Watch that 30 year bond yield.

Signaling bond sell-off, or equities selling off. It's going to be hard for the Fed to manage either.

US 30 year bond at top of 15 year channel.

Edit: that link apparently has expired. So here's the Yahoo chart for the 30 year bond:

30 year bond chart

Scrutinizer

Income In-Equality: The Reason for the Recession?

Now.. I'm not a socialist, so I don't normally align myself with schemes aimed at governmental re-distribution of wealth. What I DO SUBSCRIBE TO is the belief that economic OPPORTUNITY must be made available to the greatest number of people as possible in order to preserve price competition. And that means the greatest economic driver in any economy must be a strong small business sector and middle class which sustains the demand curve in any economy.

For that reason, this article struck me as germane. It asserts that the "rich" have effectively siphoned off economic wealth from the middle class to the point where there is no more purchasing power. And they also, logically, assert that the rich are able to manipulate government officials to pay heed to their needs, and not the needs of "Main Street".


Extreme Inequality helped cause the Great Depression and the current economic crisis

I think we all can recognize that these Wall St. bailouts have essentially done very little for "Main Street USA". We have a unemployment rate FAR HIGHER than what is being recorded (only actual people drawing unemployment are counted in the statistics). Big banks received TARP money, and are now able to borrow from the Fed at nearly 0%, and then loan it back out to the taxpayer financed US Treasury at over 3%. THAT was the reason we had a Trillion dollar stimulus. It created a place to "park" all of that borrowed Fed liquidity, not to make low-interest loans available to the humble masses, most of whom are already up to the necks in debt.

Now I can recognize the need for Governmental intervention into the economy for the purpose of fostering employment. But those projects must be aimed at obtaining an ROI for the US taxpayer. Whether it be re-training people to work in new technologies that enhance productivity and create wealth, or long-neglected infrastructure that will sustain enhanced economic growth, the majority of it must be directed towards projects that create value (short, or long term) for the US Taxpayer.

What are our options? Obviously energy independence that matches or is less than the economic cost of foreign energy.

Renewed efforts towards space exploration and exploiting the resources available there?

Material Sciences.. Carbon Nanotubes.. etc..

Bio-Science.. and health care innovations (17% of the US GDP is health care related and that's TOO MUCH..)

Aqua-culture?

All of these make sense to me.. But what doesn't make sense is just putting people on unemployment for years and claiming they are "creating jobs" by such extensions. You want to create jobs.. then put people to work and obtain an ROI for the taxpayers.

Scrutinizer

Market Reaching Critical Inflection Point?

From Marty Chenard's "StockTiming.com website. He is asserting that the Institutional Index of "core holdings" has reached a double top and if the market fails to push higher, we're due for a major correction off a double top.

Marty also mentions that yields on 30 year T-bills and mortgages has climbed precipitously, suggesting that the Fed risks permitting yields getting out of control. So what's the solution for making bond yields come back into line??.. Generate a decline in the equity markets that drives capital into the "safe haven" of government debt. This is how it works.. huge sums of money slushes from equities to debt on a regular basis. It would appear we're getting due to see that happen again.

Today's very poor retail sales for Best Buy certainly didn't help matters either. It was off 15% on poor earnings. And if BBY can't produce good earnings (given all the gadgets it sells), it doesn't bode well for the rest of the sector.

It's a scary thing to be short this liquidity driven market, funded by QE2, but I'm almost getting tempted to give it a try. It's also "quadruple witching" this Friday, but the CNBC article tells us not to worry.. Well.. when CNBC tells us not to worry, the Contrarian in me tells me we should worry.

Another thing.. JP Morgan was caught red-handed in a massive short position in Silver. It's rumoured that they controlled about 40% of the market via swaps and other derivative positions. So just the other day they announced that they were unwinding that position in Silver.

Why is this important? Because if JPM has stopped trying to hold down the silver market, some speculators assert that that it lifts the resistance to further silver (and gold) upside.

