Waiting for the Banks to Fail

The Wall Street banks have been largely successful in planting information and disinformation throughout mainstream media, regulatory authorities, legislators, and the judicial system. According to their story they are financially very healthy with expanding income leading to a bright future. If you click on the article below you will see how two internationally known economists think otherwise. Basically it is my opinion that if the information is coming from Wall Street it is probably false. If the information is coming from experts you need to find out what their relationship is with Wall Street banks before you lend them any credibility.

Any observer can easily see how it is getting increasingly difficult for the banks to foreclose on residential and commercial mortgages. This is bringing them closer to the edge of a cliff. When foreclosures start being rejected because the court realizes that it is being used as a tool to strip the investors of both their receivable and their security, the next crash will reach critical mass within a period of weeks. The end result will be that huge amounts of money are going to be owed by the Wall Street banks to insurers, credit default swap counterparties, borrowers, taxpayers and the federal reserve along with anyone else who gave money to the Wall Street banks under the mistaken belief that those banks owned either the mortgage bond or the underlying mortgages. Neither of those assumptions are true.

If I am right about the trajectory of these proceedings then a very substantial amount of what is now reported as assets on the balance sheet of the Wall Street banks will vanish like a puff of smoke. This will put them completely out of balance in terms of the reserve requirements to operate a bank with the presumed size of these megabanks. If this happens there is really no choice. As unthinkable as it might seem (like Detroit declaring bankruptcy) they Wall Street banks would be broken up in accordance with the Dodd Frank law and normal rules of resolution by the FDIC.

For all of the above reasons and more, I keep telling people that each month brings us closer to the time when borrowers prevail more in court than the banks. Judges are required to be skeptical of any new concept or theory. When it becomes obvious to them that the new concept or theory is coming from the banks and not from the borrowers, the court decisions will be substantially in favor of the  borrowers.  The longer you hang in there, the closer you are to getting relief. There are already several programs that are offering a correction of the principal amount due in order to save the property and prevent the foreclosure. These programs are the same programs that were universally rejected only two years ago.

As a lawyer I have noticed that the general attitude of judges has changed from irritation to curiosity. That is a very positive change for the borrowers. When I started this blog it was my belief that eventually this would be resolved, the banks will be held accountable, and the borrowers would get relief. It is obvious that I was wrong on the timing of that and that millions of families were subjected to humiliation and financial ruin. But I still believe that the end of this process is going to occur as a result of developments in the courts.

How a Big Bank Failure Could Unfold

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