The FDIC And Shadow Inventory
The following is the first in a series we are pursuing on the shadow inventory held by lenders. We start with questions sent to the FDIC.
1. Are there any laws, regulations, or rules governing the length of time that can pass between the mortgagor’s first default and the initiation of the foreclosure process?
2. Are there any laws, regulations, or rules governing the length of time that can pass between commencement and finalization of the foreclosure process?
3. Are there any laws, regulations, or rules governing the length of time that can pass between foreclosing and marketing properties?
4. Are there any laws, regulations, or rules preventing banks from colluding to manipulate the perceived market value of properties they own?
5. Are there any laws, regulations, or rules preventing banks from individually attempting to manipulate the perceived market value of the properties they own?
6. Is it acceptable to the FDIC for banks to stall the foreclosure process on nonperforming assets in an attempt to manipulate financial statements for regulatory purposes?
7. Is it acceptable to the FDIC for banks to stall the foreclosure process on nonperforming assets in an attempt to prevent the properties from coming to market, which would make true supply available to the public
8. Did the TARP money given to banks cause fewer properties to be liquidated/marketed?
9. If banks are purposely keeping properties off the market, then how can consumers know whether or not a house bought today will hold its value? Doesn’t the consumer need to know how many houses are in the pipeline to discern the direction of the market?
10. If consumers are buying houses today that are destined to slowly lose value over time (as the rest of the inventory inevitably comes onto market), then won’t many of these consumers be underwater in the future? Doesn’t this practice actually raise the probability of future foreclosures?
11. Does your agency have a plan to protect consumers and limit future foreclosures by ensuring that banks are not hiding nonperforming assets and accumulating a shadow inventory?
Here is the reply we received from Greg Hernandez with the FDIC Office of Public Affairs.
For questions 1-5: I would suggest you consult the laws of a particular state because the laws vary greatly.
For questions 6 and 7: The FDIC expects banks to follow standard reporting practices and policies.
For question 8: The FDIC has no way of knowing but would not think there would be such a cause and effect.
For questions 9-11: The FDIC does not agree with the premise of these questions. The FDIC tries to protect consumers, and it expects banks to accurately report according to accounting and reporting rules.
For additional information, I would suggest you consult the FDIC’s rule and regulations Web site, which has detailed information.
http://www.fdic.gov/regulations/
From Reuters. “Distressed transactions have a strong negative influence on home prices, according to First American CoreLogic, which noted the lows in prices for 2009 coincided with a peak in bank-owned property sales. The trend is worrisome to economists who have warned that federal home loan modification efforts and foreclosure moratoriums would result in a backlog of homes hitting the market, forcing prices lower and hurting the economy. This ’shadow supply’ late in 2009 was estimated at seven million units by Amherst Securities Group.
This is just the beginning.
The beginning of the end for my generation; greed and hubris.
That’s how I’ve felt for a while.
All we’re going to get is the bill: no worthwhile jobs (once TPTB destroy what remains), heavily rationed healthcare, worthless savings, no retirement, unaffordable and crumbling housing and neighborhoods, etc. Nice!
Do you honestly think “we” will allow all the bad things to happen?
Considering how many people my age consider the bad things “good” (unaffordable houseing, etc.) so long as they “get their’s” I’d say, yes, this will go unchallenged.
What a bunch of trite, BS answers that SOB gave. Clearly he wants nothing to do with you, or anyone asking tough, pertinent questions. I think I’m going to hammer his e-mail tomorrow. In fact, I think everybody here should send at least two or three questions his way, even if they are a bit redundant. A few thousand new e-mails may get the hamster wheels in his head turning.
Its funny to think that back in 2003 you might have given him (FDIC clown) a similar list of questions regarding bank lending practices and their fallacy. He would have given you the same blowoff: “FDIC does not agree with the premise of your questions…Banks are expected to accurately report…”. The banks all just proved to the whole world that they lie for a living, and this ass-clown has the gall to smugly imply that everyone is doing his job and you need not worry about his business. FDIC and bank credibility is ZERO. Zero! Nothing!
The “SOB” gave answers that were in line with standard regulatory policy. They don’t make the laws. They can only look at the industry practices, and look at the regulations based on the laws, and make sure they match up. The real ire should be directed toward Congress, who makes the laws.
That said, telling us to look up the regs is a bit of an insult. Regs take a LONG time — upwards of 5-10 years of research and discussion. TARP is too new to register in the Federal Register. But Hernandez answered the questions as asked, because you asked about current regs.
No doubt Oxide. He’s a cog in the wheel. A public face to the backroom legalese.
Don’t kill Uncle Sam’s messengers. If you don’t like a policy, you might try aiming a little higher than the e-mail address of the guy whose job it is to interface with the public. Unless you just want to b!tch, that is…
Because Greg Hernandez is the media liason, he is the perfect person to contact with comments regarding his statements to the media.
Your Congresscritter may be an even better person with which to follow up.
Even better, if the FDIC is part and parcel to any collusion (the collusion already freely admitted to by Congress and the White House), then I see no reason why their answers shouldn’t be submitted as evidence in any class-action lawsuit.
you’re back!!
Welcome back, Big V.
Hello Big V! Hope that you are doing fine.
Typically I like your posts, but not this one. This guy is exactly the type of person we should be drilling. Anyone on the front lines, representing an organization which is helping to perpetuate the fraud, should be forced to answer the tough questions time and again whether they make the decisions or not.
Hernandez is not lying. If you grilled him he’d probably say the same thing. I have a tiny bit of experience with the regulatory environment (not banking), and this is standard reg line of thought. Ben asked if there are any regs; there probably are not, check the public regs. Ben asked what was “acceptable” to the FDIC; that’s a policy question. Ben asked moral hypotheticals of the FDIC, regs are much more black and white than that.
Question 8 is the only question that would gain traction. I’m not even sure if the FDIC is the place to go for this. More like, Treasury? the Fed? Town Hall meeting?
Thanks Ben; this is your blog, and the completely evasive and dismissive responses on the part of the FDIC Office of Public Affairs, to you directly, suggests to me that the FDIC’s mission is now overwhelmingly political. It perceives itself strictly as a tool in the bag of certain DC politicians; accountable and responsible only to unseen and unnamed authority in the government, and not to the to the public. Whether or not the public’s interest in the banking system and current inventory valuations is being served by the FDIC, is not a priority for the FDIC at present. Keeping their jobs by toeing the party line, is their #1 priority these days.
“…and the completely evasive and dismissive responses on the part of the FDIC Office of Public Affairs, to you directly,…”
I think some of you are getting a bit grandiose here. One guy at the FDIC whose job it is to respond to public inquiries gave a boilerplate response. Is it representative of the entire agency? Maybe… but probably not.
One guy at the FDIC whose job it is to respond to public inquiries gave a boilerplate response.
Not only that, it’s his job to give boilerplate responses, ad infinitum. He doesn’t get paid to express his own opinions, make controversial remarks, or deviate from the script.
So we should make him earn his pay, asking questions ad infinitum.
Correct. Which is why you can bet his response is EXACTLY the official line. What do you do when a public organization, owned by THE PEEPS of the United States, regurgitates some vapid official line and expects YOU to swallow it?
There has got to be some sort of protocol here.
Methinks we express dissatisfaction toward the public figures responsible, and get the word out to people who are currently being USED, so they will hopefully stand up for themselves and join this lawsuit thing we’ve all been waiting for.
Spot on, ET! You need to aim high if you want to bypass myriad thick layers of bureaucracy to get the attention of someone who matters. That guy’s job is to buffer the higher-ups from direct interaction with the public.
Agreed, I would forward the questions and response to Bair — you might get different answers.
“I think some of you are getting a bit grandiose here. One guy at the FDIC whose job it is to respond to public inquiries gave a boilerplate response. Is it representative of the entire agency? Maybe… but probably not.”
You’re right. We should just give the poor guy a pass. I mean, he’s a victim of his position and he has no power. He’s not really a part of the FDIC, right? In fact, nobody should be accountable. We were so misguided over the years, chastising David Lereah for spewing forth talking points for his crooked organization. That poor guy deserves an apology, too. In fact, we should just realize that any individual is just that, ONE PERSON, and not personally responsible for anything, and from here on out not even bother to challenge anyone, right? Let’s save our ire for those who deserve it, hammering people such as Muggy for wanting to buy a house for his kids and so forth.
We should just give the poor guy a pass. I mean, he’s a victim of his position and he has no power. He’s not really a part of the FDIC, right? In fact, nobody should be accountable.
The point is that this guy doesn’t have the real answers, nor would he be empowered to give them if he did.
Sure, you can hold his feet to the fire, but his job is to be a placid bureaucratic voice offering non-answers and evasions no matter what. That’s what he’s paid to do all day, every day. A FOIA request is much more likely to unearth answers than any back-and-forth with a public affairs officer.
IMO, the Freedom of Information Act was enacted to distract people from using methods that actually WORK to unearth government misdeeds. Why go through the expense of trying to figure out which documents to request, when you already know the organization in question will simply deny your request, force you to appeal the denial, and redact 50% of anything you get? Furthermore, who’s to say said organization actually DOCUMENTED their premeditated shenanigans anyway? Much better to lean on these hatmunches through public means and civil lawsuits. That’s what our system was designed for.
Why go through the expense of trying to figure out which documents to request, when you already know the organization in question will simply deny your request, force you to appeal the denial, and redact 50% of anything you get? Furthermore, who’s to say said organization actually DOCUMENTED their premeditated shenanigans anyway?
What you’re saying does have some merit, certainly — especially when dealing with national security issues or shadowy Cheneyesque figures who never intended to follow the law.
But FIOA requests do tend to reveal a surprising amount of (useful) information, if only because of the built-in bureaucratic need to send flurries of memos, write turgid reports, and cover one’s arse.
“Sure, you can hold his feet to the fire, but his job is to be a placid bureaucratic voice offering non-answers and evasions no matter what. That’s what he’s paid to do all day, every day. A FOIA request is much more likely to unearth answers than any back-and-forth with a public affairs officer.”
Excellent! So I trust that you’ll now vote for small government, because you’re admitting government waste?
