Financial fuckery thread

[Thurnez Isa]

That's a light in the distance right, not an iceberg?

FULL STEAM AHEAD!!

[Diseris]

More good news:

http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O

Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal.

Its the Post, any outside verification?

[Jenne]

They're now saying WaMu basically perpetrated MAJORLY illegal acts in order to sell bad mortgage deals...they also reported on NPR some WaMu fuck saying that if left alone long enough, WaMu would've recovered.

ORLY?

[Cain]

http://www.ft.com/cms/s/0/0ae8415c-9e5e-11df-a5a4-00144feab49a.html

At the US Embassy in London, there is a waiting list that none of the officials likes to discuss. On the list are Americans hoping to give up their citizenship, as they seek shelter from the Internal Revenue Service.

...

The backlog at the US Embassy, where no appointments are available until February, stems from a rise in the number of American expatriates living in the UK who have been seeking to escape paying US tax on their worldwide income and capital gains since the simplification of US tax laws in 2008.

I was going to point out that in the UK taxes are likely even higher than the USA...but then I remembered that was only for little people.  Hell, the chief financial backer of the Conservatives hasn't paid tax in...how many years again?  I forget, but it's at least a decade.

http://www.kansascity.com/2010/08/03/2127213/russian-wheat-crop-in-dire-straits.html

Drought and raging wildfires have destroyed one-fifth of the wheat crop in Russia and sent wheat prices soaring around the world.

The fear that Russia, a major wheat producer, will have to cut exports by at least 30 percent is good news for U.S. farmers, who now are getting more money to go along with a bumper crop this year.

That big harvest, analysts point out, should spare U.S. consumers much increase in the prices of bread and other wheat-based foods despite the problems in Russia.

Any price increases will hit consumers hardest in wheat-deficient areas such as the Middle East, Africa and parts of Asia.

The severe drought in Russia is thought to be the country's worst in 130 years. Most of the damage to the wheat crop has been caused by the drought, but now wildfires are sweeping farmlands in western Russia.

The Associated Press reported that the director of a small state farm outside Moscow said fire destroyed its entire wheat crop one night before the harvest.

"The fruits of the year's labor of the farm went up in smoke. This is very painful," Pavel Grudinin, director of Lenin State Farm, said on Russian television.

The drought is also affecting harvests in Ukraine and Kazakhstan, Russia's neighboring wheat-producing countries.

http://online.wsj.com/article/SB10001424052748704532204575397543634034112.html

Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone.

That's thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.

The high-value bills are increasingly "making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments," wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is "wildly profitable" for the ECB, Mr. Buiter wrote.

...

The ECB and its member governments are beneficiaries of the demand.

The profit a central bank gains from issuing currency—as well as from other privileges of a central bank, such as being able to demand no-cost or low-cost deposits from banks—is known as seigniorage. It normally accrues to national treasuries once the central banks account for their own costs.

The ECB's gains from seigniorage are becoming increasingly important this year.

The ECB has taken hundreds of billions of euros of assets of unknown quality on to its balance sheet as it has reacted to the global financial crisis.

It holds more than €600 billion in collateral from banks to which it has made loans, and more than €400 billion in securities it holds outright, including government bonds.

Overall, the ECB's balance sheet has grown to almost €2 trillion. It has a capital base of €78 billion. That creates leverage that makes it look like a "hedge fund on steroids," Mr. Buiter wrote. It wouldn't need to lose much on these assets to wipe out its thin cushion of capital.

That's where seigniorage comes in.

In recent years, the profits on its issue of new paper currency have been running at €50 billion. In 2008, the year of the Lehman Brothers crisis, it was €80 billion.

Even with conservative assumptions about future growth of currency in circulation—at, say, 4% a year, which is in line with the ECB's 2% inflation target plus a margin for economic growth—Mr. Buiter estimates future seigniorage profits for the central bank between €2 trillion and €6.9 trillion.

Thanks to seigniorage, he says, the ECB is "super solvent."

[Cain]

Can't say I'm in any way surprised at this

http://www.news.com.au/business/breaking-news/us-government-hiding-true-amount-of-debt/story-e6frfkur-1225926567256

THE actual figure of the US' national debt is much higher than the official sum of $US13.4 trillion ($14.3 trillion) given by the Congressional Budget Office, according to analysts cited on Sunday by the New York Post.

