Daily Archives: June 3, 2014

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This New Libor ‘Scandal’ Will Cause A Terrifying Financial Crisis

This New Libor ‘Scandal’ Will Cause A Terrifying Financial Crisis

This Is The Real Libor Scandal  

Amid all of the attention that the Libor rate-fixing scandal has received, the world is completely overlooking a far worse Libor “scandal” that has been occurring right under our noses this entire time. Though the Libor rate-fixing scandal is certainly no trivial matter, the losses caused by it amount to a few tens of billions of dollars, which is ultimately a drop in the bucket compared to the size of the global economy and financial system. In addition, as dramatic as the term “rate-fixing” sounds, the Libor manipulations only moved the Libor rate by a few basis points (basis points are .01 percentage points) for just a few brief moments at a time. The Libor manipulations did not move the rate by significant magnitudes such as from 5 percent to 2 percent, for example.

The vastly worse Libor “scandal” that I am referring to is the fact that the Libor has stayed at record low levels for the past half-decade, which is helping to fuel a massive economic bubble around the entire world that will end in a devastating financial crisis that will be even worse than the Global Financial Crisis. Instead of causing a few tens of billions of dollars worth of losses like the Libor rate-fixing scandal, the “Libor Bubble” will gut the global economy bytrillions of dollars.

The chart below shows the U.S. dollar Libor rates for four common maturities:

LIBOR1Chart source: Mortgage-X.com

The EuroJapanese yenBritish pound, and Swiss franc Libor rates for all maturities have also been at record lows for a record length of time (click on links to see charts). Low interest rate environments create economic bubbles that burst when interest rates eventually normalize. The reason why low interest rate environments inevitably lead to the inflation of bubbles is because low borrowing costs encourage credit booms and discourage saving by reducing the rate of return on savings accounts and fixed income investments.

Prior Libor rate troughs have resulted in bubbles that ended in crises when the rate rose again:

LIBOR2Chart source: Mortgage-X.com

Here are the bubbles and crises of the past three decades that low Libor rates have contributed to:

1) Japan’s economic bubble and the U.S. savings & loans crisis (late-1980s)

2) The 1994 Mexican financial crisis and the Asian financial crisis (mid-1990s)

3) The Dot-com bubble (late-1990s) 

4) The U.S. housing bubble and European housing bubbles (mid-2000s)

5) Post-2009 economic bubbles that have not yet popped (to be discussed in the next section)

To reiterate, the current Libor rate trough that started in 2009 has created another global bubble that is far more extreme than the bubbles created by prior Libor troughs simply due to the fact that rates have never been this low for such a long period of time. Libor rates have been at such unusually low levels because most Libor rate-setting banks are based in the U.K. and U.S., which have both experienced severe credit busts and balance sheet recessionsduring the financial crisis as a result of their large debt and asset bubble overhangs. Economies that experience credit busts are at risk of experiencing deflationary depressions, which central banks try to combat by cutting interest rates as low as possible.

While the U.S., U.K., Japan, and peripheral European nations have suffered with balance sheet recessions and now weak credit growth and recoveries, most other nations escaped from the financial crisis largely unscathed and have been growing at a steady rate. In a normal world, borrowing costs in these faster-growing economies would be in the 4 to 7 percent range, but instead borrowers in these countries are taking advantage of the record-low sub-1 percent Libor rates that are geared for truly sick economies. Today’s Libor rates are simply too low for non-crisis economies, so this cheap credit bonanza is helping to fuel borrowing binges and asset bubbles almost everywhere that is not the U.S., U.K., Japan, and peripheral Europe.

As the world’s most important benchmark interest rate, approximately $10 trillion worth of loans and $350 trillion worth of derivatives use the Libor as a reference rate. Libor-based corporate loans are very prevalent in emerging economies, which is helping to inflate the emerging markets bubble that I am warning about. In Asia, for example, Libor is used as the reference rate for nearly two-thirds of all large-scale corporate borrowings. Considering this fact, it is no surprise that credit and asset bubbles are ballooning throughout Asia, as my report on Southeast Asia’s bubble has shown.

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Foreclosures Tossed Out of Ohio Federal Court – “They Own Nothing!”

Foreclosures Tossed Out of Ohio Federal Court – “They Own Nothing!”

Judge Christopher A. Boyko of the Eastern Ohio United States District Court, seven years ago on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.

Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating the plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the complaint was filed, or the court would enter a dismissal.

The Court’s amended General Order No. 2006-16 requires the plaintiff (Deutsche Bank) to submit an affidavit along with the complaint, which identifies them as the original mortgage holder, or as an assignee, trustee or successor-interest.

Apparently Deutsche Bank submitted several affidavits that claim that they were in fact the owner of these mortgage notes, but none of these affidavits mention assignment or trust or successor interest.

Thus, the Judge ruled that in every instance, these submissions create a “conflict” and they “do not satisfy” the burden of demonstrating at the time of filing the complaint that Deutsche Bank was in fact the “legal” note holder.

While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it also represents a serious roadblock. If the toxic mortgage fiasco is to be cleaned up, there must be a simple means of identifying what banks own and what they do not own. This judgment is an example of the enormous task ahead in sorting out the mortgage mess.

Jacksonville Area Legal Aid Attorney, April Charney, had said this in regards to the Ohio Federal Court ruling (emphasis ours):

“This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.”

 

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Los Angeles officials propose tougher foreclosure registry

Los Angeles officials propose tougher foreclosure registry

Los Angeles officials unveiled new recommendations Tuesday to toughen and make smarter use of the city’s foreclosure registry program. 

Calling the 4-year-old registry well intentioned but “flawed” and “ineffective,” City Controller Ron Galperin released a 40-page audit of the program with recommendations to boost transparency and better fund inspections of blighted foreclosures. Council Member Gil Cedillo joined Galperin at a news conference, saying he plans to file legislation that would enact those recommendations and create a new inspection fee.

“This ordinance is a tool that has been underutilized,” Cedillo said. “This will allow for a proactive approach.”

The registry was created in the wake of the mortgage crisis to help city officials better track foreclosed properties and hold their bank owners more accountable for proper upkeep. About 32,000 houses have been registered on it over the last four years, including 9,200 last year.

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Former Wells Fargo advisor banned from industry, running what appears to be a Ponzi scheme

Former Wells Fargo advisor banned from industry, running what appears to be a Ponzi scheme

A former Wells Fargo advisor was permanently barred from the brokerage industry last week for running what appears to be a Ponzi scheme, according to a story by SFGate, the website sister-site of the San Francisco Chronicle.

Michael Frew, a longtime Bay Area broker, allegedly solicited millions of dollars from friends, family and customers that he said he would invest with a real estate developer to rehabilitate properties in areas hit by natural disasters. But such investments were likely never made, said San Francisco attorney Cary Lapidus.

According to SFGate, Frew promised the people he duped high interest payments ranging from 10% to 14% annually, with some receiving such payments for extended periods of time.  When the payments stopped, however, and investors were unable to contact Frew, the illicit scheme fell apart, according to the SFGate account, which Lapidus confirmed to be accurate.

Suzanne Geer, a 70-year-