Jim Sinclair of MineSet.com reports that James Galbraith, author of The Geithner Plan Won’t Work, was on Bloomberg TV this morning and noted the mortgage collateral fraud that I have been warning about for many years.

“Galbraith alluded to a fractional reserve approach towards mortgage securitization by intent of error whereby the same mortgages were securitized more than one time.”

What this means is that the bank portfolios are full of mortgages for which there is no real house. So toxic assets is a misnomer. Yes, there is toxicity. However, there are no real assets. There are, however, civil and criminal liabilities. Which means that if these toxic assets were auctioned off in an open process, the price would be set by how much the people with civil and criminal liability would pay to buy back the files to protect themselves.

But, wait, is this why the Federal Reserve, Congress and the Treasury are funding bailouts? Are the liable parties simply using borrowed money to have all the documents destroyed?

12 Comments

  1. Independent Mind:

    Excellent comments.

    I just had someone report to me that they are not looking at the basic assets because they are engaged in another “pump and dump.” They will use government loans to run up the price again. They can make another fortune if it works, and stick it back to the government if it does not.

    These are “trading sardines” not real sardines. They could not care less about what happens on the ground. They will keep that going to the extent they want to with more government money.

    What they need now is for the average life expectancies to diminish and those who make it to survive on a monthly stipend of $600.

    Catherine

  2. Catherine,

    I worked in the real estate industry — although not in the publicly funded area — for many years, and have followed news about you for several years.

    I am aware of Galbraith’s insistence that the actual loan tapes be examined, prior to any determination of price setting. As soon as I read that, I thought of your claims that some pools of mortgages had been securitized more than once.

    Not performing adequate due diligence can often be a sign of fraud, so it is interesting that there have been recent stories about credit analysts being prevented from looking at the underlying documentation related to cash flows from securitized mortgages.

    I am not so sure that the goal of potential purhchasers would be to destroy evidence of fraud. As I understand it, in many cases, the original loan documentation cannot be found. Obama’s proposal, as currently structured, certainly gives a potential purchaser an incentive to look the other way, if fraud were to detected, because they will have virtually no downside risk. It’s the taxpayer who will get stuck with most of the tab, not purchasers of toxic assets.

  3. Newby:

    For my various comments on why I believe that there is significant collateral fraud behind the CDOs/MBSs, see:

    http://www.dunwalke.com
    http://www.whereisthemoney.org/S00223_collateral.htm
    http://whereisthemoney.org/collateral_II.htm
    http://www.dunwalke.com/gideon/q301.pdf
    http://solari.com/news/announcements/08-07-07/
    http://solari.com/archive/housing_bill/
    http://solari.com/archive/missing_money/
    http://solari.com/archive/freddie-fannie-penny-stocks/

    The only way to price something is with accurate data. Once you have the accurate data about cash flows and collateral values, you need two additional things. You need the people who rent or own the collateral to have income and you need the rule of law. If a country has no income and no law, then the value is $0. And if the collateral is non-existent, the value is $0 as well.

    So one way or the other, we appear to be well on our way to creating values of $0, if we were not already there.

    Hope these are useful,

    Catherine

  4. DITTO!!!!! Whoever believes that this manouver is on the level…well…I have some securitized AAA rated leveraged CDO’s I’ll sell you and you can even determine the value that I’ll eventually repay for them too??!! ( using taxpayer dollars of course ) over and over again. Furhermore, I’ll have the FED contribute and also leverage 20:1 to boot!!! And if that wasn’t enough I’ll even take out a CDS to guarantee the loss…..just incase there is one…Who on earth really believes any of this needs needs a trip to outer space to get his bearings…AS a refresher to the language of a timegone by: “I have a bridge in BrooklynI’ll sell you” and the phrase: “Ponzi Scheme” have been replaced by the new dynamic by the Masters of the Universe to give new meaning to the phrase: “boy was he duped!!!!” and though the brdge episode brings one back to a more gentler time even if it was known as the GREAT DEPRESSION…Waiting on the fireworks in London on April 2nd…should be a doozy…There was a reason that Hank Paulson flipped the script when his October surprise was passed and reversed course; and instead of a TOXIC ASSET sell off gave the major players a $125b bailout in the WH….The citizens will revolt…As i noted in early October 2008, it will take 20 years of $1tr per week to writedown all the derivatives written..and that seems like the plan so far….Since no one has been willing to call the Bush Criminal Crime Family to the carpet for their HIGH CRIMES AND MISDEMEANORS why expect anything different from the current administration concerning the FINANCIAL DEBACLE now???????? We are witnessing the greatest heist and hijacking in written history…they can’t stop now…thank you Catherine for being so undertanding for all these years….once burned, twice shy….

  5. Catherine,

    I came accross your blog via Max Keiser’s.

    Can you point me in the right direction to get a sense of the value of phantom CDOs/MBSs

    Thanks

  7. Of course they are! AND They will never be held to account.
    Trillions you say; but who will pay……. or can We pay by pushing Catherine’s RED BUTTON??
    brgds
    rene

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