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Dec
8
Written by:
bobo
12/8/2008 7:12 AM
I guess you could say part of me isn't buying that the entire global banking system has collapsed due to the lousy payment penchant of under-qualified borrowers in the US. I have spent considerable time digging around trying to get a handle on what is actually going on, and below represents my best take on it.
By all appearances, what is actually going on is nothing more than the equivalent of naked short selling, but in the bond market. This fundamentally fraudulent behavior is completely consistent with what we have seen in the stock market. It involves the fraudulent misrepresentation of a derivative (read, counterfeit) as the genuine article. In the stock market, it is the representation of a securities entitlement for which no stock has been delivered as being equivalent to genuine registered stock. It isn't. It has none of the rights of stock. It is a sham transaction.
Now, consider how the system treats these sham transactions in the stock market when a dividend is to be paid. Genuine shares get the dividend from the company. All good. The fakes, that is to say, the securities entitlements that are fraudulently represented to account holders as genuine, don't get their dividend from the company, and thus aren't entitled to the special tax treatment of a dividend. No, they get their payment from those who sold the shares short and then refused to deliver that which they sold - the guys failing to deliver the stock.
So the account holder's broker fraudulently represents to the account holder that they have genuine stock in their account (by misrepresenting securities entitlements as the genuine article) and then perpetuates this sham by paying money taken from the short sellers, as though the company had paid the dividend. It's a fraud designed to trick the account holder into believing that its all good.
Hold onto this thought when I describe the CMO market now.
There was huge demand for subprime paper, rated AAA (highly rated due to the credit default swaps purchased to backstop the risk of loss). Huge demand, because the paper paid outsized returns. There was actually far more demand than there was supply. Sort of like the demand you would see for a stock in a company that is "hot." Sound familiar so far? Lots of demand, little supply of genuine article. Check.
Well, imagine with me that Wall Street dealt with that demand exactly as it deals with stocks for which there is mucho demand, or commodities that are on a tear. It counterfeits supply to meet any demand.
Follow along with me on how I believe it worked in the mortgage market.
Big Wall Street Bank XYZ has securitized $100 billion of subprime paper in 2005 via its in house desk. But it has buyers for $500 billion worth - the Chinese, the Russians, banks all over the world who want outsized returns from "AAA" rated paper.
Never ones to let a lack of the genuine article stop them, XYZ creates $400 billion more paper out of thin air, and then happily sells it to the banks and Russians and whatnot. How do they do it? Not so hard, at the end of the day. They create a derivative that performs and pays exactly as the genuine $100 billion would perform, tracking its performance. It is a synthetic, a derivative wholly lacking the collateral that the genuine $100 billion has - and there's only two niggling problems: How do you protect the bondholders when it all blows up, and how do you get cashflow with which to pay the "dividend" - the payment on the bonds to the suckers, er, I mean, the buyers?
Let's take the last one first. What you do is a variation of what you do with stock - you get short selling hedge funds to short the paper, and then you pass the fee they pay to short the paper (or some of the fee) to the bondholders, pretending that money came from the mortgages. Money is money, so nobody questions it. You, XYZ Bank, do the math for the hedge funds - it costs 20% or more to hold a short position on crappy subprime company Z, whereas they can short the AAA paper for only 10%. That's a no-brainer. Go for the 10%, and wait for the inevitable blowup. Bank XYZ distributes 8% to the bondholders, pockets 1%, and uses the other 1% to hedge the short position, by taking the other side of the bet by purchasing credit default swaps that will cover it's ass when the blowup occurs.
So now to the question of how to protect the bondholders? Simple. Same way as you hedge. You buy credit default swaps that protect them when the bonds go down in value, mimicking the performance of the genuine tranche of bonds. Again, the bogus $400 billion performs identically to the way the genuine $100 billion does - think of it as a tracking stock, only with no actual intrinsic value arising from real collateral.
That actually explains how a 5% default in certain subprime paper can cause a tidal wave of defaults in real dollars - far more than the actual genuine mortgages are worth. 5% gets multiplied across all the fraudulently created tranches, the bogus ones, causing an outsized reaction. And then allow the banks who are holding these counterfeits to leverage them as though they had gold bullion in the vault, and you get an additional massive compounding of the downside risk.
