Foreclosure Fraud Fallout

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 |  Includes: BAC, C, JPM, MS, REZ, WFC
by: Jeff Nielson

As the most massive, systemic fraud in the history of human commerce continues to unfold before us, there is no lack of topics and issues – while we poke through these cesspools of Wall Street slime. By now, everyone has heard ad nauseum the announcements by U.S. fraud-factories that they were “suspending” foreclosure proceedings “in 23 states”. An automatic question which arises from these announcements is: what about the other 27 states?

We have a situation where Wall Street banks (and the “foreclosure-mills” they hired to do their “dirty work”) didn’t just “cut corners” in processing these foreclosures, they threw the rule-book out the window and willfully committed millions of fraudulent acts – any and every time it was convenient to do so.

Yet despite the severity of the acts of which we already know, most of these fraud-factories are still steaming ahead with getting corrupt judges to rubber-stamp these systemic acts of fraud, in more than half of all U.S. states. This begs another question: what sort of defective legal systems, and defective land-titles systems must these other states have – so that even after this massive fraud is exposed, the bankers are still ramming-through fraudulent foreclosures with impunity?

Bear in mind that unlike countries which maintain honesty and integrity in their legal systems in general, and their land-title registries in particular, virtually none of the millions of foreclosures being rubber-stamped in the U.S. are “final” judgments. Thanks to greedy Wall Street bankers totally abandoning a legal process which was perfected over a period of two centuries (so they could boost profits by a few more percent), permanent defects have been created in (at least) millions of residential properties, and more likely tens of millions – leaving all of these properties open to future legal challenges, indefinitely.

In this respect, my own opinion is conservative. A recent edition of MSNBC’s “Dylan Ratigan Show” provides a more extreme view of this issue. U.S. attorney, Michael Pines: “As bad as you think it is, it’s probably a thousand times worse.”

Pines was responding to a question from Ratigan about Pine’s clients: the Earl family. This middle-class family was trying to get caught up on its mortgage, and making payments to the bank. The Earl’s allege that even after large payments were made on their account (more than $100,000 in total), that there was no change in the balance owing. The moment the Earls requested an “accounting” on their mortgage (which is obviously within their rights), the bank refused to provide an accounting, and simply sent them a “notice of default” (foreclosure) instead.

In other words, if the Earl’s account of the matter is correct, the conduct of the bank did not simply represent “fraud”, but blatant extortion – such as we might literally expect the Mafia to engage in. Give the bank whatever it asks for, with “no questions asked”, or the bank will foreclose on you.

What happened at trial, when the trial judge heard this evidence? Naturally, the trial judge never heard this evidence, because as with 90% of all these fraudulent foreclosures, the judge simply rubber-stamped the bank’s request: giving the bank “legal” permission to take the Earl’s home – without the homeowners ever being permitted to say one word in their own defense.

At this point, many already know the next chapter of the story. The Earl’s (and their nine children) “broke in” to their own house, changed the locks, “repossessed” the house – and are now forced to live as “squatters” because in The Land of Foreclosure Fraud, “justice” is on a long holiday. Attorney Pine’s statement to Ratigan: “This happens all the time.”

Ratigan then introduced a second guest – another bank-victim. This victim alleges that even though a foreclosure process had never been commenced, that one evening someone (representing the bank) broke into her home (while she was there), and attempted to change the locks on her home.

This client’s lawyer, another foreclosure specialist, was equally strident. He simply stated that this massive scandal would “fundamentally destabilize” the entire U.S. real estate market. Pines interjected again.

This is not only residential, this is commercial.” In that respect, what Pines meant is that we are about to see the same scenario play-out in the multi-trillion dollar U.S. commercial real estate market. At this point he came out with his real “bombshell”: “Nobody in this country knows for sure who owns any real estate.”

He qualified that remark very slightly, by stating that anyone who owned their property free-and-clear before mortgage securitization started in the 1980’s was likely in the clear. Roughly speaking, this would probably comprise no more than 10 – 20% of the U.S. real estate market.

Note, however, that it is not necessary for 80 – 90% of all property titles in the U.S. to be defective, or even possibly defective. Even if only 10 – 20% were defective (still an astronomical number), that this is more than enough to permanently depress real estate prices in the U.S.

Ask a rational buyer whether he would like to spend $200,000 buying a home in Canada – and actually own it, for sure; or ask that same buyer if he would rather spend $200,000 for a home in the U.S., and perhaps “own” it, what will that rational buyer do? The buyer will either simply completely reject the U.S. market – without consideration – due to the lack of legal certainty, or, the buyer would heavily discount his offer for the U.S. home, to reflect living with permanent risk. How much less is a home worth if you can never be sure you really “own” it? Is it 25%? 50%? 75%?

While the callous attitude of many Americans (bank shareholders?) to the plights of their fellow homeowners is nothing less than despicable, the stupidity of these people in wanting their government to simply wallpaper over this fraud is truly mind-boggling. Clearly, given the choice of one or two more years of housing-sector devastation (the time necessary to properly fix a problem of this magnitude), or the choice of large, permanent discounts on all U.S. real estate, there is no choice here for any mentally competent adult.

Of course, Wall Street has done much more than throw into chaos the U.S. housing market and the entire U.S. mortgage-securitization market. It has also destroyed the entire U.S. state and municipal pension system. Thanks to decades of corruption, where banker-lobbyists gave pension fund administrators fat kick-backs – in exchange for buying what they were told to buy, the U.S. pension system was already underfunded by trillions of dollars.

Now, thanks to the latest, biggest chapter of Wall Street fraud, somewhere around $1 trillion of mortgage-backed scam-products held by these pension funds have little if any worth. The only possible means for many of these pension funds to ever come close to solvency is to sue Wall Street banks, for all of the fraudulent banker-paper sold to them (plus damages).

Note that there are $10s of trillions in “credit default swaps” (held by Wall Street banks) which back these fraud-products – at extreme leverage. We caught a glimpse of how leveraged this market is in a bankster-versus-bankster lawsuit, between Morgan Stanley and Citigroup. When Citigroup (NYSE:C) sought to collect on a CDS contract it had with Morgan Stanley, even after liquidating the so-called “collateral” which backed the contract, Morgan Stanley was faced with a pay-out at approximately 300:1. Does anyone want to loan Wall Street banks $300 trillion, or so?

No “terrorist”, or group of terrorists, or army of terrorists could ever equal the economic harm inflicted on the U.S. by the Wall Street psychopaths. They have destroyed their businesses. They have destroyed their sector. They have destroyed the U.S. pension system. And, as of this moment, there is every reason to believe they have destroyed the entire U.S. real estate market.

The $10’s of trillions in losses which they are facing (a very conservative estimate) are more than enough to vaporize this entire crime syndicate – even after the $10+ trillions in hand-outs/loans/guarantees which they have already extorted from the U.S. government. The countless trillions of dollars in legal damages which will be awarded against them in at least a decade of endless litigation is (separately) also more than enough to vaporize them.

Yet despite the greatest white-collar crime wave in the history of our species, not one senior executive of a Wall Street fraud-factory has even been charged with a crime – let alone convicted. This grim statistic leads us to conclude that there is yet one more American “casualty” in Wall Street’s crime-wave: the Rule of Law, itself.

Many (including myself) argue that the U.S. has committed itself to becoming a “Third World” economy. It already has a Third World legal system (and a Third World government).

Disclosure: I hold no position in Morgan Stanley or Citigroup.