Suggested in an article in The San Francisco Chronicle in December 2007, attorney Sean Olender, that the real reason for the subprime bailout measures by the U.S. Treasury Department is proposed, was not to keep strapped borrowers in their homes as much as to prevent a flood of any action against the banks. The plan then on the table was an interest rate freeze on a limited number of subprime loans. Olender wrote:
"The only goal of the freeze is to prevent owners ofMortgage-backed securities, forcing many of them foreigners, from suing U.S. banks and to buy back worthless mortgage securities at face value - now almost 10 times their market worth. The ticking time bomb in the U.S. banking system does not reset subprime rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the bonds at par, if fraud in the origination process.
"... The catastrophicForcing consequences of bond investors to buy back loans at face value authors have discussed the current media. The loans in question dwarf the available capital at the largest U.S. banks combined, and investor actions would raise stunning liability sufficient to mean that even the biggest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC. . . .
"What would be prudent and logical is for the banks that sold this toxic waste to buythem back, and for many people to prison. If they knew about the fraud, they should buy the bonds back. "1
The thought could send a chill through even the most powerful investment bankers, including Treasury Secretary Henry Paulson himself, who was chairman of Goldman Sachs during the heyday of toxic subprime paper letter from 2004 to 2006. Mortgage fraud was not limited to the representations to lend to borrowers or documents, but in the shaping of the banks"Financial products" themselves. Among other design flaws is that securitized mortgage debt has become so complex that the ownership of the underlying security was often lost in the shuffle and without a rightful owner, there is no one with standing to foreclose. That the procedural requirements problem prompted Federal District Judge Christopher Boyko to rule in October 2007 that the German bank had no authority, on 14 Mortgage loans held in trust was for a pool of mortgage-backed securities instead of foreclosureholders.2 When large numbers of defaulting homeowners should review their foreclosures on the ground that the plaintiffs lacked standing to sue, competition, trillions of dollars in mortgage-backed securities (MBS) could be compromised. Irate securities holders might then respond with litigation that could indeed threaten the existence of the banking Goliaths.
STATES LEAD THE CHARGE
Bring MBS investors with the power of the most important processes are state and local governments, which holdsubstantial parts of their assets in MBS and similar investments. A harbinger of things to come was a complaint to 1 Filed in February 2008, sold by the state of Massachusetts against investment bank Merrill Lynch, for fraud and deception for about $ 14 million worth of subprime securities to the City of Springfield. The complaint about the sale of "certain esoteric financial instruments known as collateralized debt obligations, concentrated (CDOs) ... They were suitable for the cityand within a few months after the sale, became illiquid and lost almost all their value. "3
A month earlier, the city of Baltimore sued Wells Fargo Bank for damages resulting from the subprime debacle, alleging that Wells Fargo had intentionally discriminated in selling high-interest mortgages more frequently to blacks than whites, in violation of federal law law.4
Another innovative suit filed in January 2008 by Cleveland Mayor Frank Jackson against 21 major broughtInvestment banks, to enable the sub-prime lending and foreclosure crisis in his city. The suit targeted the investment banks that fed off the mortgage market by buying subprime mortgages from lenders and then "securitized" them and sell them to investors. City officials said they hoped to recover hundreds of millions of dollars in damages from the banks, including lost taxes from devalued property and money demolition of thousands of abandoned houses and catering. The defendantsincluded German banking giant Bank, Goldman Sachs, Merrill Lynch, Wells Fargo, Bank of America and Citigroup. They were charged with creating a "public nuisance" by irresponsibly buying and selling of high-interest home loans, which defaults that depleted the city tax base and leftist district to rubble.
"For me, this is nothing more than organized crime and drugs," Jackson told the newspaper the Cleveland Plain Dealer. "It has the same effect as drug activity inNeighborhoods. It is a form of organized crime that happens in many ways legal. "He added, in a videotaped interview:" This process said: "Surely you do not like this no more for us." 5
The Plain Dealer also interviewed Ohio Attorney General Marc Then, a condition that the trial of some of the investment bank is considering. "There is clearly a wrong," he said, "and the source of Wall Street. I'm glad that some companies have on my hunt."