"The Government is lying about the amount of debt. It is engaging in Enron accounting," said Laurence Kotlikoff, an economist at Boston University and co-author of The Coming Generational Storm: What You Need to Know about America's Economic Future.

"The problem is we're seeing an explosion in spending," added Andrew Moylan, director of government affairs for the National Taxpayers Union.

In 1980, the debt - the accumulated red ink incurred by the Federal Government - was $US909 billion.

This represented some 33 per cent of gross domestic product, according to the Congressional Budget Office (CBO).

Thirty years later, based on this year's second-quarter numbers, the CBO said the debt was $US13.4 trillion, or 92 per cent of GDP.

Start of sidebar. Skip to end of sidebar.

End of sidebar. Return to start of sidebar.

The CBO estimates the debt will be at $US16.5 trillion in two years, or 100.6 per cent of GDP.

But these numbers are incomplete.

They do not count off-budget obligations such as required spending for Social Security and Medicare, whose programs represent a balloon payment for the Government as more Americans retire and collect benefits.

In the case of Social Security, beginning in 2016, the US Government will be paying out more than it is collecting in taxes.

Without basic measures - such as payment cuts or higher payroll taxes - the system could be on the road to bankruptcy, according to officials.

"Without changes," wrote Social Security Commissioner Michael Astrue, "by 2037 the Social Security Trust Fund will be exhausted. There will be enough money only to pay about $US0.76 for each dollar of benefits."

Mr Kotlikoff and Mr Moylan agree US national debt is much more than the official $US13.4 trillion number, but they disagree over how to add up the exact number.

Mr Kotlikoff says the debt is actually $US200 trillion.

Mr Moylan says the number is likely about $US60 trillion.

That is close to the figure quoted by David Walker, the US Comptroller General from 1998 to 2008.

He launched a campaign to convince Americans that the federal spending and debt is a greater threat than terrorism.

But whichever figure is accurate, all three agree that the problem has worsened in the last few years.

They say it is because Congress and the Administration, whether Republican or Democrat, consistently overspend.

[Elder Iptuous]

200 seems a bit high...
Walker was using the 50 trillion number a couple years ago when I was still starry eyed about dr Paul, so 60 would seem reasonable now....

Attempting to 'fix' the issue seems to be polishing knobs on the titanic, IMO.

[Cain]

It does, but with even professional economists, who are not exactly the most out of the box thinkers now openly declaring the US's reported debt to be a sham and testament to fake accounting...well, that outcome is pleasing in and of itself.

[Elder Iptuous]

David Walker has been touring the country trying to warn everybody that we're totally fucked and that it's all a sham for a few years now.
and he was head of the GAO.
nobody has payed him much mind.

we're fucked.
previously i thought that we could fix things.
then i decided that preparing for our shitty upcoming future should take priority.
now, i'm just taking the opportunity to enjoy how awesome things are right now, so that when things turn to shit and toil, i can remember these magical times before the ground drops out from under us....

[Cain]

Emerging markets bubble!

So, it seems increasingly likely that the Fed will push ahead with a new bout of quantitative easing – or 'QE2', as the markets have nicknamed it.

With the Bank of England and the Bank of Japan also likely to be pumping out liquidity – and the prospect of the ECB joining in at some point, even if only in belated response to the consequences of standing pat for the euro – there is growing attention on what this might mean not just for the economies directly involved, but also for emerging markets. There's the likelihood of a new wave of capital flows into emerging markets, the possibility of an emerging markets bubble, and the chance of the final destruction of what's become known as Bretton Woods 2.
 
Of course, the existing differences in growth performance and outlook, interest rates, and market performance between developed and emerging economies have already seen investors busy re-allocating their portfolios towards the latter, especially to countries in East Asia and Latin America. And even back at the start of this year, analysts were debating whether a new asset bubble was appearing in emerging economies.

Since then, inflows have continued to grow: according to its latest report on capital flows, the Institute for International Finance reckons net private capital flows to emerging markets will rebound to US$825 billion this year, up from US$581 billion last year. While this would still be below the peak of US$1285 billion reached in 2007, it would nevertheless be the second highest result in dollar terms recorded over the past decade.

Managing these inflows is now a major policy headache, with policymakers in recipient economies facing the choice of allowing their nominal exchange rates to appreciate (but risking exchange rates overshooting and increased volatility as well); of intervening to cap nominal appreciation (but then having to deal with some combination of sterilisation costs and rising domestic liquidity – which seeps into domestic asset prices and inflation); or of adopting controls on inflows and the distortions they entail (Thailand is the latest country to follow this route).

