March 2012 archive

The Asia markets rose this morning after the news that Greece has reached a settlement with at least 90% of its bond holders:

The finance ministry said 85.8 percent of its 177 billion euros in bonds regulated under Greek law had been tendered, adding that the rate would reach 95.7 percent with the use of collective action clauses to enforce the deal on creditors who refused to take part voluntarily.

The result should clear the way for the European Union and International Monetary Fund to release a 130 billion euro bailout package agreed with Greece last month. [..]

The biggest sovereign debt restructuring in history will see bond holders accept losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.

The unknown consequence of this agreement is that it may trigger the credit default swap (CDS) insurance that some investors hold on the bonds. Some economists don’t believe that this would be a problem:

Finance ministers from the 16 other countries that use the euro are to discuss the deal’s results in a conference call later Friday. The International Swaps and Derivatives Association said it would also meet to determine whether the deal would be deemed a so-called “credit event” – a technical default – which would trigger the payment of credit default swaps, which is essentially insurance against a default.

When the debt relief plan was first announced last year, eurozone leaders and the ECB worked hard to avoid a credit event, because they feared the a payout of CDS could destabilize big financial institutions that sold them.

However, since then a CDS payout has started to look less threatening. The ISDA, a private organization that decides on credit events, said that if they are triggered, overall payouts on CDS linked to Greece will be below $3.2 billion. That amount is spread over many financial firms and likely too small to significantly hurt any one of them.

However, the outlook for economic growth anytime soon is grim. The problems that have been inflicted on the average Greek citizen by the austerity measures of this deal still exist and it’s predicted, the situation for them will not be improving for years:

   It’s stunning here in Athens to see many traffic lights not working, to see beggars pawing through garbage for food, to see blackened ruins of shops burned in rioting. I was even greeted by a homeless man who spoke impeccable British-accented English.

   That man, Michael A. Kambouroglou, 35, claims that he studied English literature at Cambridge University and worked for years in the tourism industry, most recently at a five-star hotel. He told me that he had enjoyed a good life, visiting the United States and traveling around the world, until the day nearly a year ago when the collapsing economy caught up with him, and he was laid off.

   “To be honest, I never thought it could come to me,” he recalled. “It happened in a flash.” Kambouroglou says he goes out every morning, knocking on doors and looking for work, but in this economy it seems hopeless. The overall unemployment rate here is 21 percent – 48 percent among young people – and the European Union forecasts that the Greek economy (and all of the euro zone) will shrink further this year.

Without economic growth, the deal may only be buying a little time before it all goes back to square one. There are those who believe that this is just stalling the inevitable default and that the sooner Greece defaults the faster the pain for the Greek people will be relived:

Greece has defaulted five times since 1800, most recently in 1932.

Clearly, Greek’s own experiences reveal there is, indeed, life after default. So what’s the country waiting for?

Well, if its leaders are afraid a default won’t be tolerated in modern times, they need to consider the most recent examples set by Russia and Argentina…

In 1998, Russia defaulted on $40 billion in local debt. Within two years, its economy was growing by double-digit rates. And it continued to do so for the better part of a decade under Vladimir Putin’s leadership.

In late 2001, Argentina defaulted on $95 billion in debt. Yet, by the end of 2002, its economy returned to growth. And it continued growing for eight straight years. [..]

Bottom line: As Howard Davies, a former U.K. central banker and financial regulator, says, “It’s too late for Greece [to avoid default].” So let’s pull off the Band-Aid already and get it over with.

It won’t be painless or even remotely enjoyable. But it’s necessary if Greece ever wants to get its financial house in order and its economy growing again.

