Category Archives: Banking industry

Securitization Industry Defenders Present Even More Dubious Defenses

Wow, having liability on opinion letters on securitizations will lead law firms to try to pass off distorted readings of court decisions to save their bacon.

The latest example is K&L Gates, one of the signers of the executive summary of an American Securitization Forum paper issued last November. It endeavored to defend securitization industry practices that have led securitization trusts which own mortgages to have difficulty foreclosing. Even thought its claims are increasingly being rebutted in court decisions, the ASF cohort seems to believe that if it tells the Big Lie long enough and loudly enough, the problem will go away. But judges have this funny habit of being very independent, so I sincerely doubt this strategy has any chance of succeeding.

Should We Buy Geithner’s Resistance to Naming “Systemically Important” Firms?

According to the Financial Times, Treasury Secretary Timothy Geithner is trying to duck the assignment given the Financial Stability Oversight Council under the Dodd Frank legislation, namely, that of identifying “systemically important” financial institutions:

Tim Geithner, the Treasury secretary, has questioned the feasibility of identifying financial institutions as “systemically important” in advance of a crisis, just as the regulatory council he chairs is supposed to start doing precisely that…

DC Puts Its Bankster-Friendly Solution for Foreclosure Fraud on the Table

We’ll analyze a proposal to fix the foreclosure mess put out by a DC think tank known as Third Way. Normally this blog steers clear of delving into random policy documents. In this case, though, it is likely that Third Way is speaking for the administration.

Third Way is an influential think tank whose board is composed of a special Wall Street-type – the Rubin Democrat. These people sit at the nexus of politics and finance, and are conduits for big bank friendly information flow into the administration and Congress. The President of the think tank, Jonathan Cowan, was the Chief of Staff for Andrew Cuomo at HUD in the 1990s, and Third Way is well known in policy circles for delivering ‘politically safe’ and well-packaged conventional wisdom. Oh, and one more thing – the new White House Chief of Staff Bill Daley, who just left the most senior operating committee of JP Morgan, was on their Board of Directors.

So by looking at this proposal, we are looking at the state of play among high level policy makers in DC, particularly of the New Dem bent. This is how the administration will probably try to play foreclosure-gate.

Their proposal, not surprisingly, is yet another bailout.

Richard Alford: Why Has the PPIP Scandal Been Swept Under the Rug?

By Richard Alford, a former economist at the New York Fed. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side. I long ago stopped reading the reports by SIGTARP and ceased following Treasury’s PPIP program. It was a mistake. […]

Barclays’ Bob Diamond to Non-Bankers: Drop Dead

Bob Diamond, Barclays’ chief executive officer, no more said something as inflammatory as “drop dead” to the UK Treasury select committee yesterday than Gerald Ford did in a 1975 speech refusing to extend financial assistance to save New York City from bankruptcy. But the substance was every bit as uncooperative.

Despite its artful packaging, Diamond’s presentation was yet another reminder of the banking industry’s continued extortion game, namely, that they can take outsized, leveraged risks and when they work out, pay themselves handsome rewards, and when they don’t, dump them on the taxpayer. And they’ve only been encouraged to up the ante. Not only did they get to keep their winnings from their last “wreck the economy” exercise, no senior executive was fired, no boards were replaced, and UBS was the only major bank required to give a detailed account of how its screwed up so badly as to need government support. And before you tell me Barclays was never bailed out, tell me exactly how well it would have fared had any other major UK or international bank failed, or had the officialdom not provided extraordinary liquidity support when interbank funding dried up.

Warning Sign or False Positive – Divergence Between Stock and Credit Markets on Eurobanks

One of the noteworthy features of 2007 was a pronounced divergence in sentiment between the bond and stock markets, with the credit indices sending out warning signals while equities continued to soar higher. This is hardly surprising; an old joke is that the bond market predicted 9 of the last 4 recessions.

We are seeing the same type of divergence again, this time in European bank stocks. And if the credit worry warts are correct, this could be a harbinger of bigger shocks.

SEC Enforcement Chief Khuzami Under Scrutiny Over Citi Settlement

We were very critical of the SEC settlement with Citigroup, negotiated by its head of enforcement Robert Khuzami, over Citi’s failure to report losses on subprime holdings as the market for those holding tanked. In our post “The Wages of Sin: Former Citi Execs Pay Token Fines for Lying to Investors,” we remarked:

Satyajit Das: European Death Spiral – Communicable Diseases

By Satyajit Das, the author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives”

Communicable Diseases

European politicians and central bankers have provided useful geographical clarifications. Prior to succumbing to the inevitable, the Ireland told everyone that they were not Greece. Portugal is now telling everyone that it is not Greece or Ireland. Spain insists that it is not Greece, Ireland or Portugal. Italy says it is not in the “PIGS”. Belgium insists it was no “B” in “PIGS” or “PIIGS”.

EU pressure on Ireland to accept external “help” was to safeguard financial stability in the Euro area, as much as rescue Ireland. However, contagion is proving difficult to prevent.

Adam Levitin Takes Apart Securitization Industry Posturing on Ibanez, Harp Decisions

There’s a great post up by Georgetown law professor Adam Levitin on the implications and misreading of two mortgage decisions last week, the Massachusetts Ibanez case and Harp in Maine. Here are key sections: Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove: (1) a complete and unbroken chain of title […]

FDIC Calls for Better Disclosure of Servicer Conflicts of Interest in Second Mortgates

There are lots of reasons why servicers are failing to make deep enough mortgage mods to salvage viable borrowers (ones who still have a decent level of income). One of the most troubling is that the parent bank often also has a large book of second mortgages, and writing down first mortgages would require them […]

ASF Lies Yet Again, Brazenly Asserts That Ibanez Ruling Validates Reliance on PSA for Transfers, Blank Assignments

If the ASF keeps this sort of nonsense up, it’s soon going to have the status of Pravda in the later stages of the Soviet Union, a mouthpiece of falsehoods that the officialdom is particularly eager to promote.

So What Else Has the American Securitization Forum Said That is Wrong?

As readers may recall, the American Securitization Forum came out, in what it no doubt thought was guns-a-blazing style, to attack critics of securitization abuses. In particular, the ASF was taking aim at theories of the sort advanced on this blog, and later in Congressional hearings and in a Congressional Oversight Panel report, that the notes (meaning the promissory note, meaning the borrower IOU) in many cases, if not pervasively, had not been endorsed and conveyed as required by the pooling and servicing agreements, which are the contracts that govern mortgage securitizations. In other words, the industry had committed in contracts to investors to take some very particular steps to assure that the securitization complied with a host of legal requirements to assure that the investors got the benefits of the cashflows from the mortgages, and then proceeded to welsh on their deal.

Normally, this would not be such a big deal. Contracts are often breached; the usual remedy is to get a a waiver, which sometimes might involve a payment of some sort. But securitizations are particularly inflexible agreements. From the abstract of a 2010 paper by Anna Gelpern and Adam Levitin:

Mass Supreme Court Rules Against Wells Fargo, Deutsche Case on Validity of Mortgage Transfers in Securitizations

Bottom line: even thought the Supreme Court ruling in this Massachusetts case, Ibanez, was narrow, it still represents a major blow to the securitization industry, specifically, the argument made by the American Securitzation Forum and securitization law firms that have liability on opinions they provided on residential mortgage securitizations. It is also certain to fuel more challenges in court based on failures of the parties to securitizations to adhere to the requirements of their contracts.