FedUpUSA

Archive for June, 2011

Our debt and transactional consumerism fuels the tyranny which oppresses us.

The basic dynamic is profound: the political and financial tyranny of Wall Street and the “too big to fail” banks is fueled by our own participation. “Reformers” both within the Central State and outside its halls of delirium-inducing power, keep hoping that some tweaking of policy or regulations will relax the grip of Wall Street and the big banks on the nation’s throat.

They are willfully blind to the obvious: that with enough money, any rule can be bent or evaded. Just look at the thousands of pages of tax codes which are supposed to impose “fair and equal” taxation on the citizenry. Yet the Power Elites pay less than half (around 18%) of what self-employed entrepreneurs pay (a basic rate of over 40%–15% self-employment tax and 25% Federal tax). For example, Hedge funders pay a mere 15% on their $100 million earnings because they bought a law in Congress which declares their earnings, regardless of source, as “long-term capital gains.”

Loopholes and exclusions abound, if you have the right legislators in your pocket (and they come so cheap–a few million each and their soul is yours) and a Panzer Division of sharp tax attorneys.

We have seen how effective all the “refoms” have been: nothing has really changed except regulators now have larger staffs and more mind-numbing reams of complex rules have been issued.

Correspondent Gabriel M. Mueller examines an alternative strategy to resist financial tyranny, which is to burden the Status Quo with as many social expenses as possible and as much debt as lenders will grant, and then default on that debt:

I read this post The Necessity of Resisting Financial Tyranny on Zero Hedge.

When I first started getting into it, you had my attention: you pushed not just for rallies but for action. But it is your action that I have a problem with: Your instructions for financial tyranny are for people to STOP participating in the system. But nothing could be more difficult if not impossible. (I’m still with you, though, so hear my suggestion.) Why not instruct people to take advantage of the system? Stop working and go on welfare; take out student loans; rack up your credit card debt; default on your mortgage; evade your taxes; etc., etc. I believe the financial system would fall down much quicker if people were to undermine it by pushing on its house-of-cards foundation rather than tip-toeing around it.

I concede that most of what I am recommending (and envisioning) is illegal but I doubt it’s immoral; and therefore it does not burden my conscience. My thinking is this: Why play by the rules when you know the game is rigged? To do so is to condone your enslavement. I could be wrong, though. I will have to give this more thought.

Frequent contributor Harun I. offered another point of view on the same post:

Once again the radical becomes the plausible, then becomes the necessary.

People that I would talk with expressed anger and helplessness over the fact no one in D.C. is listening. I would tell them they need not feel either, that they simply need to walk away, to stop participating. That idea immediately met resistance. “What about all those people in the banks that would lose their jobs?” “What will happen to the banking system and therefore the economy?”

The answers were simple. As money flowed to local banks they would need to expand their staff to accommodate an increase in business. Those lower level workers who had nothing to do with the corruption of their management will have the skills that local banks need as they expand. There would be some pain in the transition but it would pass.

I made it very clear that returning to the status quo should not be the intent. We cannot go back to spending that is not supported by productivity. It is time that we completely purge ourselves of this idea that has become a cultural defect.

What you wrote in yesterday’s post, the relationship you severed with your broker, are the most patriotic actions of a civilized person in a civilized society.

No one need die and not a shot needs to be fired in this silent but powerful wave of revolution.

As a personal preference I do not think of it as resistance. I just choose not to participate. It is a choice we all can make.

If this was the “grand scheme”, then it was a poor one. History is rife with what happens when the people come to their wit’s end.

“And what country can preserve it’s liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance?” — Thomas Jefferson (www.monticello.org)

It seems likely that the ongoing economics malaise will cause a significant number of people to default regardless of their initial intentions, so if solvent people decide to opt out of debt and transactional churn that benefits Wall Street and the TBTF banks, then that is withdrawing support of financial tyranny from both ends, so to speak.

As for loading up on debt with the intent of defaulting as a political action against financial tyranny: it may well hasten the downfall of our financial overlords, but it may also expose the defaulter to various forms of harassment and the possibility that the impaired banking sector would transfer collection to a Police State or private proxy. Harassment of debtors is already at tyranny levels.