You know: of all the songs I’ve ever sung, that is the one I’ve had the most requests not to. I have time for one more here. this one is a little song dedicated to the Boy Scouts of America. [applause] We seem to have a convention here tonight. The Boy Scouts of America, those noble little bastions of democracy, and the American Legion of tomorrow. their motto is… I would like to state at this time that I am not now and have never been… a member of the Boy Scouts of America. Motto is, as you know, be prepared! and that is the name of this song.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Peter Van Buren: The Day ‘Due Process’ Died: Obama, Holder and the End of Rights

Historians of the future, if they are not imprisoned for saying so, will trace the end of America’s democratic experiment to the fearful days immediately after 9/11, what Bruce Springsteen called the days of the empty sky, when frightened, small men named Bush and Cheney made the first decisions to abandon the Constitution in the name of freedom and created a new version of the security state with the Patriot Act, Guantanamo, secret prisons and sanctioned torture by the U.S. government. They proceeded carefully, making sure that lawyers in their employ sanctioned each dark act, much as kings in old Europe used the church to justify their own actions.

Those same historians will remark from exile on the irony that such horrendous policies were not only upheld by Obama, a Nobel Peace Prize winner and professor of Constitutional law, but added to until we came to the place we sadly occupy today: the Attorney General of the United States, Eric Holder, publicly stating that the American Government may murder one of its own citizens when it wishes to do so, and that the requirements of due process enshrined in the Constitution’s Fifth Amendment, itself drawn from the Magna Carta that was the first reflowering of basic human rights since the Greeks, can be satisfied simply by a decision by that same president.

Glen Ford: New Data Show Black Students Have Been New Jim Crowed

Newly-released data on the nation’s public schools document what every Black school kid already knows: African American students are far more likely to be suspended or expelled than whites. Most striking, is how closely school discipline data tracks with racial incarceration numbers. According to the U.S. Department of Education’s Civil Rights Data Collection statistics for the 2009-10 school year, more than 70 percent of students arrested or referred to law enforcement for school related incidents were Black or Hispanic – an approximate match to the ethnic composition of the nation’s prisons.

The school-to-prison pipeline is a much talked about phenomenon, although volume should never be mistaken for clarity. The apparent “tracking” of Blacks and, to a lesser degree, Hispanics, from classrooms to cellblocks, is the direct result of the behaviors of teachers and administrators who perceive and treat Black kids as if they are already criminals – just as cops act on the assumption that Black pedestrians and drivers are probably guilty of…something.

US Attorney General Eric Holder asserted in a speech at Northwestern University’s law school that it is lawful for the government to kill American citizens if officials deem them to be operational leaders of Al Qaeda who are planning attacks on the United States and if capturing them alive is not feasible. He did this without legal citations or footnotes to the speech. Eric Holder needs to reread the Constitution, in particular the 5th, 6th, and 14th amendments, with an emphasis on the 6th

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.

There are seven rights in just that one amendment that go to the heart of the principles of the judicial process:

   1. The right to a speedy trial

   2. The right to a public trial

   3. The right to be judged by an impartial jury

   4. The right to be notified of the nature and circumstances of the alleged crime

   5. The right to confront witnesses who will testify against the accused

   6. The right to find witnesses who will speak in favor of the accused

   7. The right to have a lawyer

“Due process balances the power of law of the land and protects individual persons from it. When a government harms a person without following the exact course of the law, this constitutes a due-process violation, which offends against the rule of law.”

And according to the 5th Amendment‘s brief but very clear language, no person “be deprived of life, liberty, or property, without due process of law.”

Law professor Jonathan Turley wrote at his blog that Holder has promised to kill citizens with care. That, in effect, is the pledge the Obama administration’s attorney general says has replaced our constitutional protections:

[..]The good news is that Holder promised not to hunt citizens for sport. Holder proclaimed that:

   “The president may use force abroad against a senior operational leader of a foreign terrorist organization with which the United States is at war – even if that individual happens to be a US citizen.”

The use of the word “abroad” is interesting since senior administration officials have asserted that the president may kill an American anywhere and anytime, including in the United States. Holder’s speech does not materially limit that claimed authority. He merely assures citizens that Obama will only kill those of us he finds abroad and a significant threat. Notably, Holder added, “Our legal authority is not limited to the battlefields in Afghanistan.” [..]

Holder became particularly cryptic in his assurance of caution in the use of this power, insisting that they will kill citizens only with “the consent of the nation involved or after a determination that the nation is unable or unwilling to deal effectively with a threat to the United States.” What on earth does that mean? [..]

