Will Big Banks Get Free Pass in Robo-Signing Mortgage Mess?
By Greg Hunter’s USAWatchdog.com
The State AG’s are supposed to settle the enormous mortgage mess for a mere $25 billion. The alleged fraud has been reported to be in the neighborhood of $13.5 trillion. Will the crooked big banks who perpetrated this scam on America get a free pass in the so-called “robo-signing” mess? There have been multiple lawsuits over the rip-offs, and there are at least a few states that are holding up the settlement for a better deal and the right to proceed with possible criminal investigations. NASDAQ.com is reporting some of the negotiations going on with a story filed yesterday that said, “New York Attorney General Eric Schneiderman expressed confidence Friday that his main concern with a pending settlement of alleged foreclosure abuses by U.S. banks would be resolved, but he didn’t commit to participating in an agreement. Schneiderman also said the settlement is being structured so as to not interfere with a separate probe into the packaging of shaky loans into mortgage- backed securities, a practice that preceded the financial crisis.” (Click here for the complete NASDQ.com story.)
MSNBC’s Dylan Ratigan was on the warpath on yesterday’s show. He thinks the big banks could be getting away with the biggest scams in history. He says the Obama Administration is strong-arming states to sign onto a deal, but that has not happened just yet. By the way, I have to give Ratigan a hat tip because it seems he is one of the only members of the MSM doing his job. Check out how he laid out the case. If you only listen for the first 4 minutes or so, you’ll get the picture and just how outrageous this proposed $25 billion settlement really is.
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Also, Ellen Brown from Webofdebt.com laid out all the reasons the deal should be held up. It is not just to administer justice but to not cover up the shaky state the entire banking system is in. The settlement needs to make sure the banking system is clearly fixed. Ellen Brown is today’s guest writer. Please enjoy her excellent post below:
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Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg
By Ellen Brown
Guest Writer for USAWatchdog.com
A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6th; but it is still not clear if all the AGs will sign. California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle.
That is good. She and the other AGs should not sign until a thorough investigation has been conducted. The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008. It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.
The details of the robo-signing scam were spelled out in my last article, here. The robo-signing fraud and its implications are expanded on below.
Why All the Robo-signing?/
Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services. MERS is a smokescreen behind which mortgages were sold to trusts that sold them to investors. The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market. That meant the investors could sell them in the money market at any time on a day’s notice. Yale economist Gary Gorton gives this example:
Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.
That is where the robo-signing came in. Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case. Why? Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors. The investors are not interested in making 30 year loans. They want something short-term with immediate rights of withdrawal like a deposit account.
The Hazards of Borrowing Short to Lend Long
The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30 year mortgage loans, rendering the banks insolvent. And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt.
According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds. A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments. The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.
The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years. It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time.
The Shadow Banking System Is Still Unregulated
Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933. But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest. The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response. But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008. The Dodd-Frank banking “reforms” barely touched it. As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:
In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors. The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding.
When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.
However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels.
Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.
We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on. The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table. It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.
The Way Out
There is another way to design a banking system. The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all). The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work. Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself.
Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do. But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money. Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.
__________________________
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
So here we have the first cry for the gubmint to fix it all. “Please, take my retirement, save me from your campaign donors and the “Too Big to Fail”…..”
Gold would make a nice standard and safe investment. Hell it even worked for 5000 years. And think, if you buy some now, it may in fact become valued at the $82,000 that have been printed to cover every ounce in above ground inventories.
Be your own banker. I am calling BS on this article for wanting the Feds to take over. They are going to use this type of argument to force Americans to buy T-Bills with their retirements, and then be issued government run annuity in return for all your hard earned cash.
I can’t think of a single government agency that has not spent more than it earned, and I doubt the money would be safe with “Uncle Sugar” re-hypothecating it himself.
Thanks for the Article and the room to vent Greg. Keep up the good work.
Thanks for brigning this topic again on your site Greg. People should massively go down on the streets and protest against such a deal. By giving a wide spread amnesty to banksters for all the massive frauds they’ve done, the Obama government is showing just how corrupt it really is.
Eric,
This is beyond awful it is condoning lawlessness. Economies cannot truly recover with out the rule of law enforced! Thank you for the comment.
