Nothing to See Here. Move Along.

Zerohedge and The Atlantic Monthly have articles up today about mortgage insurer Ambac's lawsuit against Bear Stearns and JPMorgan.  Each article has a different focus, and I think zerohedge has the more sophisticated take on what recently revealed internal Bear Stearns e-mails portends:

Today's mortgage fraud stunner comes from Bloomberg's Jody Shenn who reports on the ongoing lawsuit between Ambac and former Bear Stearns mortgage unit EMC, now part of JP Morgan. In what can only be classified as fraud-cum-double dipping-cum-AIG/Goldman, "JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns. “That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements." The bottom line is that JPM, which has so far been able to escape largely unscathed from the fraudclosure scandal, is about to take front and center. The reason: the very first line of the just released Exhibit 1 to the Ambac lawsuit: "In mid-2006, Bear Stearns induced investors to purchase, and Ambac as a financial guarantor to insure, securities that were backed by a pool of mortgage loans that - in the words of the Bear Stearns deal manager - was a "SACK OF SHIT." But the stunner, and nothing short of a full-blown scandal if proven true, is that Bear Stearns (aka JPM) after funneling misrepresented loans with Ambac's insurance, "implemented a trading strategy to profit from Ambac’s potential demise by “shorting” banks with large exposure to Ambac-insured securities." This needs its own congressional hearing right now, followed by a few wristslaps. After all such wholesale fraud can never possibly be prosecuted in the world's most advanced country.

The Atlantic Monthly article suggests that at least some of these internal e-mails come from Bear Stearns "whistleblowers," one of whom is identified by name in a prior Atlantic article (the above-linked Atlantic article provides a link to this article).

So, let me get this straight, we have former Bear Stearns insiders "blowing the whistle" and clearly talking to anybody who would listen-- including reporters, the victims of Bear Stearns' fraud, and the attorney general of New York-- but they didn't talk to federal law enforcement?  Really?  Sorry, but that's not possible.  Indeed, it is impossible to imagine that such insiders did not reach out to the SEC first. 

If reporters want a real story, they should be asking the whistleblowers about their interactions with federal agencies like the SEC and the DOJ.  Exposing the apathy of federal law enforcement towards such crimes would be an eye opener for a lot of people.

Between the zerohedge article (which links to a copy of the exhibits themselves) and the two Atlantic articles, we have a picture of leveraged fraud:

1. Bear Stearns defrauded borrrowers (falsifying borrrower info to secure loans they did not qualify for)
2. Bear Stearns defrauded ratings agencies (failure to disclose lending fraud)
3. Bear Stearns defrauded mortgage insurers (misrepresenting quality of the loans)
4. Bear Stearns defrauded the mortgage trust and mortgage-backed securities investors (no transfer of loans to the trust)
5. Bear Stearns defrauded the loan originators by selling them back loans that they did not have proper title to (the loans should have been transferred to the mortgage trusts)
6. Bear Stearns defrauded the stock market by shorting the stock of mortgage insurers that had insured Bear Stearns' "sack of shit" mortgages (trading on material non-public information)

And you can bet that if Bear Stearns was doing it, everybody on Wall Street was doing it. 

This story also provides an additional wrinkle on the MERS fraudclosure mess, confirming the suspicions of people like Karl Denninger that banks did not transfer title to mortgage trusts so they could resell the same mortgage multiple times. 

But, hey, nothing to see here.  Move along.

Question: When is an MBS really just BS?

Answer: when there are no mortgages backing it.

The Massachusetts Supreme Court today ruled against US Bancorp and Wells Fargo, finding that both banks had failed to prove that they owned securitized mortgages they had foreclosed upon, rendering the foreclosures invalid.  See the Bloomberg story here. 

A number of people have posted their take on the decision.  Here are Karl's, Yves' and Calculated Risk's.  I'm somewhere between Karl and Yves.  CR mistakenly assumes that the problems are curable, that the banks just mislaid the paperwork.  I'm with Karl in believing that the paperwork never existed or was destroyed, which means that the banks won't be able to cure the problem.  Indeed, if the banks had the paperwork in this case, they had plenty of time to find it and produce it before the Mass Supremes ruled.