For investors, then, the prospect of QE2 looks like another good reason to expect even more emerging market currency appreciation, or domestic asset appreciation, or a mix of the two: in other words, another good reason to send more money towards emerging markets.

Some of this money will be put to good use. But anyone who can remember the run-up to the 1997-98 financial crises, or indeed the prelude to the Mexican Tequila crisis before that, will be aware of the risks involved in a prolonged period of capital inflows to still relatively under-developed financial markets. Emerging-market policymakers will want to be sure that they can avoid the pitfalls of past experiences of large inflows: in being taken for a ride on the QE2, they don't want to end up like the Titanic.

http://www.lowyinterpreter.org/post/2010/10/14/Emerging-markets-QE2-or-Titanic.aspx

[Cain]

Oh fuck you Larry Summers, you ruined what was going to be the only fun part of this whole financial mess, you massive fucking dildo

http://voices.washingtonpost.com/ezra-klein/2010/10/rattner_this_is_how_congress_k.html

I don't believe the president has any obligation in any policy area to create a team of rivals spanning the policy spectrum. He was elected based on a set of views he articulated quite clearly, and he's entitled to have people who reflect his views. You might say they're all centrists, but that's what he's comfortable with. He had no obligation to create the Oxford Union in the West Wing. All these people who say his economic team was terrible, what did they want him to do? We had a stimulus bill. Some say it was too small, some say it was too large. Tim Geithner saved the financial system. Larry Summers did a great job in making sure the administration didn't cave in to the flavor of the moment, nationalizing banks and shooting CEOs. I'd love somebody sensible to tell me, given the constraints of Congress and the environments, what we should have done differently.

Seriously, what a gigantic arsehole.

[Disco Pickle]

I liked this guys blog post about the Mortgage problem and thought I'd share.  REALLY long, but a decent assesment.

http://gonzalolira.blogspot.com/2010/10/second-leg-down-of-americas-death.html#more

The Second Leg Down of America's Death Spiral
I swear to God Almighty: Mortgage Backed Securities are America's Herpes—the gift that keeps on oozing.
 
Last Friday, Bank of America announced that it was suspending all foreclosure proceedings, presumably until further notice. Other banks have already suspended foreclosures in a whole truckload of states. A nationwide moratorium on foreclosures might soon happen—which would be a big deal: Global Financial Crisis, Part II—Longer, Wider and Uncut.
 
"It's oozing from where?"
"Man, you guys are fucked."
But the mainstream media—surprise-surprise—has downplayed the whole shebang. They're throwing terms out there into the ether, but devoid of context or explanation: "Robo-signings", "foreclosure mills", forged signatures, "double booking", MERS—it's confusing as all get-out.
 
So the mainstream media just mentions it casually—"and in other news tonight . . ."—like it's no big deal: A couple-three lines, lots of complicated, unfamiliar terms, an attitude like it's a brouhaha over paperwork of all things!—and then zappo-presto-change-o!: They're showing video footage of a cute koala nursing in the arms of a San Diego zookeeper.
 
But even the koalas know that something awful is heading America's way. Smart little critters, they're heading for the treetops, to get away from this mess.
 
So what the hell is going on with the God forsaken mortgage mess in the United States?
 
It's got a lot of bells and whistles, but it's basically quite simple: It's all about the fucking Mortgage Backed Securities (MBS). Again.
 
So this is what happened, more or less—the short version:

In the crazed frenzy to get as many mortgages securitized during the Oughts, banks took shortcuts with the paperwork necessary for the Mortgage Backed Securities. The reason was because everyone in the chain of this securitization mania got a little piece of the action—a little slice of the MBS pie in the shape of commissions.
 
So in the name of "improved efficiencies" (and how many horror stories are we finding out, carried out in the name of "improved efficiencies"), banks digitized the mortgage notes—they didn't physically endorse them, like they were supposed to by the various state and Federal laws.
 
Plus—once the wave of foreclosures broke, and the holes in this bureaucratic paperwork became evident and relevant—some of the big law firms handling the foreclosures for the banks started doing some document fabrication and signature forgery, in order to cover up the mistakes—which is definitely illegal.
 
Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO's they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
 
In short: This could become another massive oozing sore, complete with yellow-green pus drip-drip-dripping out of some unmentionable places on the Body Economic.
 
