[lbo-talk] Yves Klein: Foreclosure Fraud and the million missingnotes

Marv Gandall marvgandall at videotron.ca
Sun Oct 10 06:40:44 PDT 2010


The financial blogosphere has been preoccupied with the story. Some interesting commentary and links here:

http://www.washingtonsblog.com/2010/10/there-is-only-one-way-out-of.html

A lot of the financial bloggers are libertarians who subscribe to the notion that many of the US big banks are insolvent and should be temporarily taken over and restructured by a resolution trust authority. They're opposed to the bailout of so-called zombie banks. This school also has its adherents on the left, of course, who want to see such nationalization made permanent.

The foreclosure crisis has prompted apocalyptic comments by one Wall Street insider and analyst, Christopher Whalen of Institutional Risk Analytics, which have received a lot of play this week. Whalen writes:

"The improvement in bank loan default rates is a mirage. The use of loan modification to make bad credits appear “current” is an economic fraud perpetrated by Washington that is already becoming apparent via foreclosure moratoria.

"Mounting cash flow stress on all lenders is reaching crisis levels. Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011.

[…]

"The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than 1⁄4 of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.

"Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy.

"The largest U.S. banks remain insolvent and must continue to shrink. Failure by the Obama Administration to restructure the largest banks during 2007-2009 period only means that this process is going to occur over next three to five years – whether we like it or not. The issue is recognizing existing losses -- not if a loss occurred.

"Impending operational collapse of some of the largest U.S. banks will serve as the catalyst for re-creation of RFC-type liquidation vehicle(s) to handle the operational task of finally deflating the subprime bubble. End of the liquidation cycle of the deflating bubble will arrive in another four to five years."

Full: http://www.aei.org/docLib/Whalen.pdf

Also, see Yves Smith's commentary yesterday, wherein she challenges the industry's defence that these issues are procedural and technical at bottom. Attorneys-general from some 40 states are reportedly set to launch investigations which may touch on the criminal use of fraudulent affidavits by the banks to claim legal title to the properties they have foreclosed.

http://www.nakedcapitalism.com/2010/10/debunking-banks-procedural-problems-defense-on-the-foreclosure-crisis.html

What a conundrum for the captains of the financial industry and their lieutenants in the three branches of government.



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