He was more clear in establishing that due process itself is now defined differently than it has been defined by courts since the start of this Republic. He declared that “a careful and thorough executive branch review of the facts in a case amounts to ‘due process.'” Of course, from any objective standpoint, that statement is absurd and Orwellian. It is basically saying that “we will give the process that we consider due to a target.” His main point was that “due process” will now no longer mean “judicial process.” [..]

This Administration has consistently maintained that courts do not have a say in such matters. Instead, they simply define the matter as covered by the Law Of Armed Conflicts (LOAC), even when the conflict is a war on terror. That war, they have stressed, is to be fought all around the world, including the United States. It is a battlefield without borders as strikes in other countries have vividly demonstrated.

Brian Sonenstein at FDL calls for action:

Since the whole world is a battlefield in the vague ‘war on terror,’ the only due process afforded to someone who has been targeted for extrajudicial execution is a secret ‘review’ by the panel of senior officials in the executive branch.

Just as the public demanded the release of the Bush Administration’s Torture Memos to expose the ludicrous rationale behind their secret torture program, we too must demand to know the legal rationale for a program that allows our president to unilaterally choose to deprive someone of life and liberty – without any oversight or recourse available to the victim.

Holder’s speech was a cheap attempt to feign transparency without actually releasing the legal memos that define the administration’s execution program. We need your help to demand the Obama administration release these memos immediately so there can be an open public debate about Executive power and the execution of American citizens without any due process or outside accountability.

Please sign our petition demanding the Obama administration produce the internal memos and legal justification for their targeted execution program.

Credit Default Swaps (CDS) Are Insurance Products, Not Tradeable Assets

Author: Barry Ritholtz, EconoMonitor

March 2nd, 2012

The CFMA radically deregulated derivatives. The law changed the Commodity Exchange Act of 1936 (CEA) to exempt derivatives transactions from regulations as either “futures” (under the CEA) or “securities” under federal securities laws. Further, the CFMA specifically exempted Credit Defaults Swaps and other derivative products from regulation by any State Insurance Board or Regulators.

This rule change exempting CDS from insurance oversight led to a very specific economic behavioral change: Companies that wrote insurance had to explicitly reserve for expected losses and eventual payout in a conservative manner. Companies that wrote Credit Defaults Swaps did not.

Hence, AIG was able to underwrite over THREE TRILLION DOLLARS worth of derivatives, reserving precisely zero dollars agianst potential claims. This was enormously lucrative, except for that whole crashing & burning into insolvency thingie.

How Greece’s default could kill the sovereign CDS market

By Felix Salmon, Reuters

February 29, 2012

The way that CDS auctions are meant to work is that once a borrower defaults on its debt, that defaulted debt continues to be traded in the market, and its value then determines the amount that credit default swaps need to pay out. But in this case, Greece’s defaulted debt might well not continue to be traded in the market. In which case, when traders need to find a cheapest-to-deliver bond to bid on in the CDS auction, they’re going to have to use one of the new bonds, rather than one of the old ones.

…

In other words, Greece’s CDS really aren’t protecting holders of Greek bonds at all – or if they do, it’s more a matter of luck than of law. When they get paid out on their CDS holdings, people owning protection against a Greek default won’t get paid according to how much money they lost on their old bonds. Instead, they’ll get paid according to the nominal price of the new bonds.

What this means is that the CDS architecture is broken, and can’t cope with collective action clauses. And as a result, according to the hedge fund manager who tipped me off to the whole problem, “this Greece CDS imbroglio might be the final blow for sovereign CDS as a product.”

Greece Readies Record Debt Swap With 60% Commitments

By Maria Petrakis and Fabio Benedetti-Valentini, Bloomberg News

Mar 8, 2012 6:59 AM ET

While Greece would prefer a voluntary deal, the government has said it will use collective action clauses to force holders of Greek-law bonds into the swap if the so-called private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms.

