Suggested in an article in The San Francisco Chronicle in December 2007, attorney Sean Olender, that the real reason for the subprime bailout measures by the U.S. Treasury Department is proposed, was not to keep strapped borrowers in their homes as much as to prevent a flood of any action against the banks. The plan then on the table was an interest rate freeze on a limited number of subprime loans. Olender wrote:
"The only goal for the freeze to prevent the owner of mortgages that supportsSecurities, forcing many of them foreigners, from suing U.S. banks and to buy back worthless mortgage securities at face value - now almost 10 times their market worth. The ticking time bomb in the U.S. banking system does not reset subprime rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the bonds at par, if fraud in the origination process.
"... The catastrophic consequences of bondForcing investors to buy back loans at face value authors have discussed the current media. The loans in question dwarf the available capital at the largest U.S. banks combined, and investor actions would raise stunning liability sufficient to mean that even the biggest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC. . . .
"What would be prudent and logical is for the banks that this toxic waste to the buyback and for a saleMany people in jail. If they knew about the fraud, they should buy the bonds back. "1
The thought could send a chill through even the most powerful investment bankers, including Treasury Secretary Henry Paulson himself, who was chairman of Goldman Sachs during the heyday of toxic subprime paper letter from 2004 to 2006. Mortgage fraud was not limited to the representations to lend to borrowers or documents, but in the construction of the banks 'financial products'themselves. Among other design flaws is that securitized mortgage debt has become so complex that the ownership of the underlying security was often lost in the shuffle and without a rightful owner, there is no one with standing to foreclose. That the procedural requirements problem prompted Federal District Judge Christopher Boyko to rule in October 2007 that the German bank had no authority, on 14 Mortgage loans held in trust for a pool of mortgage-backed securities holders.2 If foreclose was greatNumber of defaulting homeowners should lacked their foreclosures on the ground that the plaintiffs had sued to contest, trillions of dollars in mortgage-backed securities (MBS) could be at risk. Irate securities holders might then respond with litigation that could indeed threaten the existence of the banking Goliaths.
STATES LEAD THE CHARGE
Bring MBS investors with the power of the most important processes are state and local governments, which hold substantial parts of theirAssets in MBS and similar investments. A harbinger of things to come was a complaint to 1 Filed in February 2008, sold by the state of Massachusetts against investment bank Merrill Lynch, for fraud and deception for about $ 14 million worth of subprime securities to the City of Springfield. The complaint about the sale of "certain esoteric financial instruments known as collateralized debt obligations (concentrated )..., The CDOs were unsuitable for the city and that within monthsafter the sale, became illiquid and lost almost all their value. "3
A month earlier, the city of Baltimore sued Wells Fargo Bank for damages resulting from the subprime debacle, alleging that Wells Fargo had intentionally discriminated in selling high-interest mortgages more frequently to blacks than whites, in violation of federal law law.4
Another innovative suit filed in January 2008 will be published by Cleveland Mayor Frank Jackson against 21 major investment banks, so that theSubprime lending and foreclosure crisis in his city. The suit targeted the investment banks that fed off the mortgage market by buying subprime mortgages from lenders and then "securitized" them and sell them to investors. City officials said they hoped to recover hundreds of millions of dollars in damages from the banks, including lost taxes from devalued property and money demolition of thousands of abandoned houses and catering. The defendants included German bank giantBank, Goldman Sachs, Merrill Lynch, Wells Fargo, Bank of America and Citigroup. They were charged with creating a "public nuisance" by irresponsibly buying and selling of high-interest home loans, which defaults that depleted the city tax base and leftist district to rubble.
"For me, this is nothing more than organized crime and drugs," Jackson told the newspaper the Cleveland Plain Dealer. "It has the same effect as drug activity in neighborhoods. It is a form of organizedCrime, which happens to be legal in many respects. "He added, in a videotaped interview:" This process said: "Surely you do not like this no more for us." 5
The Plain Dealer also interviewed Ohio Attorney General Marc Then, a condition that the trial of some of the investment bank is considering. "There is clearly a wrong," he said, "and the source of Wall Street. I'm glad that some companies have on my hunt."