So at its essence, it's simple. Create a piece of paper you represent as being identical to the genuine article (and simply leave out the critical difference - that you just ginned up yours in the back room, as opposed to buying mortgages to collateralize the paper), create a mechanism wherein you can pay out dividends and mask the bogus nature of your piece of paper, and misrepresent the paper as having essentially the same collateral as the genuine article - I mean, a credit default swap from AIG is iron clad protection, right? Right? Who wants a lousy worthless mortgage as collateral when they have the guarantee of the biggest insurance company in the world? Right? I mean, it's almost like Wall Street was doing the bondholders a favor by counterfeiting all that paper to meet demand...
This introduces one of the reasons why, when it became apparent that AIG was a ponzi scheme and was insolvent (that's really what their credit default swaps business was - a ponzi scheme), that when they were downgraded and it became obvious that the credit default swaps were potentially worthless unless the government took over the ponzi scheme using taxpayer dollars, that it caused such an instant meltdown worldwide. The same CDOs had been used to get AAA ratings on toxic garbage, but they'd also been used to collateralize the fraudulently created paper. The fact that venerated names like Goldman and Morgan had such exposure to AIG's CDOs and thus such an interest in the taxpayers picking up the ponzi scheme's funding should give one insight as to what Wall Street firms were likely the biggest creators of this counterfeit garbage.
For some insight into my hypothesized mechanism, read Michael Lewis' recent article, in which he describes one hedge fund coming to grips with what was actually being done.
And then consider the statements from the former HUD official that there was a massive disconnect between the amount of mortgage bonds being sold, versus what was being generated via genuine mortgages. The question is how. I think I just described the how.
It would also explain why we periodically see articles, quickly hushed up, about how increasingly at foreclosure sales nobody can locate the title for the mortgage. Those articles inevitably chock it up to the complexity of the slicing and dicing going on in the securitization process, however there is a much easier explanation, as described above. Speaking of which, does anyone have some of those articles? I want to start collecting them. Post them below, or email them to me, if you would be so kind.
So that's how I believe it all worked. It explains a lot. It explains how the penchant of Wall Street to counterfeit crosses over from stocks, to bonds, to commodities, to anything it can touch. Phrases like "Financial Innovation" in reality describe increasingly sophisticated counterfeiting schemes. I believe that the creation of derivative bonds, as described above, is likely to be exposed as a massive global counterfeiting scheme by Wall Street's most venerated names. I also think that is why you've seen massive amounts of money lent to undisclosed groups by the Fed, in exchange for undisclosed collateral. The Fed has had to step in and essentially backstop the fraudulently created paper with the taxpayers' money, to keep China and Russia from going berserk at being cheated, and to keep the global banking system from completely melting down.
And now for a little lightness in these dark times. I've been inundated by demands from obese women with too many cats, to put into graphic form the complex series of issues and moral conundrums I discuss on these pages (or series of pixels - you get the drift). Thus, I've prepared a sort of primer to be used when explaining why Daddy has to go to work at McDee's on the night shift, and the family has to move into a tent (albeit a tent in the best God D#mned country in the world!!!). This exercise in communication via the magic that is MS Paint is intended to heal wounds, and bridge valleys. Brothers and sisters, black, brown and white alike, can feel united in the power of its simple, compelling message. Enjoy.
Copyright ©2008 Bob O'Brien
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38 comment(s) so far...
Re: My Take On The Subprime Meltdown
As always, if you think this article deserves attention, Digg it.
By bobo on
12/8/2008 8:30 AM
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Re: My Take On The Subprime Meltdown
Is it any wonder that after congress handed the Fed a $700B printing press for the holidays, they did not buy CDOs to get them off the books of financial institutions as originally planned. Suprise! There is very little REAL paper to buy. Gee, lets buy phantom stock in banks instead. The Fed is now simply using Wall Street tactics to fix the problem by printing more money that does not exist. Brilliant!
By Reality; What a Concept! on
12/8/2008 10:34 AM
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Re: My Take On The Subprime Meltdown
Enough said. It was all a fraud to get huge bonuses. The word is out now lets see them get away scott free again!!!
WATCH THIS VIDEO!!
http://link.brightcove.com/services/player/bcpid1079049304?bctid=4123830001
By Sean on
12/8/2008 11:33 AM
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Re: My Take On The Subprime Meltdown
Bunny,
I agree with your explanation. I have been thinking along the same lines. There are many ways they could have done this but the inderlying fraud is that they passed fake bonds off as real ones, just like naked short selling equities.
We're becoming a Banana Repiblic real fast.
