Wednesday, October 13, 2010

Why the Mortgage Document Crisis is a Very Major Problem (Or why you might be able to stop making your mortgage payments)

Banks are supposed to be neurotics about money. They are supposed to be neurotic about crossing t's and dotting i's. During the Greenspan/Bernanke money printing orgy, the banks basically went naked and were no longer conservative or neurotic. This means the banks on a whole chunk of mortgages may not have the right to foreclose. I smell a "screw the banks" movement right around the corner. People by the millions are going to stop making their mortgage payments and banks won't be able to do a damn thing about it. Gonzalo Lira explains:
..the banks are screwed—again. By the same fucking thing as the last time—the fucking Mortgage Backed Securities!

The reason the banks are fucked again is, if they’ve been foreclosing on people they didn’t have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.

And it won’t matter if a particular case—or even most cases—were on the up-and-up: It won’t matter if most of the foreclosures and evictions were truly because the homeowner failed to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages come into question.

People still haven’t figured out what this all means—but I’ll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, that’s basically a license to halt payments right the fuck now. That’s basically a license to tell the banks to fuck off.
This is a major, major crisis. This makes Lehman’s bankruptcy look like a spring rain, compared to this hurricane. And if this isn’t handled right—and handled right quick, in the next couple of weeks on the outside—this crisis could also spell the end of the mortgage business altogether.
You can read Gonzalo Lira's awesome analysis on how the banks screwed up, here.


  1. Gonzalo Lira is the worst, standing atop the pinnacle of Know-Nothing Pseudo-Economist wanna-bes.

    In his latest article on "hyperinflation" posted at ZH, he called people who criticized his ignorance of the way money supply relates to hyperinflation as "Money Supply fetishists" and babbled about how he empirically examined both changes in money supply and changes in the interest rate for the period in question and that money supply had no discernible connection, according to the data, therefore he threw out the interplay of money supply/demand mechanics as meaningless to studying the phenomenon of hyperinflation.

    In the crude language of Gonzalo Lira, I must conclude something to the effect of, "Shit, this guy is a fucking idiot."

  2. Oh, and I big time regret ever posting one of his (non-money supply related) articles on my EPJ blog, in case you're wondering.

  3. Seems overblown. Unless the note is lost you still have to pay until bankrupcy discharges it. It is just an unsecured note. If the note is lost then an affidavit is entirely appropriate. The note may be unsecured. Even if you file bankrupcy and get the note discharged and if you get to keep the house, do you really want a house right now if you are in financial problems? Most localities have huge unfumded pension obligations - meaning the real property owners have huge pension obligations. In Chicage is it $70K per household, plus normal municipal obligations. Even a house owned clear costs a fortune to keep up. Energy twice what it was a few years ago. Water and sewar rates skyrocketing. Paint, appliances, roof, furnice, air, landscaping, maybe a pool to maintain. Remember there is no forseeable appreciation of homes in general to bail you out of all those expenses.

  4. I can see lawyers on both sides of the coin doing very well because of this. Whether this is Armageddon is anybody's guess, but I wouldn't bet the lives of my children either way on how this will shake out.

  5. The data doesn't lie, Taylor: I looked at the data from '74 to '86, and came to the inescapable conclusion that, if money supply is growing within mundane boundaries, its increase does not have a direct correlation with CPI, or even a noticeable effect.

    I also demonstrated that the period Jan. '79 to June '83 was a period of incipient hyperinflation, prevented only by Volcker's interest rate hike.

    It's all in my post:

    I don't get upset with the cards I'm dealt, Taylor—I just play 'em as they are.


  6. Perhaps I am wrong....but I see the Foreclosure Fraud affair as the event that finally lit the fuse on the Derivatives powder-keg.

    After all, if the mortgages that are in question are 'tied up' in courts across the country for an indefinite period, how long does it take for an investor to realized they are holding something that is nearly worthless because the collateral has been seized and is not in the least bit liquid?

    And how many microseconds does it take for them to hit the Sell button after they decide that holding that particular 'Baby Ruth in a Punch Bowl' is probably not a good idea or the loans get put back to the TBTF banksters who do not have enough capital to cover the bad debt?

    This would include pension funds, TBTF banks, insurance companies, etc., etc. In other words, it could negatively affect the entire financial services industry which, as we are all so painfully aware, is a far greater part of the economy than we really want or need.

  7. Gonzalo Lira,

    You haven't proven what you think you have proven: that changes in money supply have no relationship with rates of "inflation" (your word for increases in price indexes).

    As you stated, here is what you have proven: if money supply is growing within mundane boundaries, its increase does not have a direct correlation with CPI, or even a noticeable effect

    All you demonstrated was there is no direct correlation in the specific statistical data you examined. You did not identify a "law of association" so to speak.

    Let's further examine your claim that the money supply has no effect on aggregate prices, which we can explore by your answering first one simple question:

    Are goods and services bid for with money or with interest rates?

    In other words, are prices quoted in terms of money or in terms of interest rates?

    Don't get carried away and try to pre-empt my train of thought and use the opportunity to weasel your way out of answering a clear, simple question, just answer it, please.

  8. With regards Mr. Conant, I'm applying Aphorism #3.

    For those who don't know what I'm referring to, please visit my blog, and check out this post:

    Thank you.


  9. Gonzo,

    Thank you. I knew you were too chicken-shit to honestly answer a simple question. Doing so would reveal you to be the intellectual fraud and economic illiterate you are.

    Congratulations on successfully deluding yourself into believing you are a "cool dude" and a "free, open mind" just searching for the truth while anyone (like me) who might call your flawed methodologies into question must be nothing more than an antagonistic goat (oops, sorry, pig) trying to get you to wrestle in the mud with them. I'm sure it works wonders in providing you a way to blather on and on, day in, day out, in the most egregiously self-righteous and self-important way possible without ever critically examining your own premises or instincts.

    I pity all the sad saps who have so far and will in the future blindly follow your inconsiderate teachings.