What’s Wrong with the World

No, the government is not required as an explanation for fraud. Human nature does a good explanatory job there quite well. That's why defenders of the free market typically _want_ the government to punish fraud, as a necessary part of the legal backdrop against which free market transactions can take place, and if serious and massive fraud is what was going on here, it should be stopped and punished.

I would point out, however, that the TBTF doctrine is hardly something that any advocate of the free market is bound to support and that, indeed, _that_ expectation does rely on the assumption of government action on a gigantic scale, and government action usually or often involving a spectacular increase in the federal deficit. This not being the first time we've had that particular exchange of ideas.

"Bond markets, among other menaces, remain perplexed by this uncertain risk."

So the bond markets are menance now, Paul?

Meanwhile, I read this from that left-wing website you link to:

So when people complain about borrowers getting free houses, they act as if it’s the borrower’s fault. That’s the wrong place to assign blame. No one is saying the borrower does not owe somebody money. And the borrowers aren’t seeking a free house; they usually came to this juncture because they thought their records had overcharges in them or they thought they were a good candidate for a mod but could not get the servicer to consider their case. It’s the originators and packagers who put themselves in the situation of not being able to enforce the debt, not the borrower.

The apparent widespread abandonment of the practice of crossing the ts and dotting the is potentially devastating. If the failure to convey notes properly is as widespread as we have been told by various observers (and Abigail Field’s sample confirms), the mortgage industry has a monstrous problem on its hands. As the Michigan ruling suggests, at a minimum, notes not transferred properly are actually owned by someone earlier in the securitization chain. But no one wants to admit that; it means the investors were lied to and hold paper that does not have clear legal rights to foreclose and that originatorrs, servicers and trustees have committed massive securities fraud.

Boo, hoo. So here is what is really going on. Folks who don't want to lose their homes (which I can understand) have sued and a clever lawyer figured out that not all the "i"s were dotted and "t"s were crossed when these trusts were prepared (thanks I'm sure to the greed of all the characters involved in the mortgage industry, no doubt about it -- and thanks to the greed of all those folks who wanted cheaper mortgages or bigger and better homes). Anyway, lefty websites have been making a big deal about these cases for awhile but I don't think they will amount to much. Even if the plaintiffs' win, all this means is more hassle and work for the banks who will have to figure out who originated the loan and actually now own the home. What we need to do is reach a bottom in the housing market quickly and let people (again quickly) modify their loans to the extent they can, to keep them solvent. No question in my mind the big boys in the mortgage industry are not playing ball with respect to helping out on these necessary mods and I would push them with regs to force their hand (I figure we've already foolishly nationalized the mortgage industry, so we might as well implement a policy that helps struggling homeowners -- then I would break up Freddie and Fannie and sell them off).

There is something a little odd about the implication in the article linked that somehow the borrowers have _nothing to do with this_ when, in fact, it is a suit by the borrowers to avoid foreclosure that is resulting in these rulings. I mean, the impression given is that the borrowers aren't trying to "get out of" anything, yet the very existence of the lawsuit seems to indicate that they are, precisely, trying to get out of something. That struck me as odd to begin with, and I thank Jeff for drawing our attention to it.

At the end of the day, banks and investors were playing games with the roofs over people's heads. Their behavior was unacceptable, so borrowers are completely in their rights to have the books thrown at the banks.

From my own admittedly rather ignorant perspective, there is something of a clash between a concept like "failure to dot i'a and cross t's" and such ringing phrases and terms as "frauds and sophistries," "massive securities fraud" and "connivance." The latter convey deliberate, premeditated deception, and that on a grand scale. The former conveys something more like carelessness, plausibly major carelessness and hence plausibly blameworthy but probably not worthy of being whip-driven as a Usurious Thief and Grinder of the Faces of the Poor.

Hence my remaining "if" in my first comment concerning the attribution of "fraud" in such cases. The further information that it has generally been the left thundering denunciations of these securities as some sort of crafty, deliberate, evil, and fraudulent malfeasance just raises still more my desire to emphasize that "if."

Jeff, There is a reason why New York (and other states) trust laws are so strict. While you might want to familiarize yourself with our economic history, those reasons are demonstrated here - sloppiness leads to fraud on many levels.

The banks didn't have lawyers who could read the law and oversee its application? No, only the plaintiffs have access to white shoe law firms, ROTFL.

Lydia, the problem isn't the deficit from TARP (there basically wasn't one). It was the failure to punish those responsible. The problem with TBTF is that it socializes losses and privatizes profit. Referencing a "free market" as if such a thing ecer had or could exist is naive.

Financial sector capture of the policy making organs in our government under the Bush and Obama administrations has resulted in huge payoffs for them and bupkis for the rest of us. The failure of the HAMP program is typical.

Meanwhile, Joe Walsh (R,Ill) is on MSNBC lying about the deficit and calling for tax cuts while this house of cards is crumbling around him.

The banks didn't have lawyers who could read the law and oversee its application?

That's a question interesting in itself, and on which I'd be happy to have info. Why is there any ambiguity as to whether the court would apply the New York Trust rule? Is this because there was some sort of genuine ambiguity as to whether the trusts were created under that law? If there was no ambiguity, then why _didn't_ the banks' lawyers tell them to dot all the i's, etc.? Amazing, isn't it, to find all those lawyers from all those banks just being so darned dumb and sloppy? If there was an ambiguity as to whether those strict requirements applied, then why is this supposed to be such a cut and dried matter that we can throw around such ringing denunciations?

Would I be right in guessing that this might be a matter of common law rather than statutory law and that there was a genuine question as to whether, under common law, courts would consider the New York trust rules to apply to these transactions?

"Bond markets, among other menaces, remain perplexed by this uncertain risk."

So the bond markets are menance now, Paul?

No, the uncertainty of legal documentation is, among other risks, a menace to the stability of bond markets.

What we need to do is reach a bottom in the housing market quickly and let people (again quickly) modify their loans to the extent they can, to keep them solvent. No question in my mind the big boys in the mortgage industry are not playing ball with respect to helping out on these necessary mods and I would push them with regs to force their hand.

I agree with that, Jeff S.

Lydia, what's going on here is that there was enormous demand for bond-like instruments and originators were under pressure to produce more and more mortgages faster and faster. These were sold off to banks so rapidly that establishing a legally-defensible document trail was hardly a matter of attentive concern. The interest was all on the side of pushing these things out the door as quickly as possible.

A borrower is perfectly within his rights to insist that an legally-demonstrable lender actually exists to claim the debt.

what's going on here is that there was enormous demand for bond-like instruments and originators were under pressure to produce more and more mortgages faster and faster. These were sold off to banks so rapidly that establishing a legally-defensible document trail was hardly a matter of attentive concern. The interest was all on the side of pushing these things out the door as quickly as possible.