By tommytoyz on
12/8/2008 3:51 PM
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Federal Judge Christopher Boyko in Cleveland
ruled that a foreclosing lender had not filed the proper paperwork to support its right to foreclosure on fourteen Ohio homes.
http://www.clevelandbankruptcylawyerblog.com/2008/06/ohio_homeowners_facing_foreclo.html
Feb. 22 (Bloomberg) -- Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.
That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.
http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aejJZdqodTCM
This is from a blog, but has links to a number of court cases involving "lost" notes.
http://loanworkout.org/2008/10/missing-mortgage-notes-and-deceptive-mortgage-servicing-wall-street-shell-game-101/
By hemingway811 on
12/8/2008 4:33 PM
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Re: My Take On The Subprime Meltdown
Thanks Hemingway. Sort of takes on a new light when you consider my little theory, no? Suddenly, the question isn't really about owning securities rather than a note. It is that the owner of the securities has no notes collateralizing the security. If I am correct, this could put the lion's share of foreclosure proceedings at risk, as there are likely, as with naked shorted shares, multiples of the real thing floating around.
By bobo on
12/8/2008 5:14 PM
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Re: My Take On The Subprime Meltdown
Bobo they can not keep the lid on this presure cooker forever. When this blows up and it will, there will be blame hanging on every wall but no one to assign it to as the new administration will be in and pleading ignorance and the Bush gang will be long gone. What timing. What a book this is going to make, if we still have a country to sell the damn thing.
By rtway on
12/9/2008 5:52 AM
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Re: My Take On The Subprime Meltdown
You are exactly right about the problem.Hundreds of billions of dollars worth of shorted bonds and an equal or perhaps huge multiple in CDS written on those bonds.
Unfortunately,because no one at the government level can figure out the source of the problem,they also can't figure out the solution which is quite simple really. The loans in the original securitization trusts can't be modified. But they can be refinanced and the original loans paid off. Once all of the original loans are paid off, the "original bonds" are paid off. Payments to the owners of the shorted bonds becomes the obligation of the short seller. The CDS sellers e.g. AIG are now off the hook for defaults. Granted there would be a cost for doing this,but it would only be a fraction of what we are facing now. For that matter, we could buy up all the houses that had loans that went in to securitizatiion trusts and then hit them with a bulldozer and still be money ahead.
By srgtsuva_1999 on
12/8/2008 8:49 PM
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Re: My Take On The Subprime Meltdown
Whistleblower talks about AIG money laundering, theft of 100's of billions via financial fraud.
Even though it talks about 911, too, the bulk of what he talks about is how the AIG fraud worked.
http://tinyurl.com/4f3s3k
By AIG on
12/9/2008 5:53 AM
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Re: My Take On The Subprime Meltdown
This is probably one of your best blogs that I have read. Thank you, I will try to dig up some of what you requested here. Check your email soon.
By Sean on
12/9/2008 5:54 AM
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Re: My Take On The Subprime Meltdown
http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm
This is on the ground type fraud.. lots of information as to type, where, and total cost. 813 million for Fiscal year 2007 reported in October.
This pales in comparison to the potential in securitization type fraud. HUD couldn't account for 59 billion in 1999
We won't see an investigation into the really big fraud as these crooks run the system and are protected.
It seems that putting the FBI to work inside HUD would have much better payback.
By mhelburn on
12/9/2008 7:40 AM
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Re: My Take On The Subprime Meltdown
EVERYTHING has been counterfieted.
Stocks were the tip of the iceburg.
Morgages,bonds including treasury bonds,and I would not put it past them to counterfiet the bail out itself you know x amount of money loaned to a company by the government will need to be paid back why not hold the note instead of uncle sam big profits await! How many suckers I mean investors will buy these notes over and over and over.
The natives of australlia are right it is dream time no reality in sight.
How long ago did I post here 'you think the shorting of stocks is bad just wait till you find out how many people own your morgage'.
All fails must be stopped.
No more money for nothing.
The records of who bought what and received nothing exist.
BUY IN ALL FAILS NOW.
By bbhindyou on
12/9/2008 5:13 PM
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Re: My Take On The Subprime Meltdown
bobo,
You have nailed it! But, unfortunately, this means we are all toasty oats.
After pondering what you have written, a good friend of mine asks a very good question...
"...there is one un-answered question which this guy completely ignores. If the bondholders who thought they were holding valid paper did not get a 1099 for the interest received on their bond, don't you think they have a responsibility to ask the broker or alleged selling company why not? If the seller says we have no record of you , which they probably would do, its seems to be incumbent on you to pursue this further,and probably to get the IRS involved. I know I would . That does not deter naked short of a stock as nothing would show up if the stock paid no dividend, I know in that case I wouldn't ask anyone as nothing would be expected."
