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Since 2008 – Progress Through Politics

We Are SO Screwed

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Today Bank of America stock rallied.  The Fed is talking about ‘quantative easing.’  We are alarming our friends and allies by crimping the US dollar worldwide in an effort to improve exports and ‘pump prime’ our flagging economy.  We are in the midst of a tenacious recession and our equity market is overhyped daily and undermined after-hours by insider profit-taking.  

The foreclosure crisis has our whole system of real property in doubt across fifty states and the banks which we spent our last trillion capitalising have made provisions to cover a trivial fraction of their remaining exposure to toxic subprime debt.  Some originators no longer have the notes, some mortgages have been securitised into two or three trusts, all of them have been leveraged into endless tranches of CDOs whose value exceeds the world’s GDP.

And now this:


HOUSTON, Oct. 18 PRNewswire  Today, the holders of over 25% of the Voting Rights in more than $47 billion  of Countrywide-issued RMBS sent a Notice of Non-Performance (Notice) to Countrywide Home Loan Servicing, as Master Servicer (“Countrywide Servicing”), and to Bank of New York, as Trustee, identifying specific covenants in 115 Pooling and Servicing Agreements (PSAs) that the Holders allege Countrywide Servicing has failed to perform.

Institutional Holders of Countrywide-Issued RMBS Issue Notice of Non-Performance… PRN Newswire 18 Oct 10

Just wanted to post this as a marker, really.  The first $47 billion.  Of the $1.4 trillion worth of dodgy securitised mortgage trusts we know about.  A little time-capsule of our current condition.  “Iceberg, right ahead!”, exclaimed the lookout.


Categories: Uncategorized.

/ 98 Comments

98 comments

  1. Peter Jukes

    …tomorrow, our Coalition Government, spooked by the bond markets, but also using them as cover for their ideological obsession with small government, are going to make the biggest cuts in government spending in over 70 years.

    That’s right, guys. Despite all the evidence (see Ireland) that such draconian cuts only have a decelerator effect on the rest of the (private) economy, our neo liberal lords and masters are willing to experiment will millions of other jobs, lives and livelihoods to fulfil their Hayekian dream of shrinking the state… even if it means shrinking growth, other business activity, and sacrificing social cohesion through the loss of healthcare, policing, housing support, house building, education…

    Complete madness. The UK deficit will be reduced by growth, not cuts in public spending. Even if that deficit reduction was needed at such a rate, it could fall more proportionately on tax rises (Labour are proposing a 70/30 ratio of tax rises to spending cuts while the coalition are doing the reverse).

    Virtually every cut the Coalition have made will affect the poorest in society, and damage the already vulnerable areas of the midlands and North (where of course there are fewer Tory votes). Even the bulk of tax rises will affect the poor or middling, as they’re mainly in indirect VAT rises which hit the poorest disproportionately.

    You are at least lucky to have a centrist Administration in power which still avails itself of the possibilities of stimulus and a Keynesian approach.

    But we have ideologues who somehow think the private sector will flourish if the state sector is hacked to bits.

    So things could be worse…. and will be if you elect a Republican House next month

  2. Shaun Appleby

    How revolting is this?:


    Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.

    The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found.

    In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.

    In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

    Fred Schulte and Ben Protess – The New Tax Man: Big Banks And Hedge Funds Huffington Post 18 Oct 10

    The same banks, mind you, who precipitated this mess and then were bailed out by the same taxpayers.  I think this is just unbelievable.

  3. Shaun Appleby

    From the ridiculous to the Orwellian:


    Koch Industries, the longtime underwriter of libertarian causes from the Cato Institute in Washington to the ballot initiative that would suspend California’s landmark law capping greenhouse gases, is planning a confidential meeting at the Rancho Las Palmas Resort and Spa to, as an invitation says, “develop strategies to counter the most severe threats facing our free society and outline a vision of how we can foster a renewal of American free enterprise and prosperity.”

    Kate Zernike – Secretive Republican Donors Are Planning Ahead 19 Oct 10

    “Foster a renewal of American free enterprise and prosperity.”  Perhaps Kafkaesque is more appropriate?  And here I was thinking there wouldn’t another socialist revolution in my lifetime.  Sigh.  Let the good times roll.  It’s never too late for anarchy.

