The folks at ForeclosureFraud were kind enough to pass along an archival document that I thought readers would enjoy.
This Moody’s report illustrates what the prospect of higher fees for securitization-related ratings did to rating agencies’ quality of analysis.
Read more...Richard Koo’s book The Holy Grail of Economics is the definitive work on what he calls “balance sheet recessions”. He explain, among other things, why QE2 is not likely to be successful.
Read more...In a move not noticed much three weeks ago, Bank of America announced that it was segregating its crappy mortgages into a “bad bank”. It got more attention today by virtue of being discussed long form in an investor conference call (see related stories at Bloomberg and Housing Wire).
The use of a “bad bank” is strongly associatied with failed institutions. Some of the big Texas banks that went bust in the 1980s (Texas Commerce Bank and First Interstate) used “good bank/bad bank” structures to hive off the dud assets to investors at the best attainable price, and preserve the value of the performing assets. The Resolution Trust Corporation, the workout vehicle in the savings and loan crisis, was effectively a really big bad bank. The FDIC is (and I presume was) able to sell branches and deposits pretty readily; the remaining bad loans and unsellable branch operations reached such a level that the FDIC was forced to go hat in hand to Congress and get funding while it worked out the dreck. A similar structure was used in in the wake of the banking crisis in Sweden in the early 1990s.
I am told by mortgage maven Rosner and others that this move is not meant as a legal separation, but a mere financial reporting measure, so that BofA can declare, “See, we do have this toxic waste over here, but we are chipping away at it and we’ll have that resolved in some not infinite time frame” (the current talk is 36 months) “and look at how the rest of the bank looks pretty good!.”
So I may be accused of being cynical, but I read more into it than that.
Read more...Aha, the level of financial innovation spurred by super low interest rates is starting to have that “I love the smell of napalm in the morning” feel to it.
The Financial Times reports that there is a frenzy to create synthetic junk bonds, ostensibly to satisfy the desire of yield-hungry investors. Any time you see a lot of long money flowing into synthetic assets rather than real economy uses, it’s a sign that Keynes’ casino is open for business (“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”)
The author compare this development to that of the asset backed securities CDO market, one of our betes noirs which blew up spectacularly in the crisis. There are some similarities and differences.
Read more...I’ve pointed out how effective a non-negotiable posture can be, at least until the other side pulls out its ammo or threatens to walk from the deal. Most people in negotiations go on the assumption that the other side is reasonable or at least sincere (even if sincerely deluded) and will offer concessions on the assumption the other side will reciprocate.
The poster child of the usual outcome of offering concessions to a party who is non-negotiable is can be summarized in one word, as in “appeasement” circa 1939. And the ridiculous part is that the banks are being allowed to cop a ‘tude when the other side holds all the cards.
Let’s get this straight: this “settlement” should not be a negotiation. Virtually all the items in the 27 page outline of mortgage settlement terms that was leaked yesterday simply restates existing law or existing contractual obligations. If the officialdom wants to rely on mechanisms beyond the courts (since some judges are more pro-bank than others, which can produce the dreaded disease of “uncertainty”), the same results could be achieve by rulemaking without regulators or state attorneys general providing any releases from legal liability to the banks.
As banking/mortgage expert Josh Rosner said in an e-mail to clients:
Read more...By William Hogeland, the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History who blogs at http://www.williamhogeland.com. Cross posted from New Deal 2.0.
Ordinary 18th-century Americans fought for fair access to small-scale credit and usable currencies. Big finance fought back.
Calling modern banking “a widespread fraud,” Rob Burns wants to push the finance industry out of everyday lending. A candidate for Congress in the fourth district of Illinois, Burns proposes using federally insured savings as a public fund for mortgages, student loans, consumer credit, business bridge loans — the kind of borrowing engaged in by ordinary Americans, not entrepreneurs. On a different finance reform front, the technology pioneer and culture critic Douglas Rushkoff has been exploring complementary currencies. Rushkoff envisions new monetary units, exchanged via handheld devices, helping to break what he calls “the money monopoly.”
Far-reaching ideas for getting money, currency, and credit to flow more democratically through the American economy would probably draw all-purpose condemnations like “socialism!” from the rightists led by Sarah Palin and Michele Bachmann. Liberal high finance experts too might find such proposals dangerously chaotic. But regardless of practicalities and politics, it’s useful to recognize that ideas like Burns’ and Rushkoff’s have deep roots in the American founding period.
Read more...Coming to a state or city near you, and quite possibly the one you are in….bankers bearing promises of solving budget woes by selling public infrastructure to private investors. This is in best case scenario makes about as much sense as using your house as an ATM to pay expenses, and in a worst-case scenario, is more like burning your furniture to heat the house. But desperate times lead to desperate and often short sighted measures.
Reader May Sage pointed us to this Truthout article, which we recommend reading in full. Key extracts:
Read more...Georgetown law professor and securitization expert Adam Levitin has weighed in on the ruling in an Alabama case, U.S. Bank v. Congress, in which a state court judge ruled against what we have called the New York trust theory. For readers new to this terrain, the short form is that the parties to mortgage securitizations are governed by a so-called pooling and servicing agreement. The PSA, among many other things, described how the notes (the borrower IOU) were to be conveyed to a trust that would hold them for the benefit of investors. The trust was almost without exception a New York trust. New York was chosen because its trust law is both very well settled and very rigid. New York trusts have no discretion in how they operate. Any measure undertaken that is inconsistent with explicit instructions is deemed to be a “void act”.