Now—the long version:
 
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper—only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage—the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
 
Before Mortgage Backed Securities, most mortgage loans were issued by the local Savings & Loan. So the note usually didn't go anywhere: It stayed in the offices of the S&L down the street.
 
But once mortgage loan securitization happened, things got sloppy—they got sloppy by the very nature of Mortgage Backed Securities.
 
The whole purpose of MBS's was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with therefore higher rates of return.
 
Therefore, as everyone knows, the loans were "bundled" into REMIC's (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then "sliced & diced"—split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
 
This slicing and dicing created "senior tranches", where the loans would likely be paid in full, if past history of mortgage loan statistics was to be believed. And it also created "junior tranches", where the loans might well default, again according to past history and statistics. (A whole range of tranches were created, of course, but for purposes of this discussion, we can ignore all those countless other variations.)
 
These various tranches were sold to different investors, according to their risk appetite. That's why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
 
But here's the key issue: When an MBS was first created, all the mortgages were pristine—none had defaulted yet, because they were all brand new loans. Statistically, some would default and some others would be paid back in full—but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads—but what will the result be of, say, the 723rd toss specifically? I dunno.
 
Same with mortgages.
 
So in fact, it wasn't that the riskier loans were in junior tranches and the safer mortgage loans were in the senior tranches: Rather, all the loans were in all the tranches, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder take the loss last.
 
But who was the owner of the junior tranche bond and the senior tranche bond? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn't be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
 
Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier MBS tranche?
 
Enter stage right, the famed MERS—the Mortgage Electronic Registration System.
 
MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two, again, I know, I know: Like the chlamydia and the gonorrhea of the financial world—you cure 'em, but they just keep coming back).
 
The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially the operating table where the digitized mortgage notes were sliced and diced and rearranged so as to create the Mortgage Backed Securities. Think of MERS as Dr. Frankenstein's operating table, where the beast got put together.
 
However, legally—and this is the important part—MERS didn't hold any mortgage note: The true owner of the mortgage notes should have been the REMIC's.
 
But the REMIC's didn't own the note either, because of a fluke of the ratings agencies: The REMIC's had to be "bankruptcy remote", in order to get the precious ratings needed to peddle Mortgage Backed Securities to insitutional investors.
 
So somewhere between the REMIC's and the MERS, the chain of title was broken.
 
Now, what does "broken chain of title" mean? Simple: When a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a Mortgage Backed Security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the "chain of title".
 
You can endorse the note as many times as you please—but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically on the note, one after the other.
 
If for whatever reason, any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
 
To repeat: If the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
 
Read that last sentence again, please. Don't worry, I'll wait.
 
You read it again? Good: Now you see the can of worms that's opening up.
 
The broken chain of title wouldn't have been an issue if there hadn't been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn't have bothered to check to see that the paperwork was in order.
 
But as everyone knows, following the housing collapse of 2007–'10-and-counting, there's been a boatload of foreclosures—and foreclosures on a lot of people who weren't sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.
 
These people started contesting their foreclosures and evictions, and so started looking into the chain of title issue . . . and that's when the paperwork became important. So the chain of title became important. So the botched paperwork became a non-trivial issue.
 
Now, the banks had hired "foreclosure mills"—law firms that specialized in foreclosures—in order to handle the massive volume of foreclosures and evictions that occurred because of the Housing Crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
 
Well, hell, whaddaya know—turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby "proving" that the banks had judicial standing to foreclose on a delinquent mortgage. These foreclosure mills might have even forged the loan note itself—
 
—wait, why am I hedging? The foreclosure mills actually, deliberately and categorically faked and falsified documents, in order to expedite these foreclosures and evictions. Yves Smith at naked capitalism, who has been all over this story, put up a price list for this "service" from a company called DocX—yes, a price list for forged documents. Talk about your one-stop shopping!
 
So in other words, a massive fraud was carried out, with the inevitable innocent bystander getting caught up in this fraud: The guy who got foreclosed and evicted from his home in Florida, even though he didn't actually have a mortgage, and in fact owned his house free-and-clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.
 
Now, the reason this all came to light is not because enough people were getting screwed that the banks or the government or someone with power saw what was going on, and decided to put a stop to it—that would have been nice, to see a shining knight in armor, riding on a white horse.
 
But that's not how America works nowadays.
 
No, alarm bells started going off when the title insurance companies started to refuse to insure the title.
 
