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Gonzalo Lira On What Brian and Ilsa Said To Their Bank: “Show Me The Note”
Submitted by Gonzalo Lira
This Is What Brian and Ilsa Said To Their Bank: “Show Me The Note”
So the week before last, I wrote about Brian and Ilsa, a retired couple in their mid-to-late sixties, living in a house in the Southwest that had—unremarkably—gone underwater.
They had tried to refinance their home mortgage, under the auspices of the HAMP, the Home Affordable Modification Program. HAMP was part of the Financial Stability Act of 2009—the famed “Stimulus Package”.
Under this program, the principal of Brian and Ilsa’s mortgage loan would remain the same—they would not be getting a free ride. (Some readers mistakenly thought that they would. See note at bottom.)
But though the principal of their mortgage loan would remain the same, the period of their mortgage would be extended—and the loan itself would be refinanced with a lowered mortgage rate of 2.75%, from the 6.25% of the original mortgage.
Therefore, their monthly payments would go down roughly 40%—a significant amount for them, especially after their retirement savings had taken a big hit following the Global Financial Crisis.
What had been dreadful about Brian and Ilsa’s case was that, though they qualified for HAMP—and indeed, HAMP had contacted them, at least initially—they were given the bureaucratic runaround for several months, before they were finally allowed into the program.
And then, three months after their mortgage had been lowered, with no warning, they were told that they in fact did not qualify—even though the program fit them like a glove.
Indeed, the program had been tailored for people exactly like them: Retirees, who had suffered unforseen medical expenses on top of having their house go underwater. People who weren’t looking for a handout, but just to refinance so as to take advantage of the now-lower interest rates, and thereby lower their monthly payments.
But now, the bank was saying that they didn’t qualify. Out of the blue, no explanation, no appeal, nothing: They simply no longer qualified. To add insult to injury, they were also told that not only did they owe the difference in mortgage payments—they also now owed a penalty fee, for “incomplete payment”.
Brian and Ilsa tried complaining about the unfairness of the situation, but once again, they were given the runaround.
Then, they and I both discovered that a lot of the people who were initially said to qualify for HAMP in fact did not qualify—they were added to the program so that banks and servicers could collect Federal government bonuses, then bumped off the program once their three-month “trial mod” was over.
It didn’t matter if they qualified or not—it was all just some sort of sick game with these people, done so that they could get some of that Federal government bonus money. The proof of this was the undisputed testimony of a whistleblower—whose testimony was of course ignored by the mainstream media.
After all this heartbreak and frustration—and fear—Brian and Ilsa had reached the end of their tether: Ilsa had said, essentially, Fuckit, and was urging her husband Brian for them to strategically default. Brian was wavering, though he was as equally outraged as his wife.
The point of my piece was, If and when solid upstanding middle-class people such as Brian and Ilsa ever do throw in the towel and let out a collective Fuckit, then it’s curtains for the American Republic: You cannot have a viable society where the backbone of the country thinks that following the rules and the law is for suckers and chumps.
With the facts of their story in hand, I went off and wrote up my piece, posted it—and watched as it garnered 50,000 hits in a matter of days—over 70,000 hits as of today, eleven days later—and it’s still going strong.
I’m a pretty good writer—but I’m not that good of a writer: Clearly, my piece touched a nerve. Touched a nerve? More like gouged it out, put electrodes to it, then went all Abu Ghraib on it—that’s how vehement some of the reactions to my piece were.
Life goes on. Between when I last spoke to Brian and Ilsa, and when the reactions to my post started rolling in, Brian and Ilsa’s story continued, of course—
—and it took quite the amazing turn over the last couple of weeks.
“And we have you to thank,” Ilsa told me.
“Oh?” I said.
“Yes indeed,” said Brian—and then he explained:
While interviewing them, I had also been working on my “The Second Leg Down of America’s Death Spiral” post—the one where I swore up a storm.
In that piece, I discussed the mechanics of the Mortgage Mess, and how a seemingly trivial issue—chain-of-title—could well clog up the system and bring a collapse in the mortgage market.
I had explained how the banks, in their urge to securitize, had been sloppy with the mortgage notes. I explained how, potentially, this could mean that homeowners with mortgages might well be able to get out of their debt, since no one could now show who legally owned the note. Not just people in foreclosures—everyone with a mortgage that had been improperly handled.
While interviewing Brian and Ilsa, I had talked about these issues to them, at some length. Whenever they needed to take a break from telling me their own story—which as you can imagine got them wound up to high heaven with frustration and worry—I would stop and tell them about the Mortgage Mess, and what I was finding out about it: The crooked law firms manufacturing documents, the shyster banks who owned—outright—Congress. The whole sordid mess.
Also, talking to Brian and Ilsa about the ins and outs of the Mortgage Mess was my way of wrapping my head around the complicated issues at hand, and making sense of it before I wrote about it.
I thought that Brian and Ilsa were only half-listening to me, out of politeness, whenever I rambled on about MBS’s and chain-of-title and MERS and all the rest of it—but they paid me a lot more attention than I realized, at the time.
(Note to self—consider adding another aphorism: Always assume people are listening to you more closely than you realize, even if they seem to be distracted.)
A desperate person with a little bit of knowledge can be a dangerous thing—as Wells Fargo, Brian and Ilsa’s bank, soon found out.
Last Monday, October 4, after I had finished interviewing them and was busy writing my original post on the pair, Brian mulled over what I had told him about chain-of-title and the Mortgage Mess—I can just see him, head lowered, looking up: The epitome of the Kubrick Stare.