But what if JPM merely sold off it's exposure to other institutions, thereby keeping that pressure on the silver market? Then any decline in the price of silver will correlate to upside pressure on the Dollar (and downside pressure on almost all commodities).

And the prevailing theory is if the USD rises, it will be bad for equity markets as well, especially for those companies dependent upon overseas sales for profits. Now.. most of the "core holdings" discussed above are international companies that are vulnerable to movements in the dollar.

So I concur with Marty Chenard.. we're at an inflection point in the markets. And we're certainly long overdue for a correction.

The rest of the week, and next, should provide some general trend guidance of future market direction..

Scrutinizer

ARMS (Trin) is at levels not seen since 1956

Zerohedge noted that the ARMS index has ascended to highs not seen since 1956, primarily due to QE2 and the Fed financing the buying of Equities (they lend cheap money to Wall St/Banks) who then buy the stock market.

ARMS index at post-1956 highs

This can, and likely will, continue until the Fed drains the liquidity.. Recent drops in the bond market suggest a movement of capital from bonds into equities. This is something the Fed desires, IMO, but they want to control the velocity of such movements in order to prevent a wholesale sell-off in the bond market, forcing them to raise rates before they are ready.

Now.. those who have been following my blog (you lonely sod, you!!), you may recall that back in June the creator of the ARMS index, Richard ARMS, was flashing a raging buy signal for the markets and he was proven absolutely correct (I wish I had paid more attention.. sigh):

ARMS post from June, 2010

So it will be interesting to see what he has to say now. What seems clear is that the US markets are getting very frothy with all this added liquidity.

But we also should bear in mind that I believe that the Fed has recognized that sinister "Mother of all H&S" formations I mentioned in a post back in May. That formation will not be nullified until we reach 14K on the DOW. So it remains in effect until that point, and a "double-top" is also nullified by new highs.

IMO, this is the whole purpose of QE2.. Pump up the markets until such negative technicals are neutralized. Of course, this means inducing inflationary pressures through a weak USD.

The question is whether events overseas, both in Europe and Asia, will thwart the Fed's best efforts to accomplish their goals.

Scrutinizer

Ireland's Banking Crisis: The REAL Story of Who Bankrupted It's Banks..

Very interesting analysis and commentary of the Irish Banking Crisis and how it impacts other European Banks, as well as many Global Corporations who have been attracted by Ireland's low tax rates and loose financial regulatory standards.

Who Bankrupted Ireland?

In sum.. it's argued, convincingly IMO, that the Private Banks are attempting to wrangle a public bailout and place the financial burden and austerity upon the Irish people. And the more the state (taxpayers) are tapped for that bailout, the more it permits private corporate capital to engage in transferring their money out of Ireland.

Scrutinizer

The Druze of Golan

Michael Totten has written up a VERY INFORMATIVE article on the Druze of the Golan Heights in Israel. It's also a good primer for some of the more complicated aspects of the Arab-Israeli conflict and the position of various minorities in the region.

Towers of the Sun: The Druze on the Golan Heights

Highly recommend reading it..

Scrutinizer

Global Warming.. It's about Economics

And now we know what the real agenda of the IPCC and Global Warming community truly is:

Climate policy is about redistributing the world's wealth.

Scrutinizer

Japan on the brink of a Sovereign Debt Default?

Kyle Bass continues to make the case that Japan is just a few years away from a debt default. I think the case is compelling, although it's possible that Tokyo may stave it off for a few years more.

Sovereign Debt Default in Japan?

It should send a message to US politicians and American investors regarding our own situation.

Scrutinizer

Why "MortgageGate" is destined to become a criminal investigation

Washington's Blog (bookmarked to the left) has a great piece on how extensive this Mortgage fraud had become and how it's being revealed to be actual criminality, not just a "mistake". Please follow the links contained within each article for further depth.

