Fraudclosure Scandal – Banks Settle For Minus $500 Billion

This story is interesting. Banks “settled” the fraudclosure scandal. Under terms of the settlement, banks are paying approximately minus $500 billion.

Mortgage and property rules are determined at the state level and not the Federal level.  The attorney general of each state was persuaded/bribed into signing the agreement, making it “legal”.

The “fraudclosure” scandal was related to mortgages and mortgage bonds. Banks packaged mortgages into bonds and sold them. However, they didn’t file the paperwork properly. This broke the “chain of title”. The mortgage holder could no longer prove they owned the mortgage. This changed the loan to an unsecured personal loan, maybe even completely uncollectable, with the house no longer collateral for the loan.

Suppose you owned a house and mortgage. You default on the mortgage. I don’t own the mortgage, but try to foreclose. You can say “Prove you actually own the mortgage!” I don’t own the mortgage and can’t foreclose. A complete stranger can’t foreclose on a mortgage he doesn’t own. Due to faulty paperwork, banks were reduced to the legal equivalent of a complete stranger trying to foreclose on a mortgage he didn’t own.

That isn’t the only evil part of the fraudclosure scandal. Even though the paperwork was defective, banks foreclosed anyway. Some paperwork was forged. Some lawyers or accountants wrote letters saying/lying “I checked the mortgage foreclosure paperwork and verified it’s valid.” That is perjury. These are the “robosigners”.

It is hypocritical that Roger Clemens and Barry Bonds were indicted for perjury (they hurt nobody), but not the robosigners. Unlike Roger Clemens and Barry Bonds, the robosigners’ crime had a victim. The victims are people who were kicked out of their homes based on fraudulent foreclosure paperwork.

Also, the “robosigners” signed a ridiculously large amount of mortgage foreclosure paperwork each day. There is no way they could have properly verified the paperwork for each mortgage. They were caught committing perjury.  There were some “document forging services” that openly advertised the ability to forge mortgage foreclosure paperwork.

Under normal circumstances, the only people who default on mortgages are complete deadbeats.  Due to the housing bubble and bust and recession, some reasonably educated people wound up defaulting.  Some of them hired a lawyer, looking to challenge or delay foreclosure.  At least one lawyer checked the paperwork and found it defective.  When that resulted in a judge throwing out the foreclosure, that lead to lots of people trying the same thing, and the scandal was discovered.

“No perjury indictments for robosigners” is an example of “There is no Rule Of Law in the USA.” If you “lie on your taxes”, you might be prosecuted, which isn’t a real crime. (It’s a violation of natural law and common law for State thugs to compel you to tell them about everything you do, via a tax return and other reporting requirements.) The robosigners/banksters/insiders can lie, steal property based on a lie, and get away with it.

The banks were fined $25B, paid into a “special fund” (more on that later). Banks received a direct TARP bailout of $700B. Banks receive indirect State bailouts from the Federal Reserve, via a Fed Funds Rate of 0%-0.25% and negative real interest rates. This secret Federal Reserve bailout is worth $1T/year or more. This State subsidy is paid by everyone else via inflation.

It is hypocritical for the State to give banks $1T and then fine them $25B. It would be logically equivalent to giving banks $975B, with no fine. Here’s another analogy.

Policeman: I caught you doing 100mph in a 15 mph school zone.
Bankster: You got me! I shouldn’t have done that.
Policeman: Here’s $10,000. (gives bankster $10,000)
Policeman: Your traffic ticket costs $200.
Bankster (takes $200 out of the $10,000 and gives it back to the policeman) Ouch!  I’m sorry! You really shouldn’t fine me so much! This hurts!
Policeman: I hope you learned your lesson!
Bankster: Yes, this was a valuable lesson about the way the system works.
[I really should try "Promote freedom via comedy".]

There is no point for the State to give a business a ton of money, and then take back a little bit via a fine. That is “justice” and not justice.

This is a very common theme.  When insiders get caught doing something wrong, they pay a fine.  The fine is large in dollar terms, but small compared to the profit from the crime.  $25B is negligible compared to what banksters steal each year.  As another example, when drug corporation executives get caught covering up negative side-effects of a drug, the lawsuit damages/fine are typically less than 1 year of profits from the drug.  That encourages and rewards executives for fraud.  The fine seems large in dollar terms, but it’s negligible compared to the proceeds of State insider crime.

The $25B fine is paid into a “special fund”. What does that mean? This “special fund” is given to people with underwater mortgages, so they can partially pay down their debt.

