Financial News

[Balta1701]

I think NSS and I were talking a few weeks ago about how widespread the problem of outright fraud in foreclosure proceedings currently is. Here's a from-the-press, somewhat-anecdotal, ridiculously high number, from a state where foreclosure is a judicial proceeding (such that people shoudl in fact know).

Spinner and some of colleagues in the New York City area estimate they are dismissing 20 to 50 percent of foreclosure cases on the basis of sloppy or fraudulent paperwork filed by lenders.

[NorthSideSox72]

I think NSS and I were talking a few weeks ago about how widespread the problem of outright fraud in foreclosure proceedings currently is. Here's a from-the-press, somewhat-anecdotal, ridiculously high number, from a state where foreclosure is a judicial proceeding (such that people shoudl in fact know).

If that number is even true, its still not spelling doom like you think it is. What it means is, they have to go back and re-do the paperwork. Its extra time and money, and its not good, but its far from economy-shattering.

 

As I've repeatedly said, what matters is the percentage of actual loans and their underwriting that turn out to be materially flawed, and further, how many of those have been securitized, and of those, how many have contractual points that allow for any sort of push back, and of those, how many of the securitized debt instruments have any large percentage at fault, and of those, how many holders are willing to spend the time and money going after this. Its a % of a % of a % of a % of a %.

 

[southsider2k5]

Which is basically what I just said.

 

You are saying profits are meaningless to the health of a bank, and that is just not true. What I think you mean is, a bank can make a profit and still be unhealthy. Do you not see the difference I am getting at here? Profits are good, they help banks, but that does not mean profitability = health.

 

Profits help stockholders, not banks. Banks are a whole different entity. Profits are 100% irrelevant to the health of a bank. The only thing that matters to a bank's health is what their lending ratios look like, and if there is bad debt stopping them from being a solvent bank.

[southsider2k5]

If that number is even true, its still not spelling doom like you think it is. What it means is, they have to go back and re-do the paperwork. Its extra time and money, and its not good, but its far from economy-shattering.

 

As I've repeatedly said, what matters is the percentage of actual loans and their underwriting that turn out to be materially flawed, and further, how many of those have been securitized, and of those, how many have contractual points that allow for any sort of push back, and of those, how many of the securitized debt instruments have any large percentage at fault, and of those, how many holders are willing to spend the time and money going after this. Its a % of a % of a % of a % of a %.

 

Not to mention there is no distinction between "sloppy" and "fraudulent" paperwork, and the chasm of difference between those two things.

[NorthSideSox72]

Profits help stockholders, not banks. Banks are a whole different entity. Profits are 100% irrelevant to the health of a bank. The only thing that matters to a bank's health is what their lending ratios look like, and if there is bad debt stopping them from being a solvent bank.

I think you are focused on only one of many factors in the health of a bank. You and I just don't see this the same way.

 

[southsider2k5]

I think you are focused on only one of many factors in the health of a bank. You and I just don't see this the same way.

 

A bank can survive without profits. A bank can't survive without the proper lending ratios. Everything else is secondary to the capital to debt ratios in a bank.

[lostfan]

Changing the subject a little: GM's IPO is happening on 18 November and I might be a little Pollyana here, but I think they'll end up being fine. Bankruptcy was a traumatic experience for them but it helped them shrink to a more appropriate size, and they were able to shed the albatross contracts they were stuck in that were bogging them down pre-2009. Now they are smaller and more agile and are in a better position to make profits and do things they couldn't do before.

 

I see people saying "why would anybody invest in GM right now, remember what happened to GM's shareholders last year?" That question is a non-sequitur as far as I'm concerned, because for all intents and purposes they are 2 separate entities pre- and post-bankruptcy. They were investing in a company that had been in trouble for a while, and it essentially went belly-up. What would've happened to their shares then if the government hadn't bailed them out? They would've gone into the s***ter! So why's that even being brought up?

[Balta1701]

So why's that even being brought up?

It sure sounds to me like that is a question that would only be asked for political reasons, not a question that would be asked by an actual legitimate investor.

 

Basically, GM right now is an actual profitable company with a large amount of hardware. Furthermore, they're actually profitable while we're still very close to the bottom of the consumer market. If the consumer market ever recovers, they become a better investment. They also happen to have a "to big to fail" style explicit government guarantee.

 

Oh yeah, there's lots of risks, but there's lots of risks with any company you invest in. You might not have confidence in their management, you might think we're in for another gas price spike in the near future, you might think that the key vehicle of the future for them (The Volt) is going to be a boondoggle, etc.

 

But all of those are legitimate investment issues. The one you cite only makes sense if you're obsessed with bashing the government for the bailout.

[southsider2k5]

It sure sounds to me like that is a question that would only be asked for political reasons, not a question that would be asked by an actual legitimate investor.

