Allonges...Not Throat Lozenges from Switzerland

Adam Levitin posted this awhile back, but it's a great issue to raise - now that we know banks are willing to pay for document fabrication so they can foreclose.

Do We Have a Fraud Problem? The Case of the Mysteriously Appearing Allonge

The shorter version is that bank paperwork is supposed to be processed and signed in a specific manner. The chaos and complexity of life has led to an accommodation  called an allonge - basically another piece of paper affixed (stapled) to the primary document that provides additional, relevant information.

This is a very unusual procedure - since most times a document can be corrected electronically and re-issued for wet ink signatures on the spot. But if a document was jam packed with text and the process was strapped for time - they might create an allonge and staple it to the transfer documents.

Again, a safety valve for the weirdness of everyday life.

But now bankruptcy courts are seeing allonges falling like rain. And after discovering that their initial trust of the banking industry was seriously misplaced - they are beginning to wonder if these allonges are merely the newest attempt to fabricate proper documents where none previously existed.

(H/t naked capitalism)

Bannana Republic, Within The Republic

Oh, how I love this:

There's an address in Cheyenne, Wyo. — 2710 Thomes Ave. — where 2,000 companies are based. But it's not a skyscraper. Or even an office complex.

It's a basic, 1,700-square-foot brick house.

Not because it's good news or anything. But because it's yet another example of one of those things that only happen in other countries - happening right in our backyard.

(Via Reuters)

The Wisdom of Others

There's just a ton of stuff I'm catching up on - and while I could write up my thoughts on each, I'd just be wasting your time.

Here's a sampler of what I've been reading, and a teaser for each.

First, Blame The Lenders - Barry Ritholtz

There is a familiar odor to the “Blame the profligate Greeks” meme now circulating. It is little more than a brilliant marketing ploy. This distraction ignores the simple reality that lending to insolvent people, institutions and countries is first and foremost the fault of the lenders.


Let us start first with the Greeks, who lied their way into the EU (with the help Goldman Sach’s financial engineers). The ridiculous pay and vacation structure, the absurdly generous pension plan, the excessive spending by Athens. They are a nation that can honestly be described as tax scofflaws. Yes, Greece is a mess.


Which begs the question: WHO THE FUCK WOULD LEND A DIME TO THESE PEOPLE?

(H/t CJR)

The Wageless, Profitable Recovery - Steven Greenhouse, NYT

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

(H/t CJR)

Wisconsin Court Supremely Slippery - Brendan Beery

But the Wisconsin Supreme Court stated—citing another case from the same court from 1943—that a court cannot determine whether a law is constitutional until after it has been published because prohibiting its publication somehow interferes with the process of making law. (The idea here seems to be that although a court may rule that a law already made is unconstitutional, a court may not hold that the legislative branch has behaved in an unconstitutional way while making the law. Why this would be so is anyone’s guess.)


In support of this proposition, the court did no more than cite the antique case from 1943 and restate its premise. In so doing, as was noted in a stinging dissent, the court simply skipped right past more recent cases that seem to point in the opposite direction.


But more importantly, the court never explained how stopping the publication of a law interferes with the lawmaking process. By the time a law is ready for publication, it has already been made. No more committees will meet, no more floor debates will erupt, and no more drafting or editing will be undertaken. So, again, how does stopping the law from being published interfere with the process of making the law? If there is any intelligible answer to this question, the Wisconsin Supreme Court certainly could not have been bothered to provide it.

(H/t Illusory Tenant)

A Corporation, but not a Gableman, is a Person - Illusory Tenant

In the Wisconsin statutes, the distinction between the court's supervisory and original jurisdictions is codified by their separate numberings:
§ 809.70 and § 809.71. The Department of Justice chose the latter.


It would not have occurred to the Department of Justice to petition the court to take jurisdiction of an original action because Ozanne v. Fitzgerald could not, obviously, be an original action for the purposes of the Supreme Court's original jurisdiction. Hence the supervisory petition.

¶7 This court has granted the petition for an original action ...

No such petition existed, until the Gableman court manufactured it.

How Wal-Mart Swiped JPMorgan in $16 Billion Debit-Card Lobbying Battle - Phil Mattingly and Robert Schmidt, Bloomberg

(Via CJR)

It's hard to pull a single quote out of this one - it's pretty much a tale of powerful corporate interests waging political war. The right thing for consumers ends up happening, but only because it also happens to benefit retail operations who were wealthy enough to pay for a lobbying war.

...and there's this winner

Biggest Tax Avoiders Win Most Gaming $1 Trillion U.S. Tax Break - Jesse Drucker, Bloomberg

Cisco Systems Inc. (CSCO) has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people.


