Category Archives: Banking industry

California Bankruptcy Court Judge Edward Jellen Says Repeatedly He Doesn’t Care if the Creditor Asking to be Paid is Really Owed the Money

Per Georgetown Law Professor and bankruptcy specialist Adam Levitin and Tara Twomey of the National Association of Consumer Bankruptcy Attorneys in a Yale Journal on Regulation article:

The trustee will then typically convey the mortgage notes and security instruments to a “master document custodian,” who manages the loan documentation, while the servicer handles the collection of the loans. Increasingly, there are concerns that in many cases the loan documents have not been properly transferred to the trust, which raises issues about whether the trust has title to the loans and hence standing to bring foreclosure actions on defaulted loans…. In these cases, there is a set of far-reaching systemic implications from clouded title to the property and from litigation against trustees and securitization sponsors for either violating trust duties or violating representations and warranties about the sale and transfer of the mortgage loans to the trust.

Standing is a threshold issue and is a first year law school topic. It appears Judge Zellen either slept through that class or has been re-educated by the banksters since then.

The borrower is pro se (although he may have gotten some coaching from a lawyer) and appears to have comported himself well. The judge is quite another matter. This is from last year but germane because the case is going for oral arguments before the 9th Circuit Court of Appeals next week. Hat tip April Charney:

Steve Keen: Dude! Where’s My Recovery?

By Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney, and author of the book Debunking Economics. Cross posted from Steve Keen’s Debtwatch.

I initially planned to call this post “Economic Growth, Asset Markets and the Credit Accelerator”, but recent negative data out of America makes me think that this title is more in line with conversations currently taking place in the White House.

According to the NBER, the “Great Recession” is now two years behind us, but the recovery that normally follows a recession has not occurred. While growth did rise for a while, it has been anaemic compared to the norm after a recession, and it is already trending down. Growth needs to exceed 3 per cent per annum to reduce unemployment—the rule of thumb known as Okun’s Law—and it needs to be substantially higher than this to make serious inroads into it. Instead, growth barely peeped its head above Okun’s level. It is now below it again, and trending down.

AIG Does It Again: Sale of Maiden Lane II Assets Tanking Credit Markets

Readers may recall that AIG had approached the Fed about buying the entirely of its Maiden Lane II portfolio, the off balance sheet vehicle established to hold the non-CDO assets removed from the otherwise bankrupt insurer. The logic appeared to be that the insurer would be able to liquify its equity in the vehicle. It seemed pretty obvious at the time that the Fed could not justify selling the whole book to AIG; if there were any gains in the actual book, it would be a subsidy to AIG. The bid was also thus a strategy to force the vehicle to be unwound and any gains to be realized (which would lead AIG showing a profit on its position).

The problem is the “profit” appears to have been based on optimistic accounting, something we found to be the case in the Fed off balance sheet we’ve analyzed at length, Maiden Lane III. As Jim Chanos noted by e-mail, “Real transaction prices are not good for some of the ‘marks’ in many portfolios!” Needless to say, this also calls into question the use of Blackrock as asset manager, since the valuations were based on its marks.

Goldman Sycophants of the World Unite! You Have Nothing to Lose but Your Virtually Non-Existent Reputations!

The Goldman defense against the Levin report is so late and so pathetic that it looks increasingly evident that the bank is simply hoping to cause confusion and muddy the waters rather than mount a frontal, fact-based rebuttal. Mind you, sniping and innuendo can prove reasonably effective if done persistently and loudly enough. The book Agnotology describes how Big Tobacco managed to sow doubt over decades of the link between smoking and lung cancer well after the medical evidence had gone from suggestive to compelling.

The first Goldman salvo was an Andrew Ross Sorkin piece on Monday which we deemed as unpersuasive. While it did point to an error in the Senate report, it failed to make a real dent the report’s findings, and most important, the notion that Goldman staffers, in particular Lloyd Blankfein, were pretty loose with the truth.