 

Basically, GM right now is an actual profitable company with a large amount of hardware. Furthermore, they're actually profitable while we're still very close to the bottom of the consumer market. If the consumer market ever recovers, they become a better investment. They also happen to have a "to big to fail" style explicit government guarantee.

 

Oh yeah, there's lots of risks, but there's lots of risks with any company you invest in. You might not have confidence in their management, you might think we're in for another gas price spike in the near future, you might think that the key vehicle of the future for them (The Volt) is going to be a boondoggle, etc.

 

But all of those are legitimate investment issues. The one you cite only makes sense if you're obsessed with bashing the government for the bailout.

 

I think the funny part is that even after saying that bankruptcy would be this huge disaster for the car companies, the left is now taking credit for putting GM through bankruptcy. I guess that means 10 million people or whatever didn't lose their jobs, huh?

[Balta1701]

I think the funny part is that even after saying that bankruptcy would be this huge disaster for the car companies, the left is now taking credit for putting GM through bankruptcy. I guess that means 10 million people or whatever didn't lose their jobs, huh?

Oh come on man, this is absolutely ridiculous. You do realize that the only reason why bankruptcy was even a plausible option was that the government stepped in? This isn't even up for debate. The leadership/CEO's of companies that weren't bailed out like Ford even admit this.

 

10 million people didn't lose their jobs BECAUSE the government stepped in. Bankruptcy other than Chapter 7 was possible only because the government stepped in. There was absolutely no private financing in December-March 2009 to shepherd 2 large, unprofitable, politically connected auto manufacturers through bankruptcy.

 

"10 million people didn't lose their jobs and bankruptcy happened! See!" ignores literally every fact out there. I'm almost astonished that I have to write this reply.

[Cknolls]

And possibly the biggest most egregious gift of all given to GM was the ability to write off $47 billion in future profits against past losses. This usually does not happen to this extent with a post bankrupt company. But then again bond holders usually are not f***ed the way the gov't f***ed these bond holders either.

[Y2HH]

I have rather strong opinions on GM and the governments involvement in this entire debacle. They were basically enabled to rip people off (shareholders/bondholders), and come out clean on the other side...meanwhile the government glosses over the fact that while they saved jobs and GM is about IPO as a profitable company again, a lot of people lost a lot -- potentially everything -- due to mismanagement of a public company, and in the end, nothing will happen to any of them because of it. Oh, and GM gets to start over as if they never did anything wrong.

 

This is far more complicated than many are even scratching the surface of.

 

I think it set a bad precedent.

[southsider2k5]

Oh come on man, this is absolutely ridiculous. You do realize that the only reason why bankruptcy was even a plausible option was that the government stepped in? This isn't even up for debate. The leadership/CEO's of companies that weren't bailed out like Ford even admit this.

 

10 million people didn't lose their jobs BECAUSE the government stepped in. Bankruptcy other than Chapter 7 was possible only because the government stepped in. There was absolutely no private financing in December-March 2009 to shepherd 2 large, unprofitable, politically connected auto manufacturers through bankruptcy.

 

"10 million people didn't lose their jobs and bankruptcy happened! See!" ignores literally every fact out there. I'm almost astonished that I have to write this reply.

 

The point is as ridiculous as the statements were before the wasted bailout. The car companies would have been fine, they would have been reorganized and financed, just like they were. Instead of the government owning them, it would have been the people they owed money. The only thing you are ignoring is that the alarmist left-wing was dead wrong here.

[Balta1701]

I have rather strong opinions on GM and the governments involvement in this entire debacle. They were basically enabled to rip people off (shareholders/bondholders), and come out clean on the other side...meanwhile the government glosses over the fact that while they saved jobs and GM is about IPO as a profitable company again, a lot of people lost a lot -- potentially everything -- due to mismanagement of a public company, and in the end, nothing will happen to any of them because of it. Oh, and GM gets to start over as if they never did anything wrong.

 

This is far more complicated than many are even scratching the surface of.

 

I think it set a bad precedent.

Of course it sets a bad precedent. Everything we did for about a 2 year period set a bad precedent. And we still haven't corrected that problem.

 

My biggest disagreement with you is on the fact that the shareholders/bondholders were ripped off. If that car company had to close its doors completely, it wasn't going to reopen. That would have sent a shock to the whole system. At that point, the only thing the bondholders and shareholders would have had a claim to is GM's assets; mainly its land and equipment. But...if the entire company has collapsed, and auto manufacturing in the U.S. has taken a huge hit, and all of GM's technical work is getting locked in a closet somewhere, all of its people are laid off, and there's an ongoing financial crisis, the land and assets GM had wouldn't have been worth all that much to the stakeholders anyway. They were basically going to get wiped out in a non-federally-mediated bankruptcy as well.