However, a Funny thing happened on the way to the courthouse. As the New York Governor Eliot Spitzer, Attorney General, then wound up his post in May 2008 after a sexual harassment investigation in his office.6 Before they were forced to resign, both prosecutors read into the tail of the banks, attempting to impose liability for the destructive wave of home foreclosures in their jurisdictions.
But the hits keep on coming. In June 2008, California Lawyer>General Jerry Brown sued Countrywide Financial Corporation, the nation's largest mortgage lender, for causing thousands of foreclosures by deceptively marketing risky loans to borrowers. Among other things, the 46-page complaint alleged that:
"'Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers' long-term ability to afford them and to sustain homeownership' . . .
"The company routinely . . . "turning a blind eye" to assert fraudulent practices of brokers and agents of their own lending despite "numerous complaints from borrowers that they do not understand their loan terms.
"... Underwriters who confirmed information on mortgage applications were 'under pressure ... For processing 60 to 70 loans per day, so careful examination of the financial situation of the borrower and the adequacy of the loan product for them nearly impossible. "
"" The CountrywideHigh-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans. "7
Similar complaints were filed against Countrywide and CEO of the Illinois and Florida. These suits seek not only damages but cancellation of the loans, creating a potential nightmare for the banks.
An avalanche of class action lawsuits?
Massive class action lawsuits by defrauded borrowers may also in the works. In one case, 2007 in Wisconsin, which nowon appeal, U.S. District Judge Lynn Adelman held Chevy Chase Bank that the Truth in Lending Act by hiding the terms of a variable-rate loans had been injured, and thousands of other Chevy Chase borrowers could join the plaintiffs a class action on that ground. According to a 30th June 2008 report in Reuters:
"The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank toto cancel or rescind, their loans. This decision was pending an appeal to the 7th U.S. Circuit Court of Appeals that are likely to rule, each day remained.
"The idea of the cancellation charge loans come in a flood of foreclosures has been caught in other districts, an action filed last week by the Illinois attorney general asks a court to waive or Countrywide Financial mortgage under" unfair or deceptive practices caused to be reformed. "
"... The mortgage banking industryalready faces pressure from federal and state regulators to reduce the banks' underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-yield investments defendants. "
Truth in Lending Act (TILA) is a 1968 federal law, consumers against lending fraud by requiring clear disclosure of loan terms and costs to protect. It lets consumers seek rescission or termination of a loan and theReturn of all interest and fees, if we find a lender to be in violation. The beauty of the statute, says California bankruptcy attorney Cathy Moran, is that it provides for strict liability: the aggrieved borrowers do not have to prove that they personally defrauded or misled, or that he is the real harm. The mere fact that the data were broken only gives them a right to rescind and deprives the lenders of interest. In small sample Moran, at least half of the loansIf violations.8 reviewed contained TILA class actions found, for cancellation of loan fraud in the disclosure procedures used are available, this could be a flood of class suits against banks all over the country.9
Relocation of BACK TO THE BANKS LOSS
Withdrawal can be a means available, not only for borrowers, but for MBS investors. Many loan sale contracts provide that the lender must withdraw its terms loans that default unusually quickly or that contain errors orFraud. An avalanche of cancellations could be disastrous for the banks. Bank loans were moving their books and their sale to investors in order to make many more loans than would otherwise have been allowed under banking regulations. The banks are complex, but for every dollar of shareholder of a bank has on its balance sheet, it should be limited to about $ 10 in the form of loans. The problem for banks is that if the process is reversed, the 10-1 rule canin the other direction: in one U.S. dollars of bad debt back on books of a bank can reduce their lending ability by a factor of 10. As mentioned in a BBC News story citing Prof. Nouriel Roubini for authority:
"Help prevent [S] ecuritisation to banks to 10:1 The Regulators" rule is the key. To their risky loans have potential buyers will be more attractive, banks used complex financial engineering to re-pack them so they looked super-secure and well paid are more than what offered equivalent super-safe investments.Banks also found ways to get loans from their balance sheets without selling them altogether. They developed bizarre new financial entities - "Special Investment Vehicles or SIV - in which loans could be held technically and legally not in stock, out of sight and beyond the scope of the rules of regulatory authorities. So, once again, SIVs made room on the balance sheets go to the banks to lend.