By pjstevenson on
12/9/2008 8:44 PM
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Re: My Take On The Subprime Meltdown
PJ: Interest on bonds in ordinary income. Payments from a broker to a bondholder, from disguised short payments, would also be ordinary income. No problem.
I know this happens all the time in dividend paying stocks, as there is a big issue with the tax treatment for those receiving what should be preferentially treated dividends. Just as there is a big issue with overvoting. And so much else.
Until you stop and consider the scenario where the power structure serves the most elevated of the parasites, you keep getting mired down in this belief system that requires those running things to play by the same rules you do. They don't. Just as they have no regulation for hedge funds, which can move money secretly all over the world in the blink of an eye.
Today, the Illinois governor was arrested for trying to sell a senate seat to the highest bidder. Do you really believe that in this sort of Banana Republic environment, corruption at every level isn't endemic?
By bobo on
12/9/2008 8:50 PM
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Re: My Take On The Subprime Meltdown
This scam is like "The Producers". You need a flop to profit from selling it multiple times. There is no incentive for the banks who sold multiple bonds on the same assets to rewrite the mortgage or refinance and pay off the bonds. Far better to foreclose on the property and recover very little for the bond holders. They have to pay back whatever is recovered in foreclosure and can duplicate that amount for the counterfeit bonds out of the amount of the original sale of the fraudulent bonds. 50% profit on counterfeiting the bonds.
Fitts referenced HUD properties being foreclosed on several times in one year. That is rather odd considering how long foreclosures take.
The banks don't want to buy the depressed bonds, even fake ones back, for fear of raising the prices on the bonds. If the bonds are selling at discounts more than 50%, they should be trying to get them and close the short trade.
Those sitting short on the bonds must be a little nervous. no?
By mhelburn on
12/10/2008 8:06 AM
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Re: My Take On The Subprime Meltdown
The pictures at the end should be in the editorial section of every newspaper.
By cnewdigate on
12/10/2008 4:06 PM
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Re: My Take On The Subprime Meltdown
Mary, that's profound. I hadn't thought of that. Without dailure, they get caught.
They need all the counterfeited chits to become worthless: oil, gold, grain, equities, bonds, etc.
The banksters need a depression so they can cover their tracks with mergers and bankruptcies where records get destroyed. To avoid a depression, they need to be exposed for the thieves they are.
Does anyone have any hope for Obama, or is it going to be more of the same? I think the same banksters control both parties.
By ted on
12/10/2008 4:07 PM
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Re: My Take On The Subprime Meltdown
Catherine Austin Fitts first got involved in the narco news when she discovered fraud in the HUD mortgages which were being used to launder drug and arms money. The government tried to shut her up rather than help.
I think a lot of seemingly unrelated crimes are actually related because they are all carried out by the same group of billionaire friends who think they are above the law.
http://solari.com/about-us/catherine/
http://www.narconews.com/cuibono.html
http://www.narconews.com/narcodollars1.html
By ted on
12/10/2008 4:07 PM
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Re: My Take On The Subprime Meltdown
Max Keiser pretty much has this figure out too. Check out his latest interview at:
http://www.youtube.com/watch?v=NbaHBGS4fxY
Sums it up rather nicely.
By bobo on
12/10/2008 4:12 PM
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Re: My Take On The Subprime Meltdown
This California Lawyer say that Lenders most of the time CAN'T FIND THE NOTE!
http://www.doanlaw.com/blog/?p=8
http://www.doanlaw.com/blog/?p=25#more-25
By Overheated on
12/11/2008 6:04 AM
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Re: My Take On The Subprime Meltdown
How many of these Morgage Backed Securities are documented with Lost Note Affidavits? Google that and it blows your mind!
By Overheated on
12/11/2008 6:04 AM
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Re: My Take On The Subprime Meltdown
Keiser must have some good sources to figure this out. We have to let AIG etal go under which will make those who counterfeited the bonds and bought CDS unable to service the counterfeit bonds, and the fake bonds be recognized as worthless paper, whether they are in Russia, China or your pension fund. As long as these guys are allowed to run around loose, they will continue to commit fraud and steal. There will still be some honest people who are left and they can fill the void the criminals leave when they get sent to Leavenworth or the Wall Street inspired for-profit prisons. Nothing will be exposed until we stop propping up the Ponzi scheme. Losses have to be exposed and perps have to be caught.. not promoted to positions where they can bury the fraud in the TARP. Since this is a criminal conspiracy, RICO can be used to find the assets of these guys and make them pay back some of what they stole.
