Now
that Federal Reserve is nearly done buying the worthless mortgage
bonds, the banks have shown that they are in fact making money hand over
fist and the government is feeling less fearful about toppling the
financial system with financial regulation.
Based
upon my interview with a highly placed well-informed source who prefers
to remain anonymous, it appears as though the playing field and the
goal posts have been moved.
The
starting point is the sale of worthless mortgage bonds to investors
under false pretenses. It isn’t just that the underwriting standards
that were to be applied to the mortgages were not followed; the problem
is really that the money from the investors was never deposited into an
account that was legally or even apparently owned by the investors or
the asset pool shares that they thought they were buying.
The
banks were claiming the investment shares (mortgage-backed securities)
to be their own despite the clear money trail and paper trail showing
that at no time were the investors informed that they were lending their
money or their right to the mortgage loans to the banks and their
co-venturers.
Then
the banks claimed losses on those investment shares and collected from
insurance, credit default swaps, other hedge products, and the
taxpayers.
Then
the banks claimed insolvency that threatened the entire financial
system despite having received money from investors, part of which was
never invested in anything related to mortgages or mortgage bonds. The
threat of insolvency and the threat to the entire financial system was
taken seriously by people in government that should have known better
and perhaps did know better.
Then
it was decided that the Federal Reserve would cure the insolvency issue
by purchasing the worthless mortgage bonds at full value. They
purchased it from the banks who it no time actually owned close bonds
nor did the banks own any of the loans that supposedly “backed” the
mortgage-backed bonds.
Then
it was revealed that the banks were making a lot of money while the
rest of the economy went into a nosedive. Any economist who is
questioned on this subject will respond that it is very unlikely for
intermediaries who act as conduits for transactions to make money when
economic activity is on the decline.
If
they are reporting profits it is from fictitious transactions. In this
case fictitious transactions are “trading profits.” In reality the banks
are feeding part of their ill-gotten gains back into the bank, and
claiming it as profits. When the chips were down and the banks had to
show that they were strong enough to exist at their mega size, they came
up with the capital without any problem.
Now
that they came up with the capital and the profits, they have
demonstrated that the extra restrictions that regulators want to put on
the banks will neither damage the bank’s profitability nor threaten the
financial system.
But
the Banks know that their ability to come up with money all stems from
the fact that they lied to everyone and stole trillions of dollars and
that it did not come from ordinary banking activities. SO they are
currently in a bed they made for themselves: they don’t want the
restrictions to be too restrictive because it might have a negative
effect on their legal earnings, but they have proven the opposite with
their illegal earnings --- which is precisely what the regulators were
waiting for.
Hence
the banks are stuck with whatever regulations are put on banks ---
especially those who claim ownership over transactions in which they
acted only as intermediaries --- or they must say that the regulations
would be harmful because the truth is they didn’t really make the money
that they reported as net income.
This
doesn’t come as news to the Federal Reserve who knows that it is
purchasing worthless bonds. But the Federal Reserve cannot say that the
bonds are worthless because it would then be seen as quantitative easing
which is inflationary. The whole reason the money supply was expanded
so much without inflation going wild is that the Federal Reserve was
merely “buying bonds” and not just giving out money. But the bonds were
completely worthless. So the truth is that the Federal Reserve was and
still is giving out money in quantitative easing.
This
chain of events served to undercut the middle class portion of the
economy completely, denuding them of jobs, houses and even prospects,
creating blighted neighborhoods, declining tax revenues for
municipalities and this bankruptcies like the City of Detroit. If the
law was applied as it is applied to everyone except the big banks, then
they would be charged with mortgage fraud, securities fraud (because the
exemption does not apply if you don't follow the rules of issuance of a
mortgage bond) and compensatory damages would be due to the following
people with percentages of the total money advanced for each $1 of
mortgage:
- Investors: 125%
- Insurers: 85%
- Credit default swaps: 400%
- Miscellaneous hedge products: 25%
- Borrowers: 15% (100% of the payments and down payment)
- Taxpayers: 5%
- Federal reserve: 100%
Thus
the situation was likened by my source to an old joke about lawyers,
the punch line of which is that the dog screws everyone in the room and
runs away with the steak.But the real problem is that by participating
in this deceptive scheme, the Federal Reserve, put the burden of the
loss on homeowners whose mortgages were paid in whole or in part by the
financial sector including the Federal Reserve.
It
isn’t just that the ownership of the loan has become completely
convoluted; the real issue is money, to wit: the credit transaction with
borrower has been long since extinguished by these devices used by the
banks and the Federal Reserve, and vehicles like the Maiden Lane
entities.
The
amount of money owed on those mortgages is in reality far less than the
the amount demanded by the banks --- which means that modification is
possible for nearly every loan, whether delinquent or not, because the
principal has already been reduced by payment. THIS IS WHY I SAY FOLLOW
THE MONEY TRAIL BEFORE YOU FOLLOW THE PAPER TRAIL. THE PAPER TRAIL IS
ONLY RELEVANT IF IT MATCHES THE MONEY TRAIL. OTHERWISE IT IS IRRELEVANT.
In
the marketplace where loans are being refinanced and where mortgages
are being foreclosed, these facts are carefully kept out of the
mainstream conversation. But more and more judges are starting to ask
questions because the behavior of the banks is just not consistent with a
creditor who wants their money.
They
seem to want the foreclosure judgment or sale but they are not so
interested in the property. AND THAT is because the foreclosure puts the
seal of approval from the state on a bunch of lies that were proffered
to the courts and to the recording offices. It is the foreclosure
judgment and sale that starts the clock ticking on wrongful
foreclosures. Once time has run out on those actions, the banks are home
free and the Federal Reserve, the unwitting or witting accomplice goes
on their merry way while more than ten million families lose their
homes, jobs and prospects.
If
the Courts start finding that the mortgages are invalid, that their
enforcement is defective or impossible, and that the debt is in doubt
because there is no proof of the account receivable and the loss must
belong to SOMEBODY, the current plan collapses. As I stated in 2007
based upon my own direct knowledge and the knowledge of industry sources
who were active in the bundling, selling and trading activity
associated with mortgage loans, the entire crisis would have been
averted if the banks were held to account because the accounts due from
the borrowers had been reduced without their knowing it just as the
account due to the investors had been reduced without them knowing it.
This
brings us back to what seems like a quaint solution now. I said we
should forget blame and just let bring everyone to the table and share
the losses and risks. People get to stay in their homes, the investors
get a return on their investment, the banks earn fees, and companies
like AIG won't be in danger of toppling. But then, the catastrophic
shift in wealth inequality would also never have happened. And the super
rich would have been revealed, if they were bankers, as common thieves
with keys to the vault.
SAC has earned a reputation for being one of the world's most profitable hedge funds.