“I think that the markets are aware of the risk that a majority for voluntary restructuring is not available, and so I think the surprise won’t be too big if tonight when they realize the collective action clauses will have to be applied,” Bofinger said.

…

“I do fully expect to be part of the collective action clause,” Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said yesterday in a Bloomberg Television interview. He won’t voluntarily join in the swap because of the “minuscule” chance his bond maturing March 20 will be redeemed at face value.

Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps.

“I can’t see any scenario where people are forced to participate against their will and they aren’t triggered,” Armstrong said.

How all CDS are at risk of not paying out

By Felix Salmon, Reuters

March 5, 2012

At heart, the problem is what happens when an issuer swaps out all of its bonds for some new bonds. There’s no reason at all why the new bonds should trade at a massive discount to par – indeed, issuers often like it when their new bonds trade at or near 100 cents on the dollar. But if the CDS auction happens after the bond exchange, and if all of the old bonds are exchanged, then holders of the new bonds are forced to tender new bonds into the exchange, even if they’re trading at 100 cents on the dollar. Which means that holders of old bonds could suffer a huge haircut in the value of their bonds, but still get no payout from their CDS.

This has been an issue in the past. When Anglo Irish Bank restructured its bonds, it amended the old bonds to include a call option which allowed the bank to buy back every €1,000 of bonds for €0.01. That was an effective way of wiping out the value of the old bonds – but it also risked serious damage to the CDS market, since in a CDS auction, the value of a bond is calculated as the price of the bond considered as a percentage of the outstanding principal – and the outstanding principal is considered to be not the face value of the bond but rather the amount of the call option. If Anglo Irish had done the exchange quickly, before a CDS auction was possible, then bondholders would have had to tender bonds with a call option at €0.01 – which would mean that they couldn’t claim any payout on their CDS at all.

In the end, Anglo Irish took pity on the CDS holders, and staggered its restructuring so that there was enough time for ISDA to conduct an auction before the bonds got changed out of all recognition. But hoping that the issuer will act in a friendly manner is not exactly an optimum strategy – especially since, by definition, the issuer will be in the process of going bust.

…

This doesn’t just seem unsatisfactory at first blush; it is unsatisfactory. And there is no second blush. Essentially, CDS holders are reduced to hoping that the issuer will be nice, and structure the exchange in such a way as to let them get paid out. But there’s no particular reason why the issuer should do that, especially seeing as how the CDS holders were the people who were effectively shorting the issuer as it tumbled into bankruptcy.

…

If you own protection on a credit, then, you’re very much in a world of caveat emptor. You can trade in and out of CDS and make a good living; these things are, first and foremost, trading vehicles. That’s why they’re more liquid than bonds. But if you have a strategy which involves actually getting paid out on your CDS in the event of default, then you should definitely worry that the payout might not happen, even if the event of default is clear and declared. What’s more, there’s really no good way to hedge that risk.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

March 8 is the 67th day of the year (68th in leap years) in the Gregorian calendar. There are 298 days remaining until the end of the year.

On this day in 1911, International Women’s Day is launched in Copenhagen, Denmark, by Clara Zetkin, leader of the Women’s Office for the Social Democratic Party in Germany.

International Women’s Day (IWD), originally called International Working Women’s Day is marked on the 8th of March every year. It is a major day of global celebration of women. In different regions the focus of the celebrations ranges from general celebration of respect, appreciation and love towards women to a celebration for women’s economic, political and social achievements.

Started as a Socialist political event, the holiday blended in the culture of many countries, primarily Eastern Europe, Russia, and the former Soviet bloc. In many regions, the day lost its political flavour, and became simply an occasion for men to express their love for women in a way somewhat similar to a mixture of Mother’s Day and St Valentine’s Day. In other regions, however, the original political and human rights theme designated by the United Nations runs strong, and political and social awareness of the struggles of women worldwide are brought out and examined in a hopeful manner.

The first IWD was observed on 19 March 1911 in Germany following a declaration by the Socialist Party of America. The idea of having an international women’s day was first put forward at the turn of the 20th century amid rapid world industrialization and economic expansion that led to protests over working conditions.