The most contested statement is the Blankfein denial that the firm had a “massive short” position; as Matt Taibbi points out today, the only way out on that one is to get into Clintonesque parsings of the word “massive”. Given the overwhelming evidence that Goldman intended to get out of its mortgage risk in late 2006 and its staff DID get the firm short in February 2007, then reversed that position in March to correctly catch a short term bounce (the market recovered from March to May, when it went into its free fall). And in the March-May period, it was still getting as much crap product out the door and lying to clients about its position in the deals, claiming its incentives were aligned when its effective short position in the deals meant the reverse, that it would profit if they tanked, which they did.

But focusing on the “massive short” issue is misdirection pure and simple.

Adulterous Failed Banker Fred Goodwin’s New Human Shield

Back in March, and courtesy of Naked Capitalism’s US locale, we arbed away Fred Goodwin’s superinjunction, which banned UK reporting of his affair with a junior director at RBS. After more challenges by the UK newspapers, the superinjunction has now been amended: it’s OK to identify Fred Goodwin as the failed banker with the wandering body part; but still not OK to identify his partner, who is referred to in the official documents by the code letters “VBN”.

Michigan Court Relies on New York Trust Theory, Rules Loan Never Made it to Trust

A June 6 trial court decision in Michigan, Hendricks v. US Bank, has not gotten the attention it warrants because to the extent it has been noticed, it has been depicted as invalidating an effort to effect a note (the borrower IOU) transfer via MERS. While that was one of the grounds for a ruling favorable to the borrower, the court also considered and gave a thumbs’ up to what we call the New York trust theory. That has far more significance, as readers will see shortly (hat tip to Foreclosure Fraud for this sighting).

Treasury Waves Wet Noodle at Big Banks Over HAMP Mortgage Mod Abuses

This latest move by the Treasury Department to appear to Do Something about Big Bad Banks is so off the charts pathetic that I am straining to find an adequate description. It isn’t merely ineffectual; it looks instead like a deliberate thumbing of the nose at the financier-afflicted public, with the Treasury and the mortgage industrial complex elbowing each other in the ribs and laughing uncontrollably at how they’ve made their point, that the public be damned, while observing proper bureaucratic forms in the process.

Obama Still Desperately Seeking Anybody But Warren to Head New Consumer Agency

The Administration is playing true to its craven form. And it isn’t hiding that sorry fact terribly well either.

The latest public-be-damned ploy by the Obama Administration is the floating the name of Raj Date, a former McKinsey consultant and financial services industry executive currently ensconced in the nascent Consumer Financial Protection, as the possible new head of the agency.

Remember the state of play on the nomination of the head of the Consumer Financial Protection Bureau. That individual is to be in place as of July 21. Even assuming everyone plays nicely, the timetable is now too short to go through the conventional approval process, meaning a recess appointment is the only way to get a permanent leader in place.

The Republicans have taken the stance that they are not prepared to be bound by the law, meaning Dodd Frank, despite the fact that most of what is promised to do was kicked over to studies and rulemaking, which assured it will be watered down to nothingness. 44 Republican Senators wrote a letter saying they won’t approve of any nominee from either party unless the CFPB is ~~gutted~~ reformed. And they are trying to block a recess appointment through the use of a “pro forma” sessions, as they did over the Memorial Day break and presumably will over the July 4 holiday.

But the Republican intransigence works to Obama’s advantage, were he not fundamentally opposed to elevating Warren.

Chinese Real Estate Bubble Finally Imploding?

The warnings of successful shorts like Jim Chanos, old Asia hands like Frank Verneroso, and economists like Victor Shih and Michael Pettis have failed to curb enthusiasm for the belief that the rise of China is inevitable and unstoppable. As someone who was deeply involved with Japan when it was seen as destined to replace the sclerotic US, I’ve learned to regard more or less straight line growth projections with considerable skepticism.

China has accomplished the impressive feat of bringing literally hundreds of millions out of poverty in a comparatively short time frame. It has also studied the Japanese playbook and managed to avoid some of its pitfalls (of course, it has the advantage of not being a military protectorate of the US), in particular refusing to liberalize its financial markets (some accounts of the Japanese bubble and burst give considerable weight to overly rapid deregulation and the growth of what was then called zaitech, or financial speculation). is also hostile to neoclassical economists.

