On Mar 23, 8:16*pm, F. George McDuffee gmcduf...@mcduffee-
associates.us wrote:
On Sun, 23 Mar 2008 15:14:07 -0700 (PDT), Too_Many_Tools

wrote:
Did lenders have the option of not lending money to those who could
not pay their loan obiligations?

Or did they commint fraud with their depositor's funds?

TMT

=============
Major problem in perception here.

With the demise of the *LOCAL* bank or S&L and their replacement
with the national megabanks (possibly through a "stealth
roll-up"), the people originating the mortgage, the agent for the
buyer, the agent for the seller, the appraiser, etc. are *NOT*
the same entity, and are likely part of a nationwide chain such
that many to most of the people involved are not knowledgable of
local trends and conditions. *

Everything was computer based off the FICA score. *The old
computer adage "garbage in -- garbage out" was totally ignored,
and quantity was stressed over quality and service. *Note that
the bank, has little or no skin in the game at this point, AND
DID NOT MAKE THE LOAN, except for possibly fronting the mortgage
originator, and this is a limited exposure, with considerable
collateral, i.e. the house.

The new "mortgage" was bundled or aggregator with thousands of
other mortgages by yet another "family", into a novel financial
instrument called a CDO or MBO [collateralized debt obligation or
mortgage backed obligation]. *In general, these bundled mortgages
are now actually owned by a trustee corporation domiciled in
Aruba or another tax haven, and are beyond the reach of US
law/regulation, although the actual aggregation was done by a
major US financial firm. [Ain't globalization wonderful!] *The
bank still has minimal skin in the game at this point, the main
exposure being a little front money for the MBO aggregator.

The synthetic structured CDO was then "rated" by one of the major
rating agencies such as Ambec, Moody's etc, as AAA investment
grade (apparently after a long lunch with several pitchers of
martinis). * [Note that these agencies, if you will scrape enough
dog poop together and spray it with gold paint, (and pay the
fees) will certify the new gold ingot.] *In many cases, the AAA
investment rating was "insured" for 5 (or more years) years by
the purchase of a CDS [credit default swap] that
"insured/guaranteed" the [re]payment of interest and principal.
The major problem is the CDSs are totally unregulated and
unregistered, and the majority of guarantors are alien
corporations in foreign jurisdictions, with no
veriafiable/attachable assets. *[Still little to no bank skin in
the game, although bank profits (but not depositor returns) are
mounting because of the service fees.]

At this point things get strange. *Everyone knew that their CDOs
were as phony as a 3 dollar bill, but assumed that the other guys
were "good as gold" *(after all they had that CDS "guarantee").
The AAA investment grade CDOs/MBOs were then sold by the billions
to hedge funds, pension funds, etc. *In order to boost the
return, the basic capital was leveraged by borrowing to the hilt,
for example Carlyle Credit Corporation borrowed/leveraged from
the banks and invested 32X their capital into AAA rated
"securities." *At this point the banks had huge amounts of their
depositors [but possibly not their own] skin *OPERATIONALLY* in
the game, but not on paper. *In order to allow this kind of
leverage (and keep the grift going), it was necessary on the part
of the commercial banks to evade the 10% loan reserve / vault
cash requirements, which they did using the Enron method of SPEs[
special purpose entities], SIVs [special investment vehicles],
conduits, and several other scams. *Unfortunatly, there is no US
regulation on "leverage" in other than commercial banks. *

On a day in September 2007, some twit walked into a bank and
wanted to cash a twenty dollar check on his account, but the bank
didn't have that much cash on hand, and the dominos started to
topple. *As soon as the PSPEs/SIVs etc. fell, they went back on
the bank's books, and it became apparent how badly the depositors
were exposed.

Note that in many cases, the depositors provided the money that
was "amplified," which they then borrowed back to buy that new
Hummer with a home equity loan... [O'Henry would have loved it]

Were any laws and regulations broken in this convoluted and
arcane chain? *

Apparently not, as each link in the chain was carefully sized on
a "need to know" basis, to limit individual/organizational
accountability, and maintain "plausible deniability."

However note that for exactly this reason, both federal and state
conspiracy statutes prohibit these types of operations under both
criminal and civil law as well as the federal RICO act. *That
said, it is very unlikely that any of the major players will ever
go to trial, *do time or pay any fines [they got copies of the
paperwork showing who got a "piece of the action" ], but a
"Martha Stewart" and "Sam the Sweeper," or two will go under the
wheels of the bus.

Are we rich yet?

Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

A question....

I keep hearing how "nobody" knows who owns these mortgages.

Why?

But at the same time, they do know gets the monthly mortgage payment.

In my world if you know who is owed, you know who owns the note.

The saying "follow the money" still holds true....

TMT