US housing is pushing America towards a double dip. If it happens, it will tear America’s social fabric in two. There will be the elite of Wall Street profiting from the vast and obscene support the government has lavished upon it, and those the government has turned its back upon, who are without jobs, a house or the hope that their children will get a decent education.
In the last quarter of 2010, while Wall Street said enough of crocodile tears and mock humility and returned to crowing and oiling itself with bonuses, housing for ordinary people in 11 of America’s biggest cities declined to new lows, nearly 4% down in just three months. The rate of foreclosures is up and so are the number of them flooding the market.
Because of the on-going collapse in US housing and the tower of debt still protected on top of it, ordinary people’s lives are in free fall. State and local pension funds are simply not paying out what they promised. Schools, police, fire departments, everything that we sued to call society are all being cut because states and municipalities are crippled with their own debts.
Official unemployment is stuck at 10% while the real U6 misery level is 16% while 14% of citizens in the country where banker bonuses are measured in billions feed their families with food stamps – 43 MILLION Americans.
How could this still be happening after all the trillions pumped in to the banks supposedly to fix those write downs and bad debts?
Well a hint of the real cause came from a law suit filed by the insurance company Allstate. In fact it follows on from an earlier law suit the company filed. The first was filed against Bank of America and Countrywide while the second expands the net to include JPMorgan and Washington Mutual. Essentially both suits claim that all these banks LIED about everything.
The make for fairly horrific reading. What makes the Allstate suits important is not so much what they allege, horrific and blood boiling though it is, but HOW they do it. One of the problems with taking the banks to court has been the sheer number of securities, CDOs and Mortgages that would have to be investigated in order to prove systemic and intentional fraud as opposed to ‘a few mistakes’. Allstate has used statistical sampling methods to solve this. They have developed proprietary methods of sampling the whole vast cess pit of debts to give a statistically accurate picture of the whole. Their total sample size was 26000 in 17 different debt offerings. From these they chose 800 defaulted loans and compared them to 800 randomly chosen loans. Were the defaulted loans systematically different from other loans?
Such sampling is legally and mathematically well accepted but this is the first time it has been used to get at what they banks were really up to and how endemic is was. Until now we have had damning specific investigations such as Pro Publica’s magnificent work which I wrote about here. But now thanks to Allstate we have a true picture of not just specific instances but the proof that these examples are typical.
And what do they show? They show the banks – ALL FOUR of them – the biggest in America – lied about almost every aspect of loans that went in to the CDOs they were selling. For example a prospective CDO buyer like Allstate might want to know if the CDO contained any loans where the person had borrowed more than the value of the house known as 100% LTV (Loan to Value). Such high LTV’s are good indicators of possible defaults.
JPMorgan said it included NO 100% LTV loans. In fact there between 17 and 23% of the loans included were 100% LTV’s. Washington Mutual said it also included NO 100% LTV’s whereas it actually included between 10 and 25%.
For 80% LTV mortgages it was worse. JPMorgan routinely included between 10% and 60% more of these very risky mortgages than they had claimed. For WaMu they included between 46 and 66% more of them.
The picture for Bank of America and Countrywide is similar. Allstate’s suit claims that such HUGE and endemic ‘errors’ can only be the result of intentional fraud.
What I would like to see is the same statistical sampling method used on RBS’s CDOs and those of the other banks we have bailed out and whose bad debts we have bought and insured. Banks like Halifax, Northern Rock, UniCredit, Santander, HVB, Hypo Real Estate, Commerzbank just to name a few.
The kind of genuine public scrutiny you advocate is needed across our institutions. We have hospitals serving food my dog would have turned down, using bullshit "research" to say 90% are satisfied whilst people die of malnutrition in their "care". We are being asked all over to deny what we can see in favour of 'mark to model'. I'm speaking in metaphor to the economic jargon, but the reality is increasingly Orwellian.
Good to catch you in London Golem and see Inside Job. This sounds as big as anything yet produced about the banks fraudelent games. Can it possibly be that with this kind of evidence of fraud these banks can escape… and if not even survive the payouts they would one supposes, be subjected to? Surely if this statistical evidence is accepted these banks are finished? And yet one wonders… do the laws even work in the mirror world of Finance?
Also Is this something to do with the Wikileaks smoking gun evidence that we have been waiting for?
allcoppedout,
I agree with you that people are beginning to feel sickened by the blatantly Orwellian disregard for self evident facts. It won't end well for the government or Westminster as a whole.
wirplit,
It was great to meet up. I think this is big. What would make it bigger would be too raise a hue and cry for the same technique to be used on all the mortgage backed assets currently being held by our banks. We'd soon see who had defrauded and who was insolvent as a result.