Or we can say everyone in some way or another was complicit in the scheme, stop wasting time trying to place blame and move on. Even those that didn’t play the game, knew plenty that did and turned a blind eye. I want to see a realistic plan that will fix what’s wrong. I mean a practical plan that considers we can’t have hoards of people living on the streets. Sometimes, what we think should happen morally, just can’t work in reality in this magnitude. I just want to see some innovative ideas from someone, somewhere instead of incessant whining, complaining and blaming, or detached delusional thinking. That’s my rant and I’m sticking to it.
Shredder and delete button, anyone? Like any of these orgs would be stupid enough to KEEP incriminating evidence for FOIA requests to unearth.
Conrad Black made sure it was done!
are they crazy,
Surely you don’t think “renting” is equivalent to having hoards of people living on the streets, do you?
Exactly how does foreclosure force hoards of people onto the streets? They can take the places of the renters who’ve been waiting for the bubble foolishness to end. Just think of it as trading places…
Excellent! So I trust that you’ll now vote for small government, because you’re admitting government waste?
Sure, there’s government waste. There’s plenty of corporate waste, too. We are all imperfect vessels.
Shrug.
Need to keep a little perspective here. First, the FDIC is in fact not responsible for most of the quesitons asked. Forclosures follow state laws and regulation, and they do differ greatly. The FDIC simply requires that insured member banks report loans as nonperforming if servicing has been interupted for more than 90 days, and to value them according to their own experience and that of other banks with similar loans.
National Banks initially have five years to dispose of assets acquired in lue of nonperforming loans, but can appeal with the Comptroller of the Currency (Treasury) for an extension under extenuating circumstances. One might guess that the present housing collapse would be an extenuating circumstance.
State banks, and non-bank lenders likely have other holding periods, many have none at all.
Second, many of the morgtages, perhaps most of those in trounble, are not held by FDIC insured banks. Credit unions, morgtage lenders like Countrywide, and all sorts of pension funds, hedge funds, foreign banks, national, state and local governments, and private individuals purchaseed securitized morgtages. These institutions must follow local and state laws regarding forclosure periods and recourse, but even most foreign banks are allowed to hold residential real estate as an investment permanently, so long as they are valued according to generally accepted accounting principles in the country concerned.
I’m sure there is a shadow inventory out there, if by that you mean houses not being lived in but still not offered for sale by registered realtors. But I’m not sure that beating up the FDIC is a reasonably way to figure out what it might be.
What we need to do is lobby to get the owners, whoever they may be, to pay the taxes and maintenance expenses or put the houses on the market for whatever price they bring. This will most quickly flush out the shadow inventory and get prices down to something that actually clears the market. But I think this is more a local government problem than a matter for national policy.
You are a keeper, Will. Thanks for the information.
There is a more positive spin. Houses will continue to be released into the market, keeping prices affordable for years. Buyers have no reason to rush, and sellers have no reason to wait.
“Houses will continue to be released into the market, keeping prices affordable for years.”
I think this is just fine, provided there is no collusion or other antitrust law violation involved. But when something like 40 percent of the banking industry is concentrated in the hands of less than 10 banks, and the Fed is extremely secretive about their role in this process, how can you summarily assume that collusion is not involved to coordinate a slower release of inventory to the market than would occur under legal competition?
Let me put a sharper point on this:
I am not accusing the Fed of anything here; just throwing out a hypothesis about what could be happening. If the Fed, or any other political entity with the ability to conduct top-down coordination with lenders, initiated a stealth policy of deliberately encouraging banks to slow the pace of REO release to the market below what would occur under competitive conditions, this would appear to have the implicit effect of transferring wealth from prospective home buyer and renter households into the hands of lenders selling REO.
Another view that is often served up by Joey here is that it is in the self interest of individual banks to slow the release of REO inventory in order to reduce losses, but it makes no sense to me how this could work without agreement that all other banks were going to do the same thing.
Okay then, if banks are colluding to drip properties out on the market to obtain higher prices and preserve their balance sheets . . . why wouldn’t they also collude to STOP making construction loans altogether to improve their chances of selling their inventory at their wishing prices?
Point is, there is no conspiracy or collusion going on that can be proven. The costs of foreclosing on a property, repairing it, getting it reappraised - then writing it down, maintaining utilities and taxes and then marketing it ain’t cheap . . . or easy (especially if you have thousands scattered across the country and your primary business is lending and not property management).
The shadow inventory you speak of mainly exists because of the sheer volume now owned by banks, the length of time FBs have to cure defaults, the length of time it takes to foreclose, incompetence in dealing with them and perhaps some wishful thinking.
Banks are chartered. I’m sure they get their orders from high up where the anointed rule with the proverbial iron fist; think Bernanke, Geithner, Summers. Can the banks really let their REOs go for a song without upsetting market prices and the PTB?
The real issue, IMO, is how to surreptitiously transfer America’s finest assets into the proper hands; think “approved buyers.” The trick will be getting the government to provide the exclusive lending facility, which will later be repaid with printing press dollars.
A once in a lifetime opportunity is approaching.
‘The costs of foreclosing on a property, repairing it, getting it reappraised - then writing it down, maintaining utilities and taxes and then marketing it ain’t cheap . . . or easy’
The FDIC closes banks every week due to under capitalization. They force them to sell assets. They have memos of understanding, etc. I am sure what you bring up is repeated by every lender prior to being closed.
‘there is no conspiracy or collusion going on that can be proven’
How do we know until we try to prove it? I am asking for transparency. At the very least shining light on this matter will open people eyes about supply, and possibly put an end to this tiresome game.
I know why the banks are doing this. They are maximizing return on these houses. The questions are, among others, are they following the rules in doing so? Are people paying too much for the foreclosures? Will even more people end up walking away as a result? And how does the public interest fall into it? Somebody has to ask these questions, IMO. Yes, I am disappointed that the MSM hasn’t picked this up, or all the ‘affordable housing’ non-profits out there. And I wish we had gotten better answers this first go round. (They told us they had two people working on it, and only shot this back when we said we were going to run it it with no reply.)
It looks to me like it will take a stronger approach, which several of us are willing to take on. But mainly, we just want answers.
“Are people paying too much for the foreclosures?”
Isn’t that Econ 101 — a house is only worth what someone is willing to pay as to their own perceived value. Just wait out the knife catchers until your perceived value thresh hold is reached.
How many of us have relatives, friends, coworkers who failed to listen to our advice over the years only to end up in the housing situation their in now? I myself have a brother who did so foolishly, bought a small condo in the foothills of Sacramento, CA, completely ignored the advice I gave him on where the economy and housing market was going and just 2 months ago stopped paying his mortgage as his interest only loan was about to reset in May 2010 after 5 years. Net result he still owes $223K when other REO condo’s in the complex are listed at $65K-$75K.
At the time it was the least expensive property on the market when he purchased. His perception of value in that property changed with the economic tide along with many others. Somethings people have to learn on their own the hard way when they don’t do their homework.
Yes, the parties involved are manipulating the supply of homes on the market. But how exactly is that different from any other commodity? Oil? Sugar? Corn? Wheat? Land? Housing?
It’s all perception of value.
Collusion is illegal beause it leads people to make incorrect decisions about value based on a PURPOSEFULLY MANIPULATED perception. Collusion is a con designed to help the rich get richer and make the poor get poorer. In the end, it’s bad for everyone. That’s why we have laws. I’d like to see them enforced.
Oh yeah, I forgot to reply about construction loans. The government is encouraging this collusion in order to “keep lending going”, ’cause otherwise our global economic system was gonna supposedly collapse, ‘member?
The collusion is there. It is at the government level. It is political. That’s why I believe we should use political/civil means to oppose it.
‘there is no conspiracy or collusion going on that can be proven’
There are no grub worms under yonder rock. I knows it in my heart, even though I never looked unner it.
Barney Frank once mentioned something about the “policy” of keeping homes off the market so prices don’t go down. I’ve tried to find video of it (believe I saw it on C-SPAN), but have not been able to find the clip.
“This is just the beginning.”
Yep. There’s plenty of blood in the water today. I can feel the exhilaration.
May Gollum get everything that it deserves before this is over. For good measure, I still think it would be best if their alumni would be banned from government service for, say, one decade after leaving the firm.
Goldman Sachs charged with fraud by SEC; shares down more than 5%
May Gollum die a slow and painful death.
It’s the beginning of the end. The result will be revolution, and that could be a good thing. Before the negativists take the ball and run, there may be a good outcome and a return to small government.
If enough responsible people refuse to pay the bill for bailing out corporations and individual home gamblers, there won’t be enough cops or jails to arrest them.
I’ve seen cases were thousands of people broke an unjust law and the authorities either abolished the law or let the lawbreakers get away with it.
It happens everyday you are on the road. Look at the people breaking the speed limit. That’s the most obvious sign of people thumbing their nose at the law. I drive faster than the speed limit lots of times.
Unless the speed limit is set to a reasonable maximum speed. But you usually don’t see that.
When the law is an ass, it goads people into disobeying it. Even out of spite.
Agreed - these days the law is really an a$$. Anyone driving through Arizona on its interstate highways knows this, as they are far more diligent in photo-detecting speeders. Note in many areas of the U.S. the ten mile per hour cushion is gone! Now it’s 5 mph. The law enforcement is hungry for its survival. They probably have orders from the governors to nail it to the motorists.
The very same governors sign in more and more entitlement programs that go far beyond protecting the citizens. So someone has to pay for the welfare they sign in.
Smart people would look into tax-exempt investments. Convert every traditional IRA to a Roth, invest in municipal bond funds that have a good track record. I’d go for short term ones and over 70% AAA and AA if I had a California muni fund. Those who are in states with no income tax should look into federal tax-exempt funds such as VMLTX.
Be sure that 10% of your portfolio is in precious metals though. The gain is taxable when you sell. But I won’t sell until after the second American revolution!
You’re calling for the end game, a revolution, and at the same time recommending municipal bond funds? What kind of glue are you on?
About all we can expect are more non-answers / non-action from the FDIC and other regulatory bodies. For them to do anything else, would jeopardize the house of cards our economy and financial system has become.
Yes, I think so.
How long do you or anyone think they can continue to hide this inventory?
Seven months. The November elections are in seven months.
Why do you think elections would make a difference? Seems to me the banksters have both parties in their pockets. I’d guess the tipping point would occur when strategic defaults gain more momentum (which might coincide with your seven month time frame if the hopium wears out quickly).