  4. Shaun Appleby

    Another ‘chicken little’ heard from:


    We have long known that lender fraud was rampant during the real estate boom.  The FBI began warning of an “epidemic” of mortgage fraud as early as 2004.  We know that mortgage originators invented “low doc” and “no doc” loans, encouraged borrowers to take out “liar loans”, and promoted “NINJA loans” (no income, no job, no assets, no problem!).  All of these schemes were fraudulent from the get-go.  Property appraisers were involved, paid to overvalue real estate.  That is fraud.  The securitizers packaged trash into bundles that ratings agencies blessed with the triple A seal of approval.  By their own admission, raters worked with securitizers to provide the rating desired, never looking at the loan tapes to see what they were rating.  Fraud.  Venerable investment banks like Goldman Sachs packaged the trashiest securities into collateralized debt obligations at the behest of hedge fund managers – who were allowed to choose the most toxic of the toxic waste – then sold the CDOs on to their own customers and allowed the hedge funds to bet against them.  More fraud.

    Indeed, the largest financial institutions were run by their management as what my colleague Bill Black calls “control frauds”.  That is, the banks used accounting fraud to manufacture fake profits so that they could pay huge bonuses to top management.  The latest data out on Wall Street bonuses show that these institutions are still run as control frauds, with another record year of bonuses paid by cooking the books.  The fraud continues unabated.

    This is the biggest scandal in human history.  Indeed, all previous scandals from around the globe combined cannot even touch this one in terms of scale and scope and stench.  This is the mother of all frauds and it will be etched into the history books for all time.

    L Randall Wray – The Mortgage Fraud Scandal Is The Biggest In Human History Bezinga via Business Insider 14 Oct 10

    By ‘biggest’ I’m assuming he’s talking dollar value but that remains to be seen when the returns are all in.

  5. Shaun Appleby

    The Cook County Sheriff:


    “I can’t possibly be expected to evict people from their homes when the banks themselves can’t say for sure everything was done properly,” [Cook County Sheriff Thomas Dart] said in the statement.

    “I need some kind of assurance that we aren’t evicting families based on fraudulent behavior by the banks. Until that happens, I can’t in good conscience keep carrying out evictions involving these banks,” he added.

    Chicago sheriff says no to enforcing foreclosures Reuters via CNBC 19 Oct 10

    The sheriff has apparently read the Constitution.  “…nor be deprived of life, liberty, or property, without due process of law…”  Who thought ‘oath keepers’ would become a populist, progressive rallying point?  We ain’t seen nothin’ yet.

  6. Shaun Appleby

    Apparently not:


    If it wasn’t already blindingly obvious that pervasive fraud was at the heart of the financial crisis and the ensuing foreclosure catastrophe, you would think that the latest news — that banks have routinely been lying their heads off in the rush to kick homeowners off the properties they fraudulently induced them to buy in the first place — would pretty much clinch it.

    And yet the mainstream media still by and large hasn’t connected the dots.

    What we are seeing all around us are the continued effects of a vast criminal enterprise that has never been brought to account,  employing a process that, as University of Texas economist James Galbraith explains, involved the equivalent of counterfeiting, laundering and fencing.

    Dan Froomkin – Nine Stories The Press Is Underreporting — Fraud, Fraud And More Fraud Huffington Post 20 Oct 10

    Hmmm…  Wonder why?  It couldn’t be that our media is in the pockets of the same corporate actors who are desperately trying to hold this together, defend their monied interests, retain their stranglehold on our elected representatives and ultimately avoid prosecution, do you think?

  7. Shaun Appleby

    Gee, this story just goes on and on.  The legal team over at Foreclosure Defense Nationwide have recently acquired ‘computerized mortgage loan investigation and securitized mortgage loan trust software and special computer terminals which can track a mortgage loan’s history including its assignment to specific tranches inside of a trust.’  And guess what:


    A sample of what our researchers are finding: loans which were assigned to multiple tranches within one securitized mortgage loan trust; the assignment of the loan to different trusts; the divison of the loan into parts across tranches, and more. What this means to foreclosure defense discovery is nothing short of monumental.

    If a loan is assigned to different tranches and/or different trusts, with each tranche or trust having its own series of credit enhancements and insurances, this means the possibility of multiple levels of insurance for the same loan, which goes to prove what we have been arguing for years: that upon securitization, the mortgage loans were insured with multiple layers of insurance so that when the loan went into default, those in the placement chain could reap untold profits by having the same risk paid over and over and over again through multiple claims or reserves.

    Jeff Barnes – MULTIPLE TRANCHE ASSIGNMENTS; PARTIAL CROSS-COLLATERALIZATIONS; FRACTIONALIZED INSURANCE: THE WEB BECOMES THICKER AND THICKER, AND WE ARE ONLY SCRATCHING THE SURFACE Foreclosure Defense Nationwide 19 Oct 10

    Short story?  If true those ‘in the placement chain’ were defrauding not only borrowers, taxpayers and investors but insurers as well.  Man, Wall Street is a tough neighbourhood.

