$600 TRILLION IN SWAPS: WHO OWNS THE DEBT?

SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

REGISTER FOR CLE SEMINAR, HOMEOWNERS WELCOME

EDITOR’S ANALYSIS: Here is the problem: $600 TRILLION in swaps seems like a big number. It is. And it is only an estimate, so we can assume there is some variance. How big is it? Well the combined currency issued across the world by all governments is $50 TRILLION. So it doesn’t take a rocket scientist to know that there is 12 times the amount of the world’s currency sitting out there masquerading as securities based upon paper whose value is derived from some debt which is to be paid, you guessed it, in currency. 

A lot of the swaps might cancel each other out but we are still stuck with the fact that the securities affecting ownership, guarantee and payment of debt due from borrowers have virtually nothing to back them up — even if you used literally all the money in the world there would only be 8% coverage. And we know that a lot of these swaps have been exercised and triggered in the mortgage market — and that was what triggered the United States printing another few TRILLION dollars so the financial firms playing with these weapons of mass destruction could get paid 100 cents on the dollar instead of, at most, 8 cents.

Now if the 100% payment of the debt was triggered by the swap contracts and the swap contracts are 12 times all the currency in the world, it stands to reason that these synthetic derivatives represent the sale of the same debt 12 times over. One would think that once was enough, but not on Wall Street. One would also think that a third party paying off the debt would have some legal or equitable right to go after the original borrower on the debt, which is what the banks are saying in the foreclosures. BUT the swap contracts all have a provision that specifically waives any rights to the debt — which means they are paying to someone who will still own the debt. They are paid in full, perhaps 12 times over, but they still have the debt, or do they?

The originating parties to the swaps were NOT the investors who bought mortgage backed securities or mortgage bonds. That would make too much sense. No, the originating parties on the swap contracts were the brokers who sold the mortgage bonds — and sometimes sold the same load of toxic waste several items over by the use of swap contracts. In fact, that was the way they could be sure the pool would fail — by loading even the highest tier of the special purpose vehicle (trust) with swap contracts on the lowest tier (tranche). Being sure of something gives you an advantage to say the least. Making a “bet” on the failure of the pool, as a whole is like betting the sun will come up in the morning — if it doesn’t, who cares about anything?

So you have these bonds, derivatives on bonds, and bets on derivatives on bonds circulating in a swirl of hand written notes (literally) so nobody can keep track of them, which is LEGAL because Congress made it legal when it declared these instruments to neither securities nor insurance contracts in 1998. But back on earth where most of us live, we have some problems that just won’t go away. Besides the obvious fact that the vapor created by these financial firms is more than anything the world can sustain, it isn’t possible to know who actually “owns” the debt or whether some agency relationship arises as a result of the swap contracts or derivatives.

Wall Street’s answer to this problem is to go to court masquerading some entity as a pretender lender and portraying the situation as an ordinary loan transaction where the creditor is present. This in turn creates the presumption that the borrower must now satisfy the burden of proving that the debt was paid. In fact, it is the initial presumption that is incorrect and the clever way it is presented to Judges has led them to believe that the creditor exists because the debt MUST exist, when in fact it has most probably been extinguished several times over. By thus shifting the burden of proof to the borrower, who knows he borrowed money and knows he didn’t make the payment, EVERYONE assumes that the borrower is in trouble. Lawyers representing the borrowers on any loan that was securitized do their clients a disservice when they make that mistake.

Now Judges in trial and appellate courts and even courts of limited jurisdiction are beginning to see the light. By applying the simple principle embodied in the alignment of parties, the party seeking affirmative relief is the pretender lender, not the borrower.  By applying the rules of civil procedure, the pretender lender must make allegations that have hit a brick wall: that it is the lender or the successor to the lender. The simple factual problem faced by the pretender lender is that they never made the loan from their own funds nor did they ever buy the loan with their own funds. Their attempt at fabrication of documents to show loans transfers has also blown up i  their face and many lawyers can expect to be disciplined, sued civilly and even criminally for their participation in this scheme. PLAUSIBLE DENIABILITY IS DISSOLVING.

By applying the simplest and most basic of rules and laws, for the last 10 years or more, there has not been any actual creditor thus far, seeking to enforce any debt that was securitized, which in the case of consumer debt, is basically all of it. Consumers, homeowners, and their lawyers didn’t create this problem. Wall Street did. And the idea that in court they can shift the burden of paying for the mess or otherwise cleaning it up is preposterous. And the days of MAKING the consumers pay for it is equally preposterous because they have no more money or credit. Thus Wall Street has painted themselves into the proverbial corner and as this continues to unravel, the consequences of leveraging 40 times on an “asset” (that was overvalued to begin with, and never transferred into new ownership) are that the eventual collapse of empires on Wall Street is inevitable. The only question is when?

Derivatives Firms Face New Capital Rules

Tags: bailout, bankruptcy, borrower, disclosure, foreclosure, foreclosure defense, foreclosure offense, fraud, Lender Liability, mortgage meltdown, Ny Times, rescission, securitization, TILA audit, trustee
Posted in bubble, Corruption, Eviction, securities fraud |