The incumbents want to remain in office. If the economy goes to hell then the incumbents get tossed out of office. Not only do the pols get tossed, the multitudes of camp followers get tossed as well.
There are a LOT of people who depend on the status quo remaining the status quo. These guys will do whatever it takes to keep the situation falling apart - at least until the November elections, at which time they will have another two years to figure out what to do.
“Seems to me the banksters have both parties in their pockets.”
Testify! Let’s not forget that much of what we are experiencing now was engineered by the Republicans, who blew the mother of all bubbles. TARP was the brainchild of Bush’s Paulson. Of course, Dems were major enablers and have continued the grand tradition.
If a third party gets some candidates elected, that might be a different story.
Say, Floridians, how about that Charlie Crist, eh? Really stuck it to the pubs for the Rubio fiasco. Stay tuned. He’s gonna do a Lieberman.
If a third party gets some candidates elected, that might be a different story.
Money corrupts absolute money corrupts absolutely.
The problem is not one party vs two three or four. The problem is that the voters do not understand the issues. They vote based on how their pocket book feels at that instant. They vote on “moral values??”. They vote on propaganda. Look at the Tea Party they hate gov spending but don’t want gov to mess with medicare or social security. How about Hope and Change. Few look at their representatives voting record.
Unlimited corporate campaign cash and a MSM full of talking heads but little real reporting are the cherry on top.
The problem is not one party vs two three or four. The problem is that the voters do not understand the issues.
Yes, the voting public needs to understand the issues better — or be able to maintain their focus when non-issues and red herrings are meant to distract — but more competition in the political realm would be a good thing for this country. I think we need viable third- and fourth parties, no matter what their political persuasion.
I think we need to abolish political parties altogether. It would be nice if we could vote for individuals who we thought would best lead/represent us instead of voting for members of a certain party.
“Say, Floridians, how about that Charlie Crist, eh? Really stuck it to the pubs for the Rubio fiasco. Stay tuned. He’s gonna do a Lieberman.”
More likely a McGreevey.
The demographics just aren’t there for current buying versus the pontential and inevitable glut on the market. Lower prices, yes. But who is left with the credit?
JPMorgan & BOA REO Asset Management Depts-
I sent numerous letters to both their local offices, explaining we were a cash deal, and were interested in a primary residence purchase, of course with contingencies to protect us. I never got even a “Thank you for your letter, but drop dead, we’re not interested” response. (I’m Ca Licensed)
U.S. Bank at least responded to my email that they had a website for REO’s. Worthless website, but at least they responded, to be fair.
REOMAC is the organization of UHS, Banks, REO Asset Mgrs, Lawyers representing the Banks, etc…
Ha what a bunch of liars…
My perception is that things are getting worse and fast. Those currently being suckered with low inventories are going to be trying to sell in a couple of years in a market with a LOT of inventory.
As far as I can tell our economy is in a classic death spiral!
The low inventories are a manufactured numbers scheme. Look around you. At the blatant empty homes. Now look at ‘for rent’ homes.
Then drive through and look at the “see through” houses. This is where the big trouble lies.
Anybody out there? Been gone awhile. Usually don’t say much. Feling positively ‘chatty’ tonight. For me, anyhow. Bit of a lurker, normally.
Why don’t you use this time to ask Mr Hernandez some questions?
GHernandez@FDIC.gov
Link doesn’t work. What’s next? Swat me on the nose with a newspaper? Woof.
Here! fetch!
C’mon pussycat! Be a watchdog!
Doesn’t work
DOES not work
Greg Hernandez
Phone: (202) 898-6984
Cell: (202) 340-4922
E-mail: ghernandez@fdic.gov
Ben — You are awesome.
I didn’t mean to come off as a sycophant. What I meant in particular is your leadership throughout this episode in financial history has been like a lighthouse shining a beacon of light on a storm tossed sea. The bizarre part is that you have stayed on message and in tune with the persistence of the financial crisis conditions while serial bottom callers have repeatedly (and mistakenly) assured that the housing or jobs market would come back in a matter of months.
OMG - Ben, I want to have your baby!
*sprays pbear with the hose*
Agree with PB.
Thank you, Ben, for spending your valuable time, energy, and money on this blog. It is very much appreciated!
“6. Is it acceptable to the FDIC for banks to stall the foreclosure process on nonperforming assets in an attempt to manipulate financial statements for regulatory purposes?”
I would venture to guess that it’s not only acceptable, but encouraged. These dirty rotten scoundrels are as crooked as they come.
All these slimy bastards used every sneaky trick in the book to “save” the economy. Now they are proud of it. Makes me sick.
+1 It is encouraged, and they will never admit it.
Why wouldn’t they admit it? They are in charge of taking over banks in trouble. They have limited funds and people to do it, so they certainly have an institutional bias in favor of banks getting as much money as they can so they don’t have to take them over.
That is why there has to be an independent agency for consumer protection. None of the existing ones are free from the “save the banks” bias. You have to have someone who can go before Congress and say “all of the rest of the agencies are protecting the banks, but what they are doing is hurting real live people.” Then Congress can decide what to do with that information. But without an independent agency, they won’t even hear it.
Unless, of course, they are on this blog. Not terribly likely.
Independent agency = civil courts.
I know I’m a broken record here, but I keep thinking class-action lawsuit. There has to be an attorney willing to head this up.
Hi Big V appreciate your posts .
I agree with you Big V.
And would suggest two things we as a group can do as foundation work.
1. Expand the work Ben has done by asking the same, or slightly tuned, questions of all of the agencies charted with bank regulation. FDIC is done for round one. Do we need to “tune” the question set and resubmit to FDIC and the other agencies? (see the list at the end of the post)
2. Identify potential resources for the legal challenge. This could be attorneys, rising star politico’s (doubtful, but who knows), investigative reporters, John Stossel? I wonder if there are any non-profits we could leverage as an “oppressed minority”.
Contact these resources once we have the received the boiler plate responses and lay out our case. It seems that this concern we have dovetails with a lot of the Tea Party concerns, but to align there may diminish the potential case merit because IMHO there is a lot of impeachment of the Tea Party movement afoot these days.
Banks are subject to regulation by 3 separate Federal agencies and/or state bank regulators.
Federal Agencies:
The Comptroller of the Currency charters “national banks”
The Federal Reserve Board, and
The Federal Deposit Insurance Corporation
State Regulators:
In each state there is a department of State Government – frequently called the Banking Commission or Department of Banking and Finance — managed by an official called the Commissioner or Director or Superintendent of Banks that regulates “state chartered” banks.
The California agency that regulates the banks is called the DFI. Here a link to the DFI page that lists similar agencies in the other 49 states.
http://www.dfi.ca.gov/resources/related/ostates.asp
Here is an interesting tid bit from the CA Financial Code search,
http://www.leginfo.ca.gov/calaw.html
CALIFORNIA CODES
FINANCIAL CODE
SECTION 1951-1952
1951. Any debt due a bank on which interest is past due and unpaid
for the period of one year shall be charged off, unless it is well
secured or is in process of collection.
1952. The commissioner at any time may require a bank to write down
any asset held by it to a valuation which will represent its then
fair market value.
And finally for today here is one more tid bit from the CA Financial code regarding what I believe to be non-performing assets.
Trying to wade through this stuff glazes my eyes over. This is why Big V’s suggestion of a class action lawsuit and engaging an attorney is so valuable. Them critters can wade through this stuff without getting that glazed look I have right now. Heck, I’m a magician, not a merchant, what can I say … I gotta go wrench on Jeep and get grounded again.
CALIFORNIA CODES
FINANCIAL CODE
SECTION 6475-6477
6475. (a) Each association shall maintain an adequate statutory net
worth appropriate for the conduct of its business and the protection
of its savings account holders.
(b) The commissioner shall fix a minimum statutory net worth
requirement applicable to all associations, which shall not be less
than 3 percent of an association’s total assets. In defining total
assets, the commissioner may issue regulations to exclude from the
total asset figure any asset items deemed appropriate by the
commissioner.
(c) If the statutory net worth falls below the level specified by
the commissioner, the commissioner may require the association to
increase its statutory net worth within the time and in a manner
designated by the commissioner, so as to bring the amount to the
level determined adequate under this section, and may require the
association to do any one or more of the following:
(1) Increase its liquid assets and maintain that increased
liquidity at the level specified by the commissioner.
… there is more at
http://tinyurl.com/y82cg9f
1) I will tweak these questions for the Federal Reserve and provide answers to Ben.
2) Who will tweak the questions for the Comptroller of the Currency?
3) Once we’ve gotten answers from all 3 Federal agencies, let’s regroup and decide what to do next. If we remain ahead of the game, then the very first knife catchers to take it in the pocket book will probably be happy to join a suit.
1951. Any debt due a bank on which interest is past due and unpaid
for the period of one year shall be charged off, unless it is well
secured or is in process of collection.
1952. The commissioner at any time may require a bank to write down
any asset held by it to a valuation which will represent its then
fair market value.
———————-
Wouldn’t both of these requirements be met if the collateral value is kept artificially high?
oc-ed and Big V,
Totally agree that we need to work on this together and get some very strong resources behind us. I’ve suggested before that we have some kind of a sticky post or maybe we can use the forum as a place where we can all brainstorm without having to chase posts over hours, days, and weeks.
Maybe we should set up an e-mail list and have periodic conference calls (even meetings?) in order to facilitate this. I think we need to take the time and effort to get it right.
Ideas or comments?
I agree, CA Renter. I think the first step is to interview all these agencies and post their answers to get people interested in what’s going on. Once people read how dismissive these guys are being, I think they will realize that something needs to happen.
Once that’s done, a sticky post on the forum would be perfect. I am personally hoping some eager lawyer out there will see this as a good opportunity to lay some groundwork for a near-future lawsuit.
Sounds good.
Maybe we can write to our representatives once again to see if they will address our concerns specifically (instead of responding with form letters, informing us of their intent to prop up housing prices and keep deadbeats in “their” homes).
Who is a gatekeeper now?
Not an inexplicit word.
I haven’t been around in a while. Missing some of your past posters
The word “acceptable” is not acceptable simply because there are far too many connotations for it to hold any legal weight.