Now Cisco, the largest maker of networking equipment, wants to save even more -- by asking Congress to waive most federal taxes due when multinationals bring such offshore earnings home. Chief Executive Officer John T. Chambers has led the charge for the tax holiday, which would be the second since 2004. He says it would encourage companies to “repatriate” as much as $1 trillion held abroad, spur domestic investment and create jobs.

(H/t CJR)

We Didn’t Move The Paper. No One Moved The Paper.

If what you say is true, we’re f*cked. We didn’t move the paper. No one moved the paper.

So sayeth the head of one of the major subprime loan originators - speaking about the legal consequences of his industry not moving the paper - the mortgages and assigned notes - in the way that current law requires.

Hardly breaking news, but the fact is the "we're f*cked" scenario and its implications are a trillion dollar question writ large across the nation's residential mortgage market. What can be done to fix a situation that (on the face of it) appears to invalidate mortgages & their derived securities nationwide? Lenders like Countrywide appear to have held onto loan documents they were legally obligated to deliver to firms purchasing those loans.

The bonus round was banks presenting notes at time of foreclosure that were improperly endorsed - that is, they weren't signed over to the foreclosing party, yet were submitted by that party as evidence in support of a foreclosure proceeding. (emphasis added)

Although law enforcement should be able to answer the delivery question easily -- [Countrywide employee] DeMartini['s testimony] indicated that Bank of America has FedEx tracking records for each note -- it's impossible for the public to check. But the endorsement of notes is easy to test. In every foreclosure, the bank must give the court the note or an accurate copy of it. And those notes are either properly endorsed or they're not.

To check DeMartini's testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower's signature. Two-thirds of the loans made by other banks also lacked bank endorsements.

As numerous observers have pointed out, this is not a small thing, since -

• who holds the note determines who can foreclose
• who can (or can't) foreclose impacts whether or not a loan is secured or not; and
• whether a loan is secured or not determines whether or not it has value if the borrower has defaulted.

Add to that the percentage of home borrowers in default (around 9%) and those who owe more than their house is worth (around 23%) and you have the recipe for a very big mess heading toward this nation's bankruptcy courts.

Which is not to say, wow look at this breaking bit of news - but more like. How the F*ck is this time bomb still ticking away?

So, When Does Your Home Purchase Pay Off?

The NYT has an outstanding calculator for determining if renting is better than buying.

Kinda makes me wish I'd seen it before I'd bought.

Supremes to Fed: Spill It

I'll be buggered. Mark Pittman's wins his FOIA lawsuit, posthumously.

Debtor's Prison? Seriously?!

CJR's Ryan Chittum picks out a WSJ piece about - of all things - debtor's prison in the US.
The WSJ points out "More than a third of all U.S. states allow borrowers who can't or won't pay to be jailed."

The money quote:

Your hundreds of billions of dollars of bailouts at work:

In September 2009, Jeffrey Stearns, a concrete-company owner, answered a knock at the door from a Hancock County, Ind., deputy sheriff. The deputy was holding a warrant to arrest Mr. Stearns for not paying $4,024.88 owed to a unit of American International Group Inc. on a loan for his pickup truck.

After being handcuffed in front of his four children, Mr. Stearns, 29 years old, spent two nights in jail, where he said he was strip-searched and sprayed for lice. Court records show he was released after agreeing to pay $1,500 to the loan company. “I didn’t even know I was being sued,” he said, though he doesn’t dispute owing the money. “It’s the scariest thing that ever happened to me.”

AIG, of course, got hundreds of billions of dollars in bailouts from taxpayers. Now it’s having those taxpayers thrown in jail. Nice.

Yeah, Nice.

Credit Card Interchange Reform

Not exactly a barn burner of a subject line - but here's a great way to draw someone's interest into why this subject matters, courtesy of Rortybomb:

“Credit cards are the lifeline of my business as customers use plastic for everything from; a cup of coffee, to a pack of gum, to a tank of gasoline. Credit cards and debit cards are easy to use, but what customers don’t know is that every time they use a credit card, I pay a fee. For example, a customer purchases a local newspaper (75 cent retail) my profit is 9 cents. If the customer is using a debit card I would pay 25 cent for the transaction fee plus .08% interchange fee. If the customer puts down a Visa credit card the transaction fee would be 19 cents plus 1.68% interchange fee. Regardless of the payment option I lose money on the sale.”
–Jinger Duryea, President of CN Brown which owns Big Apple convenience stores across Maine

A minimum charge by the credit card companies eats retail vendors lunch.

Credit card companies don't care - but there are more merchants than credit card companies. You would think that would make them care.