Okay, I get that as far as it goes. It still seems a puzzlement as to why, if such a legally demonstrable paper trail (according to the New York criteria) was going to be required, the buyers of the bond-like instruments didn't realize that this would become a problem later on. Where were _their_ lawyers, if this was legally clearly a problem?

Second, this sounds in this most recent comment like haste negligence, but not like "connivance" or "massive securities fraud." Perhaps a sufficient level of negligence can, in the legal world, get you in trouble for securities fraud. I wouldn't know. In that case, of course, my first question above seems even more puzzling. But furthermore, I'm sorry, but the image one gets both from your main post, Paul, and from the site you link is of a bunch of comic-book bankster villains sitting about rubbing their hands and plotting to defraud other people. And that's not what I'm hearing upon further questioning.

A borrower is perfectly within his rights to insist that an legally-demonstrable lender actually exists to claim the debt.

Legally, sure, it could be a useful loophole and there would be nothing illegal about taking advantage. If that's all one means by "perfectly within his rights"... Morally, since he knows he _did_ borrow the money, it seems to me there may be more than one person taking advantage of the system here. After all, it doesn't sound really terribly honorable to say, "I took out that loan, and now I can get out of being foreclosed on when I don't pay it back, because the original lender re-sold the mortgage and the various people involved didn't document the various transfers according to a set of criteria that, it later turned out, a court would apply! How convenient!"

It does rather surprise me to see, in such a situation, commentator jvangeld casting the borrower as the poor victim!

"Would I be right in guessing that this might be a matter of common law rather than statutory law and that there was a genuine question as to whether, under common law, courts would consider the New York trust rules to apply to these transactions?"

No, you wouldn't. New York has a statute under which these trusts must operate. Read any contracts you might have laying around. All of them will likely have designated a body of law under which they will be interpreted. It may be the laws of a given state. Once we are outside of public policy concerns it can be the laws of another country - say Saudi Arabia for those folks more comfortable with Sharia.

As Paul points out this was about getting as much as they could, the law be damned.

Two points here:

`1. Both Larry Summers (at Jackson Hole) and Alan Greenspan (before Congress) express dismay at the lack of risk supervision in these firms. One of the assumptions behind financial deregulation over the previous 30 years was that senior management would manage risk that their firms might persist. What everyone did was focus on their annual bonuses.

That is what is why we can't have a free market in the sense you use the term and a corporate business environment - Management's interests inevitably will conflict with stockholders.

The same shortsightedness that got us into the foreclosure mess got the banks into the trust mess. The huge number of foreclosures peaked the interest of folks with the skill sets to put this together. As long as there was a foreclosure here, another there, things were pretty cut and dried. The increase in foreclosures led to many courts becoming foreclosure mills (e.g. Florida). Folks said wait a minute this can't be right and here we are.

"A borrower is perfectly within his rights to insist that an legally-demonstrable lender actually exists to claim the debt."

Absolutely. The banks are so screwed up they have actually foreclosed on homes on which they had no loans, not to mention their despicable use of the HAMP program.

The demand of the boom years was sufficient to blind a lot of people to the mess they were making. Remember the revelation that even the mortgage-bond short-sellers were being treated as new mortgage-bond investors? These were the so-called synthetic mortgage-backed securities. I mean, how crazy does that sound now? A trader with a nose for the coming crash calls his broker to short the mortgage bond market; and other securitizers treat this trade as a new investor in the mortgage bond market, packing his trade (and others like it) into new mortgage-backed securities.

If Wall Street could let transparent sophistry like that pass without negative comment, it is not hard to imagine it overlooking documentary trails on actual mortgages.

One of the assumptions behind financial deregulation over the previous 30 years was that senior management would manage risk that their firms might persist. What everyone did was focus on their annual bonuses.

Wait a minute! Now you're _really_ confusing me, Al. If this was the result of _deregulation_, then what they did wasn't illegal! I mean, right? Am I just being too logical about this. Or are you just sort of bringing up deregulation in passing even though it doesn't apply here?

Paul,

Thanks for the clarification -- I was reading too fast and now I understand the point you were making w/r/t the bond markets.

I'm glad we can come to agreement on some policy ideas, even if we don't always agree on who's to blame for our current mess :-)

"Am I just being too logical about this."

No, not at all.

1. Since the Justice Dept. has declined to pursue the matter we won't ever have a complete picture of the criminality that came with all this but my spidy sense tells me that there was a lot.

2. You are conflating state and federal law. Trusts are formed under the laws of what ever state is chosen. Federal banking and securities law and regulation covers things like the amount and quality of reserves, activities, exchanges, margin, etc.

3. I mentioned deregulation because it was the deregulation of the financial sector since the 1980s as well as the failure to keep up with new financial products that gave us this little depression.

I sense that you have probably bought into the Fannie.Freddy/CRA just-so story on the causes of the crash. This isn't what happened; those problems are real but a sideshow. We had a financial sector crash because these firms were supposed to originate and distribute these MBS. They originated them but they didn't distribute all of them. As they were rated AAA they used them as collateral on highly leveraged activities. When it became apparent that the AAA securities underlying all that leverage were not AAA, everyone panicked and sought safety. That is why the interest rates on government debt have stayed so low (that there is a short term deficit and debt crisis is another set of lies).

I would ask you to reflect on what seems to me to be a very strange way of viewing moral hazard. In order to have a loan, we need both a lender and a borrower. Your focus seems to be on the borrower.

A lender who makes a no-doc mortgage loan is as dishonest as much as a borrower who takes on a loan he knows he can't service. The lender wants a quick profit by flipping the loan and the borrower figures real estate can only go up so he expects to live on appreciation.

I believe that moral hazard should be as distributed along the food chain as is possible with those towards the top taking the biggest hit - they, after all, made the most from these schemes.

3. I mentioned deregulation because it was the deregulation of the financial sector since the 1980s as well as the failure to keep up with new financial products that gave us this little depression.

Okay, that explains that. In other words, you dragged it in. Deregulation is not the reason that the banks did this insufficiently documented stuff.

2. You are conflating state and federal law. Trusts are formed under the laws of what ever state is chosen. Federal banking and securities law and regulation covers things like the amount and quality of reserves, activities, exchanges, margin, etc.

I'm not confusing them that I know of. It's the story Paul linked that accuses the banks of "massive securities fraud." And you are the one who brought up deregulation. I'm just following all of you to the best of my ability.

I believe that moral hazard should be as distributed along the food chain as is possible with those towards the top taking the biggest hit - they, after all, made the most from these schemes.

