Links 10/14/2010

First Topic of the day: Foreclosures

Yahoo! Finance (Mortgage servicers hired hair stylists, Walmart floor workers and installed them in "foreclosure expert" jobs. Here’s a quote from one of these experts: "I don’t know the ins and outs of the loan, I just sign documents." Gee, I wonder who will be the fall guy here. )

Bloomberg

Mike Konczal

Mike Konczal

Bloomberg

Felix Salmon

HuffPo (note that Yves has said the MERS issue is secondary. She says the issues created by the RMBS are not easily remedied.)

Second Topic of the Day: Currencies

Credit Writedowns

Credit Writedowns

Michael Pettis

FT

Other links

FT Alphaville

FT Alphaville

Bloomberg (Virginia was one of the states Meredith Whitney said looked best)

The Guardian

The Guardian

Cullen Roche

ABC News Australia

Mark Thoma

Dagens Nyheter

Swampland

Swampland

The Daily Telegraph

Antidote du Jour: The Cat Train (thanks, Mary)

the-cat-train

Anyone with good antidotes, pass them to Yves, who will pass them to me. :)

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS s on my blog pages. Cheers. Edward http://www.creditwritedowns.com

57 comments

  1. Skippy

    Firstly thanks for filing in Ed.

    OK re Felix Salmon offering, I could not help but find my old pal in comments and up to his highjinks see:

    This brings up memories of the SEC vs GS case again.

    Felix – isn’t there a big difference between “due diligence” and “inside information?” it sounds to me like the bank did its due diligence and, as usual, the investors didn’t. At some point you just have to say NO MORE excuses!

    as you noted, Clayton’s testing was being done by the bank! the bond investors had every opportunity to do their own due diligence too, right?

    Posted by KidDynamite

    and

    Felix – I now see your update. “The answer is no, they weren’t — the prospectus did not include the kind of loan-level information which would enable them to do that.”

    Huh? you’re being an apologist for investors who bought stuff they couldn’t value? Sounds like we’re going to get back to the ratings agencies again with this discussion… but hey – look – if you as an investor cannot value something – YOU SHOULD NOT BUY IT. I don’t know how else to say it.

    if the prospectus didn’t allow investors to evaluate the product, and they bought it anyway, well, what did they expect? another segment chasing easy money without doing their homework – we know how that works out (hint: it doesn’t)

    Posted by KidDynamite

    ——-

    Skippy here…Man he really wants into the club…eh, any way it makes one wonder how it was so easy to pull off in the first place when not only hairdressers, walmart greeters are so eager to become complicit to fraud but, well educated folks too.

    1. Bullsmith

      Kid Dynamite’s theory seems to be “Caveat Emptor shall be the whole of the law” Which of course would be no law at all.

      1. luke

        Caveat Emptor doesn’t apply in cases of fraud:

        from wikipedia:

        Under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud.

        1. Bullsmith

          But that’s the law. I’m talking about Kid’s world where fraud is simply a tool sharp businessmen use to make money, no one bothers with the law. Sadly, that seems to be the world we’re actually living in.

          1. Anonymous Comment

            True.

            Just watch – This will be the defense: “Your Honor, The investors signed a form stating they were ‘sophisticated investors’, therefore we are allowed to defraud them. Because hey, if they are so sophisticated, they should have known this could happen. Got ya!”

            Mark my words.

          2. Karen Pesavento

            This is for Anonymous Comment, for whom there is no Reply button: Re: the banking defense “sophisticated investors” –Frankly, that has been the banks’ defense in derivatives and associated cases for the past 15 years (based on my experience in the legal department of what used-to-be the world’s largest bank).

  2. Jackrabbit

    Would the quantity of Quantitative Easing proposed by Krugman raise asset values so much that the mortgage crisis is solved? Increased asset values would mean higher home prices so that 1) homeowners would not walk away as much, and 2) investors in mortgage backed securities would have less incentive to pursue the “empty Trust” issue?