To be honest, Ben, the only question that seems to live in any kind of regulatory space is #4, and only because of the word “collusion.” If the bank wants to hold properties indefinitely, that’s their business, just as any flipper or slumlord. It’s an investment. Heck, if they want to allow an FB to live there rent free, that’s also their business.
These practices are perfectly legal, so long as they bear the risk of their actions.it’s the taxpayer support of such practices that is questionable. On that note, the REAL question is #8, and any follow-up questions should be directed on that. For example:
It is our contention that TARP allowed the recipients to practice a form of commodity hoarding and price manipulation without risk or penalty in that any losses incurred on a TARP recipient’s accounting books are effectively hidden by the resources lent to them at low interest rates under the TARP program, and that accounting books are allowed to report their assets at prices that occur in the past and are thus no longer valid. In effect, the public effectively carries the risk of a private company’s investment practices and creates a moral hazard on the part of the TARP recipient. Are there any laws, regulations, or rules governing the use of taxpayer money for such practices, and could these practices be construed as facilitating profit-making, and therefore not acting in good faith on the part of the public?
It is also our contention that distribution of TARP money and low interest rates to only certain institutions constitutes an unfair competitive advantage to such institutions over smaller companies and/or individuals in that the TARP resources allow banks to maintain their balance sheet without risk (as discussed above), while smaller entities and individuals do not have access to these resources. Are there any laws, regulations, or rules governing the selection of institutions to receive such competitive advantages, and are the selected institutions required to pay a penalty, tax, or other price in return for this competitive advantage?
This is a job for Polly. Polly?
I’m generally in agreement with you. Just like any seller, the bank SHOULD be trying to get the maximum amount that they can for their property. If they perceive that this will be done by selling slowly than so be it. If, in pursuit of that, they decide that allowing defaulters to “housesit” is cheaper and safer than forclosing and holding the property, that also if fine.
The questions are:
1.) Are these non performing assets (the loans) properly accounted for. At some level, banks are SUPPOSED to be held to a higher standard of accountability and transparancy BECAUSE of the explicit taxpayer backing of the FDIC. Many companies become balance sheet insolvent long before they lack the cashflow to meet payroll and scheduled debt payments. The result is that a large number of creditors are not made anything close to whole. But the FDIC (and ultimately the taxpayer) ensure that many of the banks creditors (because that’s what depositors are) WILL be made whole, it is their job to close down banks BEFORE the spiral too far into debt.
2.) As you pointed out, even though individual banks can do what they think is in their best interest, it is generally illegal for them to collude together. We have long ago decided that secret agreements between different companies distort the market by allowing “hidden monopolies”: situations where it appears that market participants are acting individually, but in reality are using monopoly power to affect pricing.
3) If any government agency other than Congress engaged in an act to coordinate (slow) the release of REO inventory to the market, this would appear to raise questions of wealth allocation. In particular, a coordinated intervention to slow REO release would have the effect of reallocating wealth from one group (renters and other prospective buyers) into the hands of banks holding REO, owners of comparable homes to those in REO inventory and (most importantly) owners of derivative assets whose values are determined by the market value of underlying residential properties (e.g. toxic MBS). Perhaps one of the blog’s legal eagles understands this better than I, but I remain unconvinced that collusion to financially enrich a group of individuals who are engaged in collusion at the expense of others is legal under U.S. law.
I think that your 3.) is a special case of the government encouraging 2.)
I think that there’s a fair amount of evidence that there is pressure from on high for the government to encourage/permit 1.) There was a story that came out the other day about low level bank examiners who were pointing out WaMu’s problem loans being ignored and pooh-pooh’d by senior management. But the government encouraging collusion would be MUCH more serious IMHO. I hope we don’t find out that’s happening.
“situations where it appears that market participants are acting individually, but in reality are using monopoly power to affect pricing.”
That’s one of the reasons the DOJ went after the REIC on opening up the used housing market to oneline brokers (who wanted transparency of information and lower commissions), who were being boycotted by the main stream brokers. I wrote the DOJ as a seller being boycotted back then.
This is why this sort of think rarely gets to trial. Without a “smoking gun,” memo this sort price fixing is almost impossible to prove. You have to be pretty blatent and careless to be caught.
I don’t think collusion is necessary for all to act the same way based on the same incentives. The incentive is to show a profit, not a loss. The government is openly laxing the accounting rules to let the banks avoid writing down their assets. So they do avoid it and do “show” a profit and hide their bankruptcy.
The obvious crime is being committed by our government.
Typically, in a falling market, no one benefits from holding onto their assets. The first guy to sell sell sell is the only guy to make a buck. The shadow inventory cannot exist without high-level collusion.
Exactly.
‘this is a job for’
Well, you know, I only asked you guys for volunteers on this stuff a dozen times. I didn’t see your hand go up. We spent three weeks trying to get a response out of these guys.
BTW, you can still help out. Unpaid of course, like the rest of us. It would help if as many as possible could write elected officials, or anything.
My hand went up!!!
As you know, I’ve spent a lot of time trying to investigate the bulk deals and how the TARP money was used to keep inventory off the market. I am more than willing to help pay for legal counsel (or whatever else needs to be done) in order to pursue our objectives.
Those are excellent follow-up questions.
“For questions 9-11: The FDIC does not agree with the premise of these questions. The FDIC tries to protect consumers, and it expects banks to accurately report according to accounting and reporting rules.”
And it is this response that is most troublesome. Interesting they didn’t explain how they don’t agree with the premise of the question. Further…. they pass the buck and shift the burden to banks and we all know how squeaky clean those low-lifes have been. Either banks owe no accountability to the FDIC(which I doubt) or the FDIC is flat out afraid to hold banks accountable.
‘Tis better to SUSpect than EXpect.
This whole discussion seems to boil down to a few simple questions:
Is there top-down collusion to coordinate bank withholding of shadow inventory from the market?
- If yes, who is engaged in the collusion, and is it legal?
- If no, then does excessive concentration in the banking industry nonetheless open the door to de facto collusion?
http://www.bloomberg.com/apps/news?pid=20601087&sid=axIP29FViOSo&pos=5
Greek and Portuguese bond yields rising inexorably as everybody tries to maintain the fiction that Greece won’t “immediately” ask for the [empty promise] 40 billion dollar rescue package supposedly agreed on by the EU. Greece isn’t asking for the rescue just yet, because the moment they do it will be challenged in the German courts and parliament. Globalist German PM, who shares a certain world leader’s indulgence for deadbeats and reckless banks, is facing a firestorm of resistance from German taxpayers furious about any such bailout.
Stay tuned, people. While the US MSM continues to chant their “crisis contained” mantra, more and more leaks are appearing in the dam.
I also like how Bank of America lowered their loss provisions, even while the number of foreclosures they’re being forced to take back may hit as much as 600% this year.
I just hope the German taxpayers are not as complacent and passive as the US ones are. Maybe they have more control of their government. We can dream.
“Greek and Portuguese bond yields rising inexorably as everybody tries to maintain the fiction that Greece won’t “immediately” ask for the [empty promise] 40 billion dollar rescue package supposedly agreed on by the EU.”
I remain convinced that that was the plan all along: promise an attractive-enough bailout to give others confidence in the bonds being repaid, to “talk down” the rates that Greece has to pay, and thus not have to do an actual bailout. Kinda like Paulson’s bazooka-in-my-pocket-but-I-won’t-have-to-use-it that immediately went off.
I expect the result to be the same here.
BJ,
I CC’ed you on my e-mail to Mr. Hernandez.
I propose a class action lawsuit by all home owners who are facing foreclosure actions by Wall Street Megabanks (e.g. Bank of America, Wells Fargo, J P Morgan Chase, Shittibank, etc) which received TARP funds and which were supposed to participate in the HAMP program but aren’t. Why should the nation’s largest banks get summarily made whole by Uncle Sam while Main Street home owners shown the street?
I want a check from a megabank for the amount equal to the average cramdown they end up offering in my area. I own my home free and clear and demand compensation for the recent depreciation. Its only fair.
We should just bust up the Megabanks and let Main Street Americans enjoy the spoils. That would seem fair to me.
I want a Megabank of my own. Now.
I demand to be paid compensation for the devaluation of my significant savings too via inflation!!
Yes!!!!
How about some compensation for the savers who’ve been decimated by the “emergency actions” of the govt/Fed? Don’t we deserve a bailout too?
“Distressed transactions have a strong negative influence on home prices, according to First American CoreLogic, which noted the lows in prices for 2009 coincided with a peak in bank-owned property sales.”
This idea has been out there for a long time, and it makes no sense to me. The same dumps that sold for, say, $400,000 back in 2005 now won’t sell for $150,000, and it so happens that some nearby homes recently sold in distressed sales. Are these guys claiming that a home buyer’s first question of concern when they buy a home is how many of the neighbors bought their home in a foreclosure sale?
I personally would welcome the possibility of moving into an area where the neighbors were sufficiently intelligent to have avoided purchasing a home at a bubble top, instead electing to wait for the aftermath of a mania when sale prices became relatively affordable. A neighborhood where most of the buyers purchased at a relatively low price would potentially (and eventually) be more financially stable than one where most of the buyers overpaid relative to their incomes and were likely to soon face foreclosure.
I suspect what is really going on here is that many who are in the real estate analysis business have a limited or non-existent grasp of the effect of a tightening credit market on the microeconomic budget constraint, and its effect on what new buyers are willing and able to pay for a home purchase.
This is just another bullet in the munitions chest for those who seek to mollify the public into accepting high-level collusion and big-bank bailouts.
Right.
It’s not foreclosures that are affecting home prices, it’s the fact that deadbeats can’t get NINJA loans on multiple houses.
But you’ll never hear them admit that…
Guest Host on CNBC was just talking about Shadow Inventory. He actually said: “if you do title searches there are six million homes in foreclosure, you see them dark at night - nobody lives there- but they are not for sale”. “Where are the six million foreclosures for sale?’. Nobody answered. Crickets.
Barry Sternlight with Starwood Capital.
A former student of mine visited me a couple of months ago about a recommend letter. He is a stay-at-home dad with a lovely one-year-old daughter who is trying to get back into the work force; for now he lives at home, maybe a mile away from us in Rancho Penasquitos, and has plenty of time for long walks with his daughter.