"Banks had got round the rules of regulatory authorities by selling their risky loans, but because so many of thesecuritized loans were bought by other banks, the losses were still inside the banking system. Loans held in SIVs were technically on the balance sheets of banks, but if the start value of the loans in SIVs, collapse, the banks that set them in establishing that they are still responsible for them. So losses from investments which might not have the scope of 10:1, the supervisors' rule began to turn, suddenly, up on bank balance sheets.... The problem now facing many of thebiggest lenders is that when losses appear on banks' balance sheets, the regulator's 10:1 rule comes back into play because losses reduce a banks' shareholder capital. 'If you have a $200bn loss, that reduced your capital by $200bn, you have to reduce your lending by 10 times as much,' [Prof. Roubini] explains. 'So you could have a reduction of total credit to the economy of two trillion dollars.'"10
You could also have some very bankrupt banks. The total equity of the top 100 U.S. banks amounted to 800 billion U.S. dollars at the end of the third quarter of 2007. Banking losses are currently expected to leave that they support in order to destroy no less than 450 billion U.S. dollars, enough to give rise to more than half the capital of banks and many of them insolvent.11 if borrowers to flood the courts with viable defenses, their debt and mortgage-backed securities were holders of their securities challenge could be the result even worse.
IMPLEMENTATION OF THE GENIE back in the bottle
So what would happen if theMega-banks with which these irresponsible practices actually went bankrupt? These banks are widely acknowledged to blame, but they expect to be rescued by the Federal Reserve or the taxpayers, because they are "too big to fail." The argument is that if they were allowed to collapse, it would promote the economy. That is the fear, but it's not really true. We need a ready source of credit, so we need banks, but we do not need private banks. It is a little-knownwell hidden that the banks are not lending their own money or not even the money of their depositors. You actually create the money they lend, and the creation of money is actually a public, not a private function. The Constitution delegates the power to create money to Congress and only Congress.12 For loans, banks are extending credit, and just the right agency for extending "the full confidence and prestige of the United States" means the United States is .
Thereis more at stake than just the fair treatment of injured homeowners and investors in mortgage-backed securities. Banks and investment houses are now brings you the last drop of blood from lending the U.S. government's rating, "borrowing money and unloading worthless paper on the government and taxpayers. When the dust settles, it will be banks, investment brokers and hedge funds for wealthy investors, who will be saved. The dispossessed will be repossessed, andunless your pension fund has invested in politically well-connected hedge funds, you can probably kiss goodbye, as teachers in Florida already have.
But the banking genius is a creature of the law and the law can it back into the bottle. The imminent collapse of very large banks, the government was able to obtain the ability to take control of their finances. More than that, it could provide the means to destroy to prevent the otherwise unsolvable problems now threatening ourStandard of living and our standing in the world. The only solution that will be more than a temporary solution, the power to create money away from private bankers and sends it to the people in common. So it has been on the whole should be, and how it was in our early history, but we are so used to the banks to private firms, we forget that the public banks of our forebears. The best of the colonial American banking models was developed in the province of Benjamin Franklinof Pennsylvania, where a state-owned bank issued money and lent it to farmers at 5 percent interest. The interest was returned to the government, replacing taxes. In the decades that that system was in operation, the province of Pennsylvania operated without taxes, inflation or debt.
Instead of bailing out failed banks and send them happily on their way to the Federal Deposit Insurance Corporation (FDIC) must be a close look at books of the banks and the banks made found become insolvent, in bankruptcy. The FDIC (unlike the Federal Reserve) is actually a federal agency, and it has the opportunity to have in a bank in exchange for exhaust it out, effectively nationalizing it. This is done in Europe with bankrupt banks, and it was conducted in the United States with Continental Illinois, the country's fourth-largest bank when it went bankrupt in the 1990s.
