative Scott Garrett on ways to go forward with a new private securitization model. Deutsch tried to defend the part of the settlement that we have criticized as a back door bailout: that banks are required to reduce second liens (which they own) only pari passu with first liens (owned mainly by others) when they should be required to wipe out any second lien before touching the first lien.

Deutsch suffered what one source called “repeated napalm strikes” at the hands of Frey, who declined to comment on this post. Deutsch tried saying that the servicers’ role was murky; Frey cited typical language from the pooling and servicing agreement that said they are to service loans in the best interest of the certificateholders (meaning the investors). Deutsch then tried arguing for “extenuating circumstances.” Frey asked whether he was referring to the insolvency of the biggest banks if their second liens were marked at realistic levels. I’m afraid I don’t have exact quotes, but I infer that exchanges in Washington are not normally this direct and Deutsch was visibly squirming (not surprising given the fact set). The fact that Deutsch took a clearly anti-investor position (even though he tried to have it both ways) before a group of important decision makers apparently settled whatever doubts Pimco might have about leaving the ASF. And as I said above, more investor departures are likely to follow.

The Bloomberg article discusses other fissures within the ASF:

In 2009, asset managers seeking more outlets for their opinions started the Association of Mortgage Investors, which has issued press releases critical of the foreclosure deal. Yesterday, in a statement, the group called for monthly reports on steps banks are taking to adhere to the settlement. The Association of Institutional Investors, which includes larger asset managers such as Loomis Sayles & Co., was formed in 2010.

This part is a doozy:

[Veron] Wright, an ASF founder [its first chairman] and advisory board member who was chief financial officer of credit-card issuer MBNA Corp., said in his letter [of resignation] that the group’s directors were frustrated in attempts to win governance changes…The ASF, as part of its divorce from Sifma, created a separate entity to house its operations, Wright said in the letter. As a result, directors haven’t been able to see financial information, including staff pay, and have no legal control over the group, he said. The “corporate-governance concerns lead me to the conclusion that the executive director [Deustch] is not being properly supervised,” Wright wrote.

Gregg Silver, CFO of South Dakota-based 1st Financial Bank USA and a member of ASF’s management committee, said in a phone interview that he resigned last month for reasons similar to those expressed by Wright.

If most investors leave the ASF, that will be a huge blow not only to its finances but more important to its legitimacy. It would no longer be able to pretend to speak for the securitization industry, and its value as a mouthpiece for sell-side interests will be considerably diminished, which might also lead them to reduce their support.

I’m pleased that this comment “And we all know how well things turned out for Humpty Dumpty….” is looking to be prescient. If anyone deserves not to be able to put himself back together after a fall, it is Tom Deutsch.

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  1. Conscience of a Conservative

    The ASF PIMCO rift, William Dudley’s comments about having 1st lien positions take hits over 2nd liens in loan mods which did wind up in the final settlement, MERS process of handling mortgages all mean that investors rights are not being protected and they are just there to be tools of gov’t and the big banks. Perhaps we need an updated version of Atlas Shrugged where the investors and there money quietly leave society and retire to an island taking their funds with them.

    1. Paul Tioxon

      Perhaps we need an update of “THE GRUNDRISSE” where when capital goes on strike and withdraws itself from circulation, the state declares all of that money illegal and issues a new currency transmitted by the newly reformed and state controlled central bank to affiliated state Industrial Banks that lend out money to newly formed worker controlled limited equity coops, limited equity housing coops and credit unions and consumer good walmart like coops. Perhaps that should clear up the uncertainty of all of the money sitting on the sidelines waiting for the police state to quell dissent and force feed austerity without question down the throats of the populace. Investors are accomplices to the banksters. Why they should be seen as anything other than the wheelmen in the heist is beyond me. Haircuts, they should be getting the guillotine.

      1. Blunt

        Well said, Paul.

        After “Grundrisse” perhaps “Kapital, Vol. I” might be effective as well.

        I think that the days have passed when well-meaning people can imagine that there’s a “fix” for capitalist economy that will return it to sanity.

        It was made about as “sane” as it can be made from 1937-1940 and then again from 1946-1970. There was a decline for 10 years and then the insanity returned with the “Reagan Revolution” which could have best been characterized as the “Reagan Counter-Revolution.”

        For the past 32 years we have seen the nakedness of what capitalism truly is: an exploitive system that rends human beings and societies as being of no importance in the mad rush of a pack of jackels to consume everything else and then one another until there is left just one.

        Guillotines or bullets, what does it matter at this point? In the immortal words of Arnaud-Amalric, “Kill them all; God will know His own.” I know that sounds harsh, but at this point it seems to have obviously become a matter of self-defense.

      1. F. Beard

        but why not capitalize a really, really boring bank? Lambert Strether

        Because all credit creation, even when done prudently, is THEFT of purchasing power.