There is also the moral issue: financial fraud may be “justified” to some as a form of tit for tat–the Status Quo is based on intentional financial fraud–but it is not the same as non-participation, as the gains reaped from the fraud (the new car, the vacation cruise, the new TV, etc. purchased with consumer debt, and the “free” housing provided by the defaulted mortgage) are highly individual: we the oppressed might eventually gain something from this action but the individual gains quite a lot financially.

That makes intentional default quite different ethically from non-participation, i.e. not taking on any debt and limiting the transactional consumerist churn which fuels the tyranny.

Matt H. asked a key question: what about legitimate loans?

Here’s a question: While it’s best to be completely out of debt (and I attained that status back in Feb after paying off the last of my CC and closing all TBTF accounts), there’s still a need for legitimate loans with realistic LTVs and down payments… Or, at the very least, perhaps re-fi with the Credit Union? It would keep any profits within the ‘co-op’ and benefit the membership….

At this time, I’m still keeping my powder dry, but my paid-off car is starting to demand expensive work and I would _really_like a car with a warranty….

The key issue here is if the credit union or locally owned bank keeps the loans on its books rather than sells them to Wall Street to package. In the ideal situation, a loan from a local lender that holds the debt until maturation is keeping the money in the local economy and thus would be a positive.

I spoke with a local banker in Iowa in 2006 who told me his bank still kept all the mortgages it originated until they were paid off. This is the classic model of banking, and the interest paid, as Harun notes, pays the salaries of bank employees. Local banks and credit unions funded by legitimate loans to local businesses and residents do not skim the billions of dollars in profits needed to distort and sabotage democracy.

The key takeaway is that financial tyranny is fueled by our participation. Remove our participation and the tyranny crumbles for lack of those billions in skimmed profits.

Of Two Minds

If you missed it, part 1 of this series can be read here.

And from the ‘no sh*t’ catagory today:

Bank of America Corp unnecessarily burdened U.S. regulators who were reviewing the mortgage giant’s foreclosure practices, according to a court filing.

Federal regulators and state attorneys general have been investigating bank mortgage practices that came to light last year, including the use of “robo-signers” to sign hundreds of unread foreclosure documents a day.

The Department of Housing and Urban Development inspector general’s office conducted a review of the five largest mortgage servicers, including Bank of America, which is the biggest.

Departmental auditor William Nixon said BofA “significantly hindered” the review, according to a document filed in a lawsuit brought by the State of Arizona against the bank.

Read the rest.

From the “aw crap” file….

LEVENTHAL, J.This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own. The issue presented on this appeal is whether a party has standing to commence a foreclosure action when that party’s assignor—in this case, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS) —was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes.

We answer this question in the negative.

This is far more important than it first appears.  It would appear that the bottom line is that MERS cannot prosecute foreclosures in its own name (it has stopped attempting this in several jurisdictions after losing a number of cases.)

This case, however, make an interesting point that may go well beyond that.

In October 2006 the defendants Stephen Silverberg and Fredrica Silverberg (hereinafter together the defendants) borrowed the sum of $450,000 from Countrywide Home Loans, Inc. (hereinafter Countrywide), to purchase residential real property in Greenlawn, New York (hereinafter the property). The loan was secured by a mortgage on the property (hereinafter the initial mortgage). The initial mortgage refers to MERS as the mortgagee for the purpose of recording, and provides that the underlying promissory note is in favor of Countrywide. Further, the initial mortgage provides that “MERS holds only legal title to the rights granted by the [defendants] . . . but, if necessary to comply with law or custom,” MERS purportedly has the right to foreclose and “to take any action required of [Countrywide].” On November 2, 2006, the initial mortgage was recorded in the office of the Suffolk County Clerk.

Ok, so the original loan was funded by Countrywide and MERS was named as the nominee.  So far we have the standard way that securitized junk, er, paper was originated during the go-go years.

Also in April 2007, the defendants executed a consolidation agreement in connection with the property in the sum of $479,000 in favor of MERS, as mortgagee and nominee of Countrywide . Countrywide was the named lender and note holder. The consolidation agreement purportedly merged the two prior notes and mortgages into one loan obligation. The consolidation agreement was recorded in the office of the Suffolk County Clerk on June 12, 2007. The consolidation agreement, as with the prior mortgages, recites that MERS was “acting solely as a nominee for [Countrywide] and [Countrywide's] successors and assigns . . . For purposes of recording this agreement, MERS is the mortgagee of record.” Countrywide, however, was not a party to the consolidation agreement.