Mortgage Fraud perpetrated against investors

And this piece from Zerohedge:Fraudclosure Update: The Crowd Is Getting Restless

The bottom line is that the Foreclosure Fraud being revealed right and left is only the tip of the iceberg. The fact is that the same elements that bring those foreclosures under suspicion are the same elements that make the entire loan origination process invalid.

In most cases it involves separating the mortgage note from the deed holder.

In other cases, it involves actually destroying the physical note (thereby destroying the obligation) and then selling it to multiple parties electronically (counterfeiting).

(Edit: 30 Oct, 2010) Foreclosure mess even worse in non-judicial states.

So what does this mean? It simply means that the banks defrauded their investors, as well as their insurers. It means that, sooner or later, the banks will be paying through the teeth to settle these claims in order to avoid criminal and civil fraud charges.

And with Fannie and Freddie, as government owned entities, possessing subpoena power to obtain the actual mortgage note files (something that private investor/insurer litigants lack) this process will be expedited and VERY PUBLIC. The closest thing to this power lies within the Monoline insurers and their contractual rights to review violations of "representations and warranties".

Furthermore, as John Mauldin stated in his last letter, the European banks are rounding up a Posse to come after the TBTF "banksta's".

And apparently the biggest mutual fund holder of US government debt, Bill Gross, is also buying Mortgage Backed Securities hand over fist in anticipation of "put backs" to the banks. (buy them at pennies on the dollars and put them back to the banks at near face value).

Gross rails against Fed, and apparently buys MBS

I still stand by my belief that Monoline Mortgage insurers are a likely safe harbor in the storm that is approaching. (ABK, AGO, MBI, RDN, PMI, MTG) (note: I am currently long ABK).

I would also consider building small speculative positions in the regional banks, most of which are not subject to putbacks, and also hold their mortgage notes on their books. I kind of like Washington Federal S&L (WFSL), but don't currently hold any. But my mother banks there and they are awesome.

Scrutinizer

More On "Mortgagegate"

This is probably one of the most definitive interviews I've yet seen on the looming problem of Mortgage Backed Securities, as well as Foreclosure and Origination Fraud:

Everything you need to know about the foreclosure

And here's another one to watch, from the Kudlow Report:

Whalen and Ritzholtz interview

Big Problem for Banks: Due Process

Scrutinizer

Fannie and Freddie on the Mortgage Fraud Warpath.. Wall St. Banks and Mortgage Securitization approaching a "come to Jesus moment"?

Fannie Mae and Freddie Mac, which were effectively nationalized by the Federal Government are looking for loan files held by mortgage trusts as they look to "put back" many of the bad loans they were sold by the big Wall St. banks:


Some analysts say Fannie and Freddie, which touted their unparalleled mortgage-market expertise, could be hard-pressed to argue that they didn't know what they were buying.

But the subpoenas could help Fannie and Freddie access loan files for the mortgages backing their bonds and to demonstrate that the loans didn't conform to underwriting guidelines.

The loan files "are really the Holy Grail here," says David Grais, a New York securities lawyer who represents the Federal Home Loan Banks of San Francisco and Seattle, which have sued Wall Street firms to buy back soured mortgage securities.

Difficulty obtaining those loan files is one reason why there have been so few efforts by investors to force repurchases so far. Investors need to access the loan files to determine if there has been a specific violation of certain contracts, but they can't petition trustees for loan pools to take action without first identifying that breach.

Fannie and Freddie seek illusive mortgage loan files

It's also why these investors are looking to the legal discovery being conducted by the monoline insurers.

But one might ask, why do they care, so long as the investors are being paid by the monoline insurers? Well.. if the monolines are able to prove that "chain of title" was not properly followed, and the mortgage loans fail "reps and warranties", it will bring into the question whether any bonds backed by securitized mortages in those trusts are worth the electronic paper they are recorded on.