 

One other disagreement I have is that you say the phrase "mismanagement of a public company". I'd counter that the auto manufacturers weren't exactly public companies when the mismanagement happened. Those people lost everything because of mismanagement of a private company, to the point that the government stepped in.

[Balta1701]

they would have been reorganized and financed, just like they were

by the government.

[Y2HH]

Of course it sets a bad precedent. Everything we did for about a 2 year period set a bad precedent. And we still haven't corrected that problem.

 

My biggest disagreement with you is on the fact that the shareholders/bondholders were ripped off. If that car company had to close its doors completely, it wasn't going to reopen. That would have sent a shock to the whole system. At that point, the only thing the bondholders and shareholders would have had a claim to is GM's assets; mainly its land and equipment. But...if the entire company has collapsed, and auto manufacturing in the U.S. has taken a huge hit, and all of GM's technical work is getting locked in a closet somewhere, all of its people are laid off, and there's an ongoing financial crisis, the land and assets GM had wouldn't have been worth all that much to the stakeholders anyway. They were basically going to get wiped out in a non-federally-mediated bankruptcy as well.

 

One other disagreement I have is that you say the phrase "mismanagement of a public company". I'd counter that the auto manufacturers weren't exactly public companies when the mismanagement happened. Those people lost everything because of mismanagement of a private company, to the point that the government stepped in.

 

It's easy to speculate on something that never happened. Fact is, nobody REALLY knows what would have happened if GM was left to fail. What we have here is a lot of guessing. GM was publicly traded, and therefore it was a public company.

 

This is the SECOND time that industry was bailed out due to mismanagement.

 

This is the SECOND time that industry gets to start over as if they never did anything wrong.

[NorthSideSox72]

Of course it sets a bad precedent. Everything we did for about a 2 year period set a bad precedent. And we still haven't corrected that problem.

 

My biggest disagreement with you is on the fact that the shareholders/bondholders were ripped off. If that car company had to close its doors completely, it wasn't going to reopen. That would have sent a shock to the whole system. At that point, the only thing the bondholders and shareholders would have had a claim to is GM's assets; mainly its land and equipment. But...if the entire company has collapsed, and auto manufacturing in the U.S. has taken a huge hit, and all of GM's technical work is getting locked in a closet somewhere, all of its people are laid off, and there's an ongoing financial crisis, the land and assets GM had wouldn't have been worth all that much to the stakeholders anyway. They were basically going to get wiped out in a non-federally-mediated bankruptcy as well.

 

One other disagreement I have is that you say the phrase "mismanagement of a public company". I'd counter that the auto manufacturers weren't exactly public companies when the mismanagement happened. Those people lost everything because of mismanagement of a private company, to the point that the government stepped in.

I think he meant publically traded.

 

[Balta1701]

It's easy to speculate on something that never happened. Fact is, nobody REALLY knows what would have happened if GM was left to fail. What we have here is a lot of guessing. GM was publicly traded, and therefore it was a public company.

 

This is the SECOND time that industry was bailed out due to mismanagement.

 

This is the SECOND time that industry gets to start over as if they never did anything wrong.

Oh, ok, you and I were interpreting the phrase "public company" differently there. I was interpreting it as referring to the company after the point that the government stepped in and took control...aka. "publicly owned" in the sense that the government controlled it. My mistake. However, I think there is pretty much unanimous agreement by everyone making public statements within the industry that had the government not stepped in, their doors shut in December 08/January 09, and never reopen. Then, the other auto manufacturers follow suit shortly thereafter. Even the non-bailed-out ones admit this.

 

You're definitely right on the latter 2 parts. And it continues to be a flaw we haven't taken steps to correct. And we can say the exact same thing about wall street too.

[NorthSideSox72]

UE claims fall to 435k, well below the 450k expectation, and the 4 week average dropped by 10k. The graph keeps looking better. Let's hope it keeps up the trend.

 

[Cknolls]

We now have strategic defaults occurring in the mortgage mkt by individuals, correct. What happens when the muni bond mkt starts to price in the strategic defaults ALREADY occurring by towns all over the country. Risk is high comparable to the return on some of this debt.

[NorthSideSox72]

We now have strategic defaults occurring in the mortgage mkt by individuals, correct. What happens when the muni bond mkt starts to price in the strategic defaults ALREADY occurring by towns all over the country. Risk is high comparable to the return on some of this debt.

Ratings changes have been reflecting that left and right. Chicago's debt was recently lowered to the bottom band of the quality range, next step down starts into junk.

