Cities, Counties Realize They Have Common Interests With Homeowners

Jul 11, 2012

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One More Windfall for the Banks

Editor’s Comment:

If it is any comfort, the chief financial officers and treasury management officers of cities and counties are starting to realize that they are victims of the banks and that most of these bankruptcies (Stockton CA for example) or near bankruptcy were completely avoidable. Their complaints are sounding more and more like the complaints of homeowners. And they are both right. Those debts should not be paid at all until the amount of the debt can be ascertained in real dollars and the identity of the actual losing party — whether they are defined as creditor or not —- can be ascertained. I don’t think any of the cities, counties or the homeowners and businesses whose debts were subject to false claims of securitization should pay anything to anyone until the governments and law enforcement figures it out.

The federal government is the only one with the resources to go through all the data and come up with at least an approximation of the truth of the path of the money. The Courts, Judges and Lawyers are woefully under-resourced to take this mess apart. The only reason that Too Big to Fail is believed by anyone is that nobody fully understands the consequences and actual money impact of the false cloud of derivatives created by the banks exceeding all the money in the word by a wide margin. We have let the Banks minimize the actual currency in favor of looking at a cloud of illusions created by the banks which they and only they want treated as real. We will find the same things operating on student loans where the intermediated banks actually never funded the loans but claim a guarantee from the Federal government.

These debts should fall squarely on the banks, whether they fail or not, until we get a real accounting of the real transactions in which real money exchanged hands. And that is the mantra of my seminars for lawyers, paralegals, homeowners, city and county officials coming up at the end of this month as I travel through Phoenix, Stockton, Anaheim etc.

There is no possibility that actual debt is $800 Trillion because all the money we have in the world amounts to only $70 trillion. So the loans were part of a chaotic, complex series of dots on a scatter diagram wherein all the data was an illusion except perhaps one of the hundreds of dots on each loan, bond or mortgage. And they certainly were not secured because the terms of repayment and the amount of the loan were off from the beginning as was the index from which they took data to change the so-called payments dude on loans that perhaps never existed but certainly do not exist now.

The door that opened just a crack has been the Libor rate scandal in which the banks, led by Barclay’s, set interest rates based upon actual and perceived movement of interest rates in the markets. As in other things, these rates were as bogus, since 2008 as the Triple AAA ratings offered to investors in Mortgage-Backed Bonds and the appraisals offered to homeowners.

City and County officials, once completely blind to the realities of the situation and skeptical of homeowner claims that the mortgages, foreclosures and auctions were rigged, are now realizing that their loans, interest rates, and terms were rigged just like homeowners’ were and that the trap they supposedly are in is an illusion just like the premises upon which Wall Street convinced them (city and County officials) that these loan products were viable and correct implementation of sound fiscal policy.

It wasn’t sound fiscal policy, they weren’t good loans and had the officials actually understood what Wall Street was doing —- creating false demands for services and infrastructure as well as complex financial products that were doomed from the start, they would never have gone ahead with these bonds or loans. Now the whole municipal market is as screwed up as the mortgage and housing markets and we know the banks are to blame because they have already admitted everything necessary to blame them.

Besides prosecuting claims against the banks for civil and criminal penalties, everyone needs to contemplate the consequences of the status quo and whether they want to change it. One such game changer is eminent domain takeovers of those toxic mortgages that “seemed right at the time.” But more than that, the cities and counties must look to experts who understand the derivative market (as well as anyone can) and realize that their debt, like everyone else’s debt is an illusion created in the cloud of credit derivatives now estimated at $800 trillion while the total amount of real credit and currency is only $70 trillion.

Like Homeowners, they must realize that while they borrowed the money, the loan or liability created by the loan or bond was an illusion already paid in full at the time they incurred the obligation. That seems impossible but so does the news on these subjects as one digs deeper and deeper. The banks collected up all the money made under these circumstances and gave their people bonuses amounting to 50% of the profit of each financial institution. Inside that “profit”were trading profits claims by trading fake paper claimed to be owned by the banks while the paper was in the cloud of derivatives that is 10-12 times all the money in the world.

That debt has long since been paid in full. The only question remaining is whether we can identify the actual people who have lost actual money and what we are going to do for them. But paying the banks on the loan or bonds is certainly not one of the alternatives that should be considered because, like the bailout, it just gives them one more windfall.

Rate Scandal Stirs Scramble for Damages

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.