Ah, well, I disagree. There's nothing inherent about making more out of the deal that makes the person more punishable or wicked. But then, I'm not a liberal. In any event, my discussion of moral hazard and the borrower concerned Paul's use of the phrase "perfectly within his rights." If you know you took the mortgage, and, like all the people who did pay their mortgages, you know to whom you're ostensibly supposed to be paying it, then pay it. Don't look for a loophole to get out of it. Taking advantage of the loophole is only "perfectly within your rights" on a rather narrow legalistic perspective which Paul would reject in other contexts.

The banks are so screwed up they have actually foreclosed on homes on which they had no loans,

That, obviously, is outrageous and is not the sort of situation we appear to be discussing in the case at issue in the main post. I, along with all red-blooded Americans, cheered the story that went around Facebook the other day about the homeowner who paid cash for his house and later got to "foreclose" on a bank after it messed its records up so badly that it tried to foreclose on him by mistake!

More later but a quick example on de and under regulation. Dodd- Frank requires mortgage lenders to keep a 5% interest in mortgages that they have made. They are exempt from this requirement if the loan conforms to strict requirements (20%down and payment not to exceed 28% of income). Had this regulation been in place several years ago there would have been no bubble, few bad loans, few foreclosures, and hence no present situation.

The fraud Paul posted about is a symptom not a cause. Folks MAKING bad loans and passing them on like hot potatoes is the cause.

As with public officials lying, it wil shock you to learn that there is a lot of chicanery in the real estate business and contracting in general. I talked to a friend of mine yesterday and she related that the buyers of the house in the SFV that she sold for 450K tried to do a short sale with their brother in law. It almost happened until the lender found out about the relationship.

"we won't ever have a complete picture of the criminality that came with all this but my spidy sense tells me that there was a lot."

I agree with this. But how come you get to introduce second or third order ambiguities like intuition? Your habit of introducing principles and concepts that you refuse to defend is a peculiar one indeed. Perhaps it is that morbid and idle curiosity to which you confessed. I myself suspect that it is that despite your protests you are very much interested in such second and third-order matters; that, far from denying morality, you are possessed by a very strong and even inquisitorial sort of morality, but just cannot be bothered to defend it philosophically.

Lydia, "deregulation" as Al uses it refers to the effort undertaken by both parties, with varying emphases, beginning in the late 70s through the following 30 years, to free the financial industry from those constraints which had hitherto fettered it. In my judgment a heavy share of blame for the mess we're in lies at the feet of these policies. However, I differ with Al in that I include the government encouragement and facilitation of reckless lending for houses to folks unworthy of credit in my analysis as part of the phenomenon Al calls "deregulation." What you and I differ one (so far as I can tell) is that I also insist on including some authentic efforts of private enterprise as such in the picture as well. I indict capitalism along with welfarism.

if you know you took the mortgage, and, like all the people who did pay their mortgages, you know to whom you're ostensibly supposed to be paying it, then pay it.

It's all in the nuance contained in "ostensibly." Thousands of these originators are now long out of business. The banks have repeated demonstrated their willingness to be ruthless, as the now very numerous instances of folks wrongly foreclosed evidence; the banks themselves, in many cases, can only hold the assets because the taxpayers are, real sly-like, propping them up. There are ample grounds in many cases for saying the mortgage is functionally a nullity.

May I add two legal quibbles?

1. To prove "fraud" here, we would have to establish that the banks knowingly and intentionally deceived with regard to a material fact. On first glance, it seems unlikely we could establish fraud since it's unlikely that the banks intentionally did not negotiate the mortgage notes from one holder to the next correctly, since negotiation of an instrument is an easy enough process. What's easier to prove here is gross negligence: the banks did not teach their employees how to negotiate an instrument and didn't exercise proper oversight.

But, given the extent of the sloppiness throughout the banking industry (e.g., robo-signers), it seems quite likely that this was really a case of recklessness: the banks were knowingly cutting corners and didn't care about the consequences.

Fraud likely occurred, then, when the banks transferred these notes to other banks or to the trusts. When one person negotiates a note to another he guarantees that all prior negotiations were valid--that is, he's guaranteeing that his title to the note is good. But, if the bank itself was sloppy in its paperwork and knew that other banks were sloppy, there was no way that the bank could guarantee title in good faith.

2. For all those who are inclined to dismiss this as simply forgetting to "dot their i's and cross their t's" and are wondering how we can build a case of fraud out of what seems like a mere legal technicality, it's important to know what happens when a note is negotiated correctly. If the note has been negotiated correctly to what's known as a "holder in due course" (i.e., someone who paid value in good faith for the note without notice of any problem with the underlying transaction), that holder in due course has the right to enforce the note against the borrower, and the borrower doesn't have many available legal defenses (usually just forgery). So, even if the underlying transaction was fraudulent or there was a material breach of contract by the original lender, the holder in due course is entitled to payment from the borrower. The borrower has to pay up first and try to collect from the original lender later. The holder in due course is in a very powerful position and the the borrower is in a hard spot. Demanding strict compliance with these technicalities protects borrowers from potentially having to eat a loss or lose their property.

my judgment a heavy share of blame for the mess we're in lies at the feet of these policies.

But if is to blame for this _particular_ thing, then it would seem that these activities cannot have been illegal at the time--this negligence and so forth--at least not under federal law. So the accusation of "massive securities fraud" in the linked post (which sounds like a federal crime) can't be correct if this was the result of deregulation. In fact, if it was a result of deregulation, then I'm rather confused as to how a _Michigan_ judge is enforcing _New York_ rules of care. Would that be simply because under Michigan law, despite federal deregulation which gave a different impression, the New York rule applies?

Stephen,

Demanding strict compliance with these technicalities protects borrowers from potentially having to eat a loss or lose their property.

But the borrower was going to have to pay it anyway, right?

I mean, part of what I find odd about all of this is this: Presumably the people who sue in these cases are people who had trouble paying their mortgage and who were going to be foreclosed on. Otherwise they would have just made their payments, and there would be no legal case going on. Presumably that's what the majority of borrowers did, who did not sue. Now, if the bank tried wrongly to foreclose, as in the crazy case I mentioned above--"wrongly," meaning, here, against people who _actually had paid or been paying the mortgage on schedule_ or against people who had never borrowed money--the borrower's simplest legal response would be presumably to show that he'd never taken a mortgage (as in the case I mentioned above) or to show from his records that he had been paying regularly or that he'd paid it off or whatever. It wouldn't be an argument which, if upheld, would mean that the "mortgage was a nullity"--i.e., that he _didn't have to pay_. In all the cases in which there was this negligence and the borrowers paid, the borrowers are legally safe for an entirely different set of reasons. How do borrowers need to be protected by laws showing that the money they borrowed doesn't need to be repaid because someone was careless later on down the chain?