Brian dashed off an e-mail to his bank that night—a quick post, where he explicitly said, “I want to see the loan note where it says I owe you money, or else I’m contacting my lawyer and halting payment on my mortgage.”
The very next day, someone from Wells Fargo called them.
Not a machine, not a customer service rep in India—an actual, honest-to-God, alive-and-kicking bank executive.
She apologized profusely about the HAMP screw up—said that Brian and Ilsa qualified, they qualified, they qualified!, and that she would be the one to “straighten out their situation”.
Brian and Ilsa couldn’t talk that Tuesday, when the bank executive called. And for various reasons, they couldn’t talk Wednesday either—they finally talked to the bank executive on Thursday . . .
. . . and during those three days, it was the executive who chased them: Two e-mails to their AOL account, two phone calls on their answering machine.
On Thursday, when they spoke, the bank executive was sweetness and light—she told them that Ilsa and Brian qualified for HAMP, that they would get refinanced, that they would not have to pay the difference in mortgage of the last three months—“Your lower mortgage rate is locked in!”
And as to the $84 penalty fee, which had driven Brian in particular up the wall: It was waived.
Ilsa told me, “It was the nicest conversation we’ve ever had with a bank executive.”
The executive promised to have the papers drawn up, ready to be signed before November 1.
That’s right: November first. After dicking them around for months on end, Wells Fargo all of a sudden went from turtle-speed to light-speed—to warp-speed—boom!—just like that. They didn’t even engage thrusters, Captain—it was warp drive the instant Brian e-mailed that threat.
Threat?, you say. What threat was that?
The threat Brian laid down, in the e-mail he sent Monday night:
Show me the note, motherfucker!
That threat.
As I discussed in some detail in my “Second Leg Down” piece, the process of creating Mortgage Backed Securities inherently created ambiguity as to the note holder. This ambiguity in and of itself was not the problem—the problem was, along the way, the chain of title of the note was broken in a lot of mortgages. Thousands of them—maybe even millions.
At the same time, there was massive fraud by so-called “foreclosure mills”—bottom-feeding law firms hired by the banks to carry out the judicial process necessary for foreclosure and eviction. According to credible reporting (as I have mentioned, Yves Smith at naked capitalism has been all over this), the foreclosure mills were not only falsifying signatures, but they were outright fabricating documents—in short, committing massive perjury.
So between these two issues—broken chain-of-title, and systematic document forgery by the foreclosure mills—all of a sudden, the banks have a massive problem on their hands: Legally, their ownership of the note can be challenged—and if the blatant illegalities of the foreclosure mills touched the particular note, then its foreclosure could be in question.
All of a sudden, massive numbers of foreclosures and mortgages could be called into question.
So when Brian e-mailed and asked about the note of his mortgage loan? That was like a cattle prod to the crotch—that woke up Wells Fargo.
There was a reason the bank executive called them back the very next day, and warp-speeded their HAMP refinance: Brian and Ilsa’s note is probably either lost, or it’s been irretrievably besmirched by the broken chain-of-title mess, or the foreclosure mills mess, or perhaps both.
By refinancing, a new note is generated on Brian and Ilsa’s mortgage loan: Pristine and copacetic. They have to sign this new note in order to get the refinance. It doesn’t matter how the loan is refinanced—under HAMP auspices, or by any other means—once the homeowners sign on the line which is dotted, all of Wells Fargo’s troubles with that particular loan vanish—
—but they have to get people like Brian and Ilsa to sign: No tickee, no laundry.
I explained this issue to Brian and Ilsa, and furthermore told them that, insofar as their relationship with the bank is concerned, they’re in the driver’s seat:
If they wanted to? They could insist on seeing the note, hire lawyers, and take this to court—where Wells Fargo would lose.
The bank would lose because, once Well Fargo fails to produce their note, or the note’s chain-of-title is shown to be irremediably broken, the judge would be left with no choice but to declare that Wells Fargo has no standing to foreclose and evict Brian and Ilsa from their home. If Wells Fargo can’t produce a valid note, who are they to claim Brian and Ilsa owe them money?
This is how Brian and Ilsa—and the millions of other homeowners with mortgages, not just people being foreclosed upon—could wind up with their house scot-free, while the banks—and the Mortgage Backed Security holders—would be left eating the losses.
(Very important note: In my previous post, I skipped these specific legal steps, concerning how exactly homeowners could potentially wind up walking away from their mortgage loans, yet keeping their houses. Most important of all, I failed to explain how a broken chain-of-title nullifies a bank’s standing in court to bring about foreclosure and eviction proceedings. This failure of mine happened because I was so into the material that I didn’t realize that ordinary readers might not see or know the specific steps that would lead to a homeowner giving the shaft to their bank. I hope I have clarified the issue with the above explanation. Please accept my apology, and excuse my mistake.)
“If you play your cards right,” I told Brian and Ilsa over the phone, “you could get your house for free.”
Like I said in my first post about them: Brian and Ilsa are salt-of-the-earth people.
“But we took out a mortgage—we owe that money,” said Brian. Ilsa said, “All we want is what we were offered: A lower monthly mortgage payment.” Then Brian added, “We don’t want to take advantage of anybody—that would be wrong.”
Wells Fargo is lucky—how many other people are going to act as decently as Brian and Ilsa?
Actually, that’s the wrong question: Which of the banks, or the bank executives, deserve to be treated so decently?
I can’t think of a one.
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I want <1% at the discount window! Just like the banks get.
This is not brian and ilsa's fault. My understanding is that law requires all transfers to be done in writing so that chain of title can be clearly shown. If the banks didn't follow the law and Brian and Ilsa enforce their rights to see the note (See UCC 3-501, Presentment) and the bank fails to live up to the laws, it is not Brian and Isla's fault.