China escaped much of the impact of the global financial crisis by ramping up investment even higher than its pre-crisis level. It now has investment approaching 50% of GDP, an unheard of level on a sustained basis. A big chunk of that is housing related (housing is an estimated 13.5% of GDP), and prices have long been considerably out of line with incomes, a telltale sign of a bubble. In Beijing, admittedly one of the hottest markets, an average priced new apartment was equal to 57 years of average worker savings (and if you tried to pay for it with a super-long dated mortgage, you’d be in hock even longer, since you would also need to cover the interest charges).

Another warning sign is inventory overhang; the Wall Street Journal reports tonight that Standard Chartered forecasts that level of unsold apartments in secondary cities will amounts to roughly 20 months of sales by year end (and that’s before considering that many of the apartments are being acquired as investments rather than for use).

The Journal story tonight provides evidence that the Chinese housing market is going into reverse

Call Your Senators Over Sneak Attack On the Consumer Financial Protection Bureau

The Republicans have threatened to kill the CFPB and they look to have finally pulled out their gun and taken aim. I received this message from Mary Bottari:

In a last minute development, opponents of financial reform are pushing for votes TODAY on amendments to gut the new Consumer Financial Protection Bureau (CFPB) (AMENDMENT NUMBER #391 – Moran), and to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act entirely (AMENDMENT NUMBER #394 – DeMint) . A vote to delay and try to derail curbs on fees banks charge merchants – and thus the consumer – on debit cards is already scheduled (AMENDMENT NUMBER #392 – Tester).

Call your Senators now and tell them to oppose these proposals to gut the CFPB!

Embarrassingly Lame Federal/”50″ State Attorneys General Mortgage Negotiations Continue

I’m having trouble understanding why anyone is still treating the Federal/state attorney general mortgage “settlement” negotiations as anything other that a fiasco. The more news reports come out, the more the parties aligned against the banks look like fools.

The latest confirmation comes in an article by Shahien Nasiripour in the Huffington Post that a member of the Department of Justice briefed state attorneys general and reported that the biggest banks in the servicing business had resigned themselves to paying $20 billion:

The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Sounds impressive, right? It’s not.

Kevin O’Rourke on the Irish/Eurozone Mess

This INET video focuses on how Ireland got into its mess as well as the domestic and international political dynamics as to how it is being resolved. There is an interesting tension between the cool talking head style and some of the coded descriptions of the stresses and the stark choices at hand.

Alexander Gloy: Merkel to Sinn: “In my office. NOW.”

Yves here. Outbreaks of candor and foresight among the political classes are so rare that they bear watching. As Gloy’s sighting suggests, they have to be arrested quickly lest they prove to be contagious.

By Alexander Gloy, CIO of Lighthouse Investment Management

Hans-Werner Sinn, head of German research institute Ifo, has just put his life into peril. He had to pick a Swiss magazine (“Bilanz”) to express what nobody else is allowed to mention in Germany: “Greece is a bottomless barrel”.

Goldman Uses Wall Street’s Favorite Reporter to Make Unpersuasive Defense Against Levin Report

Last night, the Wall Street Journal reported that Goldman was going on the offensive against the Levin report:

Goldman Sachs Group Inc., trying to counter a Senate subcommittee report that is fueling investigations and suspicion of the firm, plans to accuse the subcommittee of drastically overstating Goldman’s bets against the housing market in 2007….

The subcommittee’s 639-page report in April denounced Goldman as an unusually strong example of wrongdoing by financial firms during the crisis. According to the report, Goldman systematically sought to profit from a “big short” against the housing market and betrayed clients by putting the firm’s own interests ahead of theirs.

Goldman initially said it disagreed “with many of the conclusions of the report,” though the company added that it takes “seriously the issues explored by the subcommittee.”

Tonight, Andrew Ross Sorkin of the New York Times offers what appears to be a preview of the Goldman defense. If this is the sort of thing Goldman plans to provide, it is not terribly convincing.