I suppose, thinking about it, I can think of a possible way in which this sort of rule would protect the borrower, even a borrower who was willing and able to pay off his original loan: It would protect him from having more than one entity claim that he owes the money to that entity--thus having demands made that he pay twice. One can imagine scenarios in which negligence in transferring the mortgage could have that result. It would protect him from being told that his records of payment are not relevant because he paid them to the wrong entity.

The borrowers borrowed well past their means to pay. They are not innocent. For decades, Americans believed that their standard of living should increase over time because it should. Since they weren't getting ahead on income, they borrowed. This is a direct result.

The lenders, on the other hand, were sitting upon a vast ocean of real capital, and were given their marching orders to invest it. Normally this isn't a problem, but industry, which is the normal recipient of such capital, doesn't make money anymore. Sure, there was plenty of money going to invest in factories in the PRC, but only a fool would build a factory in the US.

So, what did they do? They stuffed the few industries that weren't social pariahs prone to over-regulation and lawsuits. The Dot-Com bubble is identical in nature to this one, only on a smaller scale.

Now we are stuck with more houses than people to fill them, those who have them are swamped in debt beyond their means to pay, a demographic slide with each passing year, and forty years of imaginary profits exposed for being fictitious, and local, state, and federal governments on the rocks. What's not to love?

Lydia,

I don't know how many homeowners in these cases have legitimate complaints against their banks and how many simply aren't paying. As the linked to website acknowledges, it seems that in most cases some bank has the right to foreclose, it's just not clear which one.

What I meant with #2 is that the situation could arise where homeowners have been making payments for five years to the bank they think is the holder in due course before they stop paying. But, if another banks figures out it's the holder, it can come along and demand payment. Usually, that means that the holder can accelerate the note (demand payment in full early) and then foreclose if necessary (assuming the mortgage has been assigned properly). The homeowners, naturally, will say "We paid for five years--shouldn't that be good for something?" But, because of the holder in due course rule, the homeowners will still have to pay in full to the holder in due course, first. They can then sue the bank they were paying to recover those five years of payments--but, as you can imagine, that can be a real headache, even if it's fairly clear that they should win.

Besides, the reason these hypothetical homeowners stopped making mortgage payments was because was money was tight. They can't afford to give up five years' worth of mortgage payments and wait for a year or more to get repaid. Perhaps these homeowners shouldn't have bought the house in the first place, perhaps they should have known that they couldn't afford this debt--but there's no need to kick them while they're down, and that's why these legal technicalities are supposed to be enforced.

Stephen, it sounds like you're describing exactly what I just thought of--people's being told that they were paying to the wrong lender, not the real lender, and hence having a demand made that they pay a second time. Moreover, under normal circumstances, if you're making your mortgage payments on schedule, the bank won't (can't?) foreclose. So you seem to be describing a circumstance where both an unpredictable foreclosure occurs on people who have been faithfully paying their mortgage on schedule and also where they are told that they need to pay a second time. Obviously, that's a major problem and something borrowers need to be protected against. I completely agree. Do you have reason to believe that anything like this has happened to the people whose lawsuits are the subject of the main post?

It might be of profit to all to read the decision. It lays things out clearly and should get everyone on the same page. The case didn't hinge on NY trust law BTW, that is sort of a bonus that raises a ball of worms for the banks. It hinged on a Michigan law referenced below.

http://www.scribd.com/doc/57463545/Hendricks-v-U-S-Bank-BofA

Relevant Michigan law,

http://www.legislature.mi.gov/%28S%28t4ybdzrgyvnp3l5544weaa45%29%29/mileg.aspx?page=GetObject&objectname=mcl-600-3204

Here is one of the controlling cases cited by the judge in Hendricks,

"Similarly, we reject plaintiffs’ reliance on Jackson v Mortgage Electronic Registration Sys, Inc, 770 NW2d 487 (Minn, 2009). Jackson, a Minnesota case, is inapplicable because it interprets a statute that is substantially different from MCL 600.3204. The statute at issue in Jackson specifically permits foreclosure by advertisement if “a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party’s successors and assigns.” Id. at 491. Thus, the Minnesota statute specifically provides for foreclosure by advertisement by entities that stand in the exact position that MERS does here.
Indeed, the Minnesota statute is “frequently called ‘the MERS statute.’” Id. at 491. Our statute, MCL 600.3204(1)(d) makes no references to nominees or agents. Rather, it requires that the party foreclosing be either the mortgage servicer or have an ownership interest in the indebtedness. The Jackson statute also revolves around the mortgage, unlike MCL 600.3204(1)(d), which uses the term indebtedness, which, as discussed previously, is a reference to the note, not the mortgage. Thus, Jackson has no application to the case at bar. Moreover, the
Minnesota statute demonstrates that if our Legislature had intended to allow MERS to foreclose by advertisement, they could readily have passed a statute including language like that included in Minnesota."

http://coa.courts.mi.gov/documents/opinions/final/coa/20110421_c290248_94_290248.opn.pdf

It might be of profit to all to read the decision. It lays things out clearly and should get everyone on the same page. The case didn't hinge on NY trust law BTW, that is sort of a bonus that raises a ball of worms for the banks. It hinged on a Michigan law referenced below.

http://www.scribd.com/doc/57463545/Hendricks-v-U-S-Bank-BofA

Relevant Michigan law,

http://www.legislature.mi.gov/%28S%28t4ybdzrgyvnp3l5544weaa45%29%29/mileg.aspx?page=GetObject&objectname=mcl-600-3204

Here is one of the controlling cases cited by the judge in Hendricks,

"Similarly, we reject plaintiffs’ reliance on Jackson v Mortgage Electronic Registration Sys, Inc, 770 NW2d 487 (Minn, 2009). Jackson, a Minnesota case, is inapplicable because it interprets a statute that is substantially different from MCL 600.3204. The statute at issue in Jackson specifically permits foreclosure by advertisement if “a mortgage is granted to a mortgagee as nominee or agent for a third party identified in the mortgage, and the third party’s successors and assigns.” Id. at 491. Thus, the Minnesota statute specifically provides for foreclosure by advertisement by entities that stand in the exact position that MERS does here.
Indeed, the Minnesota statute is “frequently called ‘the MERS statute.’” Id. at 491. Our statute, MCL 600.3204(1)(d) makes no references to nominees or agents. Rather, it requires that the party foreclosing be either the mortgage servicer or have an ownership interest in the indebtedness. The Jackson statute also revolves around the mortgage, unlike MCL 600.3204(1)(d), which uses the term indebtedness, which, as discussed previously, is a reference to the note, not the mortgage. Thus, Jackson has no application to the case at bar. Moreover, the
Minnesota statute demonstrates that if our Legislature had intended to allow MERS to foreclose by advertisement, they could readily have passed a statute including language like that included in Minnesota."

http://coa.courts.mi.gov/documents/opinions/final/coa/20110421_c290248_94_290248.opn.pdf

al, are you drunk?