Rather than be mad at them, go ask your bank for the wet ink note. Join the fun rather than being upset!
I'm tired of not getting the benefits too, thats why I have asked my bank for the wet-ink note. I went down to the county recorders for lunch and paid my 1$ per page to get the deed of trust. You can learn while getting what the law provides you.
Im done complaining. Its time to "join the fun".
Don't be distracted by jealousy.
The Banksters are winning both ways here; they got bailed out by the taxpayers, and now they are undermining the rule of law.
The bailouts and backstops for Banks and Corporations and everyone except the responsible individual is a TRAGIC mistake.
I already feel like a sucker and a chump for paying my bills and mortgages for 30 years; why? So Wall Street gets a bonus? So they can take more of what I make away? To build someone's McMansion and buy their Escalade?
Fuck that.
Very happy for this couple who got hamped. However, do not be fooled into thinking that the notes are not there or will not be found. In the vast majority of cases the strategy will not work and you will lose your home. If you are way underwater it may make sense to default but it is a serious issue.
Actually, it would seem that they got dry-hamped (at least initially).
Go ahead, play chicken with the bank and see who wins. The buyers signed the note, so they know it exists.
So have you been ignoring all of the news stories recently about banks that were destroying the original notes?
There's fear in the air. The only thing bankster know how to do is lie and obfiscate. It's intimidation meant to keep people from even looking at their paperwork.
Go see how funny your paperwork is! You can probably find it in the next 10 minutes on your county recorder's website. I had a famous robosigners signature with an impossible assignment date. But I"m sure the buyer saw the wet note (snicker). I told the investigator at my local precint how to check his house records as well. Lots of guys in his department bought houses by issuing debt that was securitized. Maybe bankster think cops are dumb, but they get smarter when they are motivated I think you'll find out.
How do these two know that Wells Fargo actually owns the current note, and that by refinancing the original note will be discharged? What if Wells doesn't actually have the current note?
That is a good question and they should ask for an indemnity from the bank
Its not a quesion of whether anyone signed the note. The question is "who owns the note".
The owner will have the original with allonge that shows transfers. If the original note doesn't exist, you can't be sure who in the future will show up claiming ownership. If they dont have the original, they dont have a claim. They admit to selling many notes. To whom? Who can claim ownership in the future. Every homeowner needs to make sure that clear chain of title exists. Ask for the wet-ink note as proof.
Title insurance companies are starting to balk at providing title insurance.
Just ask the question and see what happens.
Now, these are the stories to get behind! These people were wronged when HAMP was taken away and they had to pay fees/penalties. Personally, I think the smart play is to take advantage of the refi now while there is uncertainty. Once things clear up, the nice phone calls will probably end. What's the point of banks owning most of the politicians if they can't sweep a little fraud under the rug?
I think ZIRP was put in place to encourage new signatures in order to save the banks.
Refi means new signatures, new note.
I'm of the opinion that now is the worst time ever to refi (even in their situation), as you're letting evil banksters off of the hook. There will eventually be a national solution imposed, and I doubt there is any benefit to solving the problem yourself first.
I've been waiting for another 1/4 pt. drop before I refi, but since nobody has standing to take my house, I'm gonna sit tight (I'm still making payments though).
I'll also be writing my "show me the note" letter, as well as getting everything from the recorder's office.
Just when you thought you heard it all:
Story today on how major TBTF banks (BofA in particular) are plunging into Tax Liens. Distressed states and municipal govs are anxious to collect Anything when homeowners owe even a few hundred in back property, water or sewage taxes. They sell to the TBTFs, operating through shell companies, who then tack huge legal and processing fees onto the tax bills, in effect acting as tax collectors.
The irony here is TBTF bans, bailed by taxpayers in 2008-9, now vulching the little guys, taking advantage of the hard times in the economy and the desperation of state and local governments.
No bailouts for the taxpayers who bailed out the banks.
A little help for my friends.
The Big Business Wall Street Won't Discuss
http://www.youtube.com/watch?v=g2bju39fTTI
following the rules and the law is for suckers and chumps
Welcome to the FIFO economy - Fraud In, Fraud Out.
Gonzalo,
BINGO!.
Dudes,dudettes,IF you do not have a CLEAR NOTE,or ORIGINAL TITLE,on a home, or a motor vehicle, watercraft, etc,etc.........
Your screwed.If you think you own it.
Bank, Store,Individual, no difference.
One of the few tech methods that stands strong is one of the oldest, Fibonacci.
The trick is where do you start and stop the 0% and 100% lines. The answer is not always obvious, and often running form top to bottom of a 5 wave or 3 wave pattern works well. On my ES chart 1040 is roughly the bottom. See attached.
Check the "total market" DWC, we are also at an important Fibo. Investor complacency is high.
And Finally, right before the elections -- "The Housing Boom is Back", see newspaper headlines. I think I am going to buy some lemmings and hang out with them, at least they deserve some respect, :-)
http://oahutrading.blogspot.com/
Sound like alright people, I guess, from what you say.
But I'm not sure why people with underwater McMansions should get 2.75% mortgage rates.
Another form of bailing out everyone who willingly made a losing bet, while people who made good bets get nothing but inflation and bailouts with our tax money.
"Democracy is two wolves and a sheep deciding what to have for dinner."
In this "democracy" wolves = debtors/deadbeats
sheep = EVERYONE ELSE
You seem to have forgotten the rest of the quote:
Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote.
Ben Franklin
Little Lamb can rest a minute while the two Snarling Wolves waste energy engaging in violence to determine which one is Alpha and run off the other.