In 1910, Second International held the first international women’s conference in Copenhagen (in the labour-movement building located at Jagtvej 69, which until recently housed Ungdomshuset). An ‘International Women’s Day’ was established. It was suggested by the important German Socialist Clara Zetkin, although no date was specified. The following year, 1911, IWD was marked by over a million people in Austria, Denmark, Germany and Switzerland, on March 19. In the West, International Women’s Day was first observed as a popular event after 1977 when the united Nations General Assembly invited member states to proclaim March 8 as the UN Day for Women’s Rights and International Peace.

Demonstrations marking International Women’s Day in Russia proved to be the first stage of the Russian Revolution of 1917.

Following the October Revolution, the Bolshevik Alexandra Kollontai persuaded Lenin to make it an official holiday in the Soviet Union, and it was established, but was a working day until 1965. On May 8, 1965 by the decree of the USSR Presidium of the Supreme Soviet International Women’s Day was declared a non working day in the USSR “in commemoration of the outstanding merits of Soviet women in communistic construction, in the defense of their Fatherland during the Great Patriotic War, in their heroism and selflessness at the front and in the rear, and also marking the great contribution of women to strengthening friendship between peoples, and the struggle for peace. But still, women’s day must be celebrated as are other holidays.”

2012 International Women’s Day

The UN theme for International Women’s Day 2012 is Empower Women – End Hunger and Poverty. In many countries, International Women’s Day is an occasion to honor and praise women for their accomplishments. In 2012, Oxfam America is inviting people to celebrate inspiring women in their lives by sending a free International Women’s Day e-Card or honoring a woman whose efforts make a difference in the fight against hunger and poverty with Oxfam’s International Women’s Day award.

On the occasion of International Women’s Day 2012, the ICRC is calling for more action to help the mothers and wives of people who have gone missing during armed conflict. The vast majority of people who go missing in connection with conflict are men. As well as the anguish of not knowing what has happened to the missing person, many of these women face economic and practical difficulties. The ICRC underlines the duty of parties to a conflict to search for the missing and provide information for the families.

Those of you that read this regular series know that I am from Hackett, Arkansas, just a mile or so from the Oklahoma border, and just about 10 miles south of the Arkansas River.  It was a rural sort of place that did not particularly appreciate education, and just zoom onto my previous posts to understand a bit about it.

Writing this series is a continuous learning experience.  Last time I posted some email traffic that I had had with descendents of Ben Boggs, and they took me to task, properly, for not portraying him as they knew him.  Amongst other things, he held the Purple Heart.  I honor him for serving our Nation in time of war.

This weekend I received a long email from his daughter, Jenny, whom I knew well with even more information.  Here is what she sent me, her words exactly copied and pasted in blockquote, and my responses to her words in plain text.

Ben taught his children manners.  There is no doubt about it.  I could not have come up with a better topic for tonight than to give the side of the story that I never realized.

You are no doubt familiar with songs about the old lamplighter and the old umbrella man and the old garbage collector and all these lovable old characters who go around spreading sweetness and light to their respective communities but, it’s always seemed to me that there is one member of this happy band who does an equally splendid job, but who has never been properly recognized in song or story, and this is an attempt to remedy, at least in part, that deplorable situation.

Wall Street’s Broken Windows

By William K. Black, New Economic Perspectives

Sunday, March 04, 2012

James Q. Wilson was a political scientist who often studied the government response to blue collar crime. The public knows him best for his theory called “broken windows.” The metaphor was what happens to a vacant building when broken windows are not promptly repaired. Soon, most of the windows in the abandoned building are broken. The criminals feel little compunction against petty destruction because the building’s owners evince no concern for the integrity of their building. Wilson took social norms, community, and ethics seriously. He argued that as community broke down fewer honest citizens were active in monitoring and policing behavior. The breakdown in community was criminogenic – it led to widespread serious blue collar crime. He urged us to take even minor blue collar crimes and breaches of civility seriously and to demand that they be contained through social pressure and policing.