Lydia,

borrower is perfectly within his rights to insist that an legally-demonstrable lender actually exists to claim the debt.

Legally, sure, it could be a useful loophole and there would be nothing illegal about taking advantage. If that's all one means by "perfectly within his rights"... Morally, since he knows he _did_ borrow the money, it seems to me there may be more than one person taking advantage of the system here. After all, it doesn't sound really terribly honorable to say, "I took out that loan, and now I can get out of being foreclosed on when I don't pay it back, because the original lender re-sold the mortgage and the various people involved didn't document the various transfers according to a set of criteria that, it later turned out, a court would apply! How convenient!"

I'm going to have side with Al on this one (tentatively, since I've not read the entire thread). This is about the rule of law. If the banks and/or their trusts have done anything wrong on their end, they must be punished even if that means complete asset-stripping of a large swath of their mortgage portfolios. I'm not sure if you're away of this, but part of the TBTF issue is that these banks have also been caught in shenanigans such as laundering literally billions of dollars of Latin American drug cartel funds and were not prosecuted because of the ramifications of applying federal money laundering statutes to such fragile institutions on such a scale.

There is certainly a culture of deep corruption and lawlessness in the banking sector. Failing to do the right thing here will invariably become one of the points in our history where our descendants will be able to say that America was radically changed.

As for the moral angle, I think you are ignoring the role the law plays in the moral obligation. If you have upheld your end, and they illegally transfer your loan and thus void it, that is on them. They, not you, are the party that has defrauded the investor. You have no moral obligation to the investors because the civil law says that your agreement no longer exists by virtue of their actions.

So would you support going to court to try to get the entire mortgage voided (thus, I guess, getting the house for free from here on out) on one of these even if a) you were perfectly capable of making the mortgage payments, b) no one was trying to make you pay twice, and c) you could just have continued paying as one would usually do to the (one and only) bank or organization that was claiming to hold your mortgage? Just for the principle of the thing or something?

Thanks Mike but there appears to be a misunderstanding as to the status of the debt. Voiding the foreclosure doesn't void the note that the homeowner signed. It remains in effect as it should.

The trusts can possibly be voided, the underlying loans can't be.

There is a larger issue here. Although some would seem to dispute it, i assert that it is obvious that any rational concept of justice requires all those who freely participated in the creation of a problem play a role in its resolution. Further, that the allocation of the costs be in direct proportion to prior accrued benefits.

We have a huge overhang of private debt that is preventing a proper recovery from the recession. Until private balance sheets recover sufficiently we are going to have unacceptably high unemployment and all the evils that follow from that including problematic deficits at the local and national level.

The Banks are standing firm in refusing to take their well earned haircut. One of the benefits of the threat to unwind thses trusts is the pressure it puts on financial institutions to cease being a roadblock.

The best solution is perhaps for the Fed or F&F to acquire all of mortgage debt in the nation and renegotiate the terms.

"I differ with Al in that I include the government encouragement and facilitation of reckless lending for houses to folks unworthy of credit in my analysis as part of the phenomenon Al calls "deregulation."

Paul, I don't include that element in my analysis because it wasn't a factor in the financial crisis. That has been demonstrated many times.

http://www.slate.com/id/2278243/

To the extent that it constitutes a separate problem, it should, of course, be dealt with.

What did happen is that we ran some rather clean social experiments from the 1970s on. Some were partially successful and one was a complete failure.

Deregulation was partially successful. It worked in some areas but was a spectacular failure with the financial sector.

"There is certainly a culture of deep corruption and lawlessness in the banking sector."

We may call this the "at your feet or at your throat" nature of some aspects of the economy. These areas need to be treated as utilities - staid, boring ventures with modest, predictable profitability. As with health care, market theories break down.

There is another factor. A certain number of folks are going to be criminally inclined. Those of limited intelligence or unfortunate circumstances will rob liquor stores, those of greater ability and more fortunate circumstances who have JDs, MBAs, or PhDs in physics will go into finance unless regulation limits the field's inherently criminal possibilities.

We learned this in California a few years ago with power generation. When the full story eventually came out, the power shortages were shown to be artificially created by energy traders in order to increase profit.

The other spectacular failure, of course, was the Bush tax cuts which provided neither growth nor employment while creating a long term debt crisis.

Mortgage contracts can be modified either by mutual agreement between the parties or by law. An example of the latter would be the abrogation of the gold clauses that all mortgage contracts formerly had before the U.S. went off the gold standard in the early 1930s. It still remains that no one is going to get a free house.

So would you support going to court to try to get the entire mortgage voided (thus, I guess, getting the house for free from here on out) on one of these even if a) you were perfectly capable of making the mortgage payments, b) no one was trying to make you pay twice, and c) you could just have continued paying as one would usually do to the (one and only) bank or organization that was claiming to hold your mortgage? Just for the principle of the thing or something?

Absolutely, especially in this day and age of TBTF where there are nearly two separate legal codes (one for the elite, one for everyone else from the poor to the non-elite upper class). In response to your points:

a) Your duty to make the payments is contingent upon the legal agreement. If the other party has broken the terms or voided the agreement by acting contrary to the law, your agreement is null and void unless you magnanimously decide to forgive them. There's nothing about the behavior of the banking sector that warrants such forgiveness, given the shenanigans in which they've engaged (again, such as behavior that is ridiculously felonious such as the drug money laundering which got Wachovia into trouble).

b) I don't see why this is relevant.

c) It's not a matter of claims, but a matter of whether or not the bank actually is the lawful holder of the mortgage.

Contra Al's point, part of the problem we have here is that it is as much about the debt itself as the foreclosure in many cases as the banks quite frequently destroyed the actual paperwork for the mortgage which could legally prove that they owned it. Their practice was simple: "transfer to MERS, shred the documents."

If you make your payments to a company that isn't the one who the law firmly recognizes as the one capable of taking the lien off your mortgage, the law literally regards you as nothing more than a sucker.

For example with response to "part C"

Suppose I agree to let a repairman fix $5,000 worth of damage to my house. Part of our contract stipulates that he can put a lien on my house. However, he then shreds the original copy of the contract where we both signed our names.

How is the bank to know that he didn't fabricate the terms of the loan without some copy that shows we both granted assent to that particular set of terms?

Such is the place many banks find themselves today.

How is the bank to know that he didn't fabricate the terms of the loan without some copy that shows we both granted assent to that particular set of terms?

Because I kept a copy, too? I certainly should have done so, just as a matter of keeping things orderly.

