Sunday, October 17, 2010

Two Different Takes on 'Foreclosuregate'

John Mauldin says "Fix the @#$% thing quick by any means available and move on. Otherwise the whole financial system will be brought down by this silly stuff! We can punish the bad guys later."

Karl Denninger says "Fraud is fraud, and unless the perpetrators [the whole financial system, actually] are brought to justice, this lawlessness will spread."

Mauldin's view is pretty much that of CNBC until a few days ago. (CNBC seems to have become more apprehensive.)

Denninger's view is also shared by Paul Krugman. There are many bloggers who are as outraged as Denninger (ex. Naked Capitalism,

Mauldin is a NYTimes bestselling author, recognized financial expert who makes regular appearances at big financial news media outlets.

Denninger? He was a tech guy, a system engineer.

Here's from Mauldin's latest on 'Foreclosuregate':

We CANNOT allow this debacle to continue. It will bring the system down. Who will want to buy a mortgage that is in a securitized package with no clear title? Who will get title insurance? Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.

Let's be very clear. If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.

This is beyond my pay grade, but there have to be some adults who can make everyone play nice in the sandbox. Ideally, someone in authority at the Treasury, with bipartisan support steps in and says everyone follow these rules, whatever these rules need to be.

...Now, that is not to say the people who did this stuff did not commit felonies and such. We can sort that out over time. The longer we wait the worse it will get. Fix the problem and then go round up the bad guys. There are bigger issues in play here.

I don't think so, Mr. Mauldin. We've done that in 2008. Are any of the "bad guys" behind bars? (Answer: No.) Has so-called "confidence" return to the stock market? (Answer: No.) Bigger issues like saving the nation's large financial institutions so that the whole financial system doesn't come tumbling down? We've done that in 2008 by extending over $10 trillion worth of support for them at the expense of small people aka taxpayers.

If we gloss over the frauds in foreclosures and securitization by "fixing it", will that revive the housing market? I'm afraid it may do the total opposite.

Here are the snippets from Denninger on the CA family who repossessed their home that was foreclosed:

...How do we wind up with someone who purchased a home for $500,000 then pulling another $500,000 in what amounts to phantom equity out?

Well, that's simple: We had Wall Street banks that were more than happy to trade on this phantom, false, and maliciously-inflated "equity", driven by a central bank and cronies in Washington DC that were all too happy to look the other way at rampant lawlessness for nearly a decade.

...This mess begins with the securitization and sale of these mortgages in the first instance. It begins with whether or not the original banks actually transferred the notes at all (there's plenty of evidence they did not) and whether the representations and warranties were complied with when these securities were sold to investors (we know in many cases - if not all - they were not, from FCIC sworn testimony.)

...We have turned a blind eye to these lawless acts for the better part of a decade - not one indictment has issued for securities fraud over these matters. And it's not just mortgages - we know banks were involved in ripping off communities such as Jefferson County, we know they are alleged to have been involved in rigging municipal debt offerings (which raised the cost of living for everyone through higher taxes) and yet not one bank officer or bank itself has been placed under indictment for any of it. Further, the FBI warned in 2004 of an "epidemic" (their words) of mortgage fraud, and instead of it being prosecuted the agents were pulled and reassigned.

We have had two sequential administrations - Bush and now Obama - that have intentionally refused to prosecute any of this lawless behavior. This refusal continues to this very day with admissions in depositions under oath of the commission of literal tens of thousands of felonies per month (each instance of falsely swearing before a court is a separate count of fraud upon the court and, in the case of "robosigning", forgery - affixing a notary's signature by other than the actual notary.) Yet despite this having been confirmed in multiple depositions going back several months not one indictment has issued thus far and Attorneys General talk about not wanting to "upset" the banks or the "economy."

...The media and others wish to spin this as "technical errors." Nonsense. These are serious crimes. They do not become "technical errors" because some large financial institution committed them. Breaking and entering is a felony irrespective of who does it - the offense does not suddenly disappear if a monster bank is the perpetrator who directs an agent of theirs to commit the offense.

The Obama administration, Timmy's Treasury and Ben's Fed are very quiet on the issue. When they say anything, it has been to discourage full discovery (Axelrod here, Timmy here). State AGs don't want to upset the big banks (see my post from Friday, toward the end).


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