Perhaps my favorite take on the decision came from a CNBC pundit who argued that the U.S. Supreme Court will have to weigh in, and that all this decision will do is cause further delay in "clearing the inventory" of housing.  As to the first point, I see nothing in the Ibanez decision that would provide the SCOTUS subject matter jurisdiction because it is purely a matter of state law.  As to the second point, what the Mass Supremes have done is give two families their homes back, i.e., it cleared that inventory quite effectively.  This likely will be true for many, many homes in Massachusetts: the inventory will be cleared because homes were not properly foreclosed upon in the first instance and should never have been on the market, i.e., they should never have been part of the housing inventory.

Going back to the CNBC pundit, I found it both creepy and disgusting that the guy cared more about the housing market working "efficiently" than following the rule of law. 

Lessons in Propaganda: Fraudclosure Mess Edition

Yves Smith has a new post up on rumors that the state attorneys generals are nearing a settlement with the banksters.

Yves is highly skeptical, but that's because she still believes that the rule of law matters.  Nevertheless, she is extremely sharp and attuned to the propaganda (aka public relations) techniques pioneered by the likes of Walter Lippmann and Edward Bernays, and she does a good job of parsing the "news" (rumors, really).  She could well be right.

Anyway, one of the things you learn in working with crisis management public relations firms is how to identify your constituents and market your message to all of them.  (I speak from experience; it wasn't fun, but it was educational.)  Perhaps a lot of these rumors about Congress passing a law to sweep the fraudclosure mess under the rug were really aimed at the state AGs: either you play ball and get something; or you don't and get nothing.

Do not underestimate the depth of the game that is being played.  A settlement is the best solution for the banks and the Obama administration, and false rumors of settlement could actually bring settlement about, if the AGs believe that the alternative is worse (and breathless rumors of the revivification of H.R. 3808 don't help).

And, no, this is not a conspiracy theory.  It's the art of manipulation, of manufacturing consent.

Here are links to Bernays' Propaganda, and Lippmann's Public Opinion.  These are the bibles of manipulating the public mind.

Lame Duck Watch: Legitimizing Foreclosure Fraud Edition

I have previously posted about the fraudclosure mess here, here, here and, more recently, here.  To summarize, I never thought that H.R. 3808 was ever a big deal, but I thought the fraudclosure mess was a much bigger deal than it has been portrayed in the mainstream media.

But wait, H.R. 3808 appears to be back.  There's a lot of breathless talk about this, especially from one of my favorite curmudgeons, Karl Denninger.   The claim is that Congress is going to attempt to override Obama's veto of H.R. 3808.  I don't buy it.  Yes, the override procedure has been set in motion, but the same steps lead to laying the bill to rest once and for all.  We'll see.

Regardless, H.R. 3808 alone is not nearly enough to sweep the fraudclosure mess under the rug.

I've done a little digging, though, and there is a straightforward, one-step approach for Congress to pass a law that forgives and perpetuates fraudclosre without ostensibly passing an ex post facto law.  I still think this approach violates Due Process, but there is precedent.

It turns out that there are two federal non-judicial foreclosure statutes (12 U.S.C. Sec. 3701 et seq. and 12 USC Sec. 3751 et seq.).  Currently, these statutes are limited to mortgages owned by HUD.  One way that Congress could avoid the fraudclosure mess, which has been caused by judicial foreclosure states, would be to expand the federal non-judicial foreclosure subject matter jurisdiction to include private rights of action based on securitized mortgages and/or government-guranteed mortgages.  Voila: no Due Process required; fraud authorized!

If you're looking for legislation that may possibly affect the fraudclosure mess, in addition to the keywords that other sites have listed, make sure to add "Title 7," "Title 12," "Title 15," "Title 28," "7 USC," "12 USC," "15 USC," and "28 USC."  In view of the above analysis, I think it is possible for Congress to pass a sweeping change without using many (or any) of the foreclosure-centric keywords.  Also look carefully at anything offered by an outgoing member of the legislature (especially Chris Dodd and perhaps even Russ Feingold; nobody is above suspicion).