But you'd never get that from corporate shill like Edward Wyatt

Pensions, Everybody's Gravy Train

Oh, look. Banks may have found a new way to screw with public pensions: by overcharging them for foreign exchange transactions.

[S]tates are looking into whether certain banks charged state pension funds the most expensive foreign-exchange price during the day when a trade took place, rather than the rate the bank paid--and when currencies were sold, paid them the lowest price for the day.

So, the GOP would like to renege on promises made to pensioners - and banks managing the money owed to pensioners have been siphoning the money when nobody's looking.

It's starting to look like the only people who have trouble getting money out of public pensions - are pensioners.

Nice.

Shot Across the Bow

(Via Felix Salmon and The Big Picture)

Mary Williams Walsh (and by extension, the New York Times) would like you to think that states may try to declare bankruptcy in the foreseeable future.

That such things are illegal now does not seem to be an issue, nor does the absence of a Congressional bill making such a thing legal.

People are talking about it, Ms. Walsh warns us - and we should be afraid.

More accurately, public employees should be afraid (emphasis mine):

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

And Ms. Walsh is using "alter" in the same way that Darth Vader uses it:

I wish to alter your pension. Pray I don't alter it any further.

It doesn't exactly sound likely, and it cannot be terribly popular - Welching on a pension promised to workers who have upheld their part of the deal?

You've paid us with years of your life - years that are now gone. I know we'd promised you money, but....well...

Who is leading the push for this?

Let's see:

Discussion of a new bankruptcy option for the states appears to have taken off in November, after [Newt] Gingrich gave a speech about the country’s big challenges, including government debt and an uncompetitive labor market.

“We just have to be honest and clear about this, and I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” he said.

I get that the GOP is dusting off the brass knuckles with labor, post election - but does the NYT really have to be their bullhorn for their threats?

What crap.

Crap For Sale, Dear

Bloomberg gets a hold of leaked bank documents and they reveal just what Barry was saying awhile ago: The banks are selling their crap to Freddie and Fannie.

Jonathan Weil does a better summation, though:

The gist of the article by Bob Ivry and Bradley Keoun: Citigroup, the too-big-to-fail bank that got a $45 billion government rescue, was still selling defective mortgages to Freddie Mac at an alarmingly high rate as recently as last year. And taxpayers, who now own Freddie, are on the hook as a result. The details are in an Oct. 25, 2010, internal Freddie Mac memo summarizing the findings of a yearlong quality-control review that ended last September.

...and he helpfully supplies some venom:

So who benefits from this leak? Some of the bosses at the two companies and their government minders must be embarrassed, which can only be good for the rest of us. To the extent that Freddie and Fannie have become a grabfest for the banking industry, that’s something Congress should know when it eventually gets around to rewriting the laws that govern them. Most importantly, though, the public needs to be told when it’s getting ripped off, especially when the government knows it and has no intention of telling us.

More leaks like this one, please.

Hear hear!

I Wonder Where Goldman Got The Idea

Y'know I think emptywheel skewers Goldman's Facebook deal about as well as you can.

 A sample:

FROM: Mr. Lloyd Blankfein
200 West Street
New York, New York

202-555-MOTU

TO: CEO
Chump City, ForeignLand

Dear Sir:

I have been requested by the Facebook Company to contact you for assistance in resolving a matter. The Facebook Company has recently concluded new agreements to share its users’ identities. The contracts have immediately produced moneys equaling US$50,000,000,000. The Facebook Company is desirous of harvesting user identities in other parts of the world, however, because of certain regulations of the Securities and Exchange Commission, it is unable to move these funds to another region.

You assistance is requested as a non-American citizen to assist the Facebook Company, and also the Goldman Sachs, in moving these funds out of America. If the funds can be transferred to your name, in your non-United States account, then you can forward the funds as directed by the Facebook Company. In exchange for your accommodating services, the Facebook Company would agree to allow you to retain 10%, or US$5 billion of this amount.

(H/t trainreq)

Some Contracts are More Unbreakable Than Others

Couldn't agree more:

It is fascinating to see how the public narrative in the media has gradually shifted over the past year from Wall Street’s sociopathic practices (which were directly responsible for the creation of the crisis) to the alleged greed of public employee unions and their pension benefits, many of which were the product of agreed wage negotiation packages in which unions were receiving these pension benefits in lieu of increased wage benefits.