CitiBank presentation on 3 scenarios for resolving the Mortgage/Foreclosure mess:

I found this one paragraph to be particularly disturbing, since we know the US Treasury is hunting for revenue and the very process by which these mortgages were securitized may constitute serious tax implications.

To qualify as a REMIC under the IRS code and enjoy the beneficial tax
treatment, the trust (1) must be passive and (2) cannot acquire any new assets
90 days following the trust’s creation.

If, as described above, mortgage documents were never correctly passed
through to the trust when it was established, then the trust may not actually
own the underlying mortgages it purports to own. Although it is possible that
this issue could be remedied by some legal maneuvering, doing so could
violate the REMIC status since the trust would be acquiring assets long after
the aforementioned 90 day period has expired. Such a violation in turn could
trigger a sizeable tax burden for investors. Our speaker indicated that there are
a handful of open questions on this front and that this is a legal gray area.

Citi Mortgage presentation

Here's some more interesting reading to further explain the problem:

Bank Of America foreclosure problems

Since it can be legally argued that the "chain of title" never actually passed to these trusts to begin with, trying to "fix" that chain may lead to violating the trust's tax exempt status.

Therefore, from the investor's point of view, they MUST press for the banks to buy back these suspect loans because resolving these foreclosure inconsistencies in "chain of title" leaves them vulnerable to massive tax liabilities.

Capice'?? Indeed this is an unholy can of worms that has been opened.

And once again, I suggest watching the monoline insurers like ABK, MBI, RDN, PMI, and MTG. They are demonstrating increasing strength and could act as a "Put" on another financial crisis.

Scrutinizer

John Mauldin's latest letter on "The Subprime Debacle: Act 2"

This is simply a MUST READ, and very frightening article discussing the problems with the entire Mortgage Backed Securitization process. Read it, then RE-READ IT!!:

The Subprime Debacle: Act 2

I reiterate.. the only "safe" place, IMO, to invest and hide from this issue is cash, possibly physical gold (can't believe I'm saying that), or the monoline insurers who stand to "get off the hook" for billions in insurance claims and liabilities pending against them.

I may also initiate a position in FAZ, the ultra-bear financial ETF.

There's also a possible "silver lining" to this mess. With 60% of American homes now registered under the MERS system, it's likely they will find it increasingly difficult to obtain title insurance to facilitate a sale. That means the remaining 40% of American homes, owned outright, or where the chain of title has not been violated, could see growing appreciation.

And given that the majority of mortgage loans that WERE NOT securitized, were issued by regional banks and savings and loan institutions, they may find the value of those homes increasing, thereby taking pressure off the regional banks who played by the rules and keep the mortgages on their balance sheets.

EDIT: 17 Oct, 2010 Letter from the Association of Financial Guaranty Insurers (AFGI) to the CEO of Bank of America (symbol:BAC), Brian Moynihan, regarding violations of "Representations and Warranties" by BAC in the loans that the Monolines insured. In the letter it's stated that some $10-20 Billion of these loans need to be repurchased by BOA and put back on their balance sheet.

AFGI letter to BAC

The heat is rising on the big banks to make good on their obligations to insurers and investors.

It will be interesting to see if BAC blinks, or attempts to further delay the inevitable.

Scrutinizer

Wanna make some Money?: Monoline insurers were top performers today!!

I don't normally make many stock recommendations, but I'm fairly confident we're starting to see the signs of a major recovery in the Monoline Insurers (symbols: ABK, MBI, RDN, PMI, MTG and a few others).

As we've been discussing, the evidence of mortgage fraud is front and center on the business and national news media. We've discussed the political ramifications, as politicians are forced to address the issue in order to appease their constituency, most of whom are living in houses that are underwater.