So we got on the subject of housing, and turns out that he is a fellow bubble watcher. On walks with his daughter, he conducts informal surveys of how many homes in his immediate neighborhood sit empty.
The general flavor of his survey results: More houses than expected sit empty.
If they were for sale, housing might become affordable, and that must prevented at all costs.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a30KHZKX1WJo&pos=15
Derivatives, especially the off-balance-sheet kind, are already blowing up in the faces of municipalities in the US and Europe. This is just the tip of the iceberg. Here’s a prediction: crooked politicians who arranged these deals with the likes of GS and JP Morgan will find themselves going to jail, while the municipalities file lawsuits and/or refuse to pay when the bet goes the wrong way. THIS is the kind of crap that’s earning those big fees being reported by the Banksters - but they’re dancing on a thin crust above a volcano.
“The FDIC tries to protect consumers, and it expects banks to accurately report according to accounting and reporting rules.”
I expected to be a multi-millionaire by this time in my life. I’ve lowered my expectations.
But aren’t banks “accurately reporting according to accounting and reporting rules” since the suspension of mark-to-market?
As long as the property is never foreclosed on, the bank can mark-to-fantasy. And who suspended mark-to-market?
It seems as though most banks are only foreclosing as a means to raise operating capital and not actually recover losses incurred; and due to the realization of the loss at the time of foreclosure, they must really be in dire need of cash.*
* Except BoA, which plans to foreclose on sixty three trillion or something houses this year.
So maybe there are three tiers of banks:
1) Small Banks: They’ll foreclose on you because they need the cash having not got a bailout.
2) Medium Banks: Won’t foreclose because they don’t really need the cash and the hit upon realizing the loss is worse.
3) Too Big To Fail Banks: They’ll foreclose on you becase TARP gave them enough funds to survive the realization of the loss.
I am a numbers guy as well and sometimes we forget that life continues to happen. If you look at numbers all day you would never leave your home!
So buy a number of houses from me! In Boise! Just click the link!
Stinky spammer. Ben, there’s a spam on your website.
Bad spammer. At least he used his real name. Gotta give props for that.
I kinda like numbers guys, what does his haircut look like?
A 6.
And when he does his number, it comes out as an 8.
Hey Trey,
I watch housing prices collapse with great joy…. with glee, with a warm heart. When I hear of realtors returning to their former occupations of waiting tables and selling used cars, my day brightens. When I hear about the exploding inventory, my mood lifts as if I’ve died and gone to heaven.
A wonderful resource for truth regarding housing is Ben’s Housing Bubble Blog. The most prolific housing analysts and authors frequent that blog.
YO TREY
Got any homes that will cash flow positive? When prices get low enough for that to happen just about everyone will step up to the plate , get off the fence, and wont be a bitter renter NO MO!
Foreclosures that have been sitting empty for years won’t be all that appealing to buyers if/when they come on the market. I can only imagine the shape of a house in Florida where the A/C was off for a summer or two.
To me foreclosures always seem to fall into 2 groups:
1. Brand new houses or semi-new, 2007 or newer in brand new subdivisions where 80% of the houses are either in foreclosure or never completed.
2. Houses that need a lot of work either due to neglect or the previous occupant destroying it prior to leaving.
Either option doesn’t appeal to me. I don’t want to live in a ghost subdivision and I don’t want to buy a house and spend the next year fixing it up. And so if 6 million more of these come on the market, personally it won’t make a difference for me.
I suppose the extra supply will lower prices for everything else, but if those 6 million new units of inventory are unsellable, it might not make that much of a difference after all. And the fact they are unsellable may be why the banks aren’t even trying.
Ki
Someone here reported yesterday, that they looked at 10 foreclosures and they had new carpet and paint. Ok, so they were jazzed up on the cosmetic side, but that’s cheap. What about the plumbing, roof, HVAC, etc…
In some states, the disclosure laws apply to REO’s. If not, I would add an inspection contingency, and then get the bank to fix the pricey issues or walk.
Firm: Calif median home price rises in month
http://www.google.com/hostednews/ap/article/ALeqM5gDHALj2TX3u_jUwjLOaOM6qNcNkAD9F455QG0
But DataQuick president John Walsh cautioned that the data revealed a shift in the sales mix toward higher-end homes, not an across-the-board increase in prices.
“It’s a statistical quirk,” he said. “A variety of data indicate prices in many communities have more or less flattened out or risen modestly, while they remain soft in others.”
3. Are there any laws, regulations, or rules governing the length of time that can pass between foreclosing and marketing properties?
I’d guess that there may be time limits where the bank has to market the property so as to give the FB his “equity of redemption” e.g. what’s left over after the sale and after the bank takes its cut. In the cases where there’s obviously no “equity of redemption” left over it’s not so clear to me.
GS just popped with fraud by SEC!!! No way! stock down 9% and falling like a rock!
GS -They were accused. No convictions YET!
GS -draw and quarter all the sob’s -
I’ll have a diet coke and buttered popcorn with my entertainment , please.
Hmm, well, I thought Obama was in cahoots etc?
But to be fair, this fraud case probably started five years ago. The wheels of justice turn slowly, but they grind to dust.
And do you think they’ll be crucified for doing God’s work?
Now this Goldman news really should throw a wrench in the fake Recovery(TM). DAMAGE CONTROL!!!!
If this firm and its too-big-to-fail Megabank, Inc brethren get busted up into tiny, competitive pieces, it may be the best thing to ever happen in the history of the U.S. banking system.
Goldman Sachs
Not to suggest Gollum is engaged with manipulating oil prices, but it is nonetheless quite interesting how the SEC’s fraud charges led to a drop in oil prices.
Big day for us lil guys!
GoldenmanSucks = “TrueDeceiver’s™” / “TrueOilStorage™”
BWAHAHHAHAHAHHAHAHHAHHAHAHAHHHHHHHHHHHHH!!! (fpss™)
I think the grounding of European flights might have more to do with the drop in oil prices at the moment. I hope people won’t mind getting used to travel by ship and other means. If they revive the old, classy methods of transatlantic shipboard travel, that could be a blast. Provided no one runs into an iceberg, of course.
I love you, Professor Bear. You are like, super awesome!
Thanks — don’t mention it.
Today will be a good day to test the existance of the PPT, PB.
Yep. PPT still works.
Iceland to Europe: “Eat my ash.”
I love Iceland right about now. First of all, they told the banksters to stuff it. Now their volcano is helping to drop oil prices and prevent the flights of all sorts of global undesirables.
You rock, Iceland! Live long and prosper.
Ben, I’m really glad that you are pursuing this.
Based on his answers, I think the next step might be relevant FOIA requests to the FDIC, Treasury, and the Fed.
A reader tipped us off about the Judicial Watch FOIA request, and we followed that up first. They were receptive, but weren’t digging into this directly. Those guys have deep pockets, so it would have been nice if they could have helped us. Maybe someone out there has ideas on how to proceed?
First thing to do is get their info on what FOIA requests cost. Make sure to get the information for news organizations and what rules they have for who is a news org and who isn’t. You might need to partner with someone else to get the cheaper rates. Also, you have to craft your questions fairly carefully. FOIA is allowed to charge for time spent as well as pages copied, so you don’t want to pay for searches you don’t need. While you are at it, confirm whether/when the records related to a specific case become public. Don’t ask for information that isn’t allowed to be released yet, because you still might have to pay for the time.
If you just want to look up federal regulations on a free website, Cornell Law School has one:
http://www.law.cornell.edu/cfr/
Also the Government Printing Office: http://www.gpoaccess.gov/executive.html
And the Thomas system at the Library of Congress is good for research on legislation. The other two also have legislation.
Also check out public law libraries. The Idaho state law library is in downtown Boise and they offer FREE access Westlaw terminals. You may have something similar in your area.
Is there a way to get attorneys involved on a contingent payment basis?
For an attorney to get involved on a contingent basis you have to have a big chunk of change at the end of your rainbow. A FOIA request costs money and results in information, not cash.
What sort of contingent law suit are you looking for? Against whom? For what (monetary) injury? Individual? Class action? If so, what class do you represent?
“For an attorney to get involved on a contingent basis you have to have a big chunk of change at the end of your rainbow.”
The financial engineering challenge would be to set up some kind of class action lawsuit against Gollum and friends to reclaim the ill-gotten TARP money that enabled them to post record profits in the wake of the worst financial meltdown since the 1930s. I don’t see any serious limit on the amount of change available, though a carefully engineered lawsuit would obviously be needed to have a fair chance of collecting any for Main Street American households that got the shaft.
“If so, what class do you represent?”
American taxpayers who were not direct beneficiaries of the TARP bailout.
On behalf of whom? Who is the class that is suing the TARP recipients?
And remember, taxpayers don’t have standing to protest the use of the funds collected from them. Not to the government that paid it out and not to the orgs that received it. You would be asking the judiciary to undo an action taken by the legislature and implemented by the executive.
Talk about an activist judiciary.
“Class action? If so, what class do you represent?”
I have wondered whether you could get the group of people who want to buy houses or did buy houses in a certain time-window certified as a class. They are the ones who are either being prevented from buying, or end up buying less-nice houses than they could have otherwise afforded absent the market-manipulation. There is financial harm there.
“You would be asking the judiciary to undo an action taken by the legislature and implemented by the executive.”
Thanks for the useful information, Polly.
Here is another angle: Look at what purpose the TARP was intended to serve, then consider the uses to which the funds were appropriated. Is there any law against using money earmarked for one purpose (e.g., to clear toxic assets off banks’ books) for another one (keeping the flow of Wall Street bonuses going through a nasty financial crisis).
Were there truly no strings whatever applied to the TARP? If so, is it safe to argue that this was the single, largest ill-appropriated lump sum transfer of tax dollars into the hands of cheaters, crooks and liars in the history of the planet? What was our Congress thinking?
That is a possiblity, but you would have a heck of time proving they were prevented from buying at a time when a spoon could have gotten approved for a mortgage. Maybe people who could prove that they were not able to get anything other than toxic mortgages? Again, proving that you belonged to the class would be very, very hard.
The class would be as follows, methinks:
People who paid too much for real estate based on innacurate knowledge of the shadow inventory, which was directly caused by the collusion that put that shadow inventory in place.
The lawsuits would be against the various banks that participated in the fraud and sold specific homes at inflated prices.