There was a second (which I’ve elided) and the borrowers consolidated both loans.  That consolidation was recorded.  The borrowers then (nine months later, roughly) defaulted.

In December 2007 the defendants defaulted on the consolidation agreement. Meanwhile, on April 30, 2008, by way of a “corrected assignment of mortgage,” MERS, as Countrywide’s nominee, assigned the consolidation agreement to the Bank of New York, as Trustee For the Benefit of the Certificate Holders, CWALT, Inc., Alternate Loan Trust 2007-14-T2, Mortgage Pass-Through Certificates Series 2007-14T2 (hereinafter the plaintiff). On May 6, 2008, the plaintiff commenced this mortgage foreclosure action against the defendants, among others.

In June 2008 the defendants moved pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against them for lack of standing. In support of their motion, the defendants submitted, inter alia, the underlying mortgages, the summons and complaint, the second note, and an attorney’s affirmation. In the affirmation, the defendants argued, among other things, that the complaint failed to establish a chain of ownership of the notes and mortgages from Countrywide to the plaintiff. In opposition to the defendants’ motion, the plaintiff submitted, inter alia, the corrected assignment of mortgage dated April 30, 2008.

Oh oh.

Borrowers defaulted and it appears that there was an attempt to “fix” the loans by assigning them late to a trust that should have been closed in 2007.

On appeal, the defendants argue that the plaintiff lacks standing to sue because it did not own the notes and mortgages at the time it commenced the foreclosure action. Specifically, the defendants contend that neither MERS nor Countrywide ever transferred or endorsed the notes described in the consolidation agreement to the plaintiff, as required by the Uniform Commercial Code. Moreover, the defendants assert that the mortgages were never properly assigned to the plaintiff because MERS, as nominee for Countrywide, did not have the authority to effectuate an assignment of the mortgages. The defendants further assert that the mortgages and notes were bifurcated, rendering the mortgages unenforceable and foreclosure impossible, and that because of such bifurcation, MERS never had an assignable interest in the notes.

There it is; the assertion that the assignments never happened as required under the PSA and UCC.  The “assignment” couldn’t take place as MERS lacked the authority to do so.

The principal issue ripe for determination by this Court, and which was left unaddressed by the majority in Matter of MERSCORP (id.), is whether MERS, as nominee and mortgagee for purposes of recording, can assign the right to foreclose upon a mortgage to a plaintiff in a foreclosure action absent MERS’s right to, or possession of, the actual underlying promissory note.

“Can you assign something you never possesed?”  It is amusing that this is a novel issue, but apparently it is.

However, as “nominee,”MERS’s authority was limited to only those powers which were specifically conferred to it and authorized by the lender (see Black’s Law Dictionary 1076 [8th ed 2004] [defining a nominee as "(a) person designated to act in place of another, (usually) in a very limited way"]). Hence, although the consolidation agreement gave MERS the right to assign the mortgages themselves, it did not specifically give MERS the right to assign the underlying notes, and the assignment of the notes was thus beyond MERS’s authority as nominee or agent of the lender.

DING DING DING DING DING! 

You can only execute on those powers as a nominee that you have had conferred to you via some means.  If the power you seek to use was never conferred to you, such as a beneficial interest in the note, you cannot assign that which you never had the power to act upon.

….Coakley indicates that this Court has determined that such broad provisions in mortgages, such as the initial mortgage and second mortgage here, standing alone, grant MERS, as nominee and mortgagee for the purpose of recording, the power to foreclose. On the contrary, the Coakley decision does not stand for that proposition. This Court’s holding in Coakley was dependent upon the fact that MERS held the note before commencing the foreclosure action.

Exactly.  You cannot bring a foreclosure unless you have acquired the interest in the indebtedness prior to filing the action.  Such a transfer can be by many means, but it must have taken place.  It did not in this case, ergo, what MERS attempted to execute upon was without standing.

MERS purportedly holds approximately 60 million mortgage loans (see Michael Powell & Gretchen Morgenson, MERS? It May Have Swallowed Your Loan, New York Times, March 5, 2011), and is involved in the origination of approximately 60% of all mortgage loans in the United States (see Peterson at 1362; Kate Berry, Foreclosures Turn Up Heat on MERS, Am. [*6]Banker, July 10,  2007, at 1). This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation. Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.

Thank you New York Supreme Court.