It seems to me that the biggest worry with these negligent transfers is what Stephen brought up above: If I dutifully and faithfully pay to entity A, to which I believe I owe my mortgage, and then entity B comes along and says, "Oops, you should have been paying to us all along, now you have to pay to us as well," then I'm being asked to pay double. And it certainly seems that that can arise if some sort of transfer of the loan has taken place that was poorly documented so that I've been allegedly paying to the "wrong" entity. Now _that's_ a serious problem I can dig.

But the impression I get here is that we're talking about umpteen gazillion mortgages, _most_ of which were transferred without proper documentation, but where nonetheless (luckily for the borrower) nothing of that kind happens. The borrower pays quietly along and he's done, or he refinances or whatever, and everything just goes in a normal fashion. No second entity comes up telling him he was a sucker to pay to the first entity and that now he owes all the money again. It seems to me that to void all these gazillions of mortgages is a huge step. Surely there should be some way to protect the borrower from the possibly disastrous consequences--the demand that he pay multiple times--of poorly documented transfers, to say to the banks, "Go and sin no more," but not to void some huge number of past mortgages that are meanwhile quietly being paid in a normal and orderly fashion. Yet it's the latter result that the people in the linked article almost seem to be _hoping_ for.

Lydia,

Even so, there's another factor: the companies defrauded by the mortgage-backed securities. Since the companies that actually provide the MBSes don't hold a legal claim to the mortgage, the investors cannot do anything other than fume impotently at the homeowners. That leaves the banks in their crosshairs. Already, at least one multi-billion dollar lawsuit has been filed. If successful, it'll probably be what pushes our financial system off the cliff. Every retirement fund in the US ripped off by these parties will file suit.

A thought about double payment being demanded.

The transferer presumably gave the note to the transferee for value. The transferee is owed an indorsement to perfect his status as holder in due course but it seems to me that an attempt by the transferer to enforce a note which he transferred for value might create some problems for him.

One thing is for sure, lawyers will remain employed.

That the complexities of the mortgage market, exaggerated by the supererogatory wizardy of the finance quants, do not find the least association in our estimate of what went down, with the liberalization of mortgage credit from top to bottom, in a word its deregulation -- why, this is (to repeat) a point of difference between Al and me.

i assert that it is obvious that any rational concept of justice requires all those who freely participated in the creation of a problem play a role in its resolution.

Last week he offers intuition; intuition very vague but nonetheless committed to something serious indeed: treason. Now he presents rational justice. But gives us this justice as a concept outside of that which it judges, the material world. He gives us binding obligation. He gives us a whole transcendent economy of rewards and punishments (backed, albeit by nothing but an admitted assertion)!

Folks, Al is lecturing on theology. The Most Right Reverend Professor of Divine Science Al. That's what he's doing here.

Yet will never credit for a moment that other men have other theologies, and that these opinions, too, will be subject to judgment by forces above our material world.

On the subject of banking, I rather enjoy and endorse Al's preaching. These are the good old-fashioned sermons, prairie sermons like Leftism of Dust Bowl, and the guy sure does have a knack for this burlesque. Most of the rest are tiresome, however: above all that clownish one we hear once in awhile that "THESE SERMONS ARE NOT SERMONS," and "you can keep your third-order illusions while OBEYING MINE."

The greatness of the parody is that Al appears to truly believe his policy preferences are innocent of theological content.

Lydia,

Hypothetically, this would solve the issue in a way amenable to the public and without creating a great redistribution of wealth.

1. Have Congress pass a law declaring that the factors involved may not be reviewed by the federal courts under any circumstances. Congress has this authority under the Constitution. They should make it clear that the federal courts will be barred, by law, from granting any hearing to a bank, investor or homeowner that goes beyond state law to redress their grievances.

2. Each state should then pass a law resetting the title chain to the current owner. Anyone dispossessed of their home through bank fraud would have no right of appeal against the current owner, only the bank. The same law would also reset the claim to the mortgage to the institution which had received the last three payments in good faith from the title holder.

3. Each state would then pass laws making it now possible to instantly pierce the corporate veil to go after all executives who participated in the mortgage-backed security fraud personally.

4. Have the US Department of Justice pursue whatever charges against the banks necessary ranging from RICO where appropriate (Wachovia, for example), to personally going after the bank executives over their bonuses on the grounds that they are proceeds from criminal activity (defrauding the banks via false valuation of their mortgage asset portfolios).

Mike T, do you have a link or two about this Wachovia and the drug money?

defrauding the banks via false valuation of their mortgage asset portfolios

Well, once again, as Stephen noted above, that sort of prosecution would require a pretty high degree of intent and a distinction from even gross negligence. I tend to agree with such a mens rea requirement in this type of case. But I would imagine there are ways of punishing even gross negligence qua gross negligence--again, at the state level.

Paul,

Take your pick from these. MSM and blog alike. It's a huge scandal.

Well, once again, as Stephen noted above, that sort of prosecution would require a pretty high degree of intent and a distinction from even gross negligence. I tend to agree with such a mens rea requirement in this type of case. But I would imagine there are ways of punishing even gross negligence qua gross negligence--again, at the state level.

How about this for a mens rea. I, Mr. Bank Executive, say House X is worth $800k. The comps for the house in the MLS are for about $300k. When I make my case for my bonus, I try to convince the individuals responsible for paying me that they should ignore the $500k delta between the price on our paper and what the market says the house is worth so I can get my bonus.

Admittedly, it's possible that a contract may have said that bonus is based on the raw value of the mortgages irrespective of the value of the houses backing the mortgages. However, that's unlikely. Part of the scandal comes from the fact that the federal government changed its accounting standards requirements for about 2 years to permit the banks to avoid mark-to-market as that would cause a lot of turmoil. The even more unsavory side of that bargain was that avoiding mark-to-market ensured that the banksters could claim that their portfolios were worth pre-crash levels when they were substantially lower, thus enabling their bonuses.

How about this for a mens rea. I, Mr. Bank Executive, say House X is worth $800k. The comps for the house in the MLS are for about $300k. When I make my case for my bonus, I try to convince the individuals responsible for paying me that they should ignore the $500k delta between the price on our paper and what the market says the house is worth so I can get my bonus.

Mike, this seems a rather different situation from the one discussed in the main post, the one about which the linked post alleges "massive securities fraud." In the situation discussed in the main post, as far as I can understand it, the alleged "fraud" concerned the fact that some sort of "bundles" of mortgage assets were being sold, but the mortgages had not been transferred with proper and careful protocols from the original lender to the "bundles," so in a precise legal sense the "bundles" didn't actually contain the assets they purportedly contained. But as Stephen pointed out, without intent to defraud in these cases, they are cases of negligence, perhaps gross negligence, rather than fraud.