However, something strange happened on the way to the courthouse. AsNew York Governor Eliot Spitzer, Attorney General, then wound up his post in May 2008 after a sexual harassment investigation in his office.6 Before they were forced to resign, both prosecutors read into the tail of the banks, trying to impose liability for the destructive wave of home foreclosures in their jurisdictions.
But the hits keep on coming. In June 2008 California Attorney General Jerry Brown Countrywide Financial Corporation, the nation suedlargest mortgage lender, for causing thousands of foreclosures by deceptively marketing risky loans to borrowers of credit. Among other things, alleged the 46-page complaint that:
'Viewed' the defendant borrowers nothing more than tools for producing more loans, originating loans with little or no regard for long-term borrowers ability to maintain it and make home ownership ...
"The company routinely ..." Shut one eye 'to deceptive practices by brokers and private loansAgents despite 'numerous complaints from borrowers claiming that they did not understand their loan terms.
"... Underwriters who confirmed information on mortgage applications were 'under pressure ... For processing 60 to 70 loans per day, so careful examination of the financial situation of the borrower and the adequacy of the loan product for them nearly impossible. "
"Countrywide's high-pressure sales environment and compensation system encouraged serial refinancingof Countrywide loans. "7
Similar complaints were filed against Countrywide and CEO of the Illinois and Florida. These suits seek not only damages but cancellation of the loans, creating a potential nightmare for the banks.
An avalanche of class action lawsuits?
Massive class action lawsuits by defrauded borrowers may also in the works. In one case, 2007 in Wisconsin, which is now held in his appeal, U.S. District Judge Lynn Adelman, that Chevy Chase Bank had violated the Truthin Lending Act by hiding the terms of a variable-rate loans, and thousands of other Chevy Chase borrowers could join the plaintiffs a class action on that ground. According to a 30th June 2008 report in Reuters:
"The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers of the bank to cancel, or could force from their loans. This decision was stayed pending an appeal to the 7thU.S. Circuit Court of Appeals that are likely to rule every day.
"The idea of the cancellation charge loans come in a flood of foreclosures has been caught in other districts, an action filed last week by the Illinois attorney general asks a court to waive or Countrywide Financial mortgage under" unfair or deceptive practices caused to be reformed. "
"... The mortgage banking industry already faces pressure from federal and state regulators to reduce the banks' underwriting defendantsStandards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-yield investments. "
Truth in Lending Act (TILA) is a 1968 federal law, consumers against lending fraud by requiring clear disclosure of loan terms and costs to protect. It lets consumers seek rescission or termination of a loan and the return of all interest and fees, if we find a lender to be in violation. The beauty of the Constitution saysCalifornia bankruptcy attorney Cathy Moran, is that it provides for strict liability: the aggrieved borrowers do not have to prove that they personally defrauded or misled, or that he is the real harm. The mere fact that the data contained defective gives them the right to rescind and deprives the lenders of interest. In small sample of Moran's review, at least half of the loans contained violations.8 When TILA class actions found to stand for cancellation of loans availableis based on fraud in the disclosure process, could the result of a flood of class suits against banks all over the country.9
Relocation of BACK TO THE BANKS LOSS
Withdrawal can be a means available, not only for borrowers, but for MBS investors. Many loan sale contracts provide that the lender must withdraw its terms loans that default unusually quickly or that contain errors or fraud. An avalanche of cancellations could be disastrous for the banks. Banks were moving loans from theirBooks and sell them to investors so that many more loans than would otherwise have been allowed under banking regulations. The banks are complex, but for every dollar of shareholder of a bank has on its balance sheet, it should be limited to about $ 10 in the form of loans. The problem for banks is that when the process is reversed, the 10-1 rule can work the others: in one U.S. dollars of bad debt back on books of a bank lending through its ability to reduceFactor of 10 As mentioned in a BBC News story citing Prof. Nouriel Roubini for authority:
"Help prevent [S] ecuritisation to banks to 10:1 The Regulators" rule is the key. To their risky loans have potential buyers will be more attractive, banks used complex financial engineering to re-pack them so they looked super-secure and well paid are more than what offered equivalent super-safe investments. Banks also found ways to get loans from their balance sheets without selling them altogether. It develops bizarreNew financial firms - "Special Investment Vehicles or SIV - in which loans could be held technically and legally not in stock, out of sight and beyond the scope of the rules of regulatory authorities. So, once again, SIVs made room on the balance sheets of banks in to take the credit.
