Jim Sinclair of MineSet.com reports that James Galbraith, author of The Geithner Plan Won’t Work, was on Bloomberg TV this morning and noted the mortgage collateral fraud that I have been warning about for many years.
“Galbraith alluded to a fractional reserve approach towards mortgage securitization by intent of error whereby the same mortgages were securitized more than one time.”
What this means is that the bank portfolios are full of mortgages for which there is no real house. So toxic assets is a misnomer. Yes, there is toxicity. However, there are no real assets. There are, however, civil and criminal liabilities. Which means that if these toxic assets were auctioned off in an open process, the price would be set by how much the people with civil and criminal liability would pay to buy back the files to protect themselves.
But, wait, is this why the Federal Reserve, Congress and the Treasury are funding bailouts? Are the liable parties simply using borrowed money to have all the documents destroyed?
Another hint that there are bogus securities in the market is the price. Counterfeiting drives the price to zero as nobody wants to buy worthless paper. Selling counterfeit bonds and having control of the market so that they can be repurchased and erased from history still leaves a huge profit if these counterfeit securities were sold at the peak and are being repurchased at heavy discounts. The money has already been collected. It is only a matter of covering, getting these bogus securities out of the market.
Every decision on how to handle the crisis while Paulson was at the Treasury, seemed to be made to protect the short interest and the side bets on CDS. If there were an audit of all the paper written on residential mortgages, it should match up to 12 trillion dollars as that is the residential U.S. mortgage debt. The subprime paper is much smaller. The origination fraud was a very small portion of the total and wouldn’t be enough to freeze the entire market. Securitization fraud, or counterfeiting of bonds would be enough to freeze the market, especially if the major securitizers recognized what was going on and were participating in the counterfeiting. Why buy paper if you knew it was worthless.. and you knew it was worthless because you were counterfeiting it yourself?
Jan:
PMI is not a company, it is the abbreviation for private mortgage insurance. The rate (monthly premium) depends upon the size of the loan — a $40 monthly premium is fairly low, and would probably apply to a loan of less than $100,000. No, the lender cannot double-dip as you describe, because in order to make a claim the lender would have to foreclose on the property. The lender suffers no insured loss if the property is refinanced.
Has anyone heard of PMI insurance company? They charge a buyer $40/month and up to protect the lender on 80% of the loan, if the buyer defaults. I wonder if banks are also collecting, from that insurance company and then turning around and getting the person to refinance? That would be a sneeky way to double dip! Catherine what do you know about that company? And what does HUD have to do with these foreclosures on private homes? A friend of mine was told to call HUD for help?
How they getting connected with this game? Just curious…if its more gov dipping.
Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk
When the Solution to the Financial Crisis becomes the Cause
by F. William Engdahl
Global Research, March 30, 2009
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US Treasury Secretary Tim Geithner has unveiled his long-awaited plan to put the US banking system back in order. In doing so, he has refused to tell the ‘dirty little secret’ of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction.
The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model. Yet, one might say, won’t this eventually help the problem by getting the banks back to health?
Not the way the Obama Administration is proceeding. In defending his plan on US TV recently, Geithner, a protégé of Henry Kissinger who previously was CEO of the New York Federal Reserve Bank, argued that his intent was ‘not to sustain weak banks at the expense of strong.’ Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system.
The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps.
In 2000 the Clinton Administration then-Treasury Secretary was a man named Larry Summers. Summers had just been promoted from No. 2 under Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin left Washington to take up the post of Vice Chairman of Citigroup. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced President Bill Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some $5 billion in lobbying for these changes after 1998 was likely not lost on Clinton.
One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms like Merrill Lynch or Goldman Sachs. A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction’), be free from Government regulation.
At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary. Today, Geithner’s old boss, Larry Summers, is President Obama’s chief economic adviser, as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.
The ‘Dirty Little Secret’
What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.
Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.
The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.
After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.
The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.
This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?
This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.
This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up. This is a situation that is deliberately being allowed to run out of (responsible Government) control by Treasury Secretary Geithner, Summers and ultimately the President, whether or not he has taken the time to grasp what is at stake.
Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize’ the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.
F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order; and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca). His newest book, Full Spectrum Dominance: Totalitarian Democracy in the New World Order (Third Millennium Press) is due out at end of April. He may be reached through his website, http://www.engdahl.oilgeopolitics.net.
F. William Engdahl is a frequent contributor to Global Research. Global Research Articles by F. William Engdahl
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catherine,
Thanks for that. Looks Like I have a lot of reading to do.