After that is settled. Lamb only has one target to shoot.
I just hope the Lambs are smart to stay put and not follow the one Wolf. They might be lured into a wolfpack.
I'm not a guru at this, but what would happen is Auto loan securitization gose the way of RMBS? How many people with underwater auto loans might be out there and ask the servicer to "show me the paper?". That could get pretty ugly...
I am sympathetic of course. The bankers seem to be getting-off on their new found power and connections.
I want to hear that speech again from Rick Santelli, one of the most disingenuous ever.
If they can't produce the note, how can they refinance?
I was wondering about that too. One would think the original note would need to be officially closed in some fashion. Is it possible for some day the original note to resurface and suddenly the homeowner has two mortgages?! That would suck.
I doubt the free houses theory, but anyone whose loan is owned by a Remic or was originated by a dicey mortgage company can and should use the fact that the docs are probably sketchy as leverage to negotiate a principal reduction and refinancing. I'm not saying they deserve it, just that's the way the cookie crumbles.
Interesting point: A REMIC cannot be owner of record of any mortgage loans; they are a conduit for securitization only. You can rest assured that their taking any foreclosure action will result in some extreme fireworks.
My Mortgage and Note were assigned to the Trust (MBS) more than two years after the closing of the Trust, by a then bankrupt lender no less. I have demanded the Trustee provide me with proof of valid assignments of both the mortgage and the note to the Trust prior to the closing date of the Trust.
Regarding the Note. I assume they would just do a Lost Note Affidavit. There are some other issues but feel lack of transfer prior to proper assignment is the biggest flaw. Denninger piece said that industry is claiming that Trust documents often state Trustee certifies that documents have been transferrred, even when they weren't, seems to be bank defense -- Trustee certified they had them.
How will that fly -- the certification -- versus the actual transfer. We said we have them, even if we don't....
Funny thing is we have been begging to do a refi but so underwater (FL condo), practically will have to payoff mortgage.
This was a second home, more than 20% down with 790/800 credit scores for both of us. We are current. We have been paying despite everyone else foreclosing, hurricanes, gulf oil spills, etc.
Just want to refi bc it was a cr*ppy loan and wanted to take advantage of the lower rates. Treated us like @%$#@%$.
Maybe now we are glad we didn't refi....
see if your loan is guaranteed by one of teh GSE's - l=put in loan number on the website and if so, contact them.
following the rules and the law is for suckers and chumps
Welcome to the new reality. Look no further than trusting that the Fed (working with Wall Street and banks) has your back: Your Buying Power is about to get crushed. You are living in a dream world if you can't see the now 14pt, italics Verdana bold typeface on the wall: -Housing, incomes, employment and advancement opportunities, retirement assets will continue to deflate -Cost of living and doing business will continue to inflate, crushing margins and personal net worth. The Fed told us as much. You've been forewarned. There is now abundant data that supports the biflation trend which started in 2009. Now with QE2 about to be rolled out the trend will amplify once again: The old jobs and industries are not coming back to the US. Capital is following out the door. Consumers will be increasingly constrained. And the response will be to pump more and more liquidity into the economy like Japan has for over 20 years (where property values continue to decline). Only gold and PMs can protect your buying power from going off the rails.What about TIPS?
TIPS won't help with biflation: they'll keep saying the CPI is "reasonable" but meantime there's just enough deflation to kill your buying power, just as if inflation were running high. Keep in mind they fudge o disguise the real CPI increases.
+1 - you hit the nail on the head. The housing market WILL "go back up", when a cup of coffee costs $15. Krugman is calling for 8-10 trillion in QE - he knows exactly what that means: massive inflation is the only domestically acceptable and politically possible solution for this horse-manure excuse for an economy. It WILL have the ancillary benefit of increasing the export economy.
Eliminating a few corporate CEOs or helicopter dropping 1 trillion on the masses would be far more effective, but neither will happen given the oligarchic control of all institutions.
Try QE of that magnitude and you'll see street activity that will make the Tea Party look like, well... a tea party, with crumpets and all.
Ben will shart it out a trillion at a time over the next few years, and half or more will be concealed in some lame fashion. Most of our complacent TV-heads will lose a little weight complaining and eating less, nothing more. There _will_ be a few uninformed(or will it be uniformed?) looneys that they'll try to marginalize, but eventually their actions will effect policy in some perverse manner. If somebody can strike fear in the banksters hearts, society won't collapse completely. Hopefully he'll be wearing a coonskin cap for effect.
Gonzalo,
I would do it this way:
Let all your friends, and friend of friends, read this article:
http://www.zerohedge.com/article/gonzalo-lira-what-brian-and-ilsa-said-their-bank-%E2%80%9Cshow-me-note%E2%80%9D
then:
ask your bank for note
form here:
http://action.seiu.org/page/speakout/wheresthenote
then:
if there is no note, you have your house back free.
http://action.seiu.org/page/speakout/wheresthenote
Readers:
email this to all you know
Lost Note Affidavits can overcome this. Not sure this, alone, will do it.
Gonzo is the MAN!!
Liar Insurance
Liar Loans
Liar Ratings
Liar Securitization
Liar Titles
Liar Foreclosures
Liar Trades
Liar Bailouts
Bottom line: Corporate welfare reverse entitlements and disappearance of middle class families
Nothing to see here, move on
In case anybody missed this....
Hilarious!!!
Classic ~
http://www.xtranormal.com/makemovies/
They should have sued to set a precedence first,
then settle to refi. Banks have taken too much "salt".
Ilsa and Brian didn't understand that HAMP is not for them - they are the WRONG COLOR.