…

Wilson was strongly conservative. His research focus in criminology was almost exclusively blue collar crime. That was a shame because “broken windows” theory is most compelling in the context of elite white-collar crime and because the application would reveal interesting twists in the theory’s potential.

…

He predicted in his work on “broken windows” that tolerating widespread smaller crimes would lead to epidemic levels of larger crimes because it undermined community and social restraints. The epidemics of elite white collar crime that have driven our recurrent, intensifying financial crises have proven this point. Similarly, corruption that is excused and tolerated by elites is unlikely to remain at the level of “a few deals.” Corruption is likely to spread in incidence and severity precisely because it undermines community and the rule of law and it is likely to grow more pervasive and harmful the more we “tolera[te]” it.

…

In the elite white collar crime context we have been following the opposite strategy of that recommended under “broken windows” theory. We have been breaking windows. We have excused those who break the windows. Indeed, we have praised them and their misconduct. The problem with allowing broken windows is far greater in the elite white collar crime context than the blue collar crime context. The squeegee guys make tiny amounts of money and are hated and politically powerless. The mediocre financial CEO who engages in accounting control fraud because it is a “sure thing” causes the bank to report record (albeit fictional) profits and becomes wealthy and politically powerful. He uses his wealth to make charitable and political contributions that make him far harder to sanction. He claims that any crackdown on him is “class warfare” by “neo-Bolsheviks.” Incredibly, the Wall Street Journal continues to serve as the cheerleader and apologist for those who become wealthy by breaking windows, communities, and economies.

Wilson warned of blue collar “super predators.” He called them “feral” – wild animals. These criminals are in fact dangerous, but they are odd candidates for the title of “super predators.” Wilson noted that they were disproportionately black and that they were confined almost entirely to the poorest neighborhoods in America where their pickings are poor. Accounting control frauds occupy Wall Street and other financial centers – the richest neighborhoods in the world. Their “take” from fraud is extraordinary. The blue collar criminals that occupied Wilson’s attention late in his career were politically and socially powerless. The fraudulent CEOs that drive our recurrent, intensifying financial crises are wealthy and socially and politically dominant.

When is Foreclosure Theft? When the Mortgage is Recorded at MERS

Author: L. Randall Wray, EconoMonitor

March 1st, 2012

(O)ne bank lawyer tried to defend home theft as a “victimless crime”: “As a lawyer who did foreclosure work for many years for both borrowers and lenders, I assure you that robosigning is a victimless technicality. In only a handful of exceptions is there a wrongful foreclosure in which the outcome would have changed had the technicality been corrected. I am astonished to see foreclosure characterized as “theft” on an otherwise reputable site.”

Well, I guess it is nice that the lawyer thinks this site is “otherwise reputable”. But, in fact, robosigning is a go-to-jail crime. And illegally taking a home is certainly not victimless. Let us count the victims:

• The homeowner
• The neighborhood
• The national economy
• The justice system
• Property rights

…

When is a foreclosure a theft? When the mortgage was recorded at MERS. MERS has no standing to foreclose. The typical mortgage was bought and sold about ten times before it finally got securitized. And those sales and purchases were not recorded at the county recorder’s office. Several important court cases have ruled that servicers using MERS have no standing to foreclose because the chain of title was thereby broken. That is about two-thirds of all mortgages made since the megabanks created the MERS monster. Now, those who go up against banks trying to foreclose using the “MERS destroyed the chain of title” defense do not always win. Judges are having a hard time getting their minds around the fact that banks have destroyed property law in the US. Or, they make a calculation that recognizing this fact will throw the whole real estate sector into disarray, hence overlook the home thefts as the lesser of evils.