During 2008, we were told that the government’s hands were tied and that sanctity of contracts had to be honored. This was when the Federal Reserve authorized 100% payouts to the likes of Goldman Sachs on AIG’s credit default swaps (in effect allowing the Fed to act as an extra budgetary vehicle of the Treasury, which is a violation of the Constitution and shows how patently false the Fed’s claims of independence are). But I don’t seem to recall many Wall Street types going on about the sanctity of contracts when agreements with the UAW were reworked to save GM or now when public employee union pension benefits are under attack. The argument seems to be that the states are suffering from a genuine solvency crisis in which everybody has to make sacrifices, including the “greedy” unions. So why should big financial firms, which would otherwise have been toast but for the munificence of the suffering American taxpayer, be any different?

That's Marshall Auerback, a portfolio strategist and hedge fund manager, posting on Naked capitalism

Score One For Sanity

The good news: Massachusetts recognizes the rule of law in foreclosures.

The bad news: That this, truly, is news :

(Bloomberg) U.S. Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real-estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.

I mean, really - a ruling that banks can't foreclose if they cannot prove they ownsa mortgage should not be news.

Yet it is.

At least the ruling was right. Let's see how the banks push back on this.

(H/t The Big Picture)

GSE = Everybody's Whipping Boy

While Freddy Mac and Fannie Mae have been erroneously blamed for starting the financial crisis - they certainly are due for their share of abuse.

The AP had a story yesterday about how Bank of America and Freddie Mac and Fannie Mae had come to an agreement over bad loans.

BofA had sold Freddie and Fannie total crap, and they had the right to order BofA to buy back loans that didn't meet its underwriting standards. The deal they just reached amounted to $1.28 billion for Freddie and $1.52 billion for Fannie.

That seemed low to me - I remember discussions of figures north of $100 billion.

According to Barry BofA's exposure to Freddie's putbacks amounts to about $127 billion.

So, BofA gets to keep over $120 billion dollars that it owes Freddie.

Which means that the GSE continue to be (as Barry puts it) the backdoor bailout vehicle of choice for Washington.

• Ship the bank's crap to a GSE who will agree to terms that no thinking business would take.
• Then pour tax dollars into the GSE to keep them afloat when the crap loans fail
• Finally, everyone can launch a rousing chorus of how inefficient GSEs are and how the banks are better at lending and managing risk.

I expect the same Wall Street apologists who blame the crisis on GSE will be only too happy to join in.

Long Term Investors

(Via Naked Capitalism)

Michael Hudson tells us that investors are hanging onto stocks and foreign currency investments longer.

Now the bad news:

Take any stock in the United States. The average time in which you hold a stock is--it's gone up from 20 seconds to 22 seconds in the last year. Most trades are computerized. Most trades are short-term. The average foreign currency investment lasts--it's up now to 30 seconds, up from 28 seconds last month.

Think about that for a second. What kind of market efficiency is there when positions are held for less time than it takes to describe them?

Here's a more granular observation from The Daily Finance's Peter Cohan:

The market is now controlled by short-term traders, rather than the long-term investors for whom these arguments might have some relevance. Specifically, 70% of trading volume on the major exchanges is conducted by high-frequency traders who hold a stock for an average of 11 seconds. Only a handful of market players have the real-time data needed to make these short-term trades.

That's 70% of trading volume happening at a rate that outstrips humanity's ability to absorb, comprehend, analyze, and react.

Remember that figure the next time some idiot tries to tell you that the Dow's latest hiccup is due to X or Y in the news.

(Via The Big Picture)

I'll just quote it - because there's no better way to introduce it:

Prepare yourself to be floored:

Google Maps keeps evolving, expanding the ability to drill down into granular detail. The latest updated trick? Mapping foreclosures for sale.

...

Google Maps Foreclosure Listings

1. Punch in any US address into Google Maps.

2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select “More”)

3. The drop down menu gives you a check box option for “Real Estate.”

4. The left column will give you several options (You may have to select “Show Options”)

5. Check the box marked “Foreclosure.”

Seriously. Do this, and see every foreclosed house plotted as a little red dot. I did my own address and was ready to zoom out to see any impact. Turns out, there are over 100 forclosures in the inital map results by my house (11 of which are within 3 miles of my house).

TBP posts a search on Detroit which just bends my head:

 Ye Gods.

How Do You Really Feel, Barry?

(Via The Big Picture)

Love this:

I feel compelled to correct an embarrassing grammatical error in the Washington Post.

The paper, whose grammar is usually outstanding, wrote this morning that

“The [foreclosure] problems came to light this fall as firms such as Ally Financial, Bank of America and J.P. Morgan Chase halted foreclosures because of revelations about shoddy documentation and other questionable practices.”

It came to light because the banks were embarrassed by public disclosures of the half-arsed, slip shod operations they were running — and because courts started kicking out foreclosure proceedings because of this.