Sadly in America I'd say its less than 50:50 that Allstate will push for a full and open disclosure. I think if Allstate do make it stick then teh banks will settle with them on the court steps for an undisclosed sum in return for a confidentiality clause and a 'no admission of guilt' statement.
This isn't the wikkileaks evidence.
I'm continually shocked by what the big banks have (so far) been getting away with. Any other walk of life and hand cuffs would have been used a long time ago. Instead here we've been throwing money at them.
Our own society is riddled with distortion but America seems to be in a league of its own. I still find it difficult to get my head around a country that spends nearly twice any other on health care (15%) yet still has 40 plus million people without decent preventative health cover.
Fantastic writing. Gutted to have missed the Brixton meeting on Sunday owing to illness. I hope the following link will be of interest to other readers.
Why isn't Wall Street in jail?
The more I read your posts Golem. The more I feel the Mafia Godfathers understand more about honorable behavior than the Banks.
No doubt Allstate will be receiving an offer they can't refuse should they prove their case.
The mafia code of Omerta wouldn't go amiss with the banking fraternity.
We really do need serious investigation into the activities of the big banks.
Until the true nature of their behavior is revealed. We can never be sure a re-occurrence of the banking crisis. Will be or is being repeated. The politicians and the bankers owe us a least that. They cannot learn the lesson if they assume they know the answers and refuse to ask the right questions.
As the saying goes "when you assume you make a ass out of u and me".
Right now our political master are making a ass out of their tax paying subjects.
@Martman They may be one and the same thing.
@Ken
On that score.Nothing would surprise me. Having said that just when I think I'm getting a handle on this slow moving tsunami. Golem throws another spanner into works and another wave rolls over me.
Golem,
Solid work as per se, I tell you what though, the majority still won't take an interest of the news you and others provide. There is far to few of us who keep ourselves well informed.
Anyway, the gall of the elite is quite simply astonishing, how can these corrupt shits sleep at night? Why are so few aware of what is going on? If it was down to me, I would take any known fraudster, from the top mind, the people who really know what their collective companys are up to, and hang them from the nearest lamp post.
These filthy, low-down dirty bastards have crippled almost the entire world. And still, we do nothing. When in gods name are folk going to realise just how far gone we are? Call me dave and his filthy rich cronies should chuck out the labour crap of socialising private debt pronto.
Do you really think that we can get more interested in this? If we can, do you really think we can achieve recompense? I am sick to my stomach at what I read in the press daily, more and more is revealed on what these parasites have been getting up to, but I cannot wake up as many people as is required to do something.
When people realise just what the criminal bankster sector has done, I fear it may then be too late to do anything about it. I despair of this country of ours, I really do. And to any banker out there reading these words, Your time will come.
Rant over, keep up the work golem, I am right behind you mate.
Golem: as in the Middle East it is from blogs like yours that enlightened change will come.
The fact is that the American banks could not have perpetrated such a massive loan fraud without the complicity of the American media. The growth of fraudulent lending practices by the big American banks had been well known here in America for many years. Everybody in the industry knew it. So did everybody in the media. We all knew that LVTs ("loan to value" ratios) and owner-occupancy statements meant nothing any more. The public loved all the easy money and wallowed in it.
In recent years practically every American home loan was an "owner-occupied" loan. The banks routinely lent multiple 100% "owner-occupied" loans to speculators. The biggest of these speculators were typically former bank employees and real estate professionals coached by senior bank executives who became multi-millionaires funding such loans. Everybody knew that fraud was the order of the day but nobody spoke up, particularly not the editors of the property sections of the newspapers that were raking in massive advertizing revenues from the real estate and financial extravaganza.
The contagion spread from America and continues today. The current Wall Street attempt, through the IMF, to transform worldwide mortgage debt into sovereign debt is being engineered by the very same people who created the mortgage-backed bond debt that financed the worldwide "housing bubble" in the first place.
In the case of Ireland the IMF has become the international equivalent of the Bank of America that led the way in issuing billions of phony American "home-owner" bonds. Wall Street then made fortunes trading in this phony paper as it intends to do with the upcoming flood of phony sovereign debt.
Like the phony home mortgage bonds these phony international bonds are backed by fraudulent statements of corrupt borrowers – international governments.
Both the IMF and the EU know that the Irish Government, for example, can never repay these bonds. But like the American real estate industry, its financial industry and its media, the European governments and institutions feel obliged to "print the myth" not the facts.
It is only a matter of time before this "sovereign debt" bubble bursts just as surely as the housing bubble burst. Then what?
I hope Enda Kenny has the personal fortitude to stand up to both the Europeans and the Americans and tell them, in plain West of Ireland language, that they need to think again. They need to reread what John Maynard Keynes warned about the present American Bretton Woods financial hegemony.
zerocrop 13.53 — Very good link !
Why Isn't Wall Street in Jail?
"Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them"
Golem,
I read your posts with great interest and am always bought back to one thought, will we ever see any kind of investigation into the UK financial sector. It appears that whilst the USA is beginning to accept that things were wrong we on the other hand seem to be going in the other direction.
Am I wrong in feeling this?
Pat :- I hope Enda Kenny & Fianna Gael put their fellow countrymen first, but I'm not hopeful. http://www.irishtimes.com/newspaper/opinion/2011/0223/1224290627897.html?sms_ss=facebook&at_xt=4d656b0563d7b0f0%2C1
The new US budget — $3.6 trillion — is a further nail in the proverbial coffin. It apportions half of its spending on Murder Inc. (aka 'defense'). Half of our tax dollars go to this disgusting stain on humanity. Just like the trillion of bailout bucks for the financial succubus, corporate welfare for the psycho-military-industrial-warlords further bankrupts us into oblivion. That's okay, the Ben-ster will print his way out of this & we'll all be on food stamps soon.
BTW: it was nice to meet Golem & a couple of other commentators briefly on Sunday. Film was sold out so didnt' catch it & was too ill to stay for Q&A. Maybe next time.
dave from france
Sure thing. Matt's full article is here.
Going to try posting a comment once again…
Good post Golem, as ever.
What I would like there to happen is for people to realize this is not fraud as such. Not in the sense that one entity turned out to be a bad apple in a cart of otherwise good apples. These practices are pervasive within a very restricted but very prominent circle of financial institutions globally (and remember that GE or GM for example are financial institutions in disguise). The extent and depth of these practices are sanctioned by the highest offices in government in an attempt at keeping alive our debt based monetary system in order to effect the greatest transfer of wealth possible.
The only question that remains to be answered therefore, is whether our politicians are aware of the mechanics of our monetary system and are thus willing accomplices or whether they are merely unwitting useful idiots.
What I mean to say is that once a debt based fiat monetary system is adopted, then gradually fraud becomes necessary to keep the system going thus the state. As the effects of inflation gradually wane, authorities first try to compensate by creating social and subsidy programs; then they move onto tolerating a degree of fraud; then they co-opt the assistance of more and larger entities and enable them to perpetuate the fraud on a larger and deeper scale; but towards the end, when the currency has lost all degree of efficiency, then at that point, the state must initially collude till at the end it must perpetrate fraud itself.
Thus, fraud is not fraud as such. It is deliberate state policy in pursuit of what is perceived the state's legitimate raison d'etat.
Great Post Golem
Just read this posting over at NC. I found that it explained the growing sense of anger well.
Matt Stoller – The liquidation of society versus the global labor revival
A great link Uncle, I hope that angers keeps growing in the EVERYWHERE
Rod,
I think we are less likely to see any meaningful investigation here in the UK because we have much more to hide and are generally better at it.
So I think we have to do our best to expose things ourselves in all the ways we can.
Whatever they have done it is not working and this is clear as all is not well with the many smaller banks in the US. The smaller banks which obviously haven't been rebuilding their balances at quite the rate of the big ones. The number of banks at risk of failure is at the highest level for 18 years HERE
Thanks Gollum, again, keep up the good work.
Anyone reading this blog may find the following link extremely illuminating 'Death of the Liberal Class' by Chris Hedges – just read the first 3 pages and you'll probably be hooked.
http://www.amazon.co.uk/gp/product/1568586442/ref=oss_product
I saw the film 'Inside Job' Wednesday night in Manchester.
It's very damning & points the finger well at individuals from Wall St who have occupied key political posts from Reagan thru' to Obama. Key players seem to have been Summers, Greenspan, Bernanke, Geithner & others.
Timely warnings were given about widespread fraud in mortgage loans & fantasy 'ratings' of securitisations based on them. It seems pretty much all the people & institutions actively ignored warnings & indeed many were active in removing or blunting regulation that might have prevented the mess.
In fact, I thought the film was likely libellous if those mentioned are as guilty as portrayed. Not a chance they'll go to court – they're smart enough not to do that.
It's a good film, well worth seeing, with some laugh out loud moments from interviewees' incomprehensible replies to some clever trip up questions.
Guess who was sat at the end of our row in the cinema? – Jeremy Paxman !
I'm not holding my breath we'll hear much on BBC Newsnight about it after his blatant neo-con 'PR' job for Prof Larry Meade last week.
Paxman is so in love with his own wonderful-ness I doubt he knows his arse from his elbow.
At this stage, there is nought more to do to warn people. They either got the message or rejected it.
Now we need to plan the takeover as TPTB falls apart or decides to push the red button? I do not envisage any revolt, simply that leadership must come from somewhere and lead to a more sustainable future. This has happened before and we should try to ensure most of it does not recur.
One world government might be useful, but is too high a goal but we might co-operate with those from TPTB who want it?
Any other ideas?