    PS: My understanding of QE is that it raises asset prices first, then causes inflation in other areas, and has a general, but diffuse, stimulative effect on the economy that is small compared to fiscal stimulus (e.g. $5 Trillion of QE might be the same as $500b of fiscal stimulus).

    Our austere congress does not want to borrow or raise taxes because that would offend the wealthy so the Fed is “forced” instead to give the wealthy a boondoggle in the hope that some of that will trickle-down to job creation. (The Fed claims that their full-employment mandate now takes precedence because inflation is so low.) But I haven’t seen much discussion of the possible affect on the mortgage crisis.

  3. John

    So Larry Summers … did he leave because he saw this coming and knew that he couldn’t save his buddies at the banks so best to just get out of dodge?

  4. MyLessThanPrimeBeef

    This monster cat is more dangerous than Godzilla.

    I konw – I saw it in ‘Monster Cat Meets Godzilla.’

  5. dearieme

    “China is really the bad guy”: with the education of American youth in the hands of such a sophisticate, what could possibly go wrong?

    1. aet

      Unsurprisingly, the Chinese, having invested their profits into US dollar holdings, take a different view:

      ?

      Who gets hurt in a US devaluation/ yuan appreciation?
      Higher prices at Wal-mart does not seem to be much of a cure for the economy of the middle and lower classes, it seems to me.

      1. alex

        Who is better off, a person paying lower prices at Walmart but who’s unemployed, or a person paying slightly higher prices at Walmart but who has a job making things that used to be made in China?

        1. aet

          …and here’s another major trading partner’s view of this currency matter, this time from Canada:

          PS There’ll be a lag between the rising of those prices at Wal-Mart and the jobs that devaluation brings come into being, right?

          1. alex

            “There’ll be a lag between the rising of those prices at Wal-Mart and the jobs that devaluation brings come into being”

            Good heavens, an economic policy that isn’t immediately beneficial! I’m guilty of actually looking a year ahead? Say it ain’t so.

            BTW. if low prices for imported goods are so desirable, why don’t you want that for the Chinese people? That would be the effect of revaluing the RMB.

    2. Borealis

      I have to wonder if Krugman’s current China-bashing position is a way of avoiding facing the reality that his beautiful beautiful trade theories didn’t quite work out in the real world. There is nothing China has done that we haven’t enabled every step of the way, heedless of the endgame. Whatever the negative effects of currency manipulation, it’s not the root of our trade problems – *our* policies of the last decades are the root of our trade problems. But let’s take our mind off that fact by whipping up a little jingo fervor. Feh.

      aet – Low Wal-Mart prices aren’t going to cure anything, either. Unless hair-of-the-dog counts as a “cure”.

      1. alex

        “I have to wonder if Krugman’s current China-bashing position is a way of avoiding facing the reality that his beautiful beautiful trade theories didn’t quite work out in the real world.”

        No, his trade theories, like most others, assume no great currency intervention. That’s reasonable if the assumption is made clear.

        If you’re referring to Krugman’s over-the-top boosterism of trade in the 90’s, there he had to claim that his own trade theories (agglomeration, etc.) had no significant effect.

        “There is nothing China has done that we haven’t enabled every step of the way, heedless of the endgame”

        True, and Krugman’s calling for an end to that.

        “Whatever the negative effects of currency manipulation, it’s not the root of our trade problems – *our* policies of the last decades are the root of our trade problems.”

        But the worst of our policies has been tolerating the currency manipulation. If you have another candidate for America’s worst trade policy, please mention it.

        “But let’s take our mind off that fact by whipping up a little jingo fervor.”

        Calmly stating that another country has trade policies that are damaging to us is hardly whipping up jingoistic fever. Would you prefer that nobody ever criticize China?

      2. Richard Kline

        So Borealis, that was much of my reaction to Krugman’s call, though there’s much more. He’s lost all credibility to me.

        So alex, the US decision to let the shadowbanking system float trillions of dollar denominated speculative flows is by far our worst decision. China’s position is reactive to that. And no, I’m not particularly interested in arguing about this one one this day; the information is there for a different perspective if you want to look for it.

        And a further point: production displaced from China by either tariffs or moneyprinting isn’t coming back to the US. Absent a US industrial policy, production will go sideways, to Vietnam, Bangladesh, Sri Lanka, and the like. But the cheap money will ramp up a carry trade opportunity for said shadowbanking system. And the power elite in the US will be beaucoup happy with this, it’s a win-win-win for them. Starve the working class for one, by pushing production further offshore. Win on the arbitrage opportunity for two. And blame the Chinese as ‘the bad guys’ for making it all happen, to a round of ‘Hear hears’ from the audience, for three. Follow the money and you’ll know the play, ‘s what I say.

        1. Skippy

          HA..the cheep booze and shiny shat used to ply the Native Americans and relive them of their lands, flowed where it could till WWII. Then it was partiah time…save the Reds…one down…oops take that back, sooo get the family drunker than my Aussie in laws on X-Mass…in the days gone past, left sore headed on boxing day not realizing they sent Santa to China instead…

          Skippy…sorely miss your musings…like being an FO with inaccurate fire missions on going….fwuph…fwuph round doing cart wheels…screwing with its projected range.

        2. alex

          “the US decision to let the shadowbanking system float trillions of dollar denominated speculative flows is by far our worst decision”

          I was clearly referring to the worst of our _trade_ policies, not our economic policies in general. And BTW, the trade deficit, which by accounting identity leads to a capital sur, provided much of the fuel (lots of cheap money) for the shadow banking system and other aspects of asset speculation.

          “China’s position is reactive to that.”

          No, China’s position is plain old-fashioned mercantilism. Stop thinking that everything China does is in reaction to US policy. If anything they’ve chosen to link their internal monetary policy to US monetary policy for the sake of mercantilism. Without the peg and their enormous forex purchases US monetary policy would have much less internal effect on China. They can have their monetary autonomy back any time they choose to abandon mercantilism.

          “production displaced from China by either tariffs or moneyprinting isn’t coming back to the US. Absent a US industrial policy, production will go sideways”

          Where did I say I was opposed to a US industrial policy? Although without doing something about currency manipulation it’s doomed. Prices do matter.

    3. alex

      dearieme says: “China is really the bad guy”: with the education of American youth in the hands of such a sophisticate, what could possibly go wrong?

      The ‘really the bad guy’ line is Ed Harrison’s boil-down of Krugman’s position, not a literal quote from Krugman. Is it your position that anybody faulting China for anything is being “unsophisticated”?

  6. Hugh

    What we are talking here is massive, systemic fraud. It is not fraud at some points but pervasive fraud at all points. MERS intersects with the RMBS crisis at several points: in the scission of the note from the title, in avoiding fees and maximizing profits and again losing the legal trail of ownership, and then finally the use of MERS in the foreclosure process.

    All of this is itself just part and a natural result of kleptocracy. It is not just the housing sector that is being looted. It is all sectors. It is stocks. It is commodities. It is Wall Street in general. It is the government via bailouts and wars. It is the Fed via quantitative easing. All of this is expressed in the massive wealth inequality that we now see, and nothing will change until that disparity, the fruit of looting, is reversed.

    And that looting remains sanctified and rationalized by those self-same elites, in academia, in government, and in the media. In this regard, I could not pass the following blurb from the NYT current frontpage:

    “The foreclosure chaos, caused by disorganization and inexperienced employees, came as no surprise to insiders”

    Not massive systemic fraud, just mistakes made by some newbies. It would be laughable if the consequences for most of us and the country were not so extreme. But this is the line the paper of record is dishing, even as Helicopte Ben revs up his rotors and charts his trajectory over Wall Street so as not to hit any of the rest of the country with his money drops.

    1. Doug Terpstra

      Right on, as always. As Edward asks, “Gee, I wonder who will be the fall guy here”? MERS and hairdresser mortgage experts are used to deflect all blame from the true pirates, just as “a few bad apples” and errant drones continue to provide a screen for war criminals.

      “We hang the petty thieves and appoint the great ones to high office.” – Aesop

      But the deniability is now too implausible and transparent.

      “Once nature starts to foreclose . . . the social breaks down. People may suffer stoically for a while, but sooner or later the ruler’s relationship with heaven is exposed as a delusion or a lie. Then the temples are looted, the statues thrown down, the barbarians welcomed, and the emperor’s naked rump is last seen fleeing through a palace window.” (Ronald Wright)

    2. Neil D

      Interesting info at this link:

      Outstanding mortgage debt 2000: $6,789 billion.
      Outstanding mortgage debt 2008: $14,640 billion.

      Outstanding home equity loan 2000: $408 billion.
      Outstanding home equity loan 2008: $1,115 billion.

      You are right about the looting part. Why all the debt, America? What did you buy with it?

  7. Doug Terpstra

    Re: Krugman, is he acutally adovcating $10 trillion in QE, or showing the manifest absurdity of it?

    It seems like pushing on a string, and they’ll just keep doing it until all confidence in the system is utterly destroyed, converting natural deflation into hyperinflation. These die-hard supply-siders are constitutionally incapable of escaping their bankrupt ideology, even when it means throwing out the constitution.

    1. eric anderson

      The thought that popped immediately into my head was, ‘From which orifice did Krugman pull that 10 Trillion number?’

      If I didn’t live in this country and have dollar-denominated savings, I’d be game for putting Krugman in charge of the Fed, and letting him try his QE gamble. My guess is the outcome would be, ‘The disease of deflation was cured. Unfortunately the patient died due to unforeseen complications.’

  8. jacke

    One of the topics that is mentioned in Yves Smith’s first few chapters of “naked capitalism” is the looting of the banks by the banks’ insiders. The mortgage mess extends far beyond the homeowner mortgages to commercial loans as well. Foreclosure attorneys have an enormous amount of power and influence to act to seize properties and sell them to insiders without proof of cause. Particularly in the case of one large regional bank, good construction loans that were not properly funded by that bank were called “at will” and sold to insiders without proof of cause and in bad faith, destroying multiple businesses, causing losses of 100s of jobs, and resulting in damages to smaller banks and additional home mortgage losses.
    The looting of a bank already in trouble and being sold out by insiders who were busy lining their own pockets is likely not an isolated occurrence. Attorney-client privilege and the ability of attorneys to use verbal manipulation and fraud to force borrowers into bankruptcy so that they cannot fight such fraud is a major factor, as is the enormous cost of fighting such lawsuits, especially when an attorney knows that the suit can be won on principle, but never actually get any funds won.
    Regulations on such loans requiring proof of cause for such foreclosures would go a long way to stopping the corruption.

    1. Rex

      “One of the topics that is mentioned in Yves Smith’s first few chapters of “naked capitalism” ”

      I assume you meant her book “Econned”.

  9. MyLessThanPrimeBeef

    Florida’s 30 second foreclosure dash – McMansion meets McForeclosure.

    I hope they serve French Fries there.

  10. Jojo

    Yahoo! Finance (Mortgage servicers hired hair stylists, Walmart floor workers and installed them in “foreclosure expert” jobs. Here’s a quote from one of these experts: “I don’t know the ins and outs of the loan, I just sign documents.” Gee, I wonder who will be the fall guy here. )
    ——–
    Having worked for a couple of companies in the past in the digital signature arena, I wonder why they had to hire such inexperienced people to sign the docs?

    Most digital signature software includes a BATCH signing module. You put the docs in a folder, tell the software where to put the signature and then let it loose.

    The primary use for this function is signing checks, but it could be used for any mass signing job.

    1. Edward Harrison Post author

      Jojo, a machine can’t verify affadavits and other documentation. Clearly using an actual machine would be an indication no one had read the documentation for verification – i.e. prima facie evidence of fraud. They needed to hire someone to give the appearance that they had indeed conformed with the legal standard.

      1. Jojo

        Yet that apparently didn’t work either! [lol]

        In reality, the docs should have been reviewed, then moved into the batch folder for electronic signing at say day’s end. Which probably would have been OK.

        1. Cedric Regula

          I think the term Robo-Signer is an euphemism for un-reviewed approval of documents and procedures, and is in no way a disparaging or bigoted remark aimed at our beloved, hard working and obedient robo-software programs.

          Unless of course we hear from the banks that Mr. Smith of Matrix fame infested MERS and caused all the problems.

          But we have Ms. Smith here to debunk that theory, once the banks get around to proposing it.

  11. Texas Reader

    This MERS thing has me really really angry now that I know MERS had NO employees – just a board of directors! Having had many years of experience in finacial services I understood the desire of the big financial institutions to have a central repository of all the info on mortgages that secure bonds. However, they went well beyond that by having MERS be more than just a registry for their use. The fact that it had no employees makes it clear that it was a disreputable business. MERS employees could have been tasked with getting mortgages and notes properly assigned into the REMICS and the mortgage assignments properly recorded in the various county property records depts across the country. They chose to NOT use it that way so they could save huge amounts of money. Disgusting.

    1. Skippy

      The MERS CEO was on Faux News last night (AEST) proclaming that it was just a data base…ROFLMAO…let them twist in the wind I say…more ammo me thinks…

      1. Cedric Regula

        If so, Mr. Smith figured out how to own 60% of the mortgages in the US, if he can find his inseparable notes that is. That is one rich database.

        But the Oracle database in the NY trusts has some claim on all this too, so still too early to call how the plot is going to go.

        1. Skippy

          It is as it was supposed to be, me thinks. The I thought I was in pat (see good-fellas back of the head initiation into the family..not) when all along they were just bums, ready to take bullet or do some time for the dons.

          Skippy…not in and never were going to but, allowed to belive what they wanted.

  12. Young voters vent frustration to Obama in MTV forum:

    Didn’t Obama get the largest youth vote in a very long time? Anybody that says the 2010 midterms is not about Obama’s performance is smokin’ good stuff.

  13. The Mortgage Fraud Scandal Is The Biggest In Human History:

    Another call for Obama to act. I pretty sure that would not happen.

  14. Melinda Romanoff

    I’m sorry, you do not have a secure hatch to protect your Den OF Lionel from uninvited pussy invasion?

    Shame.

    Hang a solid door in the future. None of that hollow core stuff, no privacy.

  15. Sundog

    Cheers Ed.

    Stratfor, via Mauldin, on rare earths.

    Their unique properties have since made them the components of choice for wind turbines, hybrid cars, laptop computers, cameras, cellular phones and a host of other items synonymous with modern life. Chinese overproduction in the 2000s — and the price collapses that accompanied that overproduction until just this year — allowed such devices to go mainstream.

    1. Sundog

      In any other industry, this refining/purification process would be a concern that investors and researchers would constantly be tackling, but there has been no need, as Chinese overproduction removed all economic incentive from REE production research for the past 20 years (and concentrated all of the pollution in remote parts of China). So any new producer/refiner beginning operations today is in essence using technology that has not experienced the degree of technological advances that other commodities industries have in the past 25-30 years.

      Jobs are good; industrial competence is another matter.

  16. How Wall Street Shafted Main Street:

    Too bad Spitzer is still not policing Wall St. He seemed to do a pretty good job. Notice what he said he would immediately do – subpoena all the investment banks.

    Do you think this will happen?

  17. Richard Kline

    Robo-signers off the bread line: “A week ago, I couldn’t spell ‘financial racketeer.’ Now I am one—and I’m making more than you!”

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