Category Archives: Credit markets

Call Your Attorney General Today to Oppose Big Obama Push to Get Mortgage Settlement Deal Done

We put up a few more stories on the mortgage mess tonight for a reason. It isn’t that we had a sudden explosion of new information on mortgage abuses. It is instead to remind readers that we could turn this blog entirely over to covering mortgage chicanery and not even scratch the surface.

And the latest bit of corrupt behavior is that the Obama administration has a full court press on to push the heinous “multi-state” settlement deal over the line.

Bending the Rule of Law to Help the Banks: Effort to Draft a National Foreclosure Statute Underway

There is a slow moving but nevertheless troubling effort underway to change foreclosure laws across the US. The Uniform Law Commission, the same body that created the Uniform Commercial Code, a model set of laws that sought to harmonize commercial laws in all 50 states, has had two full day public but not well publicized meeting of a “study group” on mortgage foreclosure. Note that it took over a decade to draft the first version of the UCC and a protracted period for it to be implemented by states (most states have adopted the updated version of the UCC, although certain articles of the new version have not been implemented in any states).

Given its august history, one would think the ULC would be above political influences. That would appear to be a naive assumption these days.

Is the “It Takes Forever to Foreclose” Meme a Big Bank Flattering Exaggeration?

A story that has increasingly become a fixture in the mainstream media is “It takes X [surprisingly large seeming number] days to foreclose.” The implications of X being a really big sounding number is of course that it is taken to mean that Deadbeats Are Living Rent Free For An Ungodly Amount of Time. This in turn incenses the respectable sorts that are offended at the idea that irresponsible neighbors are getting a break to which they are not entitled.

The premise behind this reaction is wrong.

More Evidence that JP Morgan Stuck the Knife in MF Global

The death of MF Global and JP Morgan’s role in its demise is starting to look like a beauty contest between Cinderalla’s ugly sisters. As much as most market savvy observers are convinced that there is no explanation for how MF Global made $1.2 billion in customer funds go poof that could exculpate the firm, JP Morgan’s conduct isn’t looking too pretty either.

Zombie Europe

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

One of the major themes that I have been discussing in Europe for a long period of time is the simple failure of logic in which the European periphery is being instructed to push deflationary policy onto their economies, yet at the same time expected to meet their existing, and growing, debt obligations. In the most extreme case this has led to what you now see in Greece, but I don’t think Portugal or Spain are far behind. This failing policy is leading to the ‘zombification’ of nations, in which they can’t grow out off their debts yet aren’t being allowed to fail on them either. Kept alive by an ever-growing lifeline of foreign aid when the real solution is to let the beast die and re-build from the ashes. I think if we compare Iceland to Ireland we are beginning to get a clear picture of the benefits of writing off the debts and starting anew.

As I have also spoken about over the last month or so, what is happening in the real economies of Europe is being replicated in the banking system.

Class Action Lawsuit Alleges JP Morgan Engaged in Systematic Document Fabrication to Move Mortgage Losses from Its Books into Mortgage Backed Securities

To our knowledge, the suit filed by Ernest Michael Bakenie against JP Morgan is the first to accuse a major bank of widespread, systematic residential mortgage documentation and fraud. I don’t have a copy of the filing and am relying on the summary in Courtroom News Service (hat tip Jesse via reader Scott) but it is a doozy. (The case is described as a class action, but has yet to obtain class certification by the court).

We’ve reported repeatedly of widespread evidence of grotesque procedural abuses as servicers and foreclosure mill lawyers try to cover up for the fact that in many cases, mortgage notes were not transferred properly to securitization trusts, and the rigid way these deals were structured makes it impossible to remedy those failures at this juncture. Absent creating a time machine, the only fix is to fabricate documents that make it appear than things were done correctly. We’ve seen (as in in person) obvious forgeries submitted to the court (signatures obviously Photoshop shrunk to fit) and servicer personnel caught perjuring themselves, yet judges are remarkably unwilling to issue a ruling that hinges on finding that the plaintiff filed phony documents.

If this case moves forward, that reticence may change.

So Why Has the IMF Asked for $500 Billion That it Probably Won’t Get?

An odd development today was that Christine Lagarde, the head of the IMF, put forward the idea of having members pony up $500 billion for rescue loans, since the agency said it foresees demand of $1 trillion over the next two years and it has only $387 billion uncommitted. It goes without saying that the most of the anticipated need is in Europe.