Now.. I'm going to post two links that provide a VERY SOUND fundamental analysis of MBI's position and how it could find itself having it's credit status restored.. It's also important to bear in mind that MBI and ABK are two of the largest issuers of municipal bond insurance. They back the governmental issuances of many local and state debt offerings. If they are unable to provide effective insurance for those municipal debts, it increases the cost of new issuances (or makes them completely untenable). It also increases the cost of Credit Default Swaps, making that debt appear to be less stable.

So it's important for an economic recovery to fully succeed that the financial surety industry recover as well, even if it means at the cost of pummeling the TBTF (Too Big Too Fail) Banks on Wall St.

Here's the first presentation on MBI:

MBI: Why The Bond Insurers May Be The Huge Winners From The Brewing Mortgage-Bond Scandal

Click on the 44 slide presentation towards the bottom of the page.

Also, there was a very negative call on Bank of America today.. Here's the link for that presentation:

Mortgage Repurchase: BAC's hidden liability

Now.. for the purpose of disclosure, I'm long both ABK and RDN. But ABK and MBI are the major players in this realm and have the most upside potential.

ABK crossed over $1/share in Afterhours trading.. It's on the brink of flipping it's weekly Parabolic SAR to an uptrend if it crosses above 1.10 tomorrow. That could trigger a major short squeeze, given that Friday is options expiration and there are 54 million shares short in ABK.

ABK, back in July, 2007, just as the sub-prime crisis was beginning to unfold, was a $95/share stock, so one can just imagine the potential for price appreciation if they can commute many of their liabilities, unlock capital reserves they had to set aside for expected losses, and commence writing new surety business again.

Just last year, in Oct, 2009, the stock went from below $1/share to $3 within just a few weeks on rumours of commutations (as I recall).

I missed that train (and probably a good thing since it plummeted afterward), but I've got my ticket for this ride.. And it's just possible that this ride is going to be for real, and the start of a significant recovery in its share price.

Scrutinizer

HOW MAIN STREET HAS DESTROYED WALL STREET

Over and over, when discussing the level of defaults and foreclosures, I hear people ranting and raving against those people who bought homes they couldn't afford. And, of course, the "banksters" love to make themselves out as the victims of borrower fraud.

But here's the other side of this. The banks, and Congress by encouraging home ownership for everyone, skewed the demand curve to it's extremes. Then the Mortgage Banksters opened up the spigots to include liar loans, no-interest loans, and ARMS.. But most importantly, they started financing illegal aliens, even going so far as to assist them in obtaining FICO scores that would meet the loan requirements. How they did this was by "renting" scores from other individuals by being added as "authorized users", but not being given access to the actual credit line. Of course, the borrower paid for this service.. ;0)

FICO piggy-backing

So every individual family that COULD afford to purchase a home honestly (meeting basic lending standards and downpayment) were forced to compete against the sub-prime borrowers in the housing market. And of couse, when the sub-prime borrowers default, or are just abandoned (in the case of many illegal aliens), then everyone's home values fall.

So the other side of this is Main Street. And the next time you hear someone complain about how unqualified borrowers are at fault, read this to them:

How Main Street destroyed Wall Street

In sum, home prices should have risen according to the traditional standard based upon the credit worthiness of the borrower. Instead, the banksters turned the mortgage market into a huge real estate stock market, through the (illegal?) securitization process. Take a contract debt instrument, package it into a security, and sell it to an investor.

What exactly is a Mortgage? Isnt' it a debt contract, backed by collateral in the form of a house? Isn't that what all debt is (unless unsecured).. a contract between borrower and lender. And now we're turning contracts into stocks, to be bought and sold furiously, and for those with the wherewithal, destroyed by using Naked Credit Default Swaps??

This is implicitly why Glass-Steagal should be re-implemented. It's one thing to have a market for determining the value of asset prices, including real estate and stocks. But to have a actual debt contracts turned into securities undermines the foundation of our entire economy.

In sum, debt is debt.. a contract between borrower and lender. It's value should be dependent upon its performing status.

An asset, hard, paper, or commodity, should be valued according to market price discovery processes.

