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Decline and Fall (Maybe) January 17, 2011

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Now they've done it! The big banks have been doing mortgages in violation of basic contract law. They got their comeuppance when the Massachusetts Supreme Court ruled invalid a mortgage foreclosure typical of tens of millions since 1995 (when the banks started skirting the law). There was a real democratic revolution by workers and the middle class in North Africa, Tunisia. Our response, "We don't take sides." And more on the Giffords assassination.

Michael Collins

Apocalypse When? Round Up of Massachusetts Supreme Court Decision on ForeclosureGate, US Bank N.A. v Ibanez
- Around 1995, the big bank lenders established their own rules for handling the various steps of issuing a mortgage.  They knew well the contract laws of the states in which they operated.  But they had bigger plans.  They wanted to bundle up thousands of mortgages and sell them as Mortgage Backed Securities (MBS).  To do that, they needed an electronic system (MERS) that could bundle mortgages and sell them repeatedly to investors here and overseas.  Never mind that state law required specific documentation at every step, including documentation to prove a specific owner of the property.  When banks resold the MBS product, as it were, they were interested in churn and more money, not tagging a specific mortgage with the latest MBS owner.

Oops!  The big banks screwed up big time.  Bankruptcy courts at the state and federal level are used to adherence to contract law and court rulings.  Most people in foreclosure struggle to pay for representation if they go to court.  Many settle out of court.  But the Show Me the Note movement, in and out of court, has a powerful ally - the Ibanez decision.

While many had warned of the significance of the ForeclosureGate controversy, Bloomberg's take stated that "some foreclosures" may be invalidated.  That's true if there had been no system in place that systematically violated state law on titles, title ownership, transfers, and required documents.  The system put in place in the mid 1990's was uniform, therefore the risk is uniform.  The big banks and the rest involved made the same mistakes over and over.  There are 55 million US borrowers.  Those who borrowed after 1995 face an excellent opportunity, even if their foreclosure is complete.

Bloomberg - Foreclosures May Be Undone by State Ruling on Mortgage Transfer

By Thom Weidlich - Jan 6, 2011:

"A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis."

Reuters immediately grasped the situation.  Bank stocks tanked making an empirical point.  Investors are worried.  There is still denial and hope that Congress will ride in on a spray painted white horse and save the banks with a retroactive law making their unlawful mortgage process legal.  That is up in the air and that's why share prices went down.  They'll climb back up, given more denial but the banks are in trouble nevertheless.

Reuters - The Ibanez Decision - What it means for homeowners and investors

By Christopher Whalen - Jan 10, 2011:

"Last week the Massachusetts Supreme Court issued a decision voiding several home foreclosures by US Bancorp and Wells Fargo. The news caused the financial markets to retreat with bank stocks down hard. News reports and some analysts are predicting that the decision in U.S. Bank National Association vs. Antonio Ibanez will mean an apocalypse for commercial banks, especially those involved in issuing residential mortgage backed securities or RMBS.  But like most things in life, the reality is a little more subtle."

Bloomberg said the magic word - class action. They referred to Massachusetts but think bigger - a class action like the tobacco class action that goes after the big banks across the country.  They could call it The Countrywide Class Action.

Bloomberg - Massachusetts Foreclosure Class Action to Resume

By Thom Weidlich - Jan 10, 2011:

"A statewide class action in which Massachusetts homeowners accuse U.S. Bancorp and Ally Financial Inc. of faulty foreclosures will resume now that the state’s high court ruled in a similar case last week.

"Unwinding of foreclosures may lead to loan workouts with homeowners or force originators to buy back loans that ended up in mortgage-backed securities.

"Teri Charest, a U.S. Bancorp spokeswoman, didn’t have an immediate comment."

Of course, Teri Charest had no comment.  Hopefully, she was using the time to look for another job in anticipation of the giant sucking sound of anticipated too big to fail failures.

Internet commentator Numerian got it right just after the release of the ruling.

Economic Populist - The Arc of Justice - The Ibanez Case Ruling
By Numerian, Jan 7, 2011

"What is beginning to unfold before our eyes is a situation which can only be comprehended with jaw-dropping incredulity. For at least ten years the large US banks have been selling a product – the residential home mortgage – with a fatal legal flaw that renders it uncollateralized. The product should have been priced like any other unsecured consumer loan – at rates at least triple the actual mortgage rate in the US. There are something like $6 trillion of mortgages extant in the US, among over 55 million borrowers."