In every sale, a title insurance company insures that the title is free-and-clear: That the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because—of course—they didn't want to expose themselves to the risk that the chain-of-title had been broken, and that the bank had illegally foreclosed on the previous owner.
 
That's when things started gettin' innerestin': That's when the Attorneys General of various states started snooping around and making noises (elections are coming up, after all).
 
The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem—obviously. Banks that size, with that much exposure to foreclosed properties, don't suspend foreclosures just because they're good corporate citizens who want to do the right thing, with all the paperwork in strict order—they're halting their foreclosures for a reason.
 
The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby—they wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their Master's will by a voice vote—so that there'd be no registry of who had voted for it, and therefore no accountability, the corrupt pricks.)
 
And President Obama's pocket veto of the measure? He had to veto it—if he'd signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as un-Constitutional in short order. (The jug-eared milquetoast didn't even have the gumption to veto it—he pocket vetoed it.)
 
As soon as the White House announced the pocket veto—the very next day!—Bank of America halted all foreclosures, nationwide.
 
Why do you think that happened? Because the banks are screwed—again. By the same fucking thing as the last time—the fucking Mortgage Backed Securities!
 
The reason the banks are fucked again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
 
And it won't matter if a particular case—or even most cases—were on the up-and-up: It won't matter if most of the foreclosures and evictions were truly because the homeowner failed to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages come into question.
 
People still haven't figured out what this all means—but I'll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that's basically a license to halt payments right the fuck now. That's basically a license to tell the banks to fuck off.
 
What are the banks gonna do—try to foreclose and then evict you? Show me the paper, motherfucker, will be all you need to say.
 
This is a major, major crisis. This makes Lehman's bankruptcy look like a spring rain, compared to this hurricane. And if this isn't handled right—and handled right quick, in the next couple of weeks on the outside—this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don't need to pay their debts?
 
If this isn't handled right, then this will be the second leg down, in the American Death Spiral.

   Oh dear Lord, he said, calm yet despondent. Look at it, he said. I mean just look at it! Have you ever seen anything like it?!?

   No, said the koala—truthfully. And you know, uh . . . it's . . . It's pretty disgusting, actually. So would you mind putting that thing away?

[BabylonHoruv]

I liked this guys blog post about the Mortgage problem and thought I'd share.  REALLY long, but a decent assesment.

http://gonzalolira.blogspot.com/2010/10/second-leg-down-of-americas-death.html#more

The Second Leg Down of America's Death Spiral
I swear to God Almighty: Mortgage Backed Securities are America's Herpes—the gift that keeps on oozing.
 
Last Friday, Bank of America announced that it was suspending all foreclosure proceedings, presumably until further notice. Other banks have already suspended foreclosures in a whole truckload of states. A nationwide moratorium on foreclosures might soon happen—which would be a big deal: Global Financial Crisis, Part II—Longer, Wider and Uncut.
 
"It's oozing from where?"
"Man, you guys are fucked."
But the mainstream media—surprise-surprise—has downplayed the whole shebang. They're throwing terms out there into the ether, but devoid of context or explanation: "Robo-signings", "foreclosure mills", forged signatures, "double booking", MERS—it's confusing as all get-out.
 
So the mainstream media just mentions it casually—"and in other news tonight . . ."—like it's no big deal: A couple-three lines, lots of complicated, unfamiliar terms, an attitude like it's a brouhaha over paperwork of all things!—and then zappo-presto-change-o!: They're showing video footage of a cute koala nursing in the arms of a San Diego zookeeper.
 
But even the koalas know that something awful is heading America's way. Smart little critters, they're heading for the treetops, to get away from this mess.
 
So what the hell is going on with the God forsaken mortgage mess in the United States?
 
It's got a lot of bells and whistles, but it's basically quite simple: It's all about the fucking Mortgage Backed Securities (MBS). Again.
 
So this is what happened, more or less—the short version:

In the crazed frenzy to get as many mortgages securitized during the Oughts, banks took shortcuts with the paperwork necessary for the Mortgage Backed Securities. The reason was because everyone in the chain of this securitization mania got a little piece of the action—a little slice of the MBS pie in the shape of commissions.
 
So in the name of "improved efficiencies" (and how many horror stories are we finding out, carried out in the name of "improved efficiencies"), banks digitized the mortgage notes—they didn't physically endorse them, like they were supposed to by the various state and Federal laws.
 