Mike, this seems a rather different situation from the one discussed in the main post, the one about which the linked post alleges "massive securities fraud." In the situation discussed in the main post, as far as I can understand it, the alleged "fraud" concerned the fact that some sort of "bundles" of mortgage assets were being sold, but the mortgages had not been transferred with proper and careful protocols from the original lender to the "bundles," so in a precise legal sense the "bundles" didn't actually contain the assets they purportedly contained. But as Stephen pointed out, without intent to defraud in these cases, they are cases of negligence, perhaps gross negligence, rather than fraud.

It is part of the overall pattern. I would think that a skilled prosecutor could put the two together to show that the person was clearly either trying to pass something off as something he knows it isn't or is so incompetent that it would strain credulity that he could be highly placed in such a firm.

Frankly, I don't get why you are so hesitant to bring the hammer of the law down on them. There is nothing ambiguous about title transfer statutes. You handle the title according to the precise method the law provides or you don't do it at all. Period. This is like saying someone who makes a verbal agreement to buy a house, pays good money for it and then gets screwed is a victim of a "misunderstanding." He may be guilty of an act of fraud, but he's not a party to a legal contract--real estate cannot be transferred without a written contract that meets the state's requirements.

**Likewise, what the banks frequently did aren't technicalities. They're violations of the laws governing titles, loans and liens.

Frankly, I don't get why you are so hesitant to bring the hammer of the law down on them.

I suppose because the sheer scope of the problem as alleged in the linked post and because of the relatively small number of cases in which this rule has been applied, I'm still having trouble really believing that this was known to be outright illegal and was nevertheless done more or less across the board. The recklessness in that case seems to go far beyond recklessness concerning consequences to others and to involve recklessness about consequences to oneself. So the "selfish wicked bankster" model doesn't seem like a terribly good explanation. Everyone was just sorta kinda _hoping_ that, for no particular reason, none of the courts would apply unambiguous laws?

Moreover, something about the near chops-licking at the linked post about the vast and negative consequences that enforcing the criteria _now_ will have on the economy, combined with the fact that simply nullifying all those mortgages _sounds_ like giving everybody houses for free, combined with the fact that my buddy Jeff S. characterized the linked site as "lefty," makes me a little suspicious as to whether there is some unpleasant shadenfreude going on here rather than an actual desire to minimize damage.

Everyone was just sorta kinda _hoping_ that, for no particular reason, none of the courts would apply unambiguous laws?

Wall Street operates under the assumption that laws are for the little people.
http://en.wikipedia.org/wiki/Late-2000s_financial_crisis#Weak_and_fraudulent_underwriting_practice

I suppose because the sheer scope of the problem as alleged in the linked post and because of the relatively small number of cases in which this rule has been applied, I'm still having trouble really believing that this was known to be outright illegal and was nevertheless done more or less across the board.

I don't think it's possible, unless you are an intern or extremely junior, to work in an industry so dependent on the law to operate your basic business and be so ignorant of how the law works.

The recklessness in that case seems to go far beyond recklessness concerning consequences to others and to involve recklessness about consequences to oneself. So the "selfish wicked bankster" model doesn't seem like a terribly good explanation.

You're assuming that they have consequences to pay. The banking institutions are paying the price for their employees' and executives' actions. Like any corporate structure, it's the institution which bears the brunt of the individual malfeasance. Meanwhile, those who shafted the public and the banks while working for the banks got their multi-million dollar bonuses already.

Moreover, something about the near chops-licking at the linked post about the vast and negative consequences that enforcing the criteria _now_ will have on the economy, combined with the fact that simply nullifying all those mortgages _sounds_ like giving everybody houses for free, combined with the fact that my buddy Jeff S. characterized the linked site as "lefty," makes me a little suspicious as to whether there is some unpleasant shadenfreude going on here rather than an actual desire to minimize damage.

That depends on whether you think libertarians like Vox Day and Karl Denninger are "lefties" or not. They've written countless articles about what the rule of law actually demands and what the banks want the government to help them avoid. If the banks broke the law and nullified the mortgage, then the law must be upheld even if that means giving someone a "free house." Why should the banks be allowed to get away with what they've done? Why shouldn't the government bring down the hammer in the most ruthless way it can on those who made it happen, just like they did with the S&L scam?

The plain and simple fact is that these aren't "technicalities." If you screwed up in an equivalent fashion, the banks would quite cheerfully asset strip you in court. If you did a private transfer as unethically as they did, the new owner of your house would own you and your kids in court like it was 1850.

Intent isn't necessarily an element of civil fraud. The statute of limitations has likely run on many of these instruments anyway.

The problem of the bonuses wasn't at the level of the origination of the loan, it was higher on the food chain. The folks who bundled these mortgages into various securities through the trusts were supposed to distribute them. It turns out that they retained too many of them on their books (recall that they were rated AAA) and leveraged them at 30 - 1 or so. The transactions thus enabled were marked to market and that was the basis for the outrageous bonuses Wall Street firms paid out.

Mike, we can't prosecute a person for an act that wasn't illegal at the time he performed it unless it is somehow ongoing (which may be the case with some of these securities).

"combined with the fact that simply nullifying all those mortgages _sounds_ like giving everybody houses for free, combined...

For the fiftieth or so time, the Michigan court didn't nullify the mortgage, it voided a foreclosure on advertisement. The foreclosure can still takes place if the rules are followed.

There isn't a problem for those who took out the loans or who own the MBSs as long as the payments are made. The trusts hold the notes so even if the indorsements are missing, if the last holder in due course cashed the check, he no longer has a valid claim on the homeowner's payments. What is screwed up is the enforcement process should there be a default.

The validity of the trusts under which the various bundled securities were created is a separate matter involving the sponsor of the trusts and the investors and has nothing to do with the homeowner. The investors thought they were buying AAA instruments secured by a lien on residential real estate. Instead they may have tranches on unsecured notes. Paul is correct re: "the lawyers", lots of opportunity here.

"with the fact that my buddy Jeff S. characterized the linked site as "lefty,"

A perfect example of the closing of the conservative mind. This reminds me of the folks who got seduced by Communism in the 1930's and slavishly followed every twist, turn, and shift in the party line. It should be possible for a person to read a blog and make their own judgments.

"That the complexities of the mortgage market, exaggerated by the supererogatory wizardy of the finance quants, do not find the least association in our estimate of what went down, with the liberalization of mortgage credit from top to bottom, in a word its deregulation -- why, this is (to repeat) a point of difference between Al and me."

This is one reason why I find philosophy to be mostly useless; the more skilled one becomes and the more intelligent one is , the more likely one is to engage in sophistry in the defense on positions that, in the end, depend on more on wiring then objective analysis.

You insist on conflating the financial crisis with factors that may in themselves be problematic but which had nothing to do with the bubble and crash. Had the loans been accurately rated and leverage contained, every single one of the loans on which you focus could have gone belly up to no great harm.