Have "The banks were getting round the rules of regulatory authorities by selling their risky loans, but because so many of the securitized loans were bought by other banks, the losses were still inside the banking system. Loans instead of SIVwere technically on the balance sheets of banks, but if the start value of the loans in SIVs, collapse, the banks that set them in establishing that they are still responsible for them. So losses from investments which might not have the scope of 10:1, the supervisors' rule began to turn, suddenly, up on bank balance sheets.... The problem now facing many of the largest contributors to that, when losses appear on the balance sheets of banks, the regulator typically 10:1 comes into play againTo reduce losses, because a shareholder of the bank capital. "If you have a $ 200 billion loss that reduced your capital by $ 200 billion, you have to credit the [reduction by 10 times as much," Prof. Roubini] explains. "It could be a reduction in the total credit granted to the economy of two trillion U.S. dollars to have." 10
You can also have some very bankrupt banks. The equity of the top 100 U.S. banks stood at 800 billion U.S. dollars at the end of the third quarter of 2007. Banking losses are currently expected that, as with the risemuch as 450 billion U.S. dollars, enough to erase more than half of the banks' capital bases and leave many of them, if insolvent.11-backed debt to flood the courts with viable defenses, their debt and mortgage securities holders had their securities Challenge could be the result even worse.
IMPLEMENTATION OF THE GENIE back in the bottle
So what would happen if the mega-banks with which these irresponsible practices actually went bankrupt? These banks are becoming widely recognized byGuilt, but they expect to be rescued by the Federal Reserve or the taxpayers, because they are "too big to fail." The argument is that if they were allowed to collapse, it would promote the economy. That is the fear, but it's not really true. We need a ready source of credit, so we need banks, but we do not need private banks. It is a little-known, well-hidden, that the banks are not lending their own money or not even the money of their depositors. You actually create the money theygiving and the creation of money is actually a public, not a private function. The Constitution delegates the power to create money to Congress and only Congress.12 For loans, banks are extending credit, and just the right agency for extending "the full confidence and prestige of the United States" means the United States is .
There is more at stake than just the fair treatment of injured homeowners and investors in mortgage-backed securities. Banks and investment houses are nowbrings you the last drop of blood from lending the U.S. government's rating, "borrowing money and unloading worthless paper on the government and taxpayers. When the dust settles, it will be banks, investment brokers and hedge funds for wealthy Investors who want to save. The repossessed will be expropriated, and unless your pension fund has invested in politically well-connected hedge funds, you can probably kiss goodbye, as teachers in Florida already have.
ButBanking genius is a creature of the law and the law can it back into the bottle. The imminent collapse of very large banks, the government was able to obtain the ability to take control of their finances. More than that, it could provide the means to prevent the otherwise unsolvable problems now threatening to destroy our standard of living and our standing in the world. The only solution that will be more than a temporary solution, the power to create money to take away from privateBankers and sends it along to people. So it has been on the whole should be, and how it was in our early history, but we are so used to the banks to private firms, we forget that the public banks of our forebears. The best of the colonial American banking models was developed in the province of Benjamin Franklin of Pennsylvania, where a state-owned bank issued money and lent it to farmers at 5 percent interest. The interest was for the government, rather than backTaxes. In the decades that that system was in operation, the province of Pennsylvania operated without taxes, inflation or debt.
Instead of the established rescue plan for failed banks and send them happily on their way to the Federal Deposit Insurance Corporation (FDIC) must be a close look at books of the banks and the banks put that into insolvent liquidation. The FDIC (unlike the Federal Reserve) is actually a federal agency, and it has the possibility to have in a bank in return forYou exhaust it out, effectively nationalizing it. This is done in Europe with bankrupt banks, and it was conducted in the United States with Continental Illinois, the country's fourth-largest bank when it went bankrupt in the 1990s.