Plus—once the wave of foreclosures broke, and the holes in this bureaucratic paperwork became evident and relevant—some of the big law firms handling the foreclosures for the banks started doing some document fabrication and signature forgery, in order to cover up the mistakes—which is definitely illegal.
 
Long story short (since this is the short version): A lot of the foreclosed properties might not have been foreclosed legally. The people evicted might still have a right to their old houses. The new buyers might not actually own the REO's they bought off the banks. The banks could be on the hook for trillions of dollars, and in the sights of literally millions of lawsuits.
 
In short: This could become another massive oozing sore, complete with yellow-green pus drip-drip-dripping out of some unmentionable places on the Body Economic.
 
Now—the long version:
 
Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper—only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage—the note, which is the actual IOU that people sign, promising to pay back the mortgage loan.
 
Before Mortgage Backed Securities, most mortgage loans were issued by the local Savings & Loan. So the note usually didn't go anywhere: It stayed in the offices of the S&L down the street.
 
But once mortgage loan securitization happened, things got sloppy—they got sloppy by the very nature of Mortgage Backed Securities.
 
The whole purpose of MBS's was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with therefore higher rates of return.
 
Therefore, as everyone knows, the loans were "bundled" into REMIC's (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then "sliced & diced"—split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
 
This slicing and dicing created "senior tranches", where the loans would likely be paid in full, if past history of mortgage loan statistics was to be believed. And it also created "junior tranches", where the loans might well default, again according to past history and statistics. (A whole range of tranches were created, of course, but for purposes of this discussion, we can ignore all those countless other variations.)
 
These various tranches were sold to different investors, according to their risk appetite. That's why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
 
But here's the key issue: When an MBS was first created, all the mortgages were pristine—none had defaulted yet, because they were all brand new loans. Statistically, some would default and some others would be paid back in full—but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads—but what will the result be of, say, the 723rd toss specifically? I dunno.
 
Same with mortgages.
 
So in fact, it wasn't that the riskier loans were in junior tranches and the safer mortgage loans were in the senior tranches: Rather, all the loans were in all the tranches, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder take the loss last.
 
But who was the owner of the junior tranche bond and the senior tranche bond? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn't be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
 
Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier MBS tranche?
 
Enter stage right, the famed MERS—the Mortgage Electronic Registration System.
 
MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two, again, I know, I know: Like the chlamydia and the gonorrhea of the financial world—you cure 'em, but they just keep coming back).
 
The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially the operating table where the digitized mortgage notes were sliced and diced and rearranged so as to create the Mortgage Backed Securities. Think of MERS as Dr. Frankenstein's operating table, where the beast got put together.
 
However, legally—and this is the important part—MERS didn't hold any mortgage note: The true owner of the mortgage notes should have been the REMIC's.
 
But the REMIC's didn't own the note either, because of a fluke of the ratings agencies: The REMIC's had to be "bankruptcy remote", in order to get the precious ratings needed to peddle Mortgage Backed Securities to insitutional investors.
 
So somewhere between the REMIC's and the MERS, the chain of title was broken.
 
Now, what does "broken chain of title" mean? Simple: When a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a Mortgage Backed Security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the "chain of title".
 
You can endorse the note as many times as you please—but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically on the note, one after the other.
 
If for whatever reason, any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
 
To repeat: If the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
 
Read that last sentence again, please. Don't worry, I'll wait.
 
You read it again? Good: Now you see the can of worms that's opening up.
 
The broken chain of title wouldn't have been an issue if there hadn't been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn't have bothered to check to see that the paperwork was in order.
 
But as everyone knows, following the housing collapse of 2007–'10-and-counting, there's been a boatload of foreclosures—and foreclosures on a lot of people who weren't sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.
 
These people started contesting their foreclosures and evictions, and so started looking into the chain of title issue . . . and that's when the paperwork became important. So the chain of title became important. So the botched paperwork became a non-trivial issue.
 
Now, the banks had hired "foreclosure mills"—law firms that specialized in foreclosures—in order to handle the massive volume of foreclosures and evictions that occurred because of the Housing Crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
 
Well, hell, whaddaya know—turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby "proving" that the banks had judicial standing to foreclose on a delinquent mortgage. These foreclosure mills might have even forged the loan note itself—
 
—wait, why am I hedging? The foreclosure mills actually, deliberately and categorically faked and falsified documents, in order to expedite these foreclosures and evictions. Yves Smith at naked capitalism, who has been all over this story, put up a price list for this "service" from a company called DocX—yes, a price list for forged documents. Talk about your one-stop shopping!
 