Scrutinizer

Recent stock market rally.. What if it was priced in Euros?

The recent S&P advance priced in Euros

It's clear that the only reason the US stock market has climbed is because the US Dollar has fallen against other currencies.

So for those who believe this rally is credible, you'd better watch the US dollar. When it turns upward, it's likely all those gains in the S&P are going to start being erased.

Scrutinizer

Mortgage Fraud: MERS on very shaky legal ground

This is the best explanation I've yet heard regarding the controversy over the legitimacy of MERS and the ENTIRE mortgage securitization process. In sum, the mortgage banks wanted to circumvent paying the recording fees to each individual county where titles and deeds recording who actually owns a piece of property were maintained. MERS attempted to replace that structure, without legal authority. A tidbit that should make it worth your reading the remainder of the link:

Because the new system cut out payment of county recording fees it was significantly cheaper for intermediary mortgage companies and the investment banks that packaged mortgage securities. Acting on the impulse to maximize profits by avoiding payment of fees to county governments much of the national residential mortgage market shifted to the new proxy recording system in only a few years. Now about 60% of the nation’s residential mortgages are recorded in the name of MERS, Inc. rather than the bank, trust, or company that actually has a meaningful economic interest in the repayment of the debt.15 For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county.

MERS illegality explained

As the reader can see, the case is very compelling that 60% of the existing mortgages may have been fraudulently originated and then illegally conveyed into the securitization process.

And here's another good article on the problem:

Primer on Foreclosure Crisis

And I have to agree with Denininger in that only an RTC style program is going to resolve this. Waiting to undertake this process is only delaying the inevitable pain. And that pain will only grow more intense as more and more legal findings are brought forth.

EDIT: Oct 12, 2010

And one of the few credible reporters for CNBC, Diana Olick, is even hopping on the bandwagon..

Foreclosure Fraud: It's Worse Than You Think

However, I have to ask why it's taken the "News" Media over a year to finally cover this issue? Why is it newsworthy NOW, but not back in 2008, or even earlier??

This isn't new stuff.. Denininger has been covering this issue for well over a year.

And the Monolines have been suing Wall St. banks over their fraudulent originations for over a year.. But NOW it's "news"??

EDIT: Oct 13th JP Morgan (JPM) stops using MERS mortgage registration system:

JPM admits "OOPSIE DAISY"!!

And more amplification on exactly what MERS is (and what it isn't) from Washington's Blog:

MERS role in foreclosure mess

Again, it's amazing the amount of political momentum that is gathering over this issue despite the fact that it's been a well-known fact that has been discussed for well over a year.

Scrutinizer

"Biggest fraud in the history of the capital markets"

Karl Denninger has been covering "Foreclosuregate" for some time now and it appears that his analysis has been spot on with regard to the consequences.

He makes a clear case for this with the following description of how the MBS creation process actually occurred:

No, what happened then (and still does today) is that these MBS are sold first and filled after!

That is, a pension fund calls up Vampire Squid Bank and says "I need $100 million of MBS that pay a 5% coupon."

Vampire Squid Bank takes the $100 million dollars and then proceeds to securitize loans.

But in doing so it took the $100 million on a prospective pooling and servicing agreement in which they agreed to provide loans of a certain credit quality and specification to the buyer.

So it's much worse than "we didn't know." It's "we took the money, then we build the security and didn't look, even though we told you we would."

biggest fraud

Capice?!! The Pension funds, or any other investor (Chinese, European.. etc) placed an order for a MBS structure paying a certain dividend. Then the Investment Bank (Goldman, Bears.. etc) packaged a bunch of mortgage notes together, got them rated by the Rating Agencies, then took that investment rating and obtained insurance from the Mortgage insurers (Ambac sym=ABK, Radian=RDN, PMI=PMI,) and others.