Greg
There are literally thousands of lawsuits pending against the banks costing billions of dollars each month just to defend by them. Lets say for example Bank of America is paying out 300 million in legal fees a month defending these lawsuits across the country and that does not take into consideration if any of those suit win they have to pay. A few months of such expense and the potential payoffs of any loses by judge or jury and you can see that it is greatly a benefit for Bank of America to pay up now maybe 5 billion to stop the bleeding and future losses which could bankrupt them. Its just a great deal for the banks, chump change for them in reality. At the same time most of the Attorney Generals get to look like hero’s until you really know that, frankly, it a great gift to the banks supported by the administration to appear that they spanked them. More of the same 0 same 0. Hats off to a few AG’s who have figured it out!
Thank you Art. I think the other AG’s have figured it out and have been pressured or bought off.
Greg
The current government of the United States and the the Washington Party that operates it on behalf of the “too-big-to-fail” banks together comprise the most criminally corrupt and dangerous ruling apparatus ever to exist on earth.
Amen to that Frank.
Greg
Just about as fast as Our President being re-elected.
My take from this smoke and mirrors show is that a majority of state AGs have already been bought and paid for, and the Rule of Law has been irretrievably broken. The Schneiderman “capture” for the new do-nothing, no-criminal indictment Administration Commission says it all. Just a means to extend the farce so that the Statute of Limitations on the criminally indictable crimes run out.
That’s my fear, as well, AndyB.
It’s a wag the dog sort of moment. I wish that something could be done about it at this point. I’m afraid, I’m becoming rather cynical about our nation and that depresses me.
greg,
interesting closing paragraph by ms. brown.
“Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do. But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money. Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.”
“WE THE PEOPLE of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”
please note without prejudice that it is none other than us who are charged with making this whole thing work. we have dropped the ball and have allowed ourselve to be subjected to the idea that the “government” is something outside and above us that we have little to no control over. i learned all about the preamble, the peoples part and the constitution in general by the time i was in the fifth grade (yep back in the stone age). as a contrast, my oldest boy who graduated high school in the late 80’s, when asked (by me) “who was thomas jefferson?” he replied “wasn’t he one of the presidents or something?” oh yeah, i forgot to mention how proud i am of this young lad who applied himself in school and graduated at the very top of his class with full ride scholar ships to the university of washington and later to graduate school (architecture, his mother told him that she would personally drown him in the bathtub if he even thought about choosing law)at the university of oregon.
my point here (i know i am rambling) is that what passes for education today, has fallen dismally short of being a sound foundational institution of objective learning. when someone graduates from high school in contemporary times and knows less about the history of his country than someone my age did by the fifth grade, something is terribly wrong.
our educational system is already (has been forever) socialized. and it is not working because we the people let it get away from us.
so go ahead and socialize banking, but hold the feet of our representatives to the fire, constantly and with passionate fervor.
as far as i have heard. only one state has initiated recall petitions against its senators and representatives that voted for indefinite detention. just one. get it together people. liberty takes work. and you cannot pass that work off to someone else.
as a true republican (not a member of the sociofascist political party that fraudulently goes by that name) my first reaction is, of course, “why that solution is purely socialistic!” but i have long since become aware that the socialization of certain factions of society that have shown themselves to be untrustworthy probably need to be socialized (put under the auspices of public authority) only because after years of trying in my own mind, i cannot come up with a better solution. if you have one, please submit is here. i will gladly embrace any good idea that preserves 100% republican idealism from top to bottom.
in order to initiate a “socialistic” solution as per ms. browns idea we would need a strong renaissance of constitutional awareness among the citizens of this great land.
so few of us ponder any more why the first three words of the constitution were written in type five times larger than the rest of the body copy. the idea that the government is us has been usurped by power hungry sociopaths, not so much because they were clever and diabolical (they were and are), but more because we lost our will to shoulder the responsibilities required to preserve that idea. we allowed our sacred powers to be usurped by those who promised to carry the torch of liberty for us only to snuff it out so they could do their evil deeds in darkness. we have allowed ourselves to be deceived to the point that the deceptions have woven an tangled web into a gordian knot.
those who have usurped the powers of we the people have no passion, no compassion, not even a sense of connection to their own species, let alone to a nation or a culture (beyond the sociopathic culture in which they reside).
Hat tip to Judge Napalitano as well.. See his recent inteview with war criminal rumsfeld.
