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'this Is The Biggest Fraud In The History Of The Capital Markets'

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

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

EK: And how much danger are the banks themselves in?

JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one.

EK: My understanding is that this now pits the banks against the investors they sold these products too. The investors are going to court to argue that the products were flawed and the banks need to take them back.

JT: Many investors now are waking up to the fact that they were defrauded. Even sophisticated investors. If you did your due diligence but material information was withheld, you can recover. It’ll be a case-by-by-case basis.

EK: Given that our financial system is still fragile, isn’t that a disaster for the economy? Will credit freeze again?

JT: I disagree. In order to make the financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.

The lawyers will be licking their lips.

On top of the foreclosure fiasco we have this as well.

Still I'm sure it's all contained and nobody did anything wrong..

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http://market-ticker.org/akcs-www?post=168629

The "Nothingburger" Defense Gets Destroyed

Or more than destroyed.

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

Now you getting it folks?

This is NOT a "minor clerical error."

It is NOT correctable at this point in time.

These securities are FATALLY DEFECTIVE. The parties with the legal duty to check these facts did not do so.

It gets worse.

Most people don't understand that these securities were (and are) typically "sold forward."

That is, the bank doesn't take its own money, loan it to homebuyers, and then take the notes and securitize them, selling the pieces to recover its money.

No, what happened then (and still does today) is that these MBS are sold first and filled after!

That is, a pension fund calls up Vampire Squid Bank and says "I need $100 million of MBS that pay a 5% coupon."

Vampire Squid Bank takes the $100 million dollars and then proceeds to securitize loans.

But in doing so it took the $100 million on a prospective pooling and servicing agreement in which they agreed to provide loans of a certain credit quality and specification to the buyer.

So it's much worse than "we didn't know." It's "we took the money, then we build the security and didn't look, even though we told you we would."

There's no fix for this without something like an RTC structure. You have to put these loans back on the securitizers, and let them (if they can) stick them back on the originators.

If this blows up the big banks (and it will) then use Dodd-Frank's "Resolution Authority" and take them into receivership and resolve them.

I've been pounding the table on this for three years. Everyone wants to make this sound "complex." It's not, as Janet described. It's actually quite simple - the investors were swindled. Period.

Just like they were in the 1990s by the exact same scam, but in a different sector.

Dennigers take on it.

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Just like the S&L crisis of the 1980s, the real estate securitization of the 1920's, etc, etc.

The banks just keep on playin' the hits.

Sadly, Tavakoli has pointed out fraud after fraud (just like Bill Black) but the authorities are not listening.

As Max Keiser said, "1000 bankers imprisoned during the S&L Crisis, how many have been jailed during this one? Nada."

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

The lawyers will be licking their lips.

On top of the foreclosure fiasco we have this as well.

Still I'm sure it's all contained and nobody did anything wrong..

Though this may soon be eclipsed in a few years by the US government promise to pay its bond holders back in the same dollar that it borrowed.

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Sadly, Tavakoli has pointed out fraud after fraud (just like Bill Black) but the authorities culprits are not listening.

Apologies for the creative editing, but I think it gets the point across better.

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The interesting question is at what point does the need to preserve the illusion of adherence to legal structure become so pressing as to force them to in reality obey that structure.

To rephrase the old saw; it's not important that justice is done- but it is important to maintain the illusion that justice is done. Upon that illusion their moral legitimacy is founded.

Interesting to speculate how much impact the web is having here- the ability of the elite to maneuver is hampered by their inability to control the information flow.

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The interesting question is at what point does the need to preserve the illusion of adherence to legal structure become so pressing as to force them to in reality obey that structure.

To rephrase the old saw; it's not important that justice is done- but it is important to maintain the illusion that justice is done. Upon that illusion their moral legitimacy is founded.

Interesting to speculate how much impact the web is having here- the ability of the elite to maneuver is hampered by their inability to control the information flow.

A very intriguing question.

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

Goebbels

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Ever since fractional reserve banking* was invented there has been fraud and creative ways of manufacturing money in return for no real effort. The poisons have all been lying in the mud for centuries and they are only recently all starting to hatch out.

___________________________

" indebting people with more money than you have to lend

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  • 142 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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