    2. Conscience of a conservative

      The PIMCO rift is bigger than just this issue. Firms like PIMCO know they are a huge disadvantage to the dealers in the swaps market, due to the asymetry of data the dealers get through MARKIT. The longer this issue isn’t solved the bigget the eventual ramifications. PIMCO is not some little guy you can ignore.

  2. jake chase

    Cutting through all this bs, here is what the tiff comes to: the securitization buy side consists of overpaid yield chasing id**ts who believed their sinecures required only doing no worse than the next yield chasing id**t occupying an identical chair at another institution. Like their brethern at the banks, these buy side foozlers cooperated in the financial destruction of their employers, but they now try to occupy the high ground hoping for a bailout and a free pass for themselves. Screw all of them. We should incarcerate and strip naked all the so called professionals on both sides of securitization for the past fifteen years unless any of them can prove they acted intelligently and responsibly. That might let five or six of them off the hook, but I doubt it.

    1. problem is

      +1… jake chase…
      I like an optimistic analysis… I’m still laughing at your “cut to the chase” style…

  3. Dan G

    It kinda leaves Deutsch holding a bag of unsold securities in the futre. The Deutsch bag. I had to say it.

    1. Jill


      I wish they would but I don’t think they care about what happens to homeowners all that much. However, if they would stand for the rule of law they would help themselves and incidentally, the lower orders as well!

      You need only look to Russia to see that the rich think they are untouchable– until they aren’t. The US is lawless. Until recently I don’t think that many wealthy people thought such a thing mattered. Here is a case where clearly, it does.

      Rule of law protects the rich and the poor alike.

      1. Murky

        Mikhail Khodorkovsky also thought the rich could do anything they wanted in Russia. Misha K’s time in the slammer has probably given him cause to reconsider his views. Yes Russia has its oligarchs, but they can’t do end runs around state interests.

      2. nonclassical


        ..were it ever thus-$$$ interests have been deregulating legislation + laws for 35 years..throwback to Gilded Age..

        ..caused by “free market” aversion to transparency, oversight..”smaller” government aside, the real goal is WEAKER government…and it’s herrreee..

    2. Ram Mafia Emanuel

      Investment Bankster/traders aren’t all greedy, narcissistic, sociopathic scum who pretend their lil’ insider access, rigged casinos, hooks, grifts, fraud algorithms, and software make the world go ’round the sun.
      Control of the legislature makes their criminogenic predation ‘legal’. Beat down Capone!

  4. Damian

    the grievances align almost perfectly as you look at all the reasons for damages

    since its obvious – there must be a political reason for the lack of follow thru – it cries out for a RICO action to take down the banks

      1. problem is

        Listen to the interview Yves gave Harry Shearer. She describes how the settlement takes away the very prosecutable perjury and robo fraud documents cases that in discovery could lead to more incriminating evidence and indictments…

        Well Yves can explain it way better than I…

        Yves Interview

  5. Gary

    Anyone who believes that the financial industry trade groups speak for the buy side has not been paying attention.

    Charlie McCreevy, then EU Internal Markets Commisstioner, spoke in Cambridge on June 24, 2009 (if memory serves) and warned specifically that regulators and policy makers needed to seek out the concerns of the buy side because the trade groups did not represent them.

    In January 2009, Paul Volcker’s G30 report specifically stated that it was crucial to regaining financial stability that regulators find out from the buy side (not the sell side) what was needed to end the buyers’ strike.

    Despite those two very prominent proclamations, journalists continue to ignore the implications.

    Perhaps PIMCO’s action will change that?

    Yeah, right.

    1. Wendy

      So there’s been a buy-side strike for 3+ years now? How, then, will Pimco and others leaving the ASF affect any party other than ASF (OK, and its remaining members)?
      that is to say, what effect will this have, if any, in the real world?
      and, if any, what will the timing of that effect be? so far it seems the gridlock has gone on far, far longer than anyone predicted.

      1. nonclassical

        ..”gone on far, far longer than..”

        ..Gore Vidal stated 2 years ago this will continue (without accountability) for another 20 years, and the country will never be the same..

        ..last week study showed another 15 quarters of foreclosures-bankruptcies…

  6. Up the Ante

    “Seriously, though, .. Deutsch gave one of the most outrageously dishonest presentations I can recall ever seeing, ..”

    You haven’t attended to the Geithner-unit lately ?? He’s gotten so good at pre-, peri-, or post-varication he may as well be called up to the Lizard Men’s Mothership.


    1. Yves Smith Post author

      Geither understands full well that he is selling a garbage barge and gives all sorts of adept caveats to the well informed. Deutsch doesn’t bother with niceties like that.

      1. Up the Ante

        “Geithner .. selling a garbage barge ”

        A most fitting role for a disciple of Kissinger/Nixon.

        There is one thing that he does not hide well. He appears utterly content with the direction of events.

        1. Tim

          Here, here. I’ve never seen such a happy content man, let alone a captain at the helm of a ship in a terrible storm that’s gonna sink. Must not be going down the ship eh?