Ambac was the #2 mortgage insurer out there and it has been literally wiped out (put in "run-off" status) by this mortgage fraud. However, on the Sept 29th, they sued Bank of America=BAC for $16 Billion, alleging that 97% of some 6300 mortgages that Ambac analyzed violated origination standards (also known as Representations and Warranties). So, they and the other mortgage insurers (also known as Monolines) have had to pay the mortgage payments to the originators, which then gets paid to the security holders, leaving the banks off the hook for the swindle they perpetrated.

So.. the question is whether Denininger is correct and a Resolution Trust (RTC) structure is going to be required to finally resolve this mess and make those who were victimized (including the mortgage insurers and security holders) whole again. It strikes me that it will require this ultimately. But obviously the banks, and the politicians who receive their campaign donations, are trying to put this off as long as possible.

I have noticed that there is a lot of market activity in the Mortgage Insurer (Monoline) sector over recent days. I'm not sure if the perception is that these companies are finally going to receive their day in court. I definitely believe were victimized by the fraudulent ratings and "representations and warranties" that were presented to them when they insured these MBS entities. I will admit that back in 2008 I lost a lot of money betting on ABK, under this same premise, but that was at much higher stock prices. But I've always felt they had a solid case for denying payment of claims against these fraudulent MBS. The problem was that they needed a legal finding to justify doing so.

The fraud that was perpetrated on the Monolines is, IMO, like a person going to obtain vehicle insurance and lying about all the DUIs and Reckless Driving citations they've received. If you lied when you applied for your insurance, it's a clear cause for denial of claim should you get in an accident. You've lied in your personal "representations and warranties" related to your driving record.

Now supposedly the insurer is supposed to verify your driving record, but in the case of the Mortgage and MBS insurers, they heavily rely upon the Ratings Agencies (RAs) (Moody's, S&P, Fitch.. etc). Well.. the RAs were PAID by the investment banks (IBs), so they obviously didn't scrutinize these securities very closely.. Would have been bad for business if they didn't give the rating the IBs wanted. It was a very incestuous conflict of interest, which has been well covered in the news. But now one has taken the issue this far into the political arena, as we're currently seeing.

NOW, it would appear, that the issue is finally reaching a political head and Obama has "officially" vetoed that sneaky little notarization bill that the bankers wanted so much:

Obama's "pocket" veto with memorandum of disapproval

Obama knows this is a political hot potato. Banks don't vote.. They just pump money into the political system. And those who do vote have a lot of reasons to hate the banks at the moment, especially if they are getting foreclosed on. But they also hate the banks because they were forcing qualified home buyers to compete with sub-prime borrowers and even illegal aliens (it's true!!) to buy a home. Those unqualified borrowers resulted in a tremendous "false" demand that drove home prices up. So now, when the sub-primers default and the illegals bail out back to Mexico (or change their names) those who were qualified homebuyers find the prices on their homes plummeting back to earth.

Now.. I know.. no one forced them to buy that house. They could have continued to rent, as I have opted to do (but I just like my freedom to wander to another location.. ;0). But you know how much pressure husbands are under from their wives.. That damn "nesting instinct" that drives a woman to have a home of their own and few marriages survive defying it.

However, I've talked with a number of folks who have decided to undergo a "strategic default", bank their cash, and attempt to recover at some point in the future.

And as I saw on the Daily Show last night, even the Mortgage Banker's Association in Washington, DC has defaulted on their $79 million loan on their previous building (This is pretty damn funny, but probably not for those are undergoing a foreclosure):

MBA defaults on their offices

Good for the Goose.. Good for the Gander?

Really hard to have much sympathy for a Mortgage Banker when they can't even maintain the payments on their own "home".

Thus, if many Americans happen to have watched that, and start tuning into the Congressional hearings on Foreclosure and Mortgage Fraud next month, they may be even less inclined to continue making payments on a mortgage that is severely under water.

This is going to be interesting to watch.

