The mortgage crisis in a nutshell

I invite you to view a brand new 54-minute video (embedded below) titled “Mortgage Crisis in a Nutshell.” The presenter is John Campbell, a St. Louis attorney and educator. I work with John at the Simon Law Firm in St. Louis, Missouri. We gained much of our experience in this area of law by litigating numerous suits for mortgage fraud on behalf of homeowners, both individual suits and class actions. Also on behalf of homeowners, we've defended many unlawful detainer suits (attempts to evict homeowners). We've both become passionate about this work as a result of witnessing firsthand that many homeowners have been victimized by unscrupulous and unrepentant banks. In this 53-minute video John presents the main aspects of the mortgage crisis that has devastated the U.S. housing market and the economy. Our goal is empower all who seek to better understand what went wrong with the American mortgage system. As you will see when you click on the above link, this video can be watched in chapters: I. The Big Picture and its Many Parts (:55) II. Banks Flood the Market with Subprime Mortgages (3:54) III. Banks, Securitize their Mortgages (10:05) IV. Banks Cry for a Bailout (13:57) V. Wall Street Malfeasance (16:54) VI. Foreclosures, Robo-Signing, Trustees and Conflicts of Interest (18:20) VII. MERS ("Mortgage Electronic Registration System) (33:45) VIII. The Mortgage System Used to Work (43:42) IX. Credits and Further Readings (52:43) We created this video because we were frustrated by the fact that it is difficult to find websites and other materials describing the modern mortgage system in terms that are accessible to both lawyers and non-lawyers. As a result, many of our friends and acquaintances (those outside of the mortgage law community) don’t understand the inter-relationships among subprime loans, ratings of mortgage-backed securities, MERS, the bailout and robo-signing. The failure to understand these things is making it easy for the entities that caused this crisis to conduct business as usual. Because this system is so difficult to understand, too many people think the crisis was entirely caused by “irresponsible borrowers.” The result is that our national dialogue is obsessed with the alleged need for less regulation instead of discussing how to change the system to make sure this never again happens. We’ve used simple terms and basic drawings in order to make an opaque system understandable. Though it is undoubtedly slanted toward our perspective as attorneys who represent homeowners, we’ve worked hard to keep it factual and fair-minded. We ask only one thing in return for the link to this video. To the extent that you find it helpful to your understanding of the mortgage crisis, please consider forwarding this link to anyone else you know who would benefit from viewing it. Our aim is to spread this video widely through email, list serves, Facebook, Twitter, blogs, websites other social media. We certainly invite comments, both at DI and at YouTube. If this video works for you (or if it doesn't), please let us know. Thank you.

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The purported work of Wall Street.

What do all of those people in the Wall Street towers actually do? You won't find them doing much of what most people think about when they hear the term "banking." The following description of the business of Wall Street is from Christopher Ketcham's "The Reign of One Percenters" at Orion Magazine:

At one time, the financial sector could be relied upon to allocate capital for the building of things that society needed—projects that also invariably created jobs. But productivity is no longer its purview. . . . Structured investment vehicles, credit default swaps, futures exchanges, hedge funds, complex securitization and derivative pools, the tranching of mortgages—these were shown to have “little or no long-term value,” according to [John Cassidy, a staff writer for The New Yorker]. The purpose was to “merely shift money around” without designing, building, or selling “a single tangible thing.” The One Percenter seeks only exchange value, as opposed to real value. Thus foreign exchange currency gambling has skyrocketed to seventy-three times the actual goods and services of the planet, up from eleven times in 1980. Thus the “value” of oil futures has risen from 20 percent of actual physical production in 1980 to 1,000 percent today. Thus interest rate derivatives have gone from nil in 1980 to $390 trillion in 2009. The trading schemes float disembodied above the real economy, related to it only because without the real economy there would be nothing to exploit. Behold, then, the One Percenter in his Wall Street tower. He creates “value” by tapping on keyboards and punching in algorithms. He makes money playing with money, manipulating abstractions. He manufactures and chases after financial bubbles and then pricks them. . . . A study from the New Economics Foundation in England found that for every pound made in financial services in the city of London, roughly seven pounds of social wealth is lost—meaning the wealth of those in society who do productive work.

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Matt Taibbi challenges the notion of “rogue traders”

Swiss bank UBS recently announced that a "rogue trader" caused the bank to lose $2 billion. At Common Dreams, Matt Taibbi argues that what this "rogue trader" was doing was par for the course on Wall Street, even since the intentional destruction of the Glass-Steagall Act. Therefore, allegations that "rogue traders" cause losses at Wall Street banks is yet another fraud on behalf of these "banks."

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking – historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there – turns them on. . . . Nonetheless, thanks to the Gramm-Leach-Bliley Act passed in 1998 with the help of Bob Rubin, Larry Summers, Bill Clinton, Alan Greenspan, Phil Gramm and a host of other short-sighted politicians, we now have a situation where trillions in federally-insured commercial bank deposits have been wedded at the end of a shotgun to exactly such career investment bankers from places like Salomon Brothers (now part of Citi), Merrill Lynch (Bank of America), Bear Stearns (Chase), and so on. These marriages have been a disaster. The influx of i-banking types into the once-boring worlds of commercial bank accounts, home mortgages, and consumer credit has helped turn every part of the financial universe into a casino. That’s why I can’t stand the term "rogue trader," which is always tossed out there when some investment-banker asshole loses a billion dollars betting with someone else’s money. They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.
Reckless Wall Street "banks" are mostly not-banks. They only make about 15% of their money raising capital for businesses. Instead, they are gamblers who are using what's left of their bank function as a human shield so that when their reckless bets go bad they can call out to Congress for yet another mega-wad of cash to save them from going under. You can almost hear them shouting, "Save the banks! Save the banks!" If the federal government hadn't killed Glass-Steagall, Congress would be much better situated to respond to what would have been only a reckless gambler, "Sorry, but it's time you suffered the natural consequences of your actions . . . no federal money for you." If only Glass-Steagall were still in place, those stodgy and boring bank accounts of people like you and me would be safely segregated from the uncontrolled avarice of huge gambling corporations that currently call themselves "banks."

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We the Banks

I caught this insanity at Democracy Now:

The next chair of the House Financial Services Committee, Rep. Spencer Bachus of Alabama has been quoted saying lawmakers and regulators should "serve" Wall Street. Speaking to the Birmingham News, Bauchus said, "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks." Shortly before the midterm elections that propelled him into the committee chairmanship, Bachus urged a gathering of financial industry lobbyists to donate heavily to Republicans in response to the Democrats’ overhaul of financial regulation.

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How much has the Wall Street bailout cost American taxpayers?

How much have U.S. taxpayers paid to bail out Wall Street? Here are many of the details, but note that $2.02 trillion remains outstanding. Also keep in mind that the TARP payments were only 10% of the total U.S. aid given to Wall Street. Be wary, then, when you hear Wall Street crowing that it has paid back much of the TARP money. Dylan Ratigan puts the topic in perspective.

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