As far as the "rule of law," the goddamned laws are now written by the CORRUPT. A law written by a crook has no force and effect.
Look at Mozillo - he pays a little fine and walks away. Even if he paid 3/4 of his net worth, he is still an exceedingly rich man.
EXACTLY my sentiments trav. See my comment below. Indeed, it is "law abiding" assholes like Mozilo that are killing this nation.
If orange is the "right color," well...they make pills you can take, if you can find 'em. Canthaxin, I think it is. You can be almost day-glo in a few months.
Excellent article Mr. Lira, but I disagree with the above statement. Indeed, it will be the REBIRTH of the American Republic when The People tell this rotten and corrupt system alongwith its various unconstitutional crooked "laws" written by thieves and banksters to SHOVE IT. Ever since the establishment of the Fed, more and more "laws" have been written with the sole objective of enslaving the populace, so saying "fuckit" to them will be the most important thing that we can collectively do to save The Republic.
Nice to have you back Gordon, big fan. I still refer people to your piece on gold last year as it is one of the best around. Gordon Gekko and Cheeky Bastard sightings within the last week? ZH may be entering a second "golden era."
Thanks for your comment, Gordon. Good to see you here.
We most certainly can! When we, the people who are not screwed to the couch watching the circuses, are fed up then the "law" will become the advocate of ALL people the way it was designed. Which "law" did you have in mind?
Lest I be misunderstood, Mr. Lira, your article is a much needed synopsis of the Earl episode. Having a real family deal with a real problem in a real world of hurt is more of what is needed if there is ever to be a resolution. Thank you for your efforts.
When I imagine my own age group pulling stunts like this to get their share of the "gimme" - it just makes me sick.
Save your tears for these youngsters enslaved by student loan debt, not these people.
Justice would be parasitic offspring. The kind who sell organs. That or a mob killing off parasitic old people.....
That bank "owed" them jack - they just sent their children and *their* children the tab because they could. Bet they've already secured their free scooter......
NY private school: $35K Kindergarten
"But though the principal of their mortgage loan would remain the same, the period of their mortgage would be extended—and the loan itself would be refinanced with a lowered mortgage rate of 2.75%, from the 6.25% of the original mortgage."
Not to nay say all this. What is the new length of mortgage and how much was left on thier original mortgage. I ask because, like myself, i have spoken to alot of folks to tried to negotiate with their lender (servicer).
If you are in deep years, as in, been paying on a 30yr for 8 years already you have 21-22 left to go. What i, and others i spoke to, have been offered....40 yr fixed. LMAO.
Seriously, run the numbers. I said ""Fuckit"", no way i am REFIing a mortgage with 21yrs left, into a 40yr mortgage.
People need to stop and assess if its worth saving their home...or jingle mail the keys and just go rent. Why on this earth would, given that situation, would you REFI into a 40yr, knowing full well housing has not bottomed yet.
Just my 2 cents in all this.
gs_
OTS for Gold Bugs like GL:
MK on AJ saying since NY Fed holds two thirds of German gold, USA likely to impound it.
Can you link to it please?
Great article this time Gonzalo.
I enjoyed it.
Fools is more like it, and let me tell you why. The "money" that Brian and Ilsa "borrowed" in the first place didn't actually exist. The bank fraudulently created it out of thin air via zero-reserves fractional reserved lending and "lent" it to them. If Brian and Ilsa ever realize the process of systemic fraud upon which our entire paper-ticket monetary system is based, they would prefer death to paying back even a cent of bank debt. Banks are nothing but modern day slave owners.
Gordon - I'm confused. Can you explain?
Fractional Reserve lending applies to deposits. Assume you are a bank, you have $100,000 in deposits, and the Reserve Ratio is 10%. This means that you can loan me all but 10% of the deposits you are holding. So you keep 10,000 (10%) and loan me $90,000 (90%).
Now BK wants to borrow $90,000 from you, but you only have $10,000. Assume that you receive no further deposits and that you haven't sold my loan to get your money back. How do you create out of thin air the money that BK wants? My understanding is that you cannot make any further loans because the only money you have is a required reserve amount. You cannot do anything with it.
Exactly, the whole meme refuses to admit that each bank has an oblgiation to the mother ship. While much of the regulations/recognition of these facts has been "suspended", the obligations still exist. In other words, how do banks ever fail? (other than not being politically connected/systemically important enough).
Ah, but pay attention grasshopper. When you sign the mortgage paper, the bank adds the value of the home as an asset and creates the "money" to pay the seller from this new asset in their balance sheet. They are not using money they had in their balance sheet to start with, they created it with when the mortgage was signed.
So, Mr. and Mrs. Smith apply for a home loan. The home is valued at $200k. The bank has them sign a mortgage. The bank then gives them a check for the 200K. The bank adds 200K to their asset sheet based on the mortgage you signed. The seller deposits the check and is paid from the money created by the mortgage you signed. See, magic money!!!
Goldsaver - let's stick with my example. This is lengthy - but you need all of this information in order to understand why you are wrong when you say that banks make magic money. If you are good with accounting, try skipping to the last four paragraphs and see if you get it.
Gordon is the bank. He has $100,000 in deposits. From an accounting standpoint, the liability is what is owed to depositors ($100,000). The asset is the actual $100,000 that Gordon (the bank) holds. Now loan me $90,000 to buy a house. What are Gordon's liabilities? The same as they were - what he owes the depositors ($100,000). What are Gordon's assets? The $10,000 kept in reserves, and the loan for $90,000 to me. That 90,000 loan is recorded on Gordon's books as an asset. Gordon's books balance.