    The other interesting point is that, if true, this widespread fraud would enable ‘discovery’ for multitudes of borrowers in their legal defence against originators, banks and trusts.  Not to mention lawsuits from insiders who got the pointy end of these deals.

  8. HappyinVT

    but I know, Shawn, you are scaring the shit out of me.  Looking for new neighbors in your neck of the woods?

  9. spacemanspiff

    … aren’t Americans not only Americans?

    The U.S.A. is as if a lot of countries got together and donated some people to get a place started. Right? So isn’t the U.S. proof that working together with other countries (like we did to help build this great nation) is the key to a better world? If we really want everybody to do as we do, don’t we have to follow the example we already set? Is any of this making any sense?

    Brit (sorry for the call out hermano) lived and married in the U.S. Even if it was in the most miniscule way the man helped shape a small part of America with his presence. Didn’t he? We all “know” Brit here and it’s hard to think about the limey not having an influence on anbody’s life if you get to know him. Isn’t adding your own spice and ingredients to this big melting pot of a nation the whole point of the exercise? If Brit decides to move to the U.S. he’s just as gringo as any teabagger. Right?

    Nobody except some with Native American heritage are really from here. Why is it so hard to understand that “together” we can do great things? When I say together I mean the “citizens of the world”. Everytime I hear about the “real” Americans crap the Tea Baggers talk about it makes me want to slap Glenn Beck! Dude. Nobody is a “real” american if you really want to talk like that. We are all just as American as everybody else. The immigrant who just got here? As soon as he pays his first taxes he has as much right as 3rd or 4th generation “American” to speak out and help shape this country. Tax evaders and illegals can STFU when it comes to policy and goverment. Had to get that off my chest.

    This reads so amateurish but I felt like going on a spiff rant. Teabaggers piss me off.

  10. Shaun Appleby

    In the financial press about exposure to these securitisation irregularities, and much predictable tut-tutting by major banks insisting the disclosures are ‘somewhat overstated’ and insisting they can cover these put-backs with existing provisions.  And yet each new article includes little signs of trouble from other sources:


    A sampling of 6,533 loans in 12 securitizations by Countrywide found 97 percent failed to conform to underwriting guidelines, according to a lawsuit filed Sept. 29 by Ambac Assurance Corp. in New York state Supreme Court.

    Richard M. Bowen, former chief underwriter for Citigroup’s consumer-lending group, said he warned his superiors of concerns that some types of loans in securities didn’t conform with representations and warranties in 2006 and 2007.

    “In mid-2006, I discovered that over 60 percent of these mortgages purchased and sold were defective,” Bowen testified on April 7 before the Financial Crisis Inquiry Commission created by Congress. “Defective mortgages increased during 2007 to over 80 percent of production.”

    John Gittelsohn and Jody Shenn – Banks Face Two-Front War on Bad U.S. Mortgages, Flawed Foreclosure Process Bloomberg 22 Oct 10

    Those are big numbers and Bowen’s testimony was made under oath, unlike many of the assurances provided by the majors in recent statements.  The banks are pretty busy reassuring investors, threatening potential plaintiffs and stonewalling regulators at the moment.  Hard to say where this is headed but when some of these current legal actions mature there may be unexpected outcomes.

  11. Shaun Appleby

    On the bondholders standing to sue the issuer of these securitised mortgages.  This gets a little bit technical.  The securities, say a bundle of mortgages, were packaged into various chunks, or tranches, of what we will call the good, the bad and the ugly, based on risk.  The issuers called these ‘senior’ and ‘junior’ tranches.

    For the bondholders to be entitled to sue the issuers of the bonds the suit must represent a threshold of 25%, by value, of the bondholders of the total bond issue.  The banks cunningly structured the tranches so that there was rarely more than 20% of bonds issued in the ugly tranche:


    The bar is high on these suits, but most of the hurdle is procedural.  You need 25% of the MBS pool to have standing – that’s blocked most of these up until now, and the banks (cleverly) structured most of the notes so that getting to the 25% is tough.  That is, the “Senior” portions of the offering typically encompass about 80% of the total, just enough so that until and unless those people take losses they have a strong DISincentive to participate in a suit.

    But if they feel the heat of risk, this all changes immediately, and instead of having 80% of the investors on your side the flip to the other side of the equation becomes equally dramatic and immediate.

    That’s all it will take – for the overcollateralization offered by the junior tranches to be exhausted, and the senior portions to start getting whacked on with unrecoverable losses – not “mark-to-market” losses, but permanent impairments due to parts of the pool being found to be contaminated beyond that which overcollateralization can protect against.