Now, about those alleged Trusts that appear to not have anything actually in them……

The Market-Ticker

Hattip 4closurefraud.org

Bank of NY v Silverberg

Well, it’s official.  U.S. stock prices have fallen for six weeks in a row.  So will next week make it seven?  The last time stocks declined for seven weeks in a row was back in May 2001 when the “dot-com” bubble was bursting.  At this point, the Dow has declined by approximately 5 percent since the beginning of June.  Things don’t look good.  So exactly what is going on here?  Well, it is undeniable that the recent mini-bubble in stocks has been too good to be true.  The S&P 500 had surged nearly 30 percent since last September.  Much of this has been fueled by the Federal Reserve’s latest round of quantitative easing, but now that is coming to an end in a few weeks and investors are a bit spooked.  Meanwhile, wars and revolutions are sweeping the Middle East, Japan is dealing with the damage caused by the tsunami and by Fukushima, Europe is trying to figure out how to bail out Greece again and the U.S. debt crisis is continually getting worse.  In addition, wave after wave of bad economic news is certainly not helping the mood on Wall Street.  In many ways, a “perfect storm” is developing and many are now extremely concerned about what the rest of 2011 is going to bring for Wall Street.

QE2 is slated to conclude at the end of June, and many investors are deeply disappointed that it does not appear that we are not going to see QE3 right away.  Many fear that the end of quantitative easing will pop the current mini-bubble in stocks and commodities.  At the moment, financial markets are more jittery than they have been in a long time.

Frank Davis, director of sales and trading with LEK Securities, says that there is a lot of pessimism on Wall Street right now….

“There’s a lot of emotion in this market at the moment, and the conversations among traders are nearly all leaning toward the bear side”

So what are some of the signs that this downturn on Wall Street may turn into a full-blown crash?

Well, according to the Wall Street Journal, junk bonds are being sold off at an alarming rate right now.  Does the following quote from the Journal remind anyone of 2008 at least a little bit?….

A steep decline in prices of bonds backed by subprime mortgages has spread through the riskiest segments of the credit markets, ending rallies in high-yield corporate bonds and commercial real-estate debt.

Also, many of the big Wall Street banks are already laying off workers.  In a previous article I wrote about the potential for Wall Street to go into “panic mode“, I noted that Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley are all laying people off or are considering staff cuts.

The truth is that the big banks on Wall Street are not nearly as stable as most people think that they are.  Moody’s recently warned that it may downgrade the debt ratings of Bank of America, Citigroup and Wells Fargo.

Another major story on Wall Street right now is oil.  OPEC recently announced that oil production levels will not be raised, even though the price of oil has been hovering around $100 a barrel.

World oil supplies are very tight right now.  In fact, the globe actually consumed 5 million barrels per day more oil than it produced during 2010.  This was possible because the difference was apparently made up by drawing down reserves.

But if oil supplies are this tight already, what is going to happen if a major war (as opposed to all of the minor wars that are already happening) erupts in the Middle East?

The world is sitting on the edge of a financial disaster.

It is important to keep in mind that Europe is also in far worse financial condition than it was just prior to the financial collapse of 2008.

It is being reported that German finance minister Wolfgang Schaeuble is convinced that a “full-blown” financial meltdown by Greece is a very real possibility. The cost of insuring Greek debt has soared to a brand new record high, and officials all over Europe are in panic mode.

But financial problems are not just happening in Greece.  The largest bank in France has just cut in half the amount of cash that customers can withdraw from ATMs each week.

Most Americans don’t spend much time thinking about the financial condition of Europe, but the truth is that what happens in Europe is going to play a major role in the months and years ahead.

Of course most Americans already know that the U.S. government is a financial mess.

As the “debt ceiling deadline” of August 2nd draws closer, the U.S. government has been raiding retirement funds in order to stay under the debt limit.

Many investors are quite nervous about what may happen if the U.S. government actually does start defaulting on debt on August 2nd.

Others claim that the U.S. government is already in default.

The only Chinese agency that gives credit ratings on sovereign debt says that the U.S. government “has already been defaulting” and the Chinese government has been repeatedly warning that the U.S. needs to get its finances in order.

In any event, this debt ceiling drama will get resolved one way or another.

The bigger question is this….

How is the U.S. government going to respond when the next financial crash happens?

Back in 2008, the Federal Reserve and the U.S. government took unprecedented steps to prop up Wall Street.

But can they really do that again if we see another major crash in 2011 or 2012?