By mhelburn on
12/11/2008 4:36 PM
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Re: My Take On The Subprime Meltdown
Bobo,
You might enjoy this from CAF blog.
catherine
Oct 7th, 2008 at 11:45 pm
Richard:
The NY Fed as depository for the US government is responsible for federal government bank accounts. According to US reports, US government agencies have over $4 trillion of undocumentable adjustments. Those are transactions that can not be proved to be authorized by the Congress, pursuant to the constitution. If you follow the common law rights of offset asserted in the Hamilton Securities case (see http://www.dunwalke.com/gideon), I would argue that the NY Fed banks are responsible for effecting unauthorized transactions. In theory, we do not have to prove where the money went or have the detail. We can assert our right to to that amount and proceed with offsets.
Such offsets could take the form of extinguishing outstanding debts, even taxes due. So you don’t get cash back from the parties involved. You simply extinguish what you owe.
If you combined such offsets with local tax escrows and local currencies, a lot could shift.
By mhelburn on
12/11/2008 4:37 PM
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Bernard Madoff, a Board Member of the DTCC, was arrested today per the WSJ
WHOA!!!! JUST OUT ONE HOUR AGO ON WSJ.
Bernard Madoff, a Board Member of the DTCC, was arrested today per the WSJ http://online.wsj.com/article/SB122903010173099377.html?mod=googlenews_wsj .
Here is the big concern, this guy was in the business of settling trades. His firm is a massive international market maker.
Per the article:
“Bernard L. Madoff, the founder of Bernard L. Madoff Investment Securities and a fixture of the Wall Street trading world for decades, was arrested Thursday morning by Federal Bureau of Investigation agents and charged with criminal securities fraud by federal prosecutors in Manhattan. The criminal complaint filed against Mr. Madoff alleges that he told senior employees Wednesday that his business was "a giant Ponzi scheme," according to a person familiar with the matter. The alleged scheme involved tens of billions of dollars, but the extent of investor losses wasn't immediately clear.”
So the question is, is the entire settlement process even more corrupt than you can even imagine.
Here is the link to his firms “about us:”
http://www.madoff.com/dis/display.asp?id=203&mode=1&home=1
“I’m the guy that started automated trading.” Per this youtube: http://www.youtube.com/watch?v=69gGbi1wZ1A
From Bernard L. Madoff Investment Securities LLC website located here http://www.madoff.com/dis/display.asp?id=203&mode=1&home=1 :
Peter B. Madoff has also been deeply involved in the NASD and other financial services regulatory organizations. He has served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He also has been actively involved in the NASDAQ Stock Market as a member of its board of governors and its executive committee and as chairman of its trading committee. He also has been president of the Security Traders Association of New York. He is a member of the board of directors of the Depository Trust and Clearing Corp. He is a member of the board of the Securities Industry Association.
Bernard and Peter Madoff have both played instrumental roles in the development of the fully computerized National Stock Exchange. Peter Madoff has been a member of its board of governors and has served on its executive committee. They have helped make the National Exchange the fastest growing regional stock exchange in the United States.
These positions of leadership not only indicate the deep interest Madoff Securities has shown in its industry, they also reflect the respect the firm and its management have achieved in the financial community.
By skucount on
12/11/2008 4:39 PM
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Re: My Take On The Subprime Meltdown
SKU - this so reminds me of when Dick Whitney, the head of the NYSE during the 29 crash, when questioned during the Pecora hearings, insisted that the NYSE was a perfect entity, and that any regulation at all would result in us rubes ruining the institution. Dick wound up going to Sing Sing for 5 to 10 for embezzlement and fraud a few years later.
Wall Street pretends to be this bastion of honesty, and yet from top to bottom it is rotten to the core. Has been for a hundred years or more.
This is a guy who is an icon on Wall Street, and typifies the integrity of the place. Out of one side of his mouth he is preaching ethics, and on the other he is stealing everything that isn't bolted down.
This sort of larceny is the norm on Wall Street. Counterfeiting is the norm. The guys who run the machine are crooks, as we all know. Wonder who Bernie pissed off to the point that he was taken down?