…

It is instructive just to read down the list of the variety of frauds the banks are using to illegally take homes, things like:

• Falsely claiming to be the owner/holder of the mortgage;
• Falsely claiming standing by use of names such as Trustee, Assignee, Nominee, Beneficiary, etc.;
• Fraudulently invoking the jurisdiction of the court;
• Preying on the ignorance of the court and homeowner;
• Falsely claiming Pooling & Servicing Agreements, industry standards, rules, guidelines or other industry-authored writings supersede the law;
• Failing to follow PSA guidelines;
• Robo-Signing legal documents without the legal authority to do so.
• Entering on-time payments as late, to exact illegal and unauthorized fees;
• Manipulating account records;
• Backdating legal documents;
• Filing forged documents in courts and public records;
• Charging force-placed insurance when the homeowner already has full coverage;
• Falsely reporting a default to the credit bureaus when it is the pretender lender who is manufacturing the default;
• Paying property taxes late, then charging the late penalties to the borrower;
• Paying taxes and insurance on the wrong property;
• Refusing payments to guarantee default;
• Adding thousands of dollars in unearned legal fees to create a default;
• Ignoring customer complaints and “qualified written requests”;
• Arrogantly violating numerous laws and regulations;
• Coercing the homeowner into signing a forbearance agreement to strip away their legal rights;
• Falsifying records and documents;
• Committing fraud upon the courts by stating they are the Holder and Owner of the Note – when in fact – they do not own or hold the “original” Note;
• Intentionally causing delays to run up your legal expenses;
• Creating fictitious documents (Lost Note Affidavits, Power of Attorney, etc.);
• Triggering the terms of the null and void Deed of Trust/Mortgage
• Apply to the trust for reimbursement after deducting the fees from the borrowers p&i payments, (Known as double-dipping)
• Rounding up ARM rates when on a downward trend;
• Not adhering to the terms of the loan documents;
• Creating additional false deficiencies through a variety of questionable practices;
• Adding misc. fees to purposely create a deficiency with the borrower’s next payment;
• Not applying payments to principal and interest;
• Committing perjury through misrepresentations;
• Withholding or redacting discovery evidence;
• Tampering with court transcripts and removing evidence from the record;
• Conjuring up events that never happened while refusing to provide documentation to support their fallacies;
• Refusing to cooperate with attempts to refinance and stop the illegal foreclosure;
• Using abuse of litigation, appeals and malicious prosecution to litigate forever;
• Payoffs to the consumer’s attorney, law enforcement officials, judges, court personnel and government officials;
• Threats & intimidation;
• Electronic surveillance;
• Wire Fraud / Mail Fraud;
• Conspiracy;
• Fraud in the inducement;
• Unjust Enrichment;
• Embezzlement;
• Racketeering – RICO;
• Extortion;
• Abuse of Process;
• Violation of ethics;
• Grand Theft;
• Tax Fraud (REMIC);
• Public Corruption;
• Notary Fraud;
• Evidence Tampering;
• Theft of Government Services;
• Perjury;
• Felonious Influence of Public Officials;
• Money Laundering;
• Insurance Fraud;
• Securities Fraud;
• Constitutional and Civil Right violations.

…

Ah, yes, the banks are truly innovative. Keep this in mind the next time some bank lawyer tries to convince you that all this is “victimless crime”.

OCC Servicer Review Firm Also "Scrubs" Loan Files, Fabricates Documents

Yves Smith, Naked Capitalism

Tuesday, March 6, 2012

(T)here is considerable evidence of a widespread, perhaps pervasive, failure among the parties to mortgage securitizations to adhere to the terms of the contracts that created these deals. Specifically, they were required to transfer the notes (the borrower IOU) through multiple parties and get them to the securitization trust by a specified date. This process was laborious because each time, the note had to be signed (the term of art is “endorsed”) and the mortgage assigned (which confusingly is the lien against the home, although both professionals and laypeople often refer to the note + the mortgage, which are actually two separate instruments, as the mortgage).

…

Notes are like checks, they are negotiable instruments. You can’t enforce a copy or use a copy to try to recreate an original. This is exactly the sort of activity that got the notorious DocX shuttered. Yet he seemed to think the use of a copy or a “replacement” adequate. But you can’t “replace” a note; it’s an original, and you need to have the borrower’s signature for it to be binding, and I can guarantee no one is getting borrowers to sign replacement notes.