Mike,
You gotta like the Judge. He is the very best FOX has to offer! I guess FOX is not all bad.
Greg
“WILL BIG BANKS GET FREE PASS IN ROBO-SIGNING MORTGAGE MESS ?” You
know the answer to that question as well as I do Mr. Hunter. Yes !
Do members of the legal profession, their law firms and politicians
want to start paying the banks interest and principal payments on
their personal and mortgage loans [disguised as Small Business
Loans] just like everyone else including Small Businesses ?
Absolutely not ! Further, do members of the legal profession, their
law firms and politicians want to continue to have their personal and
mortgage loans written off [charged-offs] as a Small Business Loan
loss ? Of course they do. Examine the evidence from documents
registered with Government Registry Offices such as Land Titles or
the PPSA Registry to see the truth. It’s all there in black and
white.
Again, thank you.
Another spot on, excellent piece of journalism.
Mike,
We are being looted as a country by the banks and our elected officials on both sides of the aisle are letting it happen. We do not have statesman. We have bag-men. Thank you for your comment.
Greg
“We do not have statesman. We have bag-men.”
Poetry, Greg, pure poetry.
Uh-oh.
“our elected officials on both sides of the aisle are letting it happen.”
No, no, no.
“their elected officials on both sides of the aisle are letting it happen.”
Fixed it for ya, okay?
Every state is broke and in need a big cash windfall. I am sure the State A.G’s are under a lot of pressure to sign and bring home the check. Some homeowners will get a token amount to help them out, but the rest will go down the state government rat hole.
This reminds me of the twenty-five billion dollars pay off the big tobacco companies are paying to the states. What a windfall, where is all that money? Gone, leveraged and running out.
Good sharp analysis Jan.
Greg
Greg, it wouldn’t supprise me if this was off your radar, but are you aware of the interview held on the white house’s youtube channel with the president that was held 4 days after his state of the union address. The idea was for google to host a “live” interview with the president, using questions (or video questions) posted and voted on by youtube users ( or google account users).
This would provide an “honest” interview with questions not from anchor men or pundits, but from the “public”. However, given the number of youth on youtube (and type) and on the internet in general the most popular questions went along the lines of ” when will pot be legalized?” or “when will you end the wastful war on drugs?” Keep in mind there were 12 examples of these 2 questions, each with at least 6,000 votes. Personally, I voted for questions invloving financial reform, wall street accountability, and budget cuts, which garnered about 300 votes each.
Then to put icing on the cake, the white house didn’t even use these questions or other popular questions about sopa or pipa. Instead they used in my opinion generic questions from people who seemed to either support obama but were slightly concerned with “some” of his policies or people who needed a job. (The president even offered to help a woman’s husband with his resume, the woman later went on to ask the president to do a jig for her, just baffling)
So you have a bunch of umimportant questions that im my opinion completely waste a supposedly unique opportunity to question the president, and a white house who can’t even keep a promise to post the most popular questions voted on by voters. Wonderful.
Also, keep in mind that while I do find the legalization of pot (I am not a pot head btw) and the potential waste of the war on drugs (not a drug user either) to be serious issues, given our current situation I consider them unimportant for supposedly hard interviews and debates at this time.
Oh and to those reading this, I am not a reporter (or a good one, should I say) so the above is jumbled and a little biased Please forgive me if it seems confusing or offensive.
p.s. I would provide a link to the video, but it is apparently no longer on the white house’s channel and I’m having a somewhat hard time finding it. If someone else could provide a link, it would be greatly appreciated.
Future Voter,
Your reporting is OK by me. Thank you for the info.
Greg
Will Big Banks Get Free Pass in Robo-Signing Mortgage Mess?
This is a retorical question, right? 🙂
Greg,
Thank you for spotlighting this situation so your readers could follow the farce. It’s official! According to this evening’s news…the banks just received another $13.5T – $25B = $13.25T bailout if my trillion to billion conversion is correct. Bailout in the sense that essentially big banks are given the equivalent of pleading no contest to fraud, subject to their promise to “pay court cost”. Justice will be served when lawsuit’s are filed against the states attorney general’s for exceeding their jurisdiction and precluding the individual’s ability to seek relief from the offenders. Again, thank you Greg for bringing this to our attention before the fact.