As a prudent banker, Gordon demanded from me something to back the loan. That something is the mortgage that says Gordon can take my house if I don't pay back the $90,000 loan. As a prudent banker, Gordon makes certain my house is worth at least $90,000 before he accepts it as collateral for the loan.
Please note - the mortgage is only a document that gives Gordon the right to take my house if I don't pay him the $90,000 I borrowed. The loan to me is listed as an asset on Gordon's books. The mortgage document is NOT listed as an asset on Gordon's books.
Get this: Gordon has an either/or asset. Either he gets my loan repayment worth $90,000 (plus interest) or he gets my house (if I fail to pay). Gordon does not get both. Gordon loaned me $90,000. It shows up on his books as an asset only once.
So I ask again: BK asks Gordon for a $90,000 loan. Gordon does not take in any more deposits, nor does he sell my note to get back his money. All he has is the $10,000 required to be in reserve. How does Gordon create out of thin air the money that BK wants?
goldsaver did not answer this question because he violated my premise. He had the seller of the house deposit his payment back into the bank. I said no further deposits were allowed. If no further deposits are allowed, Gordon cannot give BK the $90,000 he is asking for - because banks do not and cannot make magic money. What they can do is loan out 90% of additional deposits. If we use goldsaver's example where seller deposited his payment for the house with Gordon, ($90,000), Gordon has additional deposits that he can loan 90% of. Gordon cannot give BK the $90,000 that BK is asking him for. He can only give him 90% of that amount.
Fractional Reserve banking is based on deposits. Without additional deposits, a bank cannot make additional loans. They cannot make up money out of thin air.
Having said that, working out the Fractional Reserve banking process from, say, loaning out $90,000 all the way down to loaning out 90% of a penny - by having all loans deposited back to the same bank - makes one's head spin. In reality, loans get deposited all over the place, not just back to the originating bank. What we are observing here is the well-known multiplier effect of Fractional Reserve banking.
I think the confusion for goldsaver and others lies from not understanding that all loans (which become deposits) are a percentage of the original $100,000 that was deposited. No new money is ever created. The same money keeps changing hands, backed by a different house each time a new loan is created. The additional wealth being created is actually the value of the houses used as collateral. By allowing fractional reserve activity, the same $100,000 can be used to collect a multitude of houses as collateral. But if every loan is paid off, that wealth disappears to the bank as the houses become legally detached from the bank.
If this still confuses you, think this through with 100,000 pieces of gold - each piece being worth one dollar. For the first loan, 90,000 pieces of gold are given out, but then redeposited back. For the second loan, 90% of the 90,000 deposited pieces of gold can be loaned out. These pieces of gold are redeposited back to the bank and 90% of those deposited pieces of gold can be loaned out. (Remember that Gordon must hold 10% of each deposit of gold pieces in reserve. He can only loan out 90% of the deposit.)
Work this out in your head or on paper. At no point is Gordon ever handling more than the original 100,000 pieces of gold that were given to him. No additional gold has been created. When all the loans are paid off (ignoring any interest payments), and all of the mortgages have been burned, all Gordon has left is 100,000 pieces of gold. No additional gold was created through the fractional reserve process. What is true for gold is true for fiat dollars. No money is created out of thin air.
Just to make sure you get it, imagine the original $100,000 deposit to Gordon was 100,000 one-dollar bills - each marked with purple ink. Gordon takes in no fresh deposits; he only accepts as deposit the money he has loaned out from the original 100,000 ink-stained dollars. Work it through the same way you did with gold. When all mortgages are paid off, and ignoring interest, all Gordon is left with is 100,000 ink-stained one-dollar bills. No money is created out of thin air.
...ignoring interest, all Gordon is left with is 100,000...
but you can't ignore the interest-that's the whole key to the great ponzi
$120,500 in accrued interest (30yr @6.2%)
so Gordon's $100K is now $220,500
see, its magic
and if Gordons bank can nessle up to the FED trough, or pawn these 30year dinosaurs off to Fannie and Freddie, take those on book assets, do some X30 leverage, ooh look, more magic
Bob - interest is a fee earned for services rendered. It is no different than the money you might earn for painting a house. It is money paid from someone to the bank.
The point of discussion here is whether banks can create money out of thin air. Accepting payment (from outside the bank) for services rendered is not making money out of thin air.
Elsewhere, others have addressed the problems that interest payments create for the money system. That is not at issue in this discussion, and so I am ignoring interest here.
If you still think that banks can create money out of thin air, re-read the last four paragraphs of my post above. If you are right, Gordon would have ended up with more gold than he started with in my example, gold that he created out of thin air. He didn't. Adding in payment (from outside the bank) for services rendered does not change that fact. Working through the problem with ink-stained dollars rather than gold pieces shows that this logic also holds true for fiat money. The reason is that, in fractional reserve banking, the banks reuse the same deposits, over and over, but in lesser and lesser amounts. It does not matter what form those deposits take.
Richard, you are making a valiant effort at your thesis. It is the classic banking model. Please read this and you'll understand that BANKS CREATE MONEY FROM THIN AIR.
There is no reserve requirement... per the Fed decree (or wet dream). So, where does the money come from?
It's all right here:
http://www.washingtonsblog.com/2010/03/7-questions-about-public-banking....
This is a learning process for me, so thanks for the link. Rocky, based on what you have said, I think I see the source of my confusion. It appears some folks are not so careful and interchange the terms money and credit. I have no trouble understanding how credit can be manufactured out of thin air, as your link and quotes discuss. But I don't consider credit to be money (although it is purchasing power), and didn't realize people meant the banks create credit out of thin air when they said the banks create money out of thin air.
