Oh boy, if you think the Massachusetts Supreme Judicial Court decision on Ibanez, which raised serious questions about the validity of transfers in mortgage securitizations, turned heads in the banking industry, you ain’t seen nothin’ yet. The SJC is considering what has the potential to be another widely-watched case, Bevilacqua v. Rodriguez. Note this case […]
Read more...By Matt Stoller, the former Senior Policy Advisor for Rep. Alan Grayson. His Twitter feed is @matthewstoller
The Federal Open Market Committee releases its transcripts on a five year time lag. Last week, we learned what they were saying in 2005. Dylan Ratigan blogged an interesting catch: Dallas Fed President Richard Fisher expressed his frustration about Chinese imports. Not, of course, that there were too many imports, but that our ports weren’t big enough to allow all the outsourcing American CEOs wanted.
Read more...Fisher is just the latest Fed official to applaud this trend. Here’s the backstory. In the 1970s, there was a lot of inflation. The oligarchs of the time didn’t like this, because it made their portfolios worth less money. So they decided they would clamp down on inflation by no longer allowing wage increases. To get the goods they needed without a high wage work force, they would ship in everything they needed from East Asia and Mexico. The strategy worked. Inflation collapsed. Wages stopped going up. There were no more strikes. Unemployment jumped….But basically this was a way of ensuring that banks and creditors could make a lot of money that would instead go to workers.
Earlier this week, we discussed how several measures proposed in Virginia would have the effect of redressing the power imbalance between banks and borrowers in the foreclosure process. One would give borrowers more time to mount defensed (Virginia has one of the fastest track processes in the US); another would require judicial approval for a foreclosure to become final. But the farthest-reaching proposal would force banks to maintain accurate property records in local government offices, which would end the use of MERS in that state.
Not surprisingly, the industry is not about to let this go down without a fight.
Read more...Even as we and other commentators have noted the underlying weakness of major bank balance sheets, which have been propped up by asset-price-flattering super low interest rates and regulatory forbearance, we still witness the unseemly spectacle of major banks keen to leverage up again. The current ruse is raising dividends to shareholders, a move the Fed seems likely to approve. Anat Admati reminded us in the Financial Times on Wednesday that we are about to repeat the mistakes of the crisis:
Read more...In the last week, several ideas for fixing the housing market have surfaced. One is the Third Way proposal, which appears to be an Administration trial balloon. Predictably, it is yet anther bailout, with plenty of smoke and mirrors to disguise that fact.
A second proposal, from Sheila Bair yesterday, is to establish a “foreclosure claims commission“. This scheme sounds more promising that the Third Way proposal, but is very likely to wind up in bailout territory.
Third is a not-widely-covered plan by Senator Jeff Merkley.
The Merkley proposal is pro consumer and pro investor; the other two are pro bank. Sadly, it isn’t hard to see which is likely to prevail in the absence of public pressure.
Read more...This is starting to get interesting. Having achieved the creation of special courts to whittle down a backlog of foreclosures, called the “rocket docket” due to the propensity of many of its judges to operate on an accelerated timetable that too often led to a refusal to hear borrower objections and evidence, servicers are now withdrawing foreclosure cases in Southwest Florida en masse.
It is not yet clear whether these cases are being abandoned or whether the banks will refile once they find a way to argue their action is valid. However, reading between the lines, one has to question whether they will succeed.
Read more...I wish I had bandwidth to cover the Goldman-Facebook egg-on-its-face fiasco long form, but since other able writers are all over this story, I suspect NC readers will not find coverage wanting.
However, I could not let this remark pass without comment. From the Wall Street Journal:
Read more...Judge Arthur Schack might be the American Securitization Forum’s worst nightmare if more people started paying attention to his rulings. The Brooklyn judge has gotten a lot of media coverage for his lack of patience with “dog ate my homework” excuses from bank plaintiffs in foreclosure cases, as manifested by how often he has dismissed cases with prejudice (meaning those parties cannot return to court on the same matter).
But Schack is treated as a curiosity, a maverick. His colorful, rambling decisions reinforce that perception, which is useful from the banks’ perspective: he can be depicted as an outlier rather than as someone who has looked hard at securitization practices and does not like what he sees.
Read more...The securitization industry may be about to reap the whirlwind of its failure to take the need for reform seriously. As we’ve indicated, industry incumbents have adopted a denialist approach to widespread evidence of serious documentation problems and procedural abuses, and have fought reasonable, pro investor proposals tooth and nail.