    With loss severities running around 50%, that won’t be tough to do if 1/3rd or more of the pools are junk – and the testimony from Clayton at the FCIC hearing strongly suggests that to be the case.

    The banks appear to have relied on the premise that they could get away with this by structuring securities such that all of the junior tranches could get wiped out and yet it would not produce enough angry noteholders to meet standing requirements.

    Karl Denninger – The Sharks, They Be A-Swimmin’ Market Ticker 21 Oct 10

    So here’s the scene, until a certain threshold of loss is reached it is unlikely that suits against the issuers will be filed, as the majority of bondholders are still hanging in there.  But once that line is crossed all bondholders have an interest in cutting their losses.  And it is unlikely the banks have made provisions for this.  As the cost of foreclosures is raised by the growing impediment of doing the paperwork properly, and we are talking about thousands of dollars in legal and search fess across literally millions of foreclosures, or settling at well below appraised values, the loss on these ‘senior’ tranches escalates:


    Up until yesterday, big banks thought they had a get-out-of-jail-free card on investor lawsuits. Investors have to bring together 25 percent of the buyers of any mortgage bond in order to sue the bank that issued it — even if the actual lawsuit is an open-and-shut fraud case. Investors had not been cooperating. But yesterday’s letter to Countrywide is a big deal — even though it’s not (yet) a lawsuit, some of the biggest names in finance were going after Countrywide’s cash: BlackRock, PIMCO and even the New York Federal Reserve.

    Bill Frey, who runs the hedge fund Greenwich Capital, has organized a massive clearinghouse of mortgage investors for the express purpose of bringing lawsuits against big banks that issued bogus mortgage-backed securities. He told me this afternoon that he’s about to move: In the next couple of weeks Greenwich and other investors will bring big lawsuits against major banks.

    Will these combined troubles be enough to sink any big banks? If investors can win a couple of lawsuits, easily.

    Zach Carter – Foreclosure-Gate Fallout: How Bad Can It Get For Wall Street? Huffington Post 22 Oct 10

    This is why this crisis is biting at both ends, the foreclosure paperwork mess and the mortgage securitisation mess, they are feeding each other.  The haste to clear their inventory of bad loans is perfectly understandable for mortgage servicers, and this is why.  They represent the bond issuers and up until now the majority of bondholders have had a vested interest in standing with them, to protect their investments.

    But if the ship takes on enough water, if the pumps lose the race with the incoming sea, then the watertight bulkheads give way and the next thing we hear is submerged ‘breaking up’ noises on the sonar.

  13. Shaun Appleby

    The Federal Housing Finance Agency has hired a Los Angeles-based firm that specializes in business litigation, to coordinate its investigations into mortgage-backed securities:


    The federal regulator overseeing Fannie Mae and Freddie Mac hired a law firm specializing in litigation as the agency considers how to move forward with efforts to recoup billions of dollars on soured mortgage-backed securities purchased from banks and Wall Street firms.

    The Federal Housing Finance Agency, which in July issued 64 subpoenas to issuers of mortgage securities, bank servicing companies and other entities, is working with Quinn Emanuel Urquhart & Sullivan LLP, a Los Angeles-based firm that specializes in business litigation, to coordinate its investigations.

    In a statement, the FHFA said it is analyzing requested information and that “no decisions for future action have been made.” Quinn Emanuel confirmed its hiring by FHFA but declined to comment further.

    Since the financial crisis, 400-lawyer Quinn Emanuel has avoided building a banking clientele, making it a top suitor for plaintiffs pursuing banks. The firm has represented MBIA Insurance Corp. in several lawsuits against top U.S. mortgage banks alleging that the insurer was fraudulently induced to cover losses on mortgage-backed securities. Those cases are ongoing.

    Nick Timaraos – Regulator for Fannie Set to Get Litigious WSJ 21 Oct 10

    This has to be a concern for the banks.  If I had to guess, and this stuff is tricky, I would say the administration is seeking to force settlements on the banks which would protect public investments but not undermine the fundamentals of the mortgage-backed securities already in the marketplace.  We are talking billions of dollars but not bankruptcies.  The tricky bit is how to do this without making it possible for private investors to immediately pursue their own suits on the same basis.  It would seem a difficult needle to thread and that may explain the cautious approach taken.

    Early days, this hasn’t proceeded to litigation, but if the banks say ‘see you in court’ then discovery could set off a chain-reaction of suits by others, something the regulators may well be seeking to avoid.  This is getting very interesting and one can only assume the banks have been playing hardball with the FHFA up to this point or this move would have been unnecessary.

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