          1. Up the Ante

            With ship’s crew like this,


            ” “In these enterprises, there are lots of problems probably going on at any given time, in far-flung areas,” Ms. Schapiro said, ..

            “These are enormous undertakings and enterprises, and I think as we look in different areas of their businesses and we focus on different topics, we find problems over and over again,” ”

            ” “People won’t settle with us if they have to admit” wrongdoing, Ms. Schapiro said, because it opens them to liability in civil damages lawsuits. ”

            Schapiro is telling us these large enterprises are defective, and that she can not regulate them.

            She is rubber stamping them, and her SEC is asking federal judges to rubber stamp them.
            And judge Frederick Block asks, “Am I just a rubber stamp here or is there some inquiry I ought to be making about these provisions?”, and then proceeds to rubber stamp the SEC’s request.
            This is the type of BS they call ‘a perfect storm’.


            The Treasury Secretary, the OCC, and the SEC conspiring against the taxpayers is ‘a perfect storm’ ? Duh ?

  7. Don't GS me Please!

    The whole scandal ridden FIRE industry is facing it’s KARMA, although twisting slowly after the adage’ What goes around, comes around’!

    I am welcoming anything which promotes ‘ Dog eats dog’ litigation among ALL participants of 2008 crisis, to get towards some semblance of ‘justice’. A massive crash isn’t that bad since 1% will take the hit if it happens ‘out of nowhere’ scenario!

  8. Blurtman

    One line of propaganda seeks to justify the gov’s fellating the TBTF’s by pointing out the importance of having giant globally competitive banks. It is an nternational FIRE arms race, and who wants to actually make things anyway? Timmay says the TBTF banks have an unlimited gov backstop. It’s for our own good, ya see.

  9. Valissa

    Very interesting post Yves, thanks! Thankfully the financial elite are not a homogeneous group. There are many different players and it’s the ‘war games’ between these various factions and how those play out that will ultimately inform any new financial policies, regulations, and enforcement.

    From that Bloomberg article… The ASF is among groups vying to influence policy makers amid the largest financial regulatory overhaul since the 1930s and following a crisis triggered partly by securitization, the packaging of assets such as mortgages into bonds.

    Will PIMCO join up or align with another of these groups instead? Will allies of PIMCO also leave ASF and where will they go instead? Or will they simply create a new Forum of their own?

    1. Wendy

      I read the “doozy” section above to say the investors have gone off and created their own trade group, for buy-side only. But like you, I wonder, what effect does this have for the real world? And if any, will it unwind at the current glacial pace of the meltdown? All they can do is refuse to buy, right? (I am honestly asking, I am an attorney, not a finance person.) And apparently there already is a buy-side “strike” (referenced by Volcker in a January 2009 report, noted in comments above). So they’ve already employed their economic power, haven’t they? What else will this move accomplish?

  10. Kiffmeister

    Be careful not to confuse the ASF and SIFMA (“if most investors leave SIFMA, that will be a huge blow not only to its finances but more important to its legitimacy”) I can’t say for sure, but I recall being told that the ASF was jettisoned from SIFMA over the concerns expressed here. So can I assume that SIFMA is more investor friendly?

    1. Yves Smith Post author

      No, I know the difference. See headline. This was a 5 AM drafting error and failure to reread the entire piece.

      I once submitted the draft of a client report, and the head of marketing called and said, “In general, this is really good but what is all this stuff about Argentina?” I had visited Venezuela, but because I was listening to Evita while writing, “Venezuela” turned into “Argentina”. Similar type of brain fart here.

  11. scraping_by

    Actually, Mr. Gross is waking up from the dream of wealth-defined immunity.

    Had he read The Foreclosure of America: Life Inside Countrywide Home Loans and the Selling of the American Dream by Adam Michaelson, the head of marketing for Countrywide, he’d known before now they deliberately made fraudulent loans to have something to securitize. Did he imagine the loans somehow went from fraud to fair by the act of accumulation? Odd reasoning.

    Oh, and Con of Con, loans made not at the behest of the government, under CRA, of HUD, or the then-private Fannie and Freddie. Just for the transaction fees.

    All dictatorships are meat grinders. The populace is watched constantly, but fellow elites are the subject of constant and often fatal scheming. The financial industry has become the master class, and now they have each other to struggle against. Have fun, guys!

    1. Mark P.

      Yup. That’s be the lesson of MF Global/John Corzine vs. JP Morgan: in this global game of musical chairs, we’ve entered the phase in which the big dogs start seriously savaging and cannibalizing each other in their efforts to grab real assets to back up their ponzi claims.

  12. different clue

    So if the mortgage settlement is designed to cover up the fraudulent lending designed to create mortgages to bundle and sell to the PIMCO class, and a representative of the PIMCO class is about to leave the Securitizers Lobby Group and maybe even get other little “pimcoids” to leave as well; might PIMCO and “all the little pimcoids” try to torture the 50-state AGs into refusing to accept the settlement after all? Or is it too late for that anyway?

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