Similarly, one thing that foreclosure defense attorneys have seen as a huge red flag of servicer chicanery is the use of allonges. An allonge is a separate piece of paper used for endorsements that is required by the Uniform Commercial Code to be “affixed” to the note and used for endorsements when there is no more space left on the note for signatures. Allonges were pretty much never seen until the robosigning scandal, since all the space on a note (meaning the back and the margins) can be used for endorsements.

But SolomonEdwards official said that they’ve been able to get copies of the note from the seller and have been able to “bring them forward with allonges that were re-executed.” When asked, he confirmed that they create allonges now that confirm with the transfers that they’ve found ought to have taken place, either via the PSA, MERS, or other routes. Again, in a securitized trust, that it tantamount to trying to transfer the note now and is not valid. When I pressed him on how they did that, how they got signatures from intermediary parties, he demurred and said, “I don’t want to give away too much of our secret sauce.”

He also discussed using lost note affidavits. That is permissible only on an exception basis; indeed, many deals limited how many lost note affidavits could be used. If a firm like SolomonEdwards is seeing more than a couple of missing notes on a deal, that means transfers did not happen and there is a much more fundamental problem with the securitization, potentially a contract formation failure (if no notes were transferred by the cutoff date, the trust was not formed).

The SolomonEdwards executive also made it clear that he regarded the mortgage assignments as more important than the note, which is backwards (the lien follows the note) and that they spent more time on getting them executed. He said that his firm found “missing” mortgage assignments (“they can’t be found”) to be common. Again, since the assignments had to be completed by the cutoff date, that means they are either making obviously invalid assignments, are deliberately making back-dated assignments (not kosher) or have a time machine.

…

In fact, these reviews sound like documentation theater. The partner stressed how through SolomonEdwards was and how they had software that allowed them to record up data items and capture whether a item was material or not material and then risk rate an entire loan file.

…

(T)he reality is that there are really only 5-10 things you need to look at: Do you have an original note? Does it have all the endorsements that the PSA says it should have? Do the mortgage assignments correspond to the endorsements? Were they all completed on time?

…

It was disconcerting to speak to someone who obviously thinks his firm is highly professional engaged in activities that include document fabrication, which is what creating allonges now amounts to. And the worst is I have no doubt SolomonEdwards is more careful than most firms in the industry. This confirms, as we have said repeatedly, that there was a massive failure in the industry to conform to the requirement of the legal agreements that it devised. And there is a very big business, now with a government seal of approval, in covering up that fact.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Wednesday is Ladies’ Day

Katrina vanden Heuvel: Super Tuesday’s big winner is already settled

The polls haven’t closed, but here’s one thing we already know: The big winners of Super Tuesday are the super PACs and big-money politics. In the run-up to Tuesday’s vote, the super PACs’ farcically described “independent expenditures” were far greater than the spending of the candidates’ campaigns.

A Las Vegas billionaire single-handedly has kept Newt Gingrich in the race. Mitt Romney’s “vulture capitalist” biography may raise doubts in some voters’ minds, but it has helped him sweep the money primary. And while Romney has found it hard to win significant support from Republican voters, his “independent” super PAC – Restore Our Future – has used that dough to carpet-bomb with negative ads any opponent who has risen to challenge him.

Laura Flanders:

Three years ago, a worker occupation in Chicago saved a factory and sent up a flare of resistance. Three years on, workers at the same factory are illuminating not only how workers might resist layoffs but also what they might do next.

“Last time it took six days. This time it took about eleven hours.” That’s union representative Leah Fried describing winning another reprieve last week for the factory formerly known as Republic Windows and Doors.

In December 2008, days after receiving a $25 billion federal bailout, Bank of America cut off Republic’s credit, leading management to fire all 250 workers without pay or notice. With layoffs approaching 500,000 a month around the country, Republic’s workers and their union, the militant United Electrical Workers, voted to resist. They occupied the plant and stayed, winning the hearts of downcast Americans everywhere and inspiring even an incoming US president. Bank of America backed down, giving the factory time to find a new buyer, which it did, a company called Serious Energy.