By bobo on
12/11/2008 4:43 PM
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Bernard Madoff, a Board Member of the DTCC, was arrested today per the WSJ
The scary thing is that he may have covered the losses from the hedge fund he ran by using money from his settlement business. The hedge fund was listed as having $17 Billion in assets, but he told co-workers he has ponzied away $50 Billion. Where did the other $33 Billion come from if not from his settlement side of the business. If this is correct, by Thursday there are going to be $33 Billion shares not Fail to Deliver but rather Stolen and not Deliverable. Who is on the other side of those settlements? The days allowed for settlement may have provided a method for this guy to hide his scheme.
By skucount on
12/11/2008 9:11 PM
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Re: My Take On The Subprime Meltdown
Great summary! Here is another interesting aspect:
During one of the financial crisis grill sessions Congressman Ron Paul asked Chairman Bernake:
"So my question boils down to this. How in the world can we expect to solve the problems of inflation, that is the increase in the supply of money, with more inflation?"
Here is a possible answer. The U.S. Treasury with the backing of the Federal Reserve and World Bank are on the path to bailout the entire system. For the U.S. the plan is: Nationalize all debt that is a systemic threat or go bankrupt. The Fed is on the verge of eliminating minimum bank reserve rates. So basically taking them from 10% to 0%.
Theoretically when 10% of a bank's credit is held in reserve there is a limit to how much they can loan. When this rate goes to zero there is no limit. The final stop is thus bankruptcy. So this means an all or nothing push to preserve the fiat money system backing the dollar. It's rally or fail time.
Read more at:
http://www.gamingthemarket.com/2008/11/three-great-banking-documentaries.html
By gamingthemarket on
12/11/2008 9:10 PM
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Re: My Take On The Subprime Meltdown
What I do not understand: If bonds have been sold multiple times with the same collateral, shouldn't we see multiple claims to foreclosing the same loan on a single property? Then we would have one bond holder holding the genuine thing, and the others empty bags?
Do I miss something here?
By Cutty on
12/12/2008 8:14 AM
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Re: My Take On The Subprime Meltdown
Of course, Madoff was endorsed by all the usual suspects, including.....Hank Paulson.
This is who we are dealing with. Sociopaths with no scruples, who have been rewarded by each other with the fruits of the country's labor.
And the Fed doesn't want us to know who it lent $2 trillion to, or what they got for collateral. We just have to trust these fine upstanding NY folks. Like Madoff. Who celebrated his superior ethics in his pitch.
By bobo on
12/12/2008 6:06 AM
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Re: My Take On The Subprime Meltdown
bobo: i am not sure you answered the key question. I have repeated below. The bond holders responsibility! If they don't get a 1099 don't you think they should ask someone?
"...If the bondholders who thought they were holding valid paper did not get a 1099 for the interest received on their bond, don't you think they have a responsibility to ask the broker or alleged selling company why not? If the seller says we have no record of you , which they probably would do, its seems to be incumbent on you to pursue this further,and probably to get the IRS involved. I know I would."
By pjstevenson on
12/12/2008 8:14 AM
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Re: My Take On The Subprime Meltdown
Cutty: Why do you think they wouldn't get a 1099 from the broker who sold them the paper? What is your reasoning for them not getting one?
PJ: Think of it like a tracking stock. Performs like the bonds with the collateral, but doesn't have the collateral. When they go to foreclose, they can't get a title with which to do so. I believe the banks are juggling the tranches so that 3 holders don't show up to the same sale, but that is a game of musical chairs, too. I believe that is why the large bank in Australia marked their value to zero - they did the research and discovered that they didn't actually have any collateral for the bonds they bought, and they couldn't get a straight answer on where it was.
By bobo on
12/12/2008 8:18 AM
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Re: My Take On The Subprime Meltdown
i think you're wrong. the reason behind the mess wasn't simply a pyramid of derivatives instruments (although it made the bust REAL nasty), but the collapse in the housing bubble, which everyone believed in. if house prices kept going up and delinquencies remained in expected ranges, most to all of these instruments would have paid out what they said they did.
the real problem is the inflationary fiat money/fractional reserve system we have. the debasement of money (particularly easy with fiat) drives speculative bubble activity. always has and always will. lower interest rates help extend credit to speculative investors.
gold will soon re-emerge as the money of the world (and not paper gold run by the government, or a gov't sponsored bank). then it won't matter what derivatives are created. risks, returns, and interest rates will be calculated against a stable base.