The Washington Post reports on several pending legislative proposals in the state of Virginia, all of which seek to level the power imbalance between the financial services industry and mortgage borrowers. The interesting thing about this pushback is that Virginia is not at all left leaning state. These measures instead appears to result from the fact that it has one of the fastest foreclosure processes in the US.
Read more...Tony Jackson of the Financial Times has an article tonight on a topic near and dear to my heart, namely the fact that higher capital ratios will not lead investment banks, um, banks, to change their highly profitable “wreck the economy” behavior. He focuses on the role of how the change from the partnership model has turned investment bankers into mercenaries (and one might add, mercenaries willing and able to foment precisely the sort of trouble in which they can then intervene):
Read more...An article in the Wall Street Journal says that the incoming New York state attorney general, Eric Schneiderman, is going to be nicer to Wall Street than his predecessors Eliot Spitzer and Andrew Cuomo. Given that Cuomo decided to take financial firm chicanery seriously only fairly late in his term of office, the Wall Street Journal assessment does not bode well for the prospect of tough enforcement.
The reason this matters is that the New York state AG has a particularly effective weapon, the Martin Act. One of the continuing frustrations I have as a writer and a citizen is the use of the word “fraud”. Activities that by any common-sense standard are fraudulent probably don’t meet the legal standard for fraud. In very crude terms, one of the hurdles that needs to be overcome is intent. If a perp can argue that he thought what he did was not improper (his attorneys or accountant blessed it, it never occurred to him it was an abuse, etc.) or he can claim it was a mistake, he can get off scot free. The very fact that Joe Cassano, the head of AIG’s Financial Products Group, has not been prosecuted serves as an illustration of difficulties involved.
Read more...Jamie Dimon told the press on Friday that the mortgage crisis has been costly (but not TOO costly) for JP Morgan. From MarketWatch (hat tip Lisa Epstein):
Read more...J.P. Morgan Chase & Co. Chief Executive Jamie Dimon said Friday that the foreclosure process is a “mess” that’s cost the financial-services giant a lot of money.
Dimon also said litigation over troubled mortgage securities is “going to be a long, ugly mess,” but won’t be “life-threatening” for J.P. Morgan….
Banks and the securitization industry have been spinning the Ibanez decision as hard as they can, even going so far as to put forward Baghdad Bob style claims that the Massachusetts Supreme Judicial Court ruling said that mortgage assignment in blank worked, when a reading of the ruling show the polar opposite.
Georgetown law professor Adam Levitin has done a bit of digging to see if the securitization industry defenders’ claims, that most mortgages in RMBS meet the documentation standard set forth in Ibanez, actually holds up. He find that many deals fail to meet the decisions’ requirements:
Read more...In an interesting bit of synchronicity, we’re getting other “how did we get there” snippets from the global financial crisis today. Bloomberg reports that the Federal Reserve actually did see that a housing bubble was underway, but stuck to its guns of measured interest rate increases. The problem is that its account is far too kind to the Fed and comes awfully close to being revisionist history:
Read more...Federal Reserve staff and policy makers identified a housing bubble in 2005, and failed to alter a predictable path of interest-rate increases to slow down the expansion of mortgage credit, transcripts from Open Market Committee meetings that year show….
The FOMC in June heard presentations from staff economists, with some raising alarms about housing markets, the transcript shows. Those warnings didn’t translate into a more aggressive policy. The committee raised the benchmark lending rate a quarter-point at that meeting and said “policy accommodation can be removed at a pace that is likely to be measured.”..
On the one hand, I must confess to a “I love the smell of napalm in the morning” response to reading the SIGTARP report on the extraordinary assistance extended to Citigroup, starting in November 2009. The well-documented, blow by blow account, taken from the perspective of regulators, dovetails neatly with the reports here and on other blogs during those fear-filled, gripping times. (As an aside, frustratingly, the media is treating some factoids in the account, such Citi’s reliance on over $500 billion of uninsured foreign deposits out of a $2 trillion balance sheet, as news, when it was noted repeatedly in the blogosphere, particularly here).
But on the other hand, the SIGTARP report is annoying, in that it fails to connect some critical dots, diminishes the importance of its key finding, and is far too complimentary to the officialdom.
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