My question is whether being an investor in the severely beaten down Monoline insurers is the sign of a potential recovery in the sector, or merely a short-term speculation. Some of these companies, if they can get out from under their obligations on these Fraudulent MBS insurance contracts, have a TON OF MONEY stashed away in reserve for paying claims. They could actually surge tremendously over the next year or two, if the courts see things their way, or the Government comes in and performs the "Mother of all RTC" programs.

Scrutinizer

Fed chief FINALLY tells it like it is

US on the brink of disaster


Bernanke Speech link

Edit 10 Oct, 2010

MERS has released a PR stating their side of the issue:

MERS PR

Here's more detail on exactly what the role MERS plays in the securitization and foreclosure process:

MERS

Scrutinizer

More on the MERS mortgage/foreclosure fraud

The following statement by a California Judge in this case sums up what has happened to most people's mortgages:

"Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party."

Here's the link from a year ago:

But Vargas, hero, citizen and family man, has been sucker-punched along with millions of other American homeowners, taxpayers and the nation’s entire economy by the mortgage-lending debacle.

A series of loans from some of America’s largest mortgage lenders cost him nearly $200,000 in less than two years and destroyed financial security it took a lifetime to build. Documents reviewed by msnbc.com show that loans sold to Vargas by mortgage brokers on behalf of the lenders were loaded with features that federal officials say are the hallmarks of predatory lending.

Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party. Ultimately, he wound up in foreclosure proceedings. And, finally, bankruptcy court.

Vargas’ story is the Cliff Notes version of what has happened to the larger American economy. It is a story of greed, lax lending standards, lack of government oversight and the fantasy that real estate prices will always rise.

Mortgage Deeds and Whiskey bottles

I also just read today that Ambac, previously the #2 provider of Mortgage insurance (PMI) has sued Bank Of America for $16 Billion:

ABK sues BAC for $16 billion over countrywide mortgage fraud

BAC bought out Countrywide and at that point assumed their liabilities. ABK is alledging that...

... 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.

97%!!!!! of all the loans that ABK insured for BAC/Countrywide were violations of "warranties and representations".

It's evident that the financial crisis is not over. We have some SERIOUS PROBLEMS still remaining with the entire system that will likely take years to unravel (with, or without, congressional intervention).

Edit Oct 7th And it would appear that this congressional intervention has, in part, arrived. Much of the controversy over this foreclosure fraud was that documents were being presented with notarized signatures that were not accepted by other states. I also understand that some documents were electronically signed and notarized, which is contrary to the whole notary process (actually witnessing the signing of the documents). Well, Congress has QUICKLY passed the following bill and now Obama is sitting on it for signature. One has to wonder if he's wondering what the repercussions to his political career will be if he does:

n other words, with one simple signature Obama has the capacity to prevent tens of billions in damages to banks from legal fees, MBS deficiency claims, unwound sales, and to formally make what started this whole mess: Court Fraud perpetrated by banks, a legal act, and to finally trample over the constitution. Will Obama do it? Potentially - the banking lobby certainly has enough power over him and his superiors, the members of the FOMC. On the other hand, the populist revolt that will surely follow the enactment of such a law will certainly end any dreams of a second term, and potentially of a completed first one. The drama is now on: will Obama openly side on behalf of the bankers (without a "blame the republicans" fall back this time) or of the foreclosure "victims" (granted, the bulk of whom are deadbeat homeowners who should never have owned a home to begin with). We doubt a decision will be reached before the midterms, although quite a bit now hangs in the balance.

Obama's quandary

Yet, the market continues to climb on the back of a declining US dollar. The USD is down over 10% since May (input UUP, which is the "bullish dollar ETF" in the following link). But be sure to look at the weekly DOW chart first to make the comparison between it's performance and the UUP:

DOW Weekly Chart

Scrutinizer

Shades of 1937

Tell me this isn't downright SPOOKY!!

1937 compared to current market

The Prediction?

Scrutinizer