Many believe that things will be totally different this time around.  Just check out what Jim Rogers recently told CNBC….

“The debts that are in this country are skyrocketing,” he said. “In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.

“When the problems arise  next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around.”

Jim Rogers is right about that.

The next time we see a collapse on the scale of 2008 it is going to be a much bigger mess.

Global financial markets are extremely vulnerable right now and there are a whole host of potential “tipping points” which could push them over the edge.

The Federal Reserve and the U.S. government more or less used up all of their ammunition on the 2008 crisis.

If we see another collapse in 2011 or 2012 there is not going to be much of a safety net available.

The entire world financial system is simply swamped with way too much debt.  The world has never seen anything even remotely close to the gigantic mountains of debt that have been accumulated around the world today.

The current global financial system is not sustainable.  More crashes are inevitable.  A lot of people are going to get steamrolled.

Hopefully you will not be one of them.

The Economic Collapse

Whoo boy.  A couple things on the MBS front today, both succinctly synopsized by The Market-Ticker:

From the WSJ:

The latest infiltration was sophisticated in that it involved significant reconnaissance prior to the attack, and code written specifically to penetrate the IMF, said Tom Kellermann, a former cybersecurity specialist at the World Bank who has been tracking the incident.

“This isn’t malware you’ve seen before,” he said, making it that much more difficult to detect. The concern, Mr. Kellermann said, is that hackers designed their attack to gain market-moving insider information.

The attackers appeared to have broad access to IMF systems, which would give them visibility into IMF plans, particularly as it relates to bailing out the economies of countries on shaky financial footing, Mr. Kellermann said.

That could be a problem.

Apparently the IMF doesn’t seem to think that encrypting data in file stores is important.  It might now, of course, but it’s a bit late.

Now the question turns to who it was.  Was this a state-sponsored attack or was it the activity of what could be called “activists” who are interested in using this information either for profit or, more likely, as a means to either embarrass or even attempt to civilly detonate governments?

One has to wonder exactly what’s going on here with the recent ramp-up of these sorts of incidents.  The recent RSA token scandal was one that apparently had its roots planted several months ago and was hushed up.  These little ”two-factor” tokens are extremely secure provided the key-generation algorithm tied to their serial number is not compromised. But if it is then the token is literally worthless.

Why the IMF?  Well, that’s simple: There’s plenty worth stealing there, even though there shouldn’t be.  Rumors abound, of course – that the IMF entered into secret treaties (and “treaty-like” agreements) with various governments related to the Greek bailouts (and others), that there are certain hidden (and not-so-hidden) facts about who’s holding the risk on Greek debt in these discussions and more.

The latter, by the way, is interesting.  The “direct exposure” to a Greek, Irish or Portugese default is mostly in Europe, as you would expect.  But the indirect exposure via credit instruments, including those damned Credit Default Swaps, is substantially in the United States.

This is not a trivial amount of money either; we’re talking about, in aggregate, north of a trillion dollars.  Of that roughly $129 billion rests here in the United States in the form of these indirect and not clearly denoted obligations.

Guess what this means folks?  US Financial Institutions would have to make payments to European banks.  Once again we would be bailing out Europe for their idiocy.

When did this all happen?  Who’s been selling CDS against foreign debt, why, and where are the reserves, amounting to more than $120 billion, behind those sales?  That is not a small amount of money.

I have said this repeatedly since the crisis erupted: All credit instruments must be exchange traded, not “cleared” or “registered.”  This double-blinds the transaction and forces nightly posting of margin and identification of the risk that each party is holding.  It prevents “chained risk” and thus systemic risk.  And finally, it prevents hiding this sort of crap as the open interest on each contract is visible to everyone, every night, in public and everyone involved must prove capital sufficiency every night.

The solution to this problem remains as it was in 2007 when I started yelling about it: Force it all onto an exchange and for those who cannot post margin as they simply do not have the money declare the contracts fraudulently entered into and void. 

Dodd-Frank refused to address this.  Our government has refused to address this.  Now, four years on into the mess which was not fixed, we are seeing “Round #2″ and as the BIS data shows and John Mauldin has published, we are again being held hostage by a bunch of crooks who wrote “insurance” against risk without the money to pay.

It is time for Congress and the people to demand answers and stop this crap right now.  We, the people, must not pay off these bets in what is clearly an organized looting operation.

The Market-Ticker