The Bush and Obama Wall Street bailouts are among the least popular pieces of legislation in the nation's history.  That won't stop the banks from doing what they have already announced.  They expect Congress to pass a law that makes this "all OK" for them.  They believe in perpetual bailouts.  Given their abysmal performance on every major task, that  belief system makes sense.  But believing it's so will not make it so. 

Workers and Middle Class Topple Dictator in
Tunisia: If democracy emerges in a nation and the US government isn't involved', are the people still free?   You bet they are.  A remarkable peoples' revolution took place in Tunisia and toppled an authoritarian regime that was failing to deliver anything for the people.  Mark Levine, writing for Al Jazeera, summed it up clearly:

"The stakes could not be higher. The Tunisian Scenario could lead either to a greater democratic opening across the Arab world, or it could lead to the situation in Algeria in the early 1990s, where democratization was abruptly halted…But at this moment of such great historical consequence what is the US doing about the situation? … 'We can't take sides.'"

The revolution took hold when workers and middle class Tunisians became fed up with their tin pot dictator of 23 years, Ben Ali and threw him out.  It happened quickly and was reported on Twitter and other social media.  Levine called it a "humane revolution," free of strict ideology, including radical Islam.  Elections must be held in 60 days and Tunisia will be free whether or not the corporate media covers it and without regard to which side the White House takes.  Here's a nice commentary on the US media response or lack thereof.

President Obama in Arizona:  "Be Nice" - Bruce Jacobs wrote a wonderful analysis of the Obama eulogy in Arizona.  It typifies much of what leaves so many unhappy with his leadership in general.  Here's the key point.  The column is really first rate:

"Obama would have been better off, I think, had he kept to the personal eulogizing and philosophizing, which he did well, and not tried to expand into civic territory, since he was clearly afraid to address anything of substance in that regard. His basic civics messages seemed to be 1) Don't be a Blamer who looks for specific things to challenge or change as a result of the tragedy (e.g., lax gun laws, gutless economic policy that nurtures bitterness, the disproportionate concentration of lynch-mob politics in particular camps), and 2) Be nice."  alias Bruce, January 12

Sheriff Dubnik of Pima County got it right again:

"The kind of rhetoric that flows from people like Rush Limbaugh, in my judgment he is irresponsible, uses partial information, sometimes wrong information,” Pima County Sheriff Clarence Dupnik said today. “[Limbaugh] attacks people, angers them against government, angers them against elected officials and that kind of behavior in my opinion is not without consequences."


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Subscribe to comments feed Comments (4 posted):

Jay Banks on 01/17/2011 08:05:33
"They believe in perpetual bailouts. Given their abysmal performance on every major task, that belief system makes sense. But believing it's so will not make it so."

I hope so, but given the amplitude of such a ruling as the Ibanez Case ruling, I wouldn't be surprised to see a bailout style backup. They'll say it's for the market to stabilize, because it could get into serious chaos. But of course, it will be calculated as the percentage of the payment the bank will have to pay to the winner of such a lawsuit, because nobody will manipulate with the current ownership of the houses.
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Debra in America on 01/17/2011 10:22:47
And what of our fake banking regulators? All this has been going under their noses. What good are they? What good are the forms and reports their offices require and churn out? Until we demand real regulation I would support scrapping their agencies except for the guy who holds the rubber stamp like a notary public. What a waste.
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Michael Collins on 01/17/2011 12:47:45
Jay Banks, This is a real dilemma. You nailed it. The banks got the first bailout, in part, through dire warnings of systemic collapse and major public unrest. This was in a closed session of the House. This time it will be - you home will be worthless. But public sentiment for another bailout is nil. The only alternative to this may be a Bank of the United States that will assume all assets, toxic and otherwise, liquidate the toxic assets (haircut for the big boys) and restore stability. The assets of such a bank would be enormous. I don't know if we can get to a solution from where we are given the players. But someone or some faction may emerge to make sense of this. Bottom line - the banks don't get to overturn centuries of contract law as a result of them breaking the law. If they do, then all sectors of the business community are in trouble because no contract will mean much given a retroactive "correction" of this mess for the banks.
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Michael Collins on 01/17/2011 12:51:25
Debra in America, 'Regulators, what regulators. We don't need no stinkin' regulators' (my adaptation of 'The Treasure of Sierra Madre')

Tim Geithner, the current Secretary of the Treasury, was head of the NY Fed before assuming that job. In 2007, claimed that stress tests showed the financial system was sound, Wall Street and the big banks. Then, as a reward for his stunning misjudgment, he got the top job at Treasury. In answer to your question, where are the regulators?, I'd say, most of them got a promotion. If you or I made mistakes like that, we'd be in serious trouble. But for them, it's a cake walk. They don't care because they don't have to.
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