Now it appears that the notes were not conveyed to the trusts as stipulated in the PSAs on a widespread basis. (You can read the details here). Because the trusts are New York trusts, that means you have a really big mess. You can’t convey the notes in now, that’s not permitted because the trust had specific dates for accepting the assets that have long passed. The party that has the note (someone earlier in the securitization chain) can foreclose, but no one wants to do that. It isn’t just that this would be an admission that that parties to the agreement didn’t fulfill their contractual obligations; there is no way to get the money from the party that foreclosed to the trust and then to the investors.
Since the securitization industry has had so little good news of late, and this New York trust issue has the potential to make the chain of title problems that banks are facing in courtrooms all over the US even more acute, Paul Jackson of Housing Wire was quick to jump on this pro-bank decision as a major victory. We argued that it was probably not a significant precedent, and that some of the legal reasoning looked like a stretch, other parts were at odds with decisions in other states (meaning those states were unlikely to change course based on a lower-court decision in Alabama). But we acknowledged that parts of the decision were hard to parse and over our pay grade.
Levitin has taken an even more dismissive view of the decision
Read more...We pointed last week to an analysis by Lynn Syzmoniak that showed that foreclosures across a number of different servicers were way down in January 2011 versus the same period in January 2010. This was admittedly a tally in only two Florida counties, but she indicated that a quick look at other counties in Florida showed a similar pattern.
We are seeing analogous developments, but the drivers appear to be state specific, as judges give adverse rulings on common practices in foreclosure land. Reader wc4d pointed to a report in the Portland Oregonian, that lenders are withdrawing cases because five court decisions have found that lenders that used MERS violated state recording laws.
Read more...Paul Jackson has posted on a decision by an Alabama trial court involving the so-called New York trust theory that we have discussed at some length on this blog. Given how banks have been taking it on the chin ever since the robo-signing scandal broke, I suppose I’d be inclined to gloat a little, as Jackson does, in response to a verdict in favor of a bank; bank PR has been a particularly tough assignment these past few months.
But Jackson tries to treat this particular lower court decision as an important precedent, when this is anything but. In addition, Jackson evidently is not familiar the normal process of getting new legal arguments accepted in court, or of how decisions in one court are viewed in another. Finally, as I will touch on here and discuss at greater length next week, there are good reasons why it is unlikely courts in other states (or even Federal bankruptcy courts in Alabama) will look to this decision as a precedent.
Read more...By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is http://www.twitter.com/matthewstoller Mozilo’s emails expose a political philosophy borrowed from Ronald Reagan. I was combing through the Financial Crisis Inquiry Commission resource materials, and I found an interesting email from former Countrywide CEO Angelo Mozilo to his senior executives. It was written in […]
Read more...We are getting only odd tidbits out of the so-called settlement negotiations among the fifty state attorneys general, various Federal banking regulators, and mortgage servicing miscreants (meaning all of them). As Matt Stoller pointed out last weekend, the lack of transparency is troubling. Nevertheless, certain things are apparent.
1. There has not been anything even remotely resembling an investigation. As we have said earlier, the eight week Federal exam was a joke. As Adam Levitin noted:
Read more...The propaganda strategy for selling the public on the creation of supposedly new improved GSEs is becoming more apparent. Recall that we had an initial skirmish a month ago, when the Center for American Progress published a plan to reform Fannie/Freddie and the housing finance system. It would create an FDIC-like insurance fund to stand behind private Fannie/Freddie like entities that will offer reinsurance with an explicit Federal guarantee on mortgage-backed securities. These new firms can also be controlled by banks.
This plan, which was very similar to ones presented by the Mortgage Bankers Association, the Federal Reserve and the New York Fed, t was clearly an Administration trial balloon; the CAP is the mainstream Democrat think-tank, with close ties to Team Obama. But after the CAP proposal got some resistance, the Treasury’s report, which came later in the month, went the route of presenting three alternatives rather than a specific plan. But we argued at the time that this seeming change was merely a tactical move, to present the Administration as fair brokers in a politically fraught process, and that it still favored what we called the GSE 2.0 plan.
We think the idea of reconstituting the GSEs in somewhat improved form a terrible idea because it preserves the bad incentives of a public/private system and launders housing market subsidies in an inefficient and unaccountable way through the banking industry.
Read more...I must confess I get a perverse sense of satisfaction from watching MERS suffering pushback on a variety of fronts. The latest, as we mentioned a few weeks ago, is the prospect of litigation by various local governments asserting the right to the recording fees that the MERS system bypassed.
The press release below is from the Guifford County Register of Deeds in North Carolina. As you can see, he is exploring the county’s options for recouping recording fees he believes that MERS owe to Guifford County, to the tune of $1.3 million (hat tip Lisa Epstein via ForeclosureFraud).
Read more...By Ian Fraser, a financial journalist who blogs at his web site and at qfinance. His Twitter is @ian_fraser Lloyds Banking Group, the financial behemoth formed from the September 2008 “merger” of Lloyds TSB and basket-case Scottish lender HBOS, is a bank that never ceases to surprise me. Take the bizarre contortions the bank has […]
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