 

[Balta1701]

Matt Taibbi has another long, totally worth reading tome out in this month's rolling stone, this time he's sitting in on one of the Foreclosure kangaroo courts in Florida. Some fun parts are the judge trying to admonish him for coming into what is by law an open courtroom, his actual examinations of bank documents, and the point at which a homeowner who is about to be foreclosed on actually shows up and it turns out that the plaintiffs hadn't brought her documents at all; had she not shown up, she'd have been foreclosed on without any documentation. A portion of one good section:

The way the banks tell it, it doesn't matter if they defrauded homeowners and investors and taxpayers alike to get these loans. All that matters is that a bunch of deadbeats aren't paying their f***ing bills. "If you didn't pay your mortgage, you shouldn't be in your house — period," is how Walter Todd, portfolio manager at Greenwood Capital Associates, puts it. "People are getting upset about something that's just procedural."

 

Jamie Dimon, the CEO of JP Morgan, is even more succinct in dismissing the struggling homeowners that he and the other megabanks scammed before tossing out into the street. "We're not evicting people who deserve to stay in their house," Dimon says.

 

There are two things wrong with this argument. (Well, more than two, actually, but let's just stick to the two big ones.)

 

The first reason is: It simply isn't true. Many people who are being foreclosed on have actually paid their bills and followed all the instructions laid down by their banks. In some cases, a homeowner contacts the bank to say that he's having trouble paying his bill, and the bank offers him loan modification. But the bank tells him that in order to qualify for modification, he must first be delinquent on his mortgage. "They actually tell people to stop paying their bills for three months," says Parker.

 

The authorization gets recorded in what's known as the bank's "contact data­base," which records every phone call or other communication with a home­owner. But no mention of it is entered into the bank's "number history," which records only the payment record. When the number history notes that the home­owner has missed three payments in a row, it has no way of knowing that the homeowner was given permission to stop making payments. "One computer generates a default letter," says Kowalski. "Another computer contacts the credit bureaus." At no time is there a human being looking at the entire picture.

 

Which means that homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors, you name it. This inability of one limb of the foreclosure beast to know what the other limb is doing is responsible for many of the horrific stories befalling homeowners across the country. Patti Parker, a local attorney in Jacksonville, tells of a woman whose home was seized by Deutsche Bank two days before Christmas. Months later, Deutsche came back and admitted that they had made a mistake: They had repossessed the wrong property. In another case that made headlines in Orlando, an agent for JP Morgan mistakenly broke into a woman's house that wasn't even in foreclosure and tried to change the locks. Terrified, the woman locked herself in her bathroom and called 911. But in a profound expression of the state's reflexive willingness to side with the bad guys, the police made no arrest in the case. Breaking and entering is not a crime, apparently, when it's authorized by a bank.

 

The second reason the whole they still owe the f***ing money thing is bogus has to do with the changed incentives in the mortgage game. In many cases, banks like JP Morgan are merely the servicers of all these home loans, charged with collecting your money every month and paying every penny of it into the trust, which is the real owner of your mortgage. If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

 

That's what this foreclosure crisis is all about: fleeing the scene of the crime. Add into the equation the fact that some of these big banks were simultaneously betting big money against these mortgages — Goldman Sachs being the prime example — and you can see that there were heavy incentives across the board to push anyone in trouble over the cliff.

[NorthSideSox72]

Matt Taibbi has another long, totally worth reading tome out in this month's rolling stone, this time he's sitting in on one of the Foreclosure kangaroo courts in Florida. Some fun parts are the judge trying to admonish him for coming into what is by law an open courtroom, his actual examinations of bank documents, and the point at which a homeowner who is about to be foreclosed on actually shows up and it turns out that the plaintiffs hadn't brought her documents at all; had she not shown up, she'd have been foreclosed on without any documentation. A portion of one good section:

This section you clipped in really shows the author's common thought process with many Americans - that banks who are trying to foreclose on owners who aren't paying their bills is somehow the evil banks' fault. I find that disturbing and uneducated, not to mention dangerous.

 

Now, as he points out, certainly the banks are not handling the mortgage paperwork and procedures well. The immense flood of these things has overwhelmed their systems, and they are running to catch up, which is causing s***ty situations to occur. So I am glad that has been highlighted, because courts and other entities are now forcing the banks to put on the resources necessary to handle it. This is a good thing.

 

But other than pointing out the exceptions (which he characterizes as much more than exceptions), his whole article is basically a piece making out banks trying to get back what they rightfully own as being somehow evil. If people all think that way, that's very, very dangerous, because if banks become unable to recover defaulted loan assets, then guess what happens?

 

 

[Balta1701]

But other than pointing out the exceptions (which he characterizes as much more than exceptions), his whole article is basically a piece making out banks trying to get back what they rightfully own as being somehow evil. If people all think that way, that's very, very dangerous, because if banks become unable to recover defaulted loan assets, then guess what happens?

If they don't have the documents, do they actually own them?

[NorthSideSox72]

If they don't have the documents, do they actually own them?

Yes, but as I just said, its good that the courts and auditors and what not are now forcing the banks to prove it and do it right.