Having said that, I do have one problem with the claims made here on ZH as well as in your quotes and the link you presented: if credit/money truely is made up out of nothing, then it is not tied to consequences. Rocky, if you give me $100,000 in gold coins and I lend $90,000 worth of those coins to TD, I am realistically concerned about repayment. I owe you $100,000. I'd better make certain I have collateral to fall back on if TD cannot repay me. OTOH, if I have truely loaned TD $100,000 in credits that I simply made up out of nothing, and they are tied to nothing, I am out nothing if he doesn't repay me. Therefore, I have no legitimate concern about collateral or repayment - other than the fact that I don't want TD to get a house for nothing. None of the financial houses seem to be that cavalier about repayment, which makes me think the money loaned is not really created out of nothing. It must be tied to some consequence, for the financial houses to be so concerned about repayment.
Banks are not allowed to create money but they are allowed to create credit. So on some it-doesn't-really-matter level, money and credit are different.
RichardP, the bank does not create money out of thin air, the FED does... the bank borrows it from the FED and then loans it to J6P. The reason the bank wants to get paid back by J6P is because if it doesn't, then it still owes the money to the FED/mothership. When it fails to repay its obligations, it gets shut down.
You have to make a distinction between the macro and micro here. The individual bank does not create money out of thin air, but the system does.
Thanks MachoMan. That is the point I was working toward. I'm just doing it step by step, with some detail, as a reference for all of those who have been convinced that individual banks do create money out of thin air. So - to make my final point, that MachoMan has already made for me - the logic that I developed above, that individual banks don't create money out of thin air, still stands. If you read the link Rocky gave carefully, you will see these three general claims presented:
http://www.washingtonsblog.com/2010/03/7-questions-about-public-banking....
... if the conventional view ... were correct, then Kydland and Prescott would have found that credit is extended by the banks (i.e. loaned out to customers) after the banks received infusions of money from the government. Instead, they found that the extension of credit preceded the receipt of government monies.
As Mish has previously noted: Conventional wisdom regarding the money multiplier is wrong. Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.
Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference whether the banks have lots of excess reserves or not. (William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York)
-------
Here are two key phrases upon which this discussion must rest (from the quotes above):
- expansion of credit comes first and reserves come later ...
- the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand (for reserves).
I reiterate my main point: banks do not create money (or credit) out of thin air. Accounting rules will not allow this. The bank loans out money, which creates an asset on its books. What is the corresponding liability? The reserves credited to that bank by the Federal Reserve bank - either before the loan is made or after, it doesn't make any difference.
It is the Federal Reserve itself that creates money out of thin air. The individual Reserve banks don't do this. They make loans (assets) against reserves (deposits/liabilities) given to them by the head Federal Reserve. In this scenario, liabilities and assets balance. It doesn't matter that individual banks might create assets ahead of schedule. According to the quotes above, the Fed has told the individual banks to go ahead and do this, and the main Fed will provide the balancing liabilities/reserves later. Where do the individual banks get their deposits / reserves / liabilites against which they generate assets (loans)? From the Fed. Where does the Fed get this money/credit. It creates it out of thin air.
Now - consider a bank that is not a member of the Federal Reserve, a bank which will not receive reserves from the Fed. Can it go ahead and create loans without having the offsetting deposits on hand?
It is the Fed that creates money/credit out of thin air. It then distributes this to its individual banks in the form of reserves on account with the Fed, which allows them to create loans. The fact that banks may create loans before the Fed deposits the reserves to their account is beside the point. At some point, the Fed makes certain that reserves equal loans. The Fed - not individual banks. That is what the Federal Reserve was created to do.
bingo bingo bingo. Go to the head of the class sir.
Your post can be supported with a simple observation. Every friday, banks are shut down. If these individual banks could create money out of thin air, how could scores of them get shut down? All of their money creation machines died at once? They just wanted to get shut down?
I'll say that you have come a long way in a short period of time in understanding where the sausage is made! There aren't 1 in 100 average Americans who even know what fractional reserve banking is, let alone that it doesn't exist!
Congratulations.
That's telling it like it really is.
Good piece on CNBC power lunch.
April Charney, a senior staff attorney for Legal Aid in Jacksonville, Fla., tells CNBC housing losses could total a trillion dollars.
Airtime: Mon. Oct. 18 2010 | 12:48 PM ET
http://www.cnbc.com/id/15840232?video=1618471959&play=1
They also said this
http://www.cnbc.com/id/39723727
"Then, they and I both discovered that a lot of the people who were initially said to qualify for HAMP in fact did not qualify—they were added to the program so that banks and servicers could collect Federal government bonuses, then bumped off the program once their three-month “trial mod” was over."
This is a situation where you invoke "Executive Powers" where the perpetrators get an automatic $1,000,000 fine and 20 year sentence and suddenly the abuses stop. But O does not have the pair that it takes to do such a thing.
wake up and smell the coffee: Obama does not give so much as a shit about salt-of-the-earth, middle class, apple pie & mom, white people. Not one tiny bit.
Neither he nor anyone around him.
Again with the focus on a wholly extraneous circumstance?
Get a grip.
You'd make the President of the United States judge, jury, and executioner?
That's a slippery slope as they say. If he actually did what you say, you'd be here bitching about his taking his powers to an illegal limit.
