Posts Tagged ‘RMBS’
Foreclosure fraud

A long but fascinating audio on fraud in the foreclosures. Hat tip to the Market Ticker, who comments:

It’s two hours… In particular, listen to the couple of minutes starting at 12:30 in. Then listen to 6:30, and 42:30, right around 50:00 and then again at 70:00 and finally, at 78:00 in.

Pay attention to what’s being said here.

First: The assertion is made that the lenders and holders of the notes were paid in full. That is, they have no economic damage from the default (!) due to the way they structured the deals.

Second: The assertion is made that there was fraud in the inducement in all of these loans, in that there is an implied duty of dealing in good faith in all contracts that was violated by the banks that made knowingly bad loans – which we now have sworn testimony on. While this is not settled by any means, there is currently pending litigation on this point, and if this approach wins, well, then you go – those contracts are voidable.

Third: The allegation is made that the banks were not stupid – they knew the mathematics (as we all do now) and intentionally crashed the market. That just compounds the second point.

He aslo has charts on the growth of US money supply and debt here

Crony Capitalism

In banking perceptions can create their own reality. A panic can cause a run that will make any bank insolvent without the assistance of others. That’s the downside of lending long and borrowing short. So it’s interesting that the following Money Morning post is getting another airing, courtesy of Naked Capitalism.

Key passages include:

NAB and Westpac’s Secret Bailout Revealed

I’m talking about the near collapse of the Australian banking system in 2008. I’m talking about the likelihood of two Australian banks collapsing in 2008 if they hadn’t secured a secret loan from the US Federal Reserve.

The fact that National Australia Bank [ASX: NAB] had to borrow USD$4.5 billion from the US Federal Reserve during 2008 and 2009.

And Westpac Banking Corp [ASX: WBC] needed USD$1.09 billion in January of 2008 and 2009.

It wasn’t Westpac’s US office that needed the dosh, it was Westpac in Australia that needed it. It shows you that without the direct financial support of the US Federal Reserve Westpac and NAB would have been toast.

Westpac and NAB needed the loans because they were on the verge of going belly up. It’s that simple. If they hadn’t gotten secret loans from the US Fed they would undoubtedly have needed secret loans from the RBA.

Fortunately for the RBA, the Fed opened the door and this allowed Aussie central bankers and bankers to claim that the Aussie banks hadn’t received a bailout.

And it must now make the Reserve Bank of Australia (RBA) feel foolish, considering in September 2008, just before NAB sought the Fed’s help, the RBA wrote:

“The Australian financial system has coped better with the recent turmoil than many other financial systems. The banking system is soundly capitalised, it has only limited exposure to sub-prime related assets, and it continues to record strong profitability and has low levels or problem loans. The large Australian banks all have high credit ratings and they have been able to continue to tap both domestic and offshore capital markets on a regular basis.”

Tapping “offshore capital markets” obviously included the US Fed.

So we wonder, how much did the Reserve Bank of Australia know about this? While it was talking up the strength of the Australian banking system did it know that two of the four Australian banking pillars were desperately seeking loans from the US Fed?

Or, like you, was the RBA in the dark? And what about the Australian Prudential Regulation Authority (APRA)? We’ve been told they’ve done all manner of stress tests and the banks passed with flying colours.

Read the whole thing.

One of the commentators to the post points out that:

The banks were presented with the cheapest source of funds that they would see in their lifetimes and some took advantage.

If so they were not the only ones to do so:

The Real Housewives of Wall Street

Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?

Don’t you just love the whiff of crony capitalism in the morning? It sure beats the odour of the Occupy Wall Street camps. Although there is something honest about a good old fashioned cesspit.

Australia recently failed our test of its power to resist crony capitalism and allowed covered bonds. Covered bonds give their owner the right to collateral that covers the bond. Collateral that previously would have been used to reimburse depositors if the bank got into trouble. At the same time it moved to allow covered bonds, the government made permanent its “temporary” guaranty of deposits. In other words, the taxpayer will have to make up the money going to the covered bondholders.

Bank bailouts tend to mean bailing out of bondholders as the depositors are already covered. Australia’s wonderful government has locked taxpayers into effectively bailing out bondholders without their even knowing it. Nice.

Now we get this:

NAB eyes covered bonds issue

THE National Australia Bank is expected to become the first major bank to issue a covered bond once the government’s new changes come into place.

The Australian government is also happily subsidising its own subprime mortgage market:

Purchase Of RMBS – Program Update

To date, the AOFM has invested $12.7 billion in 45 RMBS issues. These investments have assisted 19 lenders in raising over $29 billion in funding. The RMBS issuance supported by the Program has financed mortgages over more than 150,000 residential properties across Australia.

On 5 April 2011 the Treasurer issued a Direction for the AOFM to invest up to an additional $4 billion in Australian RMBS, together with remaining capacity from the current program of about $3.5 billion.

Gosh, it looks like taxpayers could be on the hook for losses amounting to billions from RMBS and from covered bonds. Best hope Australia does not follow the US example of a large fall in house prices. We are certainly munching on our own mad meat.