Tadit Anderson

FDIC Blows It on Transparency

Well stated, and you could have gone into the criminality that was involved in several ways from the predatory lending for the MBOs et al, to the ratings fraud, to the put side CDSs on the housing market at the same time they were working their con on the buy side, and probably a few more examples I could dig up without getting really serious. Bair et al seem to be participating in the avoidance of a round-up and perp walk that in itself would give reason for renewed confidence that the regulatory agencies had restored their own sense of integrity and purpose. The "middle" road process seems to be a strategy of job preservation in a environment of captured, aka suborned, institutions ruled through the bribery of politicians. To put it another way, this seems to be the entertainment intermission between the medicine show pitches.

Systemic Risk Regulation Requires Greater Transparency

Well stated, and transparency applied as a general principle will eliminate the temptation to fraud as perpetrated by perpetrators in positions of control by positions by way of accounting razzle dazzle. To enforce this practice will require the restoration of the regulatory institutions and of the leveraging of the political process. Poof all of the executive perks and short frame analysis of performance. In the transition we could expand the incarceration institutions to include a Club Fed. I have to wonder how much of the calls for transparency is just another misdirection toward something far less than what should be required. The unstated requirement is also the slowing down of the whole process, despite the investment in the strategies of sneak and peek connected to ultra fast computers. The screaming and protest of the well heeled will probably echo around the globe. I need to read Stilglitz's asymmetry paper to see if going "symmetrical" would involve exploding a whole series of economic rationalizations, such as who is entitled to decide what a comparative advantage would be and actually for whom in particular. Likewise hollowing out an economy also is a very bad investment really for all concerned in even the moderate long run. Minsky would I expect approve in particular for the untested "innovations." This might even reduce banking to the utility that its trade representative typically claim that they serve. Bye bye, criminogenic culture. thank you
economics.arawakci...

Policy Makers Miss the Mark

While identifying the asymmetric nature of the availability is rather polite way of identifying the core issue, the core problem with the application of the securitization process may have more to do with the amount of dys-information being used to advance various ponzi-ed mechanisms. By the multiple varieties of fraud that have been perpetrated in various layers of the process it seems doubtful that full disclosure will result in re-validating the process, this includes a current class action suit alleging that lenders have destroyed the documents necessary to validate basic contract law. It would seem that Dr. Frankenstein's monster is stitched together such that it is dependent for its survival upon the opacity of the process. If for instance due process and due diligence were to be applied with full transparency the net yield and "advantage" of the process might be vastly reduced. The SEC has unmistakenly been captured and the FBI lacks the capacity to enforce against the destabilization efforts (nod to Hyman MInsky here) which became the basis of paper profits. The basic identity and contribution of speculative finance will need to be redefined once the barriers to transparency are removed. www.economics.arawakci...

Could Securitization of Debt Be Unraveling on Legal Grounds?

The way this process is building only until the legality of foreclosures on acceptance of the supposed current standards the body of case law will increase. If people simply fold up their tent and walk away, then it is fairly clear that there will be no legislative reforms. That the resistance has started based upon well established legal processes, it would have required a version of grand-parenting fraud. Another point that William K. Black has made is that last year some 62,000 allegations of fraud have been referred to the FBI, and that is from only the regulated sector of the mortgage origination market which is only 20% of the entire market, though the rate of fraud could easily be expected to much higher in the unregulated sector. The side point Black makes is that the law enforcement people relative to white collar are entirely swamped and are likely to stay that way for quite a while until the influence of corporate funding of political campaigns is dealt with. In short there is no apparent shortage of cases moving the courts on different issues which continue to re-ignite a prairie fire. Once the Scheindlin decision is made regarding the fraud by the ratings agencies and their co-conspirators, I expect that many more hedge funds and pension funds will be filing to recover their loses as a result of being defrauded. These people will have the necessary capital resource to pursue this sort of recovery litigation. The typical foreclosed homeowner will also not have comparable resources, though once the pattern is established I expect that numerous attorneys will sign on for a percentage of damages, since the arguments have been established. To the extent that the big five were supposed to be too big too fail, it will be proven in time that that they were also too big to manage and were really only dealing with short term process via the financialization process. That the illegitimate bonus issue still remains unresolved the operation of these banks are still being judged on short term "profits," which are going be realized as major liabilities. Another detail is that is still unresolved is the mark to fantasy valuation of the now toxic assets. Even though the US Treasury or the privately owned US Federal Reserve have absorbed quantities of these "troubled" assets, they too do not have the capacity to administer or evaluate those assets. Who will be the legal team to defend the full (and imagined) value how are they really going to collect and write down those assets, never mind the derivatives still off the books waiting to return. The big five are just big zombie corporations at this point and the installation of the ZIRP system will just install the same downstream effects as Japan has had for the last 17 years. Steve Keen was interviewed recently by Max Keiser and was pretty blunt about the effects of avoiding a jubilee and a return to a productio based economics, an endless economic depression. It seems that the last one western Civ. experienced was also described as the dark ages.

Could Securitization of Debt Be Unraveling on Legal Grounds?

The early challenges in foreclosure hearings has been around the issue of standing, but if this was known to be a likely and serious problem, even after the fact, then the "my dog ate my homework" tactic by either MERS or an "originating" which in selling off the tranches this way and that, as well as slicing and dicing them to the point where the ownership side of contract law has been totally atomized, has been dodged prior to the Kansas Supreme Court on the basis of bluff and financial illiteracy. Expect numerous concurring decisions on this point to be forthcoming.

There are two other ways in which the securitization process is also likely to unravel. Next consider Judge Shira Scheindlin's procedural decision which essentially forbids the rating agencies from using the canard of corporate "free speech" to lie, aka totally fabricating, about the rating levels of the MBS type tranches in their consultations with clients regarding the hazards of investing in those tranches. This will also make the mortgage originating banks co-conspirators in the ratings fraud scheme. CF W.K. Black's "choke point" strategy regarding white collar crime.

Next consider the deliberate deregulation of the OTC commodities markets by way of the the Commodity Futures Modernization Act (2000). The credit default swap has been fabulously well demonstrated to be a very bad idea when addressing systemic reversals. There is an aspect of the which directly violates long standing issues such as forbidding purchasers from buying fire insurance on a property which the agent or person purchasing the policy does not own. In effect the betting aspect of the CDS process creates a situation very similar. I believe that there are grounds to challenge a securitized mortgage "holder" on a similar basis that in effect they will need to prove that they were not betting on the mortgagees failing to be able to pay their mortgages by way of the economic bubble that the whole run up of speculation was leveraged on. In effect the collapsing bubble is a de-leveraging of that bubble which by way of "irrational exuberance" created. Essentially that being in a position to burn down the economy in the first place never was legitimate. The Scheindlin procedural decision will also back this other unraveling by way of the co-conspirator status. This case is likely to be appealed so she made a very narrow interpretation, AND the case has not even come to a concluding judgment yet.

The greed toward piling up the transaction commissions was not well thought out obviously, in several ways, but particularly relative to what would happen if the musical chairs version of their casino economics reversed. Perhaps this is one of the reasons, aside through more greed, that the big five are so stuck on re-kick starting their gaming of the economy.

Rather than looking at the Kansas Supreme Court decision as a means for letting mortgagees off the hook, please, remember that it was the so called finance industry that lobbied so lavishly to set this crooked process up in the first place. In the end there will need to be a massive jubilee in order to rebuilt a productive economy to replace the deeply financialized "economics." And this doesn't touch the fraud of privatizing the sovereign power to circulate currency. There is also a movement toward re-establish sovereignty over economies which will challenge the whole supposed convention of financialized economics.