Do you get the joke? The banks are paying the fine to themselves! The money is given to people with underwater mortgages, and they’re required to use the money to pay off their mortgages! This is logically equivalent to the banks writing off $25B of bad debt, which they should have done anyway!

This also is an insult to any homeowner that isn’t underwater on their mortgage. They get $0.

There’s another interesting clause in the settlement. I’m not 100% sure, because the details were not finalized yet. This is why I value the “penalty” of the settlement at negative $500 billion.

The deal contains an “amnesty” provision. If a bank foreclosed based on fraudulent paperwork, they get to keep the house. If the mortgage paperwork is invalid, the bank is forgiven and can foreclose anyway.

That is a total ripoff. It steals from foreclosed homeowners and gives to banks.

A pro-State troll says “Those people deserved to lose their homes. They bought a home they couldn’t afford.” The housing bubble created the false price signal that a home was a great investment. That was created by the State. The housing bubble was caused by the central bank credit monopoly and negative interest rates. Bank lobbyists changed the rules, so that it was easier to get a mortgage. The bubble was created by the State and banksters, so they could profit.

Some people were tricked, but how could they be sure?  The housing bubble could have crashed in 2005.  It could have lasted another 10-15 years, and then people would have missed out on a profit opportunity by not buying.  The economic game is rigged to favor insiders at the expense of individuals.  A pro-State troll says “They made a bad decision to buy a house!”, but that decision was based on faulty price signals.  Also, the banks should bear some responsibility, for writing bad mortgages and for messing up the paperwork and for lying/perjury while foreclosing.

Again, there are two justice systems, one for insiders and one for everyone else. Individuals lost their homes and their savings. The insiders who created the bubble got a bailout. A fraudulent foreclosure is a wealth transfer from victims to the criminals who caused their problem. Why were the banksters bailed out, but not individuals?

There’s another evil aspect of the amnesty clause. Suppose you won in a mortgage foreclosure trial, using a “Show me the note!” argument. The judge didn’t rule “You don’t owe your mortgage.” The judge merely ruled “This specific creditor doesn’t have the legal right to foreclose.” The amnesty clause of the settlement nullifies the “Show me the note!” defense. Even if you already won in a foreclosure trial, this settlement may mean that the same bank (or another bank) may try again. This time, it’s irrelevant that the mortgage paperwork is invalid, due to the settlement.

I’m not sure what is the total value of mortgages covered by the “amnesty clause”. I’m making a guess of $500 billion. If the deal does contain an “amnesty clause”, forgiving defective mortgage paperwork, then this deal contains a gift of $500 billion to the banksters. This deal may forgive fraudulent foreclosures that already occurred, preventing homeowners from suing and recovering their home.  This deal may enable banks to foreclose on homes that they previously couldn’t, because the mortgage paperwork was defective.

I’m pretty sure that the “settlement” contains an amnesty clause.  I’m not sure, because the details weren’t finalized yet.  If the deal does contain an “amnesty clause”, it’s a total farce.

Banks receive huge direct and indirect State subsidies.  TARP was an direct State subsidy of $700B.  With ZIRP, QE2, twist, etc., banks are further bailed out.  This bailout comes from inflation and negative real interest rates.  The Fed Funds Rate is 0%-0.25%, while inflation is 20%-30% or more.  The exact details of this bailout is not disclosed.  It’s a secret State subsidy worth $1T or more per year.

The “fair value” of the fraudclosure settlement is minus $500 billion or even less.   It is pointless to fine banks $25B, when they receive direct and indirect State subsidies of $1T+ per year.  The $25B itself is a joke, because the banks are paying the money to themselves.  The $25B goes to people with underwater mortgages, who must use the $25B to pay off their mortgages, and the $25B goes right back to the banks.  It’s a meaningless accounting gimmick, because the banks should write off underwater mortgages anyway.

The real evil of the agreement comes from the “amnesty clause”.  Past fraudulent foreclosures are forgiven.  Banks can now foreclose, even if the mortgage paperwork was defective.  I’m not 100% sure that the “settlement” contains an “amnesty clause”, but it probably does.  If there is an “amnesty clause”, that’s worth $500B or more to the banks.  The real value of this settlement is minus $500B.  The $25B payment is meaningless; the banks are paying the money to themselves.  $25B is negligible compared to the direct and indirect subsidies banks receive each year.  The “amnesty clause” is a huge windfall for banksters.

If the settlement does contain an “amnesty clause”, individuals will lose their homes so that bank CEOs can buy a 2nd mansion.  It’s a total farce.  It’s “justice” and not justice.

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