A far larger problem was folks who already owned homes taking advantage of unsustainable appreciation in order to use their homes as ATMs in order to support a standard of living to which they felt entitled.

Even then, had regulation kept up with innovation especially in the areas of shadow banking, capitalization, and disclosure, we wouldn't have had a financial crisis.

"http://modeledbehavior.com/2010/08/27/fannie-freddie-acquitted/

"The plain and simple fact is that these aren't "technicalities." If you screwed up in an equivalent fashion, the banks would quite cheerfully asset strip you in court."

Of course they would and that is as it should be. What you are encountering Mike is the deference to class that comes with being a conservative. The law, like taxes, is for the little people; those who have should get more as that is their due.

The foreclosure can still takes place if the rules are followed.

You mean if they go back now and get all the ducks in a row as far as a clear chain of transfer, they can still foreclose? Is that the deal? Sort of making it all right after the fact?

Of course they would and that is as it should be. What you are encountering Mike is the deference to class that comes with being a conservative. The law, like taxes, is for the little people; those who have should get more as that is their due.

There is a place for deference to class, but it is not in the application of the law. I find that frequently I'm stuck between those who want to defer to the rich and those who want to excuse the bad behavior of the poor.

You mean if they go back now and get all the ducks in a row as far as a clear chain of transfer, they can still foreclose? Is that the deal? Sort of making it all right after the fact?

Arguably, if the original holder on the note can prove to the court's full satisfaction that they still meet the requirements it would apply. On the other hand, if they're the party which transferred the mortgage inappropriately to the trust, it gives the MBS investors someone to sue.

A few interesting articles:

http://market-ticker.org/akcs-www?post=178151

http://market-ticker.org/akcs-www?post=168698

" . . . the deference to class that comes with being a conservative. The law, like taxes, is for the little people; those who have should get more as that is their due."

Or perhaps the attention to class that comes from being a liberal? It is a question of finding a point between extremes. Conservatives allow for paying attention to the fact that in many cases it makes sense to treat producers in society as different from those who aren't to allow the former to employ the latter. Liberal's class consciousness sees these folks as a wealthy class as if a person who founds a company that becomes successful is simply a member of a wealthy class, and a deep pocket to be plundered.

Lydia, as I read the Michigan law they were precluded by doing a foreclosure by advertisement because under Michigan law MERS (the holder of the mortgage) doesn't have a security interest but the home owner also signed a note on which the homeowner is in default. The holder of the note can go to court and get a judgment. If the sponsor of the trust didn't indorse the note over to the trust we may have a ball of snakes but the courts will work it out.

The mortgage itself is a lien. Having the note and the lien in the same hands and having them recorded and in order complicates things when forming a trust but simplifies them when foreclosing. In these foreclosures the banks took the upside when they split the documents up but want the courts to eliminate the downside inherent in that same action.

This is from Saurman,

"The separation of the note from the mortgage in order to speed the sale of mortgage debt without having to deal with all the “paper work” of mortgage transfers appears to be the sole
reason for MERS’ existence. The flip side of separating the note from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action rather than allowing
foreclosure by advertisement. To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgage based debt, those lenders that participated were entitled to reap those benefits. However, it is no less true that, to the degree that this separation created risks and potential costs, those same lenders must be responsible for absorbing the costs."

(linked above)

If the "fact" was the initial foreclosure, the wrong procedures were followed.

"Liberal's class consciousness sees these folks as a wealthy class as if a person who founds a company that becomes successful is simply a member of a wealthy class, and a deep pocket to be plundered."

People who actually create something useful deserve to reap the rewards and pay their fair share to the society that provided the infrastructure that contributed to their success.

If one considers the share of our national wealth that accrues to the financial sector, it become clear that much of that wealth is from rent-seeking and outright looting. It is entirely reasonable for that same society to put that sector back in its appropriate place.

Saurman seems almost to be saying that nothing strictly speaking _illegal_ was done in the creation of the trust. Certainly I see nothing there that would justify prosecution for fraud or anything of the kind. "To the degree there were expediencies and potential economic benefits in separating the mortgagee from the noteholder so as to speed the sale of mortgage based debt, those lenders that participated were entitled to reap those benefits."

(Btw, Al, you yourself questioned Mike's enthusiasm for prosecutions, yet when I do so this is apparently supposed to be my class snobbery?)

Saurman's point appears to be rather that it's going to be more difficult, though possible, to foreclose at this point, and that that's as it should be. Things were made easier at the beginning but in virtue of that very fact are made more complicated here at the end when there is a default by the borrower.

If one considers the share of our national wealth that accrues to the financial sector, it become clear that much of that wealth is from rent-seeking and outright looting. It is entirely reasonable for that same society to put that sector back in its appropriate place.

Okay, but you've changed the story now. My comments were about your generalization, which you either believe or you don't: " . . . the deference to class that comes with being a conservative. The law, like taxes, is for the little people; those who have should get more as that is their due." These comments apply equally do anyone that has generated wealth, and that is consistent with a liberal philosophy that is highly class-conscious.

"'The law, like taxes, is for the little people; those who have should get more as that is their due.'"

I was sorta riffing on two statements by Warren Buffett,

that his secretary pays a higher rate than he does and his observation that there is a class war and his class is winning,

and Leona Helmsley's response, prior to her conviction for tax evasion, when it was observed that "You must pay a lot of taxes", responded, "We don't pay taxes. Only the little people pay taxes."

It wasn't meant as a comprehensive, philosophically rigorous statement - these are mostly useless anyway - but as a generally realistic assessment. i picked on the financial sector as they produce little of value relative to their share of the economy - they suck up capital and talent and set them to evil tasks. If you want I'll happily allow that few if any top American executives actually earn their outsize salaries.

Demonstrating my point on conservatives, class, and deference is this statement, "These comments apply equally do anyone that has generated wealth, and that is consistent with a liberal philosophy that is highly class-conscious."

Why do you assume that all of these folks have actually "generated wealth" as opposed to collected rents or even engaged in fraud? No one "earns", in today's dollars, more than 10 million or so dollars a year and I'm being generous.

It is possible to truly generate wealth and long term capital appreciation is the proper mode of compensation. If ones wealth is based on things like marking to market and carried interest one is likely a drone who is of little or no value.

The left has long realized this; "class consciousness" in this sense is a feature of a realistic and rational world view not a bug.

"(Btw, Al, you yourself questioned Mike's enthusiasm for prosecutions, yet when I do so this is apparently supposed to be my class snobbery?)"I'm not question Mikes enthusiasm as the constitutionality and productivity of some of his proposals.

On the other hand, I thought I detected a certain bias on your part against the debtor.

Very interesting....

http://market-ticker.org/akcs-www?singlepost=2594976

Seems the NCUA is now suing two of the large banks for fraud over their shenanigans.