A system of truly "national" banks could issue "the full confidence and prestige of the United States" for public purposes, could also be used, including the financing of infrastructure, sustainable energy development and health care.13 Publicly issued credit to the subprime relieveCrisis. Local governments can use to buy up mortgages in default, compensating the MBS investors, freeing the real estate industry and to public life management. The properties can then be rented back to their occupants at reasonable prices so that people in their homes without the windfall of acquiring a house without paying for it. A program of lease-purchase may also be initiated. The proceeds would be used to repay the loan, Advanced to buy the mortgages, balancing the money supply andPrevent inflation.
Municipal and private SOLUTIONS
While we wait for the federal government, there are also private and local possibilities for relieving the subprime crisis to act. Chris Cook is a British strategic market consultant and the former Compliance Director for the International Petroleum Exchange. He recommends that all parties to pay constituted by the formation of a pool as an LLC (limited liability company), within a partnership framework that brings togetherOccupiers and financiers as co-owners under a neutral custodian. The original owners would pay an affordable rent, and the resulting pool of rentals would be "modularized" (unit interests, similar to a REIT or Real Estate Investment Trust) is divided. Among other advantages over the usual mortgage-backed securities, there would be no loans at interest because the property would be in sole possession of the LLC include. Eliminating interest substantially reduces costs. The former owners would be able tooccupy the property at an affordable rent, with option to buy a stake in it. For banks, the advantage would be that they see the situation return to investors since the risk would have been taken to insure the investment that would have full occupancy by at affordable prices, and for the investors, the advantage of a safe investment with a reliable return.14
Carolyn Betts is an Ohio attorney who served in Washington as a consultant issuers of MBS trusts, which for variousfederal government and represented Resolution Trust Corporation in its auction of defaulted commercial mortgage loans during the last housing crisis. She proposes a squeeze play by the States in the way against the tobacco companies by a consortium of public prosecutors in the 1990s. It notes that given at the end of the year 2007 by at least 20% of the funds by the transfer to the Ohio Public Employees' System (PERS) were in mortgage backed securities andsimilar investments. Ohio, that makes public money a major investor in these mortgage-backed securities. Ohio governments have an interest in that property to be excluded, since foreclosures help destroy local real estate markets, to lower tax revenues and losses on PERS investments and become a burden on the state and local affordable housing systems. A coordinated series of actions brought by state attorneys could eliminate the culpable banker middlemen and the return ofProperties, the ownership and control of local actors.
Andrew Jackson allegedly told Congress in 1829: "If the American people only understood the rank injustice of our money and banking system, there would be a revolution before tomorrow morning." A wave of private actions, class actions and government actions to eliminate harmful practices of banks to serve, could represent a revolution in banking spark back the power to advance "the full confidence and prestige of the United States" in the United States andReturn assets to community ownership and control.
1 Sean Olender, "Mortgage Meltdown," San Francisco Chronicle (December 9, 2007).
2 See Ellen Brown, "The Subprime Trump" webofdebt.com / articles, 26 June 2008.
3 Greg Morcroft, "Massachusetts charges Merrill with fraud," Handelsblatt.com (February 1, 2008).
4 Henry Gomez, Tom Ott, "Cleveland Sues 21 banks over subprime-Mess," The Plain Dealer (Cleveland, January 11, 2008).
5 Ibid.
6 Marc then resignsas Attorney General ", NBC24 (May 14, 2008).
7 E. Scott Reckard, "California Atty. Gen. Jerry Brown Sues Countrywide," Los Angeles Times (June 26, 2008).
8 Cathy Moran, "And the truth (in lending) shall make you free", mortgagelawnetwork.com (June 11, 2008).
9 Gina Keating, "Mortgage Decision could shock U.S. banking industry," Financial Times Germany (June 30, 2008).
10 Michael Robinson, "City of debt shows U.S. housing woe," BBC News (December 30, 2007).
11 "is the latestLiquidity crunch in remission? "NakedCapitalism (26 March 2008).
12 See E. Brown, "Dollar Deception: How Banks Secretly Create Money," webofdebt.com / articles (July 3, 2007).
13 Further information on these funds solution and why it does not inflate prices, see E. Brown, "Waking Up on Minnesota Bridge: How is the infrastructure crisis without selling out our national resources to solve," ibid. (August 4, 2007).
14 Chris Cook, "Peak credit and a flight to simplicity," Asia Times (April 3,2008).
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