Independent Mind:
Excellent comments.
I just had someone report to me that they are not looking at the basic assets because they are engaged in another “pump and dump.” They will use government loans to run up the price again. They can make another fortune if it works, and stick it back to the government if it does not.
These are “trading sardines” not real sardines. They could not care less about what happens on the ground. They will keep that going to the extent they want to with more government money.
What they need now is for the average life expectancies to diminish and those who make it to survive on a monthly stipend of $600.
Catherine
Catherine,
I worked in the real estate industry — although not in the publicly funded area — for many years, and have followed news about you for several years.
I am aware of Galbraith’s insistence that the actual loan tapes be examined, prior to any determination of price setting. As soon as I read that, I thought of your claims that some pools of mortgages had been securitized more than once.
Not performing adequate due diligence can often be a sign of fraud, so it is interesting that there have been recent stories about credit analysts being prevented from looking at the underlying documentation related to cash flows from securitized mortgages.
I am not so sure that the goal of potential purhchasers would be to destroy evidence of fraud. As I understand it, in many cases, the original loan documentation cannot be found. Obama’s proposal, as currently structured, certainly gives a potential purchaser an incentive to look the other way, if fraud were to detected, because they will have virtually no downside risk. It’s the taxpayer who will get stuck with most of the tab, not purchasers of toxic assets.
Newby:
For my various comments on why I believe that there is significant collateral fraud behind the CDOs/MBSs, see:
http://www.dunwalke.com
http://www.whereisthemoney.org/S00223_collateral.htm
http://whereisthemoney.org/collateral_II.htm
http://www.dunwalke.com/gideon/q301.pdf
http://solari.com/news/announcements/08-07-07/
http://solari.com/archive/housing_bill/
http://solari.com/archive/missing_money/
http://solari.com/archive/freddie-fannie-penny-stocks/
The only way to price something is with accurate data. Once you have the accurate data about cash flows and collateral values, you need two additional things. You need the people who rent or own the collateral to have income and you need the rule of law. If a country has no income and no law, then the value is $0. And if the collateral is non-existent, the value is $0 as well.
So one way or the other, we appear to be well on our way to creating values of $0, if we were not already there.
Hope these are useful,
Catherine
DITTO!!!!! Whoever believes that this manouver is on the level…well…I have some securitized AAA rated leveraged CDO’s I’ll sell you and you can even determine the value that I’ll eventually repay for them too??!! ( using taxpayer dollars of course ) over and over again. Furhermore, I’ll have the FED contribute and also leverage 20:1 to boot!!! And if that wasn’t enough I’ll even take out a CDS to guarantee the loss…..just incase there is one…Who on earth really believes any of this needs needs a trip to outer space to get his bearings…AS a refresher to the language of a timegone by: “I have a bridge in BrooklynI’ll sell you” and the phrase: “Ponzi Scheme” have been replaced by the new dynamic by the Masters of the Universe to give new meaning to the phrase: “boy was he duped!!!!” and though the brdge episode brings one back to a more gentler time even if it was known as the GREAT DEPRESSION…Waiting on the fireworks in London on April 2nd…should be a doozy…There was a reason that Hank Paulson flipped the script when his October surprise was passed and reversed course; and instead of a TOXIC ASSET sell off gave the major players a $125b bailout in the WH….The citizens will revolt…As i noted in early October 2008, it will take 20 years of $1tr per week to writedown all the derivatives written..and that seems like the plan so far….Since no one has been willing to call the Bush Criminal Crime Family to the carpet for their HIGH CRIMES AND MISDEMEANORS why expect anything different from the current administration concerning the FINANCIAL DEBACLE now???????? We are witnessing the greatest heist and hijacking in written history…they can’t stop now…thank you Catherine for being so undertanding for all these years….once burned, twice shy….
Catherine,
I came accross your blog via Max Keiser’s.
Can you point me in the right direction to get a sense of the value of phantom CDOs/MBSs
Thanks
Catherine et al – have you seen this on the Khan academy – quick 12 minute easy to follow explanation of Geithners’ bailout plan plus towards the end a plausable explanation as to how wall street might use this mechanism as a bait and switch with US taxpayers money
http://www.youtube.com/watch?v=n-arbfLTCtI&feature=channel_page
Of course they are! AND They will never be held to account.
Trillions you say; but who will pay……. or can We pay by pushing Catherine’s RED BUTTON??
brgds
rene