By bob on
12/12/2008 5:37 PM
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Re: My Take On The Subprime Meltdown
Bob. I suspect before too long we will discover that the housing bubble bursting wasn't an accident, but rather a planned event. I don't believe that those who planned it figured it would take the world to the brink and beyond, but make no mistake, just as with every crash to date, this one was no accident.
BTW, can anyone believe that the SEC routinely audited Madoff and gave him thumbs up? What does that say for the SEC?
Last one out turn off the lights.
By bobo on
12/12/2008 6:14 PM
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DTCC May Not Settle All Madoff Trades.
DTCC May Not Settle All Madoff Trades.
My guess is someone's trades will not clear and they will be holding the bag.
http://www.dtcc.com/downloads/legal/imp_notices/2008/nscc/a6760.pdf?lpos=home_splash_promo&lid=a6760.pdf_hdln_lnk
By skucount on
12/14/2008 5:41 PM
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regulatory oversight... hmmm? and then there was none.
Plausible Deniability
That is what we need.
Charity with OPM
To cover up our greed.
Andy and Mark were never that smart.
And well, I'm just a pretty face.
Married to a real swell guy
Who's a regulatory Ace!
In 2007, Shana Madoff married Eric Swanson. He served at the Securities and Exchange Commission from 1996 to 2006, rising to the title of Assistant Director in the Office of Compliance Inspections and Examinations' market oversight unit in Washington. His duties included supervising the Commission's inspection program responsible for regulatory oversight of trading on the securities exchanges and ECNs.
http://www.newyorksocialdiary.com/node/125150
By Duped or complicit? on
12/14/2008 5:41 PM
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Congress, SEC and Financial Media Enabled Economic Meltdown
from: http://calltoaccount.wordpress.com/2008/12/14/28/
Congress, SEC and Financial Media Enabled Economic Meltdown
I usually harken to George Friedman’s latest Stratfor Geopolitical Intelligence report because the analysis is typically well thought out, clearly articulated and often insightful. But when he recently wrote: “Recessions occur when, as is inevitable, inefficiencies and irrationalities build up in the financial and economic system,” he sounded like just another Wall Street apologist aping the mainstream financial media penchant for using weasel words like inefficiencies and irrationalities to characterize the deeds of wrongdoing that have finally brought the world’s finances it its knees.
In eschewing its once noble calling to speak truth to power as the Fourth Estate, today’s captured corporate media has become our 21st century fifth column, abusing the public trust from within by either failing to investigate and accurately report evidence of massive unlawful conduct, or on the rare occasions it does, by sugarcoating criminal deeds with words more aptly suited to boyish pranks– shenanigans, hijinx, mischief, monkeyshines and foolishess– rather than call a spade a spade and honestly label them the acts of consummate lying, cheating and stealing they are. Irrational exuberance and moral risk, indeed.
Friedman also doesn’t seem to realize that the crisis now decapitating the world’s economies didn’t have to happen– would not in fact have happened if those charged with protecting the financial system and the investing public— namely Congress in general and the Securities and Exchange Commission in particular— had simply done their jobs, upheld their oaths, and seen to the enforcement of laws already on the books, instead of consistently looking the other way; or worse still, directly aiding their campaign contributors, benefactors, patrons, employers and future employers by contemptible acts of public disdain such as repealing Glass Steagel, allowing Reg Sho’s grandfathering of billions in counterfeit shares, scuttling the systemic market protections provided by the uptick rule, and encouraging $62 Trillion in credit default swaps, insurance contracts in all but name, that would be void as against public policy for lack of “insurable interests” if called by their rightful name, as the courts should some day do.
While today’s crisis had lots of chefs, the cake could never have been baked if certain of those in government had not unflinchingly aided the finance and banking industries in zero-sum gaming the system. Cloaked in the Gekkoesque doublespeak of deregulation, innovation, self governance and market efficiency, they fostered a free market system in which the only thing free about it was that insider participants (read banks, hedge funds, broker dealers and their minions) felt free to pillage and plunder at will; a system steeped in secrecy, cooked books, phony opinions, reckless ratings, ludicrous leverage, off balance sheet conduits, and zero accountability; a greedy, arrogant, amoral, some say sociopath culture of corruption, unfettered by the fear of ever being caught, having to admit wrongdoing, or suffer any meaningful punishment.
And why not, knowing their misdeeds would also be zealously overlooked or glossed over by a feckless financial media that dutifully ignored or proclaimed wrongs like naked shorting, stock counterfeiting, failure to deliver and options market maker fraud, mere mirages, while sucking up to billionaire short-seller hedge fund finaglers and ridiculing people like Overstock CEO Patrick Byrne, who valiantly tried to sound the warning.
