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Editor’s Comment:
Back when I first started writing the blog I was looking for an easy parable that would simplify the exotic theft performed by Wall Street. It did not occur to me that I would need to write a second blog alerting the readers to government complicity in compounding both policy and fiscal errors committed by the Federal Government. In 2007 and 2008 the situation was dense and complex with varying layers of plausible deniability to cover up what turned out to be the largest economic crime in human history-a milepost that will standout even hundreds of years from now. Now the government is engaging in the same transactions lending an aura of legitimacy to transactions that were not only fraudulent but which also corrupted our property title system. The degree of corruption that has been revealed so far is barely the tip of a toxic iceberg. The premise here is simply that the investment banking entities sold worthless mortgage bonds to investors based on the promise that the bonds would have value because millions of mortgage loans were being assigned in exchange for the money held in REMIC pools as a result of the sale of the worthless mortgage bonds to investors.
It has never been true that the investment banking industry owned or undertook any risk associated with the underwriting of those mortgage loans. It has also never been true that the investment banking entities that sold the mortgage bonds to hapless pension funds and other institutional investors ever owned any of those mortgage bonds for their own account. Why would they? They knew very well that the loans and the pools had been created with poison pills to assure virtual destruction of the entire apparatus that was later described as securitized loan.
For reasons that are easily explained by reference to the political realm but which are completely unjustified by reference to any generally accepted principals of finance and accounting, the investment banks have falsely been allowed to claim the losses of their first victims-the pension funds and other investors who bought mortgage bonds. In so doing and without any questions the government set the stage for a bail out of the financial industry, the total size of which can be expressed in multiples of our Gross Domestic Product. As we have slowly and painfully learned government agencies and government sponsored entities were willing conspirators
So the first lie is that the banks never owned the loans, the second lie is that the banks never owned the mortgage bonds, and the third lie is that the government bought and sold the mortgage bonds from the investment bankers. With each announcement of the purchase or sale of mortgage bonds by the Federal Reserve or other U.S. agencies we slip a little deeper into the abyss from which we may never emerge. The transactions referred to in the article below are non-existent and consist of false declarations from both sides of the transaction-the government and the investment bankers. First the investment bankers pretended to sell mortgage bonds which they never owned to the government; and then the government pretended to sell the same mortgage bonds back to the investment bankers. Since neither one had an ownership interest in the mortgage bonds we are forced back to the parable of the Emperors New Clothes. We are to accept the information of this “transaction” as though it had any basis in reality or truth. In fact, it has none. And to add insult to injury, the mortgage bonds themselves are intended to “derive” their value (hence the word “derivative”) from underlying mortgage loans that were properly sold and underwritten by appropriate industry players. This is and remains a lie in that both the terms of the transactions with the homeowners and the documents containing declarations of fact relating to the transactions were patently false and fraudulent in that they were intended to deceive everyone outside of the financial services industry.
The government should have demanded its money back on the original sale by the investment banks. In that sale, the government acquired nothing. The return of the money to the government is being disguised as a sale, further corrupting title to both the mortgage bonds and the real property. If any actual sales had occurred, state and federal law would have required complete disclosure of those sales as a condition precedent to initiating or concluding any process in foreclosure. The current government policy of kicking the can down the road is at the expense of our prospects as a nation and at the expense of the citizens of the nation who subscribe to the belief that no person should be deprived of life, liberty or property without due process of law. Each of these foreclosures would fail if properly scrutinized. They would fail because the initial documentation was faked, and all documentation leading up to foreclosure compounded the fakery. Today we have our own government further compounding the fakery and lending credence to false transactions.
U.S. Completes Sale of Mortgage-BackedSecurities, Earning $25 Billion
By ANNIE LOWREY
WASHINGTON — The Treasury Department announced on Monday that it had finished selling the $225 billion in mortgage-backed securities it bought to help stabilize the markets during the worst of the financial crisis.
The government ended up making a $25 billion profit on the securities, which are guaranteed by Fannie Mae and Freddie Mac, the government-owned mortgage finance companies. The profit came from interest payments, principal and rising prices for the securities, the department said.
“The successful sale of these securities marks another important milestone in the wind-down of the government’s emergency financial crisis response efforts,” Mary Miller, assistant secretary for financial markets, said in a statement. “This program helped support the housing market during a critical moment for our nation’s economy and delivered a substantial profit for taxpayers.”
Treasury bought $225 billion in mortgage-backed securities in 2008 and 2009 as part of a wide-ranging effort to stabilize the housing and financial markets, an effort started by the Bush administration and continued and amplified under President Obama.
In March 2011, the Treasury Department announced that it would start to sell off what remained of its portfolio. To avoid disturbing the still-fragile housing finance market, it limited sales to $10 billion a month, and said it would discontinue the sell-off if any market disturbances occurred.
Thus far, Treasury’s sale of its mortgage-backed securities portfolio has provided a lucrative return to the taxpayer. But it is only one piece of a broad and expensive effort to prevent the collapse of the financial system and housing market.
The government also put Fannie Mae and Freddie Mac under federal conservatorship in 2008, and the taxpayer has spent about $150 billion bailing out the two government-sponsored enterprises.
Estimates vary, but the Federal Housing Finance Agency projects the ultimate cost to the taxpayer for Fannie Mae and Freddie Mac could be $121 billion to $193 billion, depending on the strength of the housing market and other variables.
Treasury also spent about $414 billion to buy bad assets and restore confidence in American financial institutions via the Troubled Asset Relief Program, also known as TARP. That program, though much hated by the public, has received significant revenue from its sale of stakes in participating institutions and from interest payments. The nonpartisan Congressional Budget Office expects it to ultimately cost taxpayers about $34 billion.
The Federal Reserve also initiated significant purchases to prop up the financial markets in the wake of the crisis. According to its most recent release, the Federal Reserve still has about $850 billion in mortgage debt on its books, along with about $1.7 trillion in Treasury debt. The Federal Reserve delivered $78.4 billion of earnings on its portfolio to the Treasury in 2010, and $76.9 billion in 2011.
In recent months, investors have tentatively returned to buying mortgage-backed debt. The housing market seems to be strengthening as well. In a monthly report released on Monday, Fannie Mae economists cited a stronger labor market and other improving indicators as hopeful signs that 2012 might be the start of a housing turnaround.
But, it noted, “while mortgage rates have hovered near their record lows, purchase mortgage applications have remained at depressed levels,” indicating that there remained significant weakness.
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