A system of truly "national" banks could issue "the full faith and credit policy> United States "for public purposes, including funding infrastructure, sustainable energy development and health care.13 Publicly issued credit could also be used to alleviate the subprime crisis. Local governments could use it to buy up mortgages in default , compensating the MBS investors and the exemption of real estate for public disposal. The properties could then be leased back to their occupants at reasonable prices so that people in their homes without the windfall of acquiring aHouse without paying for it. A program of lease-purchase may also be initiated. The proceeds would be used to repay the loan, Advanced to buy the mortgage to prevent the balance of the money supply and inflation.
Municipal and private SOLUTIONS
While we wait for the federal government, there are also private and local possibilities for relieving the subprime crisis to act. Chris Cook is a British strategic market consultant and former Director of ComplianceInternational Petroleum Exchange. He recommends that all parties to pay constituted by the formation of a pool as an LLC (limited liability company), within a partnership framework that brings together occupiers and financiers as co-owners under a neutral custodian. The original owners would pay an affordable rent, and the resulting pool of rentals would be "modularized" (unit interests, similar to a REIT or Real Estate Investment Trust) is divided. Among other advantages over the usualMortgage-backed securities, there would be no loans at interest because the property would be in sole possession of the LLC include. Eliminating interest substantially reduces costs. The former owners would be able to occupy the property at an affordable rent to buy, with the option of participation in it. For banks, the advantage would be that they see the situation return to investors since the risk would have been taken to insure the investment, with full capacity at affordable prices, and for theInvestors would have the advantage of a secure investment with a reliable return.14
Carolyn Betts is an Ohio attorney who served as a consultant in Washington, issuers of MBS trusts formed by various federal departments of public institutions, and represented Resolution Trust Corporation in its auction of defaulted commercial mortgage loans during the last housing crisis. She proposes a squeeze play by the States in the way against the tobacco companies by a consortiumof prosecutors in the 1990s. It notes that given at the end of the year 2007 by at least 20% of the funds by the transfer to the Ohio Public Employees' System (PERS) were in mortgage backed securities and similar investments. Ohio, that makes public money a major investor in these mortgage-backed securities. Ohio governments have an interest in that property to be excluded, since foreclosures destroying local property markets to contribute to tax revenues and lower losses on PERSInvestment and a burden on the state and local affordable housing systems. A coordinated series of actions brought by state attorneys could eliminate the culpable banker middlemen and again the properties of local ownership and control.
Andrew Jackson allegedly told Congress in 1829: "If the American people only understood the rank injustice of our money and banking system, there would be a revolution before tomorrow morning." A wave of private actions and class actionsGovernment actions intended to eliminate harmful practices of banks, which could represent a revolution in banking spark back the power to advance "the full confidence and prestige of the United States" in the United States, and returning community assets to local ownership and control.
1 Sean Olender, "Mortgage Meltdown," San Francisco Chronicle (December 9, 2007).
2 See Ellen Brown, "The Subprime Trump" webofdebt.com / articles, 26 June 2008.
3 GregMorcroft, "Massachusetts charges Merrill with fraud," Handelsblatt.com (February 1, 2008).
4 Henry Gomez, Tom Ott, "Cleveland Sues 21 banks over subprime-Mess," The Plain Dealer (Cleveland, January 11, 2008).
5 Ibid.
6 Marc Then resignation as Attorney General ", NBC24 (May 14, 2008).
7 E. Scott Reckard, "California Atty. Gen. Jerry Brown Sues Countrywide," Los Angeles Times (June 26, 2008).
8 Cathy Moran, "And the truth (in lending) shall set you free"mortgagelawnetwork.com (June 11, 2008).
9 Gina Keating, "Mortgage Decision could shock U.S. banking industry," Financial Times Germany (June 30, 2008).
10 Michael Robinson, "City of debt shows U.S. housing woe," BBC News (December 30, 2007).
11 "is the latest Liquidity Crunch in Remission?" NakedCapitalism (26 March 2008).
12 See E. Brown, "Dollar Deception: How Banks Secretly Create Money," webofdebt.com / articles (July 3, 2007).
13 Further information on these funds solution and why it would benot inflate prices, see E. Brown, "Waking Up on Minnesota Bridge: As the infrastructure crisis without selling out our national resources is solved," ibid. (August 4, 2007).
14 Chris Cook, "Peak credit and a flight to simplicity," Asia Times (April 3, 2008).
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