This collective dereliction of duty (some might say treason, given the harm that has– and is yet to befall us) further emboldened the wheeler dealers in an already historically suspect system to make market manipulation and fraud not just the occasional aberration, but the very modus operandi and profit leitmotif. Of late, they’ve even gone so far as to naked short the gold and silver markets along with $2 trillion in US Treasuries!
Over the past ten years, increasing numbers of financial experts, economists, academics and market reform advocates like Byrne, Bob O’Brien, Dave Patch, Robert Shapiro and Susan Trimbath, along with tens of thousands of individual investors who’ve seen their retirement savings swiped in broad daylight, have repeatedly complained, cajoled and pleaded with Congress, the SEC and their industry owned and controlled accomplices at the ironically named Depository Trust Clearing Corporation to stop the carnage— but to no avail. (The DTCC’s latest attack on investors which they call dematerialization, seeks to do away with all paper stock certificates, the only true evidence of share ownership, to be replaced by a “trust us” electronic record, known only to the DTCC).
While a rare few in Congress— notably Senators Grassley (IA), Specter (PA), and Sanders (VT)— seem to comprehend just how crooked, unfair and untrustworthy our markets and their regulators have become, one wonders how those who’ve charted the SEC’s course over the past 8 years could have any doubts about it! As the agency explicitly created to first and foremost, uphold and protect the integrity of the markets and the best interests of the investing public, they have, with unceasing devotion, in the eyes of most informed observers, done the exact opposite– enabling wrongdoers to operate with almost total impunity. A bold faced license to steal.
As with the O.J. murder trial years back, there is a mountain of evidence of wrongdoing, but the jury in this case, Congress, the SEC, and the financial media have remained steadfastly deaf, dumb and blind to it.
The NY Times just reported that both the SEC and FBI seemed “taken by surprise” by former Nasdaq lead market maker and Chairman Bernard L. Madoff’s alleged $50 billion fraud, while harmed investors are incredulous that the premier regulatory body and protector of the investing public could have missed such a towering Ponzi scheme. Authors of the NY Times “Your Money” column added their tin dime claiming “Thankfully, outright fraud is pretty rare,” evidencing once again that at the paper of record, journalism itself is in a state of permanent recession.
By rmr on
12/15/2008 8:55 AM
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'Angel' of foreclosure defense bedevils lenders
Here is another article for you Bob.
A University of Miami law school graduate who spent years in private practice in Arkansas and worked in other legal aid offices before coming to Jacksonville four years ago, Charney said she became an expert on lending law when her caseload of foreclosures increased and she began to notice a number of disturbing trends that have yielded her key defense strategies.
First, because of the way mortgages have been securitized, it’s often unclear who actually owns the debt, she said. “What we see is that systematically, the originating lenders only pledged these loans and didn’t actually transfer them” to the trusts that are supposed to hold them and issue the securities, she explained.
But only the true debt owner has the legal standing to be a plaintiff in a foreclosure, she continued. “That’s first-year law school stuff. If you’re Joe and the debt doesn’t belong to you, it belongs to Marjorie, then Marjorie better be in court, not Joe. Don’t come in as Joe and tell me you have the right to be there when you know full well you don’t.”
Sketchy documentation
Yet, time and again, loan servicers and others have sought plaintiff status, often by using affidavits stating that the actual notes had been lost, she said. “I’ve seen paperwork filed by lawyers saying, ‘We anticipate assignment’” of the debt, she said with a scoff.
And the loan originators can’t appear in court and claim the right to foreclose because they would be in violation of securities laws for not transferring the loan to the trust when they were supposed to, she said.
Making an issue out of the actual ownership of the securitized title might strike some as a shameless stalling tactic aimed at abetting a debtor who, after all, owes the money. But Charney said that if such basic legalities aren’t adhered to, a homeowner could pay his or her way out of a foreclosure jam only to wind up in another when a new plaintiff emerges claiming to own the debt. She described cases in which homeowners have been sued for foreclosure by two different trusts, each claiming they owned their house, and cases where trusts have been sent documents on the same case by two different servicers.
Read the rest of the article here:
http://www.msnbc.msn.com/id/28277420/page/2/
By hemingway811 on
12/19/2008 2:33 PM
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P S
Oops
The article actually begins here:
http://www.msnbc.msn.com/id/28277420/
By hemingway811 on
12/19/2008 2:35 PM
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