As to the grammatical error: Forgery, fraud, and criminal contempt of court are not mere “questionable practices” — the word you are having some difficulty recalling is Felony. If the editors at Washington Post do not know how to spell the word, perhaps we can help them out:

The word is Felony.

Spelling bee contestant: “Can you use that in a sentence?”

Yes: “Felony. The bank executive was convicted of a felony involving fraud, went to prison, and was sodomized daily. Felony”

We can dream.

Make the Budget Deficit Your Problem ('cause it kinda is...)

I'm addicted to good infographics. Love, love, love them. With the web, there's the added value of making them interactive - so you can get iterative feedback and learn a hell of a lot more.

One informative graphic + functionality = many, many informative graphics.

So here's the NYT's Budget graphic

and it's awesome. It presents you with the projected short term and long term budget shortfalls for the US budget - as well as a list of current proposals for reducing the deficit.

Here's the starting point:

A great illustration of the magnitude of the problem - and a wonderful tool for letting the air out of coffeehouse theories or tv talking points.

Let's cut foreign aid!

Okay, we'll slash them in half:

What now?

Uh...we'll eliminate earmarks, too!

Done.

What else?

Uh......

Sure, a lot of the proposals don't show what other consequences would occur (from, say raising the age for Medicare, or freezing Medicare payments) but I do wish they'd have this graphic at hand the next time some airhead like Mitch McConnell pitches an idea as if it is the silver bullet.

Feeling a Bit Irish...

(Via CJR)

CJR's Ryan Chittum highlights a WSJ story about the financial ruin of Ireland.

See if any parts of this sound familiar:

September 2008

The party ended in 2008, when the property bubble popped and the global economy tipped into recession. The government remained optimistic; an internal finance-department memo concluded in May that the Irish banking system was "sound and robust based on all key indicators of financial health."

Yet by September, Irish banks were struggling to borrow quick cash for daily expenses. The government thought they faced a classic liquidity squeeze. Ireland—whose hands-off regulator had assigned just three examiners to two major banks—didn't recognize the deeper problem: Banks had made too many bad loans, whose defaults would leave the lenders insolvent.

December 2008

[PricewaterhouseCoopers, on behalf of the Irish government] was sent to look at the banks' books. It found defaults creeping up. Still, banks insisted they could soldier on unaided. In December meetings with bankers in the fifth-floor boardroom of Ireland's debt agency, the government resolved to act.

"It's not credible that you don't need equity," John Corrigan, the agency's chief, snapped. "You're taking capital. That's it."

March 2009

[Irish Finance Minister] Mr. Lenihan met with advisers to bat around remedies. None sounded promising. He turned to Peter Bacon, an economist he'd hired a week earlier, who shocked the crowded room with a figure far bigger than the few billion Ireland had spent. The banks made more than €150 billion of potentially toxic property and land loans, he said. "That's the extent of your problem."

Mr. Bacon suggested the government buy loans from the banks at discounted prices, effectively handing them cash and easing doubts about their viability. By insisting on steep discounts, Ireland would be less likely to lose money on the purchases. On the flip side, bargain prices would trigger losses at the banks—which the government would probably have to patch with more capital. The taxpayer would foot the bill either way, but at least Ireland would understand how big it was.

The approach "has the merit of certainty and clarity," Mr. Bacon argued. But, he added, it would only work if "the projection of the extent of impairment is accurate in the first place."

It wasn't.

and

In early 2010, Mr. McDonagh's team [working for the Irish debt agency] got a rude surprise upon diving into the books [of Irish banks].

"We opened it up and said, 'Oh, my God,"' Mr. McDonagh said in an interview. "What they are telling us is not the reality."

The banks had said they had loaned 77% of the value of a property, on average. The other 23%, put up by the borrower, would cushion a default.

The NAMA teams found that banks often piled on "equity releases" that amounted to lending out 100% of the value, and left them fully responsible in a default.

Worse, much of the collateral was shaky. Several times, a developer pledged future profits on other ventures. Many loans were riddled with flawed documentation, leaving banks without solid legal rights to the property they had believed was backing up the loans.

and then

"The detailed information that has emerged from the banks in the course of the NAMA process is truly shocking," Mr. Lenihan told lawmakers. But, he added, "we now know the extent of the losses in our banks....This certainty will further boost international confidence in our ability to recover."

He was wrong.

...

The total capital injected into banks by the government so far: €34 billion, with at least another €12 billion on the way. The bailouts mean Ireland will run a government deficit equal to 32% of its gross domestic product, the highest figure ever in any euro-zone country. Skeptics say a still-sinking property market will next sour residential mortgages, inflating the government tab even more.

Ye gods.