“Maybe people who could prove that they were not able to get anything other than toxic mortgages? Again, proving that you belonged to the class would be very, very hard.”
How about the class of FBs who were lured by liar loans and what not into buying homes at artificially inflated prices, where said inflation was driven by the EZ money the Wall Street Megabank were funneling into the mortgage market?
Or the class of investors who were sucked into buying MBS that Wall Street was indiscriminately securitizing from toxic dog sh!t mortgages? Weren’t they harmed by the fraud?
At any rate, there are only a few TBTF banks who participated in the toxic lending securitization biz, so the potential plaintiffs don’t seem like they would be very hard to identify.
And remember, taxpayers don’t have standing to protest the use of the funds collected from them.
Tax funds were not the only funds involved.
Can the “independent and private” Fed be sued? They created 1.25 Trillion out of thin air to purchase toxic MBS’s from the Banks.
Is this not a type of collusion that had the result of “price fixing” home values as well as the MBS’s?
Pro-bono….If the case could set a precedent, change laws, get written up in law books long after the lawyer passes on….you know stroke the Big Ego leave a Legacy type case,
——————————–
For an attorney to get involved on a contingent basis you have to have a big chunk of change at the end of your rainbow. A FOIA request costs money and results in information, not cash.
Hmm, interesting. I recall a few years back there was quite a controversy surrounding the state/Federal laws. The Bush administration decided that banks operating across state borders couldn’t be held to state laws, so states with actual RULES preventing this sort of thing were overruled by Congress, et al.
Aside from the class-action lawsuits I can see rolling out of this thing (there’s your pot of gold), I also see some pretty serious questions regarding why/how Congress can essentially abolish state law by simply claiming “interstate commerce” when the product being bought and sold is stationary, residing in only one state.
Is there a link to more information about this?
So what Bush did is basically say: banks were acting across state lines, so neither state’s laws applied, so the banks could basically act with NO laws at all? That’s egregious enough that we would have had a case in the news by now.
More foreclosures released this week in Sacramento. And asking prices are higher than last year’s. I hope that they close at less than asking price. I saw one yesterday that has foreclosed twice: 2007 and 2010.
No, Bush said that only Federal laws apply to banks operating in multiple states. The Federal rules were too lax to begin with, and were rarely enforced. I remember at the time one state regulator (like Massachussets or something) going to the press about it, essentially “outing” the Federal regulator (I think the OCC?) for tying his hands and handing the loot over to the banksters.
I believe this is what you’re looking for. REhobbyist posted a link yesterday. Interestingly, ACORN was opposing the Comptroller of the Currency’s exemption for national lenders.
————————-
The Office of the Comptroller of the Currency issued proposed regulations yesterday that are expected to exempt national banks from many state laws against predatory lending, including those in New York and New Jersey.
AND
The comptroller also proposed a standard on predatory lending. The proposed rule ”would prohibit national banks from making loans that they cannot reasonably expect to be repaid without recourse to the borrower’s collateral.”
But, in a statement, John D. Hawke Jr., the comptroller, said, ”We have no evidence that national banks are engaged in predatory lending practices.”
http://www.nytimes.com/2003/08/01/business/some-exemptions-are-proposed-on-predatory-lending-laws.html?pagewanted=1
Bloomberg
WaMu Should Have Been Rescued, Ex-Regulator Says (Update1)
April 16, 2010, 5:08 PM EDT
(Adds Bair comments starting in the seventh paragraph.)
By Lorraine Woellert
April 16 (Bloomberg) — Washington Mutual Inc. collapsed because of a run on the lender and should have been saved, according to the bank’s former top U.S. regulator.
“This was a liquidity failure, not a capital failure, brought on because of a $16.4 billion run on deposits,” said John Reich, a former director of the Office of Thrift Supervision. “WaMu was in fact a systemically important institution and should have been treated as such.”
Reich testified today before the Senate Permanent Subcommittee on Investigations, the second in a series of hearings on the collapse of financial markets. The subcommittee yesterday said that investigators concluded the OTS protected WaMu from other regulators and failed to act when it identified errors, risk and fraud at the lender.
The Seattle-based bank, with $188 billion in deposits and $300 billion in assets, was a victim of laws that required it to invest two-thirds of its holdings in real estate loans, Reich said. The mandate created an “obsolete” business model that hurt the thrift’s ability to weather the housing decline, he said.
The subcommittee today released almost 500 pages of documents on the role of regulators in WaMu’s collapse, the largest U.S. bank failure in history.
Investigators accused OTS and the Federal Deposit Insurance Corp. of fighting a turf war that allowed the nation’s biggest savings-and-loan to maintain passing grades from regulators despite the growing risk in its portfolio
OTS Blocked FDIC
FDIC Chairwoman Sheila Bair told the committee that OTS regulators in 2006 blocked her examiners from accessing WaMu data and declined to provide them a desk and chair. In 2007, OTS refused to let FDIC examiners review loan files, she said.
As WaMu’s losses mounted in 2008, the company raised $7 billion in capital. The FDIC calculated that the thrift would need another $5 billion to survive and the OTS rejected that analysis, Bair said.
Bair said an operating agreement between the FDIC and the OTS thwarted FDIC efforts.
“It’s circular in that it requires us to show risk before we can get access. And frequently you need access to prove the risk,” Bair said. “We really need much broader authority.”
‘No Bite’
Committee Chairman Carl Levin, a Democrat from Michigan, said the OTS “was a watchdog with no bite. At times it even acted like a WaMu guard dog to keep the FDIC at bay.”
…
San Diego neighborhoods just got a little bit safer.
NEWS > LA JOLLA
John Gardner pleads guilty to murdering King and Dubois
2:42 PM
John Albert Gardner III
Photo by: Courtesy
By KELLY WHEELER
City News Service
A convicted sex offender pleaded guilty Friday to killing a 17-year-old Poway High School senior and a 14-year-old Escondido High School freshman, and he was expected to be sentenced to two consecutive life prison terms without the possibility of parole.
John Albert Gardner III, 31, also faces an additional 33 years to life in prison for assaulting a woman Dec. 27.
Gardner, whose plea spares him from a possible death sentence, is scheduled to be sentenced June 1.
His plea also bars him from filing an appeal of his conviction and sentence.
Gardner admitted attacking, raping and killing 17-year-old Chelsea King, who disappeared after going for a run Feb. 25 at Rancho Bernardo Community Park. The avid runner and straight-A student’s body was discovered five days later in a shallow grave near a tributary of nearby Lake Hodges - not far from Gardner’s mother’s home.
He also admitted killing 14-year-old Amber Dubois, who vanished while walking to Escondido High School in February 2009. Her skeletal remains were found last month in Pala.
…
What was he convicted of in the first place?
Trying to rape a 13 year old; he abused her and hit her, but she somehow managed to escape before consummation of his intended crime.
Whose bright idea was it to let people like this go unattended, anyway? People who do stuff like that should be monitored until their peepees stop working.
I take the impression it is an unintended consequence of the R-can’s “Get Tough on Crime by Throwing Even Minor Criminals in Jail” campaign. Now in light of the CA budget crisis coupled with prison space occupied by minor drug offenders, there are not enough resources in the system to protect children from the John Albert Gardner IIIs that are left to roam freely and to share lurid details of their sex lives on social networking sites.
Sort of off the subject, sort of on…I saw an interesting set of videos by some guy named Tom Baugh discussing Secession. One point he brought up was “Nothing left to lose.” The subtopic was about how the U.S. is manufacturing home-based terrorists. People who are let out of prisons, tracked, on sex offender lists or whatever list. They are ostracized by society. The prison system is “trying to do them good.” But these people have all sorts of roadblocks to life - cannot get a good job, decent housing and so on.
The thing to do, like Tom Baugh says is to have “dad, uncle, brother, and cousin and a baseball bat” deal with those sex offenders. They would never come back to the neighborhood.
My question is: Why do they ever get allowed out of jail in the first place? WTF? Don’t get them out early for “good behavior.” It’s a front. Those people should be either executed or in the slammer for good.
Too bad he can’t get the death penalty.
Somebody might get him in prison. These types don’t fit in well there. Hopefully, they don’t put him in a protected area. He deserves to die without dignity, fearing for his life just like those poor young women he brutally savaged.
With his plea of no appeals that saved the taxpayers easily $1 million dollars…no wasted time on public defenders or court appearances or judges wasting time on answering….we should do this more often….hopefully the inmates will end his life sooner then later.
Too bad he can’t get the death penalty.
Too bad we cannot make an exception in at least a few selected cases to the rules against “cruel and unusual punishment.” I can’t help but wondering if extraordinary rendition works to deter terrorists, might it not also work to deter sex criminals?
Can you imagine what his victim (from December) must be feeling? To know that the guy who attacked you — but you narrowly escaped from — is the murderer from two high-profile cases?
That will probably haunt her for the rest of her life.
Speaking of the FDIC…
Regulators shut 5 banks in Fla., Mass., Mich.
(AP) – 31 minutes ago
NEW YORK — Regulators shut down five banks Friday — three in Florida, and one each in Massachusetts and Michigan — putting the number of U.S. bank failures this year at 47.
The Federal Deposit Insurance Corp. said it took over Riverside National Bank of Florida in Fort Pierce, Fla. The bank has 58 branches and assets of $3.4 billion.
The government also took over First Federal Bank of North Florida in Palatka, Fla. It has eight branches and assets of $393.3 million.
The third bank the FDIC closed in the state was AmericanFirst Bank in Clermont, Fla. Its assets total $90.5 million. It has three branches.
The FDIC said TD Bank Financial Group’s TD Bank division acquired the operations, deposits and nearly all the assets of the three Florida banks.
Meanwhile, regulators also took over Butler Bank in Lowell, Mass. That bank has assets of $268 million. People’s United Bank in Bridgeport, Conn., agreed to assume all the deposits of Butler Bank.
The government also took over Lakeside Community Bank in Sterling Heights, Mich. It had assets of $53 million.
…
I was off the computer for a couple of days and I come back to Iceland Volcano, Stock Market coming down ,and the best ..Goldman having fraud charges levied by the SEC.
It would be interesting to me if any of the Hedge Funds were involved with AIG .Anyway, I heard a couple market reporters saying in essence that these are very serious charges against GS .My first thoughts were a show to divert from even more serious crimes and a attempt to just go after one Hedge Fund transaction when there were many .Apparently these transactions under question were really late in the game ,but you know all the CEO’s mouth “We didn’t see it coming .” I am also wondering about that big 50 Billion dollar hedge Fund that bet against MBS securities late in the game …I guess they bet against
securities that had a 96% loss (a little strange looking like a hand picked situation ). Interesting times .
But the interesting aspect of this GS case is that they are investigating the trades that **shorted** the housing market. They are not investigating the trades/securities that were causing the problems in the first place (that opened up the short opportunity).
It’s like 2008 all over again, where they were banning short traders, etc. when the real culprits were committing fraud years before — again, the fraud that made short-selling an viable trade.
A girl who works at a local PNC bank branch told me over a month ago that RIverside Bank was going to be shut down soon. I am going to go back and ask her what else she knows.
* THE WALL STREET JOURNAL
* BUSINESS
* APRIL 12, 2010
Second Mortgages Vex Borrowers
By JAMES R. HAGERTY
After losing her condo in San Diego to foreclosure last year, Charissa Kolich thought that at least she was free of mortgage bills.
But Wells Fargo & Co., which holds a home-equity loan made five years ago to Ms. Kolich, last month filed a lawsuit against her in the Superior Court of California, San Diego County, seeking to collect the nearly $72,000 it said she still owed on that second mortgage. “This was all kind of a shock,” says Ms. Kolich, a food-service administrator recently diagnosed with inoperable brain cancer.
Banks are coming under increasing political pressure to write off or at least write down second-lien and other junior mortgages as a way to help borrowers keep their homes or extract themselves from heavy debt. As the Wells Fargo suit shows, however, banks often are reluctant to give up on loans when they see a chance of recovering all or part of their money.
This issue will be the focus of a hearing Tuesday by the House Financial Services Committee in Washington. Panel members are due to quiz executives from Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. about their junior-lien mortgage policies.
Why do junior-lien mortgages matter? The $1 trillion of junior-lien mortgages outstanding in the U.S. at the end of 2009 added up to only about 10% of total home-mortgage debt, according to Federal Reserve data. But many banks have large holdings of these junior liens. Among borrowers whose first mortgages were packaged into so-called private-label securities (those not backed by any government entity), about half also have junior-lien loans, according to mortgage-bond trader Amherst Securities.
Those junior liens now represent one of the trickiest obstacles to efforts to get distressed borrowers back on their feet. Borrowers who negotiated lower payments on their first mortgages often find they are overwhelmed by payments on second mortgages and other debts.
The owners of first-lien mortgages (mostly investors in mortgage securities) are reluctant to reduce payments or cut principal for troubled borrowers unless holders of the junior liens (mostly banks) also take a hit. But banks, struggling to rebuild their capital, don’t want to write off any more junior liens than they must.
Many junior liens lack collateral backing because home values have fallen below the amount owed on just the first mortgage. “Large numbers of these second liens have no real economic value,” Barney Frank, a Massachusetts Democrat who is chairman of the House Financial Services Committee, said in a recent letter to the big banks. He added: “I urge you in the strongest possible terms to take immediate steps to write down these second mortgages.”
…
“The SEC’s charges are completely unfounded in law and fact,” Goldman said in a statement, promising to “contest them and defend the firm and its reputation.”
TIME WILL TELL.
* THE WALL STREET JOURNAL
* BUSINESS
* APRIL 17, 2010
Goldman Sachs Charged With Fraud
SEC Alleges Firm Misled Investors on Securities Linked to Subprime Mortgages; Major Escalation in Showdown With Wall Street
By GREGORY ZUCKERMAN, SUSANNE CRAIG and SERENA NG
Goldman Sachs Group Inc.—one of the few Wall Street titans to thrive during the financial crisis—was charged with deceiving clients by selling them mortgage securities secretly designed by a hedge-fund firm run by John Paulson, who made a killing betting on the housing market’s collapse.
Goldman vigorously denied the Securities and Exchange Commission’s civil charges, setting up the biggest clash between Wall Street and regulators since junk-bond king Drexel Burnham Lambert succumbed to a criminal insider-trading investigation in the 1980s, helping to define the era. “The SEC’s charges are completely unfounded in law and fact,” Goldman said in a statement, promising to “contest them and defend the firm and its reputation.”
In his 2009 book, Wall Street Journal reporter Greg Zuckerman was the first to lay out how Mr. Paulson approached banks, including Goldman and Bear Sterns among others , with the proposal that they create securities of sub-prime mortgages that he could bet against. It is those trades that are at the heart of the Securities and Exchange Commission’s case against Goldman.
The civil charges against Goldman and one of its star traders, 31-year-old Fabrice Tourre, represent the government’s strongest attack yet on the Wall Street dealmaking that preceded, and some say precipitated, the financial crisis that gripped the nation and the world. Goldman’s shares fell 13%, one of the steepest slides since the firm went public in 1999, erasing some $12 billion of market capitalization.
The SEC lawsuit likely strengthens the position of President Barack Obama as he tries to push financial-overhaul legislation through Congress. He vowed Friday to veto any version of the bill that doesn’t bring the derivatives market “under control.”
Regulators say Goldman allowed Mr. Paulson’s firm, Paulson & Co., to help design a financial investment known as a CDO, or collateralized debt obligation, built out of a specific set of risky mortgage assets—essentially setting up the CDO for failure. Paulson then bet against it, while investors in the CDO weren’t told of Paulson’s role or intentions.
“The product was new and complex, but the deception and conflicts are old and simple,” said Robert Khuzami, the SEC’s enforcement chief.
Mr. Paulson and his firm aren’t named as defendants. The hedge-fund firm said in a statement that it wasn’t involved in marketing the bonds to third parties. “Goldman made the representations, Paulson did not,” Mr. Khuzami said.
Mr. Paulson took home $4 billion in 2007 for correctly betting on a housing collapse.
The SEC said Mr. Tourre was “principally responsible” for piecing together the bonds and touting them to investors. According to the SEC, Mr. Tourre wrote in an email shortly before the bonds were sold that “the whole building is about to collapse anytime now.” He described himself in the email as the “Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”
But he was hardly alone, the SEC alleges: The deals were signed off by senior Goldman executives, though the SEC didn’t specify how high up it believes the knowledge extended.
In the past year, Goldman—the most profitable firm on Wall Street—has emerged as a symbol of excess. The taxpayer-funded rescue of the markets helped catapult Goldman to a huge profit rebound last year and stirred resentment of the firm’s bonuses. Goldman paid out about $16 billion in compensation to employees in 2009.
…
Again, why are they just focusing on the short selling? The fraud that enabled/encouraged the short positions happened well before John Paulson decided to short mortgage securities.
IMHO, the are trying to distract us from the real story — the securities that were written WHICH MADE THE HOUSING MARKET GO **UP**!
Agreed. We used to joke in college that if you wanted to eliminate the roach problem, one should ignore the cockroaches you occasionally saw scurrying about the kitchen floor and instead hunt for the really big cockroach nest behind the refrigerator or perhaps inside a wall somewhere. It seems like for some reason or the other, ‘they’ are trying hard to avoid seeing too many cockroaches.
For a hilarious fictional example in film, go see how Steve Carell and Tina Fey get to the bottom of the problem in the movie Date Night. For good measure, there is a great housing bubble collapse laugh line early on in the movie (Tina Fey’s character is a UHS).
“… housing bubble collapse laugh line early on in the movie…”
It goes something like this:
UHS: “It was previously listed at $1.8 million, but now it is on sale for only $320,000.”
Couple: “We just aren’t ready to buy yet. We think the market has further to fall from here.”
UHS: “I understand how you feel.”
Love it!
We’ll have to see that one (if we can ever get a date night).
Foreclosures in U.S. surge to record high
An eviction team removes belongings from an foreclosed home in Aurora, Colo.
An eviction team removes belongings from an foreclosed home in Aurora, Colo. 2010 Getty Images
And forget risky subprime loans – this time it’s driven by homeowners with more conventional mortgages
Washington — Globe and Mail Update Published on Thursday, Apr. 15, 2010 8:15PM EDT Last updated on Friday, Apr. 16, 2010 2:44AM EDT
Another destructive wave of foreclosures is crashing down on U.S. homeowners as banks begin to deal with the massive “shadow” inventory of bad mortgages on their books.
Defying costly government efforts to keep Americans from losing their homes, banks are foreclosing on properties and repossessing them at a record pace.
RealtyTrac reported Thursday that foreclosures reached a new high of 367,056 in March, up 8 per cent from the same month last year. Banks also took possession of a record 260,000 properties in the first quarter, up 35 per cent from a year earlier, according to RealtyTrac, which began issuing its reports in 2005. “Lenders are starting to make a dent in the backlog of distressed inventory that has built up over the last year,” RealtyTrac president James Saccacio said.
The so-called shadow inventory is made up of mortgages where borrowers have fallen behind on payments, but the bank has not yet moved to seize the property. U.S. banks were under intense political pressure to stem the rising tide of foreclosures last year in the thick of the financial crisis.
Nevada, Arizona, Florida and California – the same states where the housing crisis began – continue to lead the U.S. in foreclosures. In Nevada, for example, one in every 33 homes received a foreclosure notice in the first quarter – four times the national average.
The first wave of foreclosures, which began in 2007, was mainly caused by risky subprime loans to marginal borrowers.
But RealtyTrac spokesman Daren Blomquist said this latest surge is being driven by homeowners with more conventional mortgages, who have either lost a job or are making a conscious decision to walk away because their home is worth less than the outstanding mortgage.
“It’s not necessarily the case that people can’t afford their payments,” he said. “It’s often that it’s not in their economic interest to keep their homes.”
…
“‘It’s not necessarily the case that people can’t afford their payments,’ he said. ‘It’s often that it’s not in their economic interest to keep their homes.’”
But it is in their economic interest to stop paying on the mortgage and keeping living in the house anyway.
This wouldn’t kill the banks if a few people did this but it certainly would kill the banks if everyone did this.
Soooo … to prevent this trend from getting out of hand the banks are now foreclosing on FBs and tossing them out into the cold. This sends a message to other FBs: Stay and pay or out you go.
What’s wrong with killing banks that are bad at banking? The ones that are not killed are likely to be much better at banking than the ones that get killed. This is the beauty of Darwinian capitalism — if allowed to operate without government interference (e.g. Fed/Treasury sponsored bailouts), moral hazard would be drummed out of the system and sound banking practices would return.
Combotechie must be a banker, because he’s all about the banks.
I’m not all about the banks. The PTBs are the ones who are all about the banks.
Look at what has been done and qwhat is being done from the point of view of saving the banks and you’ll see what I mean.
qwhat = what
I agree, combo — almost every major bailout or stimulus could easily be interpreted through the lens of an attempt to prop up the banks or to enrich their ‘clients.’
I am a Bank Examiner for the FDIC, and can assure all there is indeed a ton of shadow inventory out there.
Thank you. Could you please shed light on whether government (or quasi-government) collusion is in play to withhold REO inventory release at competitive free market-driven rates? The government could much more quickly achieve its affordable housing objective if banks were not holding inventory off the market.
great question about the collusion. There is no “formal” strategy in place (I have been told by my superiors, and D.C.) we are not in the business of closing banks, and that we need to be a kindler, more gentler FDIC. Essentially kicking the can down the road as they say. The FDIC is grossly under-staffed and (under former Director Powell) this was done by intent. I can’t tell you how many instances of where we have given banks more, time. On exams, all of the bank presidents sound like realtors. “GA is different, CA is different, MI is different, everyone wants to be here, blah, blah, blah: all we need is more time and the market will turn.” The govt. is exerting enormous effort (FDIC included) to prevent a “marking to market.” As others here have stated, we are essentially in a controlled crash. There are no formal policies in place to support the market, just a giant wink and nod that we all know the game being played. FOIA’s are a complete waste of time, the govt. can squelch those quite easily.
‘given banks more time…all we need is more time and the market will turn’
This is where the matter of the housing bubble comes in. Even during housing cycles, prices fall for years. But what we have experienced was a true mania, with prices so high we’ll likely never see them again. IMO, the longer they wait, the more they’ll lose. And people are getting suckered in to buy the ‘bottom’, with every govt carrot imaginable.
I went over this stuff with a REO broker who worked in Orange county in the last bust. They were set up to foreclose, change locks, paint, carpet and market these houses like a machine. Why? Cuz they knew next month the price would be lower. That’s not happening in many markets this time.
‘The govt. is exerting enormous effort (FDIC included) to prevent a ‘marking to market.’
That worked well for Enron…
‘we are essentially in a controlled crash’
I suppose the value of this could be debated. But using tax credits and low down govt loans to shift ownership, at exactly the same time as the supply is being controlled, is something that will eventually be seen as a disaster, IMO. And note something that is well know; there are millions more defaults ahead.
“I suppose the value of this could be debated. But using tax credits and low down govt loans to shift ownership, at exactly the same time as the supply is being controlled, is something that will eventually be seen as a disaster, IMO.”
This is the part that gets me. Can’t the politicians foresee the makings of a future political backlash when it comes to light how many first-time buyers were lured by the $10K credit into catching themselves falling knives? I suppose there is no reason a future government program cannot be announced to help those who were ‘hurt’ by the $10K credit incentives…
Appreciate you stating the obvious, but given your position I think we’d benefit from a bit of information we don’t already know. Care to share something new? The shadow inventory problem is easily identified by scrawling down a few dozen vacant home addresses within one’s neighborhood, then searching the mls to find almost none of them listed for sale.
Grizzly is right Dan.
Can you help us out here? We all see the signs of a shadow inventory and suspect that it is being manipulated to prop up the valuations. That is good for the banks, but detrimental to consumers, so there is an underlying motivation for the banks to meter the sales of REOs.
When you add in the potential negative impact to all of those who bought the MBS and CDOs if the entire inventory were allowed to come to market naturally there is enough motivation for collusion from top to bottom. But collusion on even the lowest level, let’s say amongst banks, is difficult to prove. Point us in the right direction.
“We all see the signs of a shadow inventory and suspect that it is being manipulated to prop up the valuations.”
Some of us wearing tinfoil hats may suspect the Fed or other high level government agency is involved, as government-engineered higher residential property valuations would increase the value of toxic MBS, thereby enabling Megabank, Inc to unload their toxic assets on greater fools at above market prices.
Deep Throat? Is that you?
Hi Dan:
Thank you for this post. I think the best way you could help is to let us know whether or not there is any documentation that might be requested through the FOIA that would show whether or not there has been collusion leading to this shadow inventory. Whether this collusion occured in the form of government encouragement, FDIC policy, or direct bank-to-bank shenanigans, it would help everyone if we knew.
I hope you posted under a fake name.
You could help by sending such information (if you know of it) directly to Ben, or by posting it on the blog. The thing is that, with an FOIA request, you have to know what to ask for, which is nearly impossible without a leak.
Thanks.
I posted this above, but thought I’d repost here:
1) I will tweak these questions for the Federal Reserve and provide answers to Ben.
2) Who will tweak the questions for the Comptroller of the Currency?
3) Once we’ve gotten answers from all 3 Federal agencies, let’s regroup and decide what to do next. If we remain ahead of the game, then the very first knife catchers to take it in the pocket book will probably be happy to join a suit.
Apparently I am not the only one who advocates chopping up Megabanks into smaller, transparent, competitive, non-systemically-risky pieces as a remedy to the Too-Big-to-Regulate problem.
The Baseline Scenario
What happened to the global economy and what we can do about it
Our Pecora Moment
with 190 comments
By Simon Johnson
We have waited long and patiently for our Ferdinand Pecora moment – a modern equivalent of the episode when a tough prosecutor from New York seized the imagination of the country in the early 1930s and, over a series of congressional hearings: laid bare the wrong-doings of Wall Street in simple and vivid terms that everyone could understand, and created the groundswell of public support necessary for comprehensive reregulation. On Friday, that moment finally arrived.
There is fraud at the heart of Wall Street, according to the Securities and Exchange Commission. Pecora took on National City Bank and J.P. Morgan (the younger); these were the supposedly untouchable titans of their day. The SEC is taking on Goldman Sachs; no firm is more powerful.
Pecora exposed the ways in which leading banks mistreated their customers – typically, retail investors. The SEC alleges, with credible detail, that Goldman essentially set up some trusting clients and deliberately misled them – to the tune of effectively transferring $1 billion from them to a particular unscrupulous investor.
Pecora had the drama of the congressional hearing room and used his skills as an interrogator to batter the bastions of Wall Street, day-after-day, with gruesome and convincing detail. We don’t know where and when, but the SEC action points in one direction only: Lloyd Blankfein (CEO of Goldman) in the witness box, while John Paulson (unindicted co-conspirator) waits in the on-deck circle.
Either Blankfein knew what was going on – and is therefore liable before the law – or he was clueless and therefore incompetent. Either way, the much vaunted risk management and control systems of Goldman, i.e., what is supposed to prevent this kind of thing from happening, are exposed to be what we have long here claimed: bunk (as I argued with Gerry Corrigan, former head of the NY Fed and long-time Goldman executive, before the Senate Banking Committee when we both testified on the Volcker Rules in February).
“Too big and complex to manage” is actually the best defense for Goldman’s executives and they should offer to break up the firm into smaller and more transparent pieces as a way to settle the firm’s liability with the SEC. The current management of Goldman – along with the team that ran the firm under Hank Paulson – have destroyed the value of an illustrious franchise. Goldman used to stand for something that customers felt they could trust; now it is just a sophisticated way of ripping them off.
…
This has been out there for a while, but has lost none of its relevance. If anyone could provide the names of firms which are parodied here, I would be indebted to you.
The Subprime Primer
For instance, who is RSG Investment Bank supposed to represent?
Economic Preview
April 18, 2010, 9:00 a.m. EDT · Recommend · Post:
Signs of life in the zombie housing market?
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Economic data has been so upbeat in the last few days that economists are pondering an almost-unthinkable question: Could there even be signs of life in the zombie housing sector?
Jonathan Basile, economist at Credit Suisse, believes the recent data has been so positive that it shows the economy has turned the corner, although Main Street won’t believe it until they see the unemployment rate come down in a steady fashion.
“It is hard to deny the improvement,” agreed Mike Moran, chief economist at Daiwa Securities.
Last week saw reports that American consumers were back spending in March, that factory production has been picking up, and that overall economic activity is growing at a faster pace in almost all areas of the country.
I put little stock in predictions for when bubble era pricing will return. For instance, who upon watching the Japanese residential real estate market tank in the early 1990s could have predicted the market would still be far underwater two decades later? My best guess is that bubble-era pricing will never return over the future lifetimes of most living Americans in many markets formerly referred to as “a bit frothy.”
I do find their predictions for no return to bubble-era pricing for several decades hence in Sacramento and Orlando to be highly compelling.
WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal
* Banks Deploy Armies of Staff to Mortgage-Default Front
* Pols Attack One Another Instead of Mortgage Lenders
* April 13, 2010, 12:06 PM ET
For Some Markets, Bubble-Era Prices Decades Away
By Dawn Wotapka
Here’s another indicator that bubble-era housing prices were outrageously overblown. Home prices in some areas won’t return to those peak levels for a long, long time–decades in some extreme cases, according to a report out Tuesday from Fiserv, Inc.
In Orlando, where prices peaked in mid-2006, prices aren’t expected to return there until after 2039. The city is, in fact, still waiting for bottom: That’s expected in the second quarter of 2011. Sacramento, which peaked in late 2005, also won’t see a return for some three decades.
Long waits aren’t just expected in the boom-to-bust markets where overbuilding ushered in an era of plummeting prices and rampant foreclosures. High-levels of unemployment and a decline in manufacturing gigs has stung demand and prices in the industrial Midwest, including Michigan, Indiana and Ohio. These markets won’t return to peak levels for at least five years–and potentially more than a decade, according to Fiserv’s report.
Still, the “picture is not uniformly grim,” said David Stiff, Fiserv’s chief economist. “Some markets are poised for a relatively fast recovery, including some areas that never experienced large declines in prices.”
Markets that could see prices bounce back within the next few years include Pittsburgh, Columbia, S.C., and several metro areas in Washington, as well as Texas and upstate New York.
San Antonio looks to be a lucky market: Those prices should trough later this year, with previous peaks returning in late 2012.
…