Get real and give up the kool-aid.
i used to be in the 'estate lending group' of local los angeles shit shop. used to see the files. one in particular i wont forget was an 81 year old doctor whose home was purchased in 1968 for about 72K. In 2004 he had it appraised at $11 million dollars and was cashing out $10 million in a refi. He was using as collateral: $30 million in FCC liscences. That's correct he was using as collateral 'Air'; in fact, public Air. I personally have been in war mode with the bigs for years. I fuck them as much as I can. Is life a little more expensive and inconvenient? No it is not. It is worth fucking them over, been doing it since I was young. Not playing their games and spitting in their face any chance I get. I was at wells over the weekend and this idiot robot who handles the line kept asking me to open an account, was my errand a straight deposit etc? I look at him and said real loud like "how much do you get paid for your job, because I will do it for half and save your bank from bankruptcy" this cow could not comprehend and said 'oh we're the safest bank' or some shit, to which I loudly replied "and why would I deposit one penny at wells when you are fraudulently foreclosing on military families while they are at war" I ain't no jingo but I know how to use it. The cow shut the fucked up and moved down the line. I felt better for a slight moment until I realized ALL the cows in line behind me did not or by the looks I was getting DID NOT want to understand whatever it was that was my problem. zombies. complete zombies. This includes my own family memebers by the way. They don't want to see it, you canlead them to water and they would shit in it before running away and casting you as the water thief, which is why I'm still at war, but now it's just a mostly private war and all I care about now is watching the show.
Owned FCC licenses can have significant value. Depends on the type of license and the market.
But I see you are a busy man. And really pissed off as well.
ever see They Live?
Roddy had to beat that negro DAYOWN to get him to put the glasses on. You would have to drag people kicking and fucking screaming to the truth and they'd kill you for it.
"I came here to kick ass and chew bubble gum. And I'm all out of bubble gum."
-priceless
This is a bigger mess than when the USSR dissolved and real estate was devolved to the citizenry.
Here is a thought experiment.
With all these robo-signers (temp workers with a day's training, no benefits, no aligence to the banks) in the works, why not simply hunt around for some signature samples and notary stamps of these more well known robos (the GMAC action for instance) and just methodically file your own re-conveyance using the subject bank's fraud prone robo signers. Pretty funny if you could get a re-conveyance filed in your local county showing your loan was paid off using the very signatures of the current robo-bank employees that seem to be committing fraud on behalf of the banks. Sure it would take some time to hunt around the micro-fiche machines to find samples of recent re-conveyances and sure the recorder is not just going to record anything presented to them over the counter, but with the current chaos who is to say you could not simply cancel your debt at the court house while this paper chase ensues. Besides, you're unemployed already. Your full day consists of a little porn, some ZH, Fallout New Vegas and telling your wife you are looking for a job. You have the time to boogie down to the recorder to see what is going on. Think of it as looking for your lottery ticket. Better odds in fact. There is a ton of risk in trying this do this, but file your document. Stop paying your loan. Sell your property to a couple of shell LLCs and phantom MBS liquidators (yourself) to further cloud title and sit back until some lawyer knocks on the door to figure it all out in 3 years. Heck, by that time it may be cheaper to live inside prison - free health care anyway but you lose your gag reflex. Sure it may be a crime, but sometimes you have to fight fire with fire. Time to bring some chocolates to the fat girls at the title company for some insight on getting something filed in your home town. There are more of us that them. Game on.
I wish i owned a property law firm right now
I always thought it was special interest tearing at the moral fabric of our society, but bankers have brought the fucking shears. Having read the previous article, I agree that the increasingly pervasive sense of judicial futility poses a tremendous, acute threat to civil order as we know it. It then comes as no surprise the government has been drawing up plans to mobilize armed forces on american soil(operation Garden Plot), and coming up with excuses by which to render the Posse-Comitatus act impotent.
What the hell are you talking about? If you read the article, judicial futility should be the opposite of what was driving the bank to turn face and be so "nice".
Kick Ass Braless Kathy !!!
Government already owns MERS. FNMA and FHLMC were original signatories in the creation of that beast.
//
These people were never the backbone of the country. Think about it.
You lost me at "a couple in their mid to late sixties have a mortgage"...
I'm 62, have a mortgage. What's your point big guy?
If you owe the bank 100K the bank owns you. If you owe them a billion
then you own the bank. 10 million homeowners at 100K each, and you
have a trillion, not a billion. Now, all those homeowners have cause
and a reason to act together --- class action etc. And if all of them stop
paying now, and maybe put up some money for a class action attorney.
Well, that would get everybodys attention real fast.
Anyway, go here for more info.
http://dnusbaum.com/Bootstrap.html
I believe it is the bank that smiles at the depositor who has significant funds in the account and frowns on the one who has hand out asking for a loan.
I had a bank weep when I left with my money, but they invented a new marketing push and lured in many lambs bleating to get the wonderful new product only to discover that the monthly fees is floating the Bank, as morphine; floating the pain of debts away.
I wonder about the position of all us "Chumps" who are morally upright and free and clear with 100% equity in the homes and everything else. I wonder if there will be a day that we all say F&^% it and open a Equity Line, drain such and then leave the keys to pounce on the 10,000 dollar property that is unencumbered and is better housing than what we had before.
And pay such in cash at the court house steps in a foreclosure auction. The wolves can foreclose all they want to on the old house.
Not only do we have a fractionalized banking system, we also have a fractionalized mortgage system in which the same loan was sold to multiple buyers. This will be confirmed someday when the chain of title(s) have been researched. View the Kudlow interview of Ritholtz & Chris Whalen at time 6:40 where Whalen talks about Bear Stearns selling the same loan to different investors:
http://www.cnbc.com/id/15840232?video=1618726207&play=1
This is, as I opined earlier in my conjecture (comment 642370), packaging the same loan (fractionalizing it) to multiple MBS's. Where there's smoke, there's fire. You ain't seen nothin' yet...
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