There are two puzzling aspects of this story

Greece Poised to Default

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

Another melee won by the ECB overnight with the LTRO once again pushing sub 3 year sovereign auctions into a “happy place”.

#Occupy the SEC Submits Letter on Volcker Rule to House Financial Services Committee Hearing (#OWS)

For those who are fond of depicting Occupy Wall Street as a bunch of hippies with no point of view, counterevidence comes in the letter submitted by the Occupy the SEC subcommittee for a joint subcommittee hearing tomorrow, January 18, of the House Financial Services Committee on the Volcker Rule. The title of the hearing broadcasts that financial professionals are ganging up against the provision: “Examining the Impact of the Volcker Rule on Markets, Businesses, Investors and Job Creation.” The supposed “business” representatives are firm defenders of the financial services uber alles orthodoxy, and there is a noteworthy absence of economists or independent commentators on the broader economic effects. The one non-regulator opponent to the effort to curb the Volcker Rule is Walter Turbeville of Americans for Financial Reform. However, they made the fatal mistake of accepting the banksters’ framing about financial markets liquidity and merely disputed the data submitted.

The letter is well documented and well argued. It goes directly after the financial services industry claim that implementation of a ban on proprietary trading will cause damage by hurting vaunted and mystical “liquidity.” An illustrative extract:

Satyajit Das: Europe’s The Road to Nowhere, Part II – Roadblocks Ahead

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Over the next few months, the Euro-Zone faces a number of challenges including: the implementation of the new arrangements, possible further downgrading of a number of nations, refinancing maturing debt and meeting required economic targets. There will also be complex political and social pressures.

Implementation of the new fiscal compact may not be a fait accompli.

S&P Downgrades Europe Rescue Fund

This site and many others deemed the European rescue fund, the European Financial Stability Fund, to be unworkable (among other things, the device of having troubled countries on the hook to finance their own rescues seemed absurd). But it’s one thing to have informed critics view this contraption with skepticism, quite another for a ratings agency to ding it formally.

US investors can still treat the EFSF as AAA based on Moody’s and Fitch AAA ratings. But who with an operating brain cell would buy bonds that are so clearly exposed to downgrade risk?

Wolf Richter: Greece – Disagreement Everywhere, Rift in the Troika

Austerity measures are taking their daily toll on Greece. Suicides and attempted suicides have jumped by 22.5%. Unemployment rose to 18.2%. Pharmacies are having difficulties obtaining medications. More cuts are coming. If there is no agreement with the bailout Troika, Greece will default in March. But now, even the Troika is in disarray.

Big Defection in Attorney General Mortgage Settlement: 12 States Having Parallel Talks

At least when Penelope was resisting her suitors, it was clear what her objectives were. She was holding out on her belief that her husband Odysseus would return. And the suitors come off like real boors, so maybe she had also decided the single life was a better option than marrying any of them.

By contrast, it seems as if the Obama administration has completely lost the plot in what was formerly called the 50 state attorney general negotiations, and that appears to have fed directly into the news today of meetings of a breakaway group interested in concrete results.

Bank of America Prepares Emergency Plans at Fed Behest, May Need to Amputate on Geographic Basis

As we’ve said repeatedly, despite bank executives braying about the need to be bigger to compete or to gain efficiencies, the evidence runs completely the other way. Every study on bank efficiency in the US has found that once banks hit a certain size level (the most commonly found one seems to be ~$5 billion in assets) banks exhibit a slightly positive cost curve, which means they are more, not less, costly to run. Any economies of scale are probably offset by diseconomies of scope.

So why do bank executives sell and act on a patently phony story? Aside from the fact that doing deals is much more fun than managing a business, the BIG reason is CEO pay is highly correlated with the size of the bank, measured in total assets.

So no one should cry at the prospect that Bank of America might have to shrink to if it continues to be in financial and litigation hot water.

Satyajit Das: Europe’s The Road to Nowhere, Part I – Fiscal Bondage

Yves here. As much as the image of Frau Merkel decked out as a domme is more than my tender sensibilities can take, the metaphor seems to apt for writers like Das to pass it by.

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Financially futile, economically erroneous, politically puzzling and socially irresponsible, the December 2011 European summit was a failure. Only the attending leaders and their acolytes believe otherwise. German Chancellor Angela Merkel’s post-summit homilies about the “long run”, “running a marathon” and “more Europe” rang hollow.