So in other words, a massive fraud was carried out, with the inevitable innocent bystander getting caught up in this fraud: The guy who got foreclosed and evicted from his home in Florida, even though he didn't actually have a mortgage, and in fact owned his house free-and-clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.
 
Now, the reason this all came to light is not because enough people were getting screwed that the banks or the government or someone with power saw what was going on, and decided to put a stop to it—that would have been nice, to see a shining knight in armor, riding on a white horse.
 
But that's not how America works nowadays.
 
No, alarm bells started going off when the title insurance companies started to refuse to insure the title.
 
In every sale, a title insurance company insures that the title is free-and-clear: That the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because—of course—they didn't want to expose themselves to the risk that the chain-of-title had been broken, and that the bank had illegally foreclosed on the previous owner.
 
That's when things started gettin' innerestin': That's when the Attorneys General of various states started snooping around and making noises (elections are coming up, after all).
 
The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem—obviously. Banks that size, with that much exposure to foreclosed properties, don't suspend foreclosures just because they're good corporate citizens who want to do the right thing, with all the paperwork in strict order—they're halting their foreclosures for a reason.
 
The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby—they wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their Master's will by a voice vote—so that there'd be no registry of who had voted for it, and therefore no accountability, the corrupt pricks.)
 
And President Obama's pocket veto of the measure? He had to veto it—if he'd signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as un-Constitutional in short order. (The jug-eared milquetoast didn't even have the gumption to veto it—he pocket vetoed it.)
 
As soon as the White House announced the pocket veto—the very next day!—Bank of America halted all foreclosures, nationwide.
 
Why do you think that happened? Because the banks are screwed—again. By the same fucking thing as the last time—the fucking Mortgage Backed Securities!
 
The reason the banks are fucked again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
 
And it won't matter if a particular case—or even most cases—were on the up-and-up: It won't matter if most of the foreclosures and evictions were truly because the homeowner failed to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages come into question.
 
People still haven't figured out what this all means—but I'll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that's basically a license to halt payments right the fuck now. That's basically a license to tell the banks to fuck off.
 
What are the banks gonna do—try to foreclose and then evict you? Show me the paper, motherfucker, will be all you need to say.
 
This is a major, major crisis. This makes Lehman's bankruptcy look like a spring rain, compared to this hurricane. And if this isn't handled right—and handled right quick, in the next couple of weeks on the outside—this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don't need to pay their debts?
 
If this isn't handled right, then this will be the second leg down, in the American Death Spiral.

   Oh dear Lord, he said, calm yet despondent. Look at it, he said. I mean just look at it! Have you ever seen anything like it?!?

   No, said the koala—truthfully. And you know, uh . . . it's . . . It's pretty disgusting, actually. So would you mind putting that thing away?

So, my father in law has a mortgage which he owes a lot of money on.  Might there be a way to find out if it has been improperly transferred?

[Cain]

The banks are, apparently, starting a fightback against this attempt to stop foreclosure.  They're deeply, deeply worried about the whole business of this, as they've been massively irresponsible in actually keeping track of the ownership of mortgages they sold.  Banks are starting to lean on Judges ruling against them, and giving money to the opposition politicians who do not support the judges (no link on this, relying on personal sources).

The markets are now apparently starting to punish them over this.  

We also know now the "moratoriums" on foreclosure are largely bullshit.

[Disco Pickle]

So, my father in law has a mortgage which he owes a lot of money on.  Might there be a way to find out if it has been improperly transferred?

My sister, who works for BoA, said the most damning thing you can do to hold off a foreclosure is tell them to "produce the note"

You cannot be foreclosed on unless they can prove ownership of the house.  I know a few people doing this right now.

they got traded so many times a lot of the time no one knows where the damn note is.

It could help give him time to catch up.

[BabylonHoruv]

So, my father in law has a mortgage which he owes a lot of money on.  Might there be a way to find out if it has been improperly transferred?

My sister, who works for BoA, said the most damning thing you can do to hold off a foreclosure is tell them to "produce the note"

You cannot be foreclosed on unless they can prove ownership of the house.  I know a few people doing this right now.

they got traded so many times a lot of the time no one knows where the damn note is.

It could help give him time to catch up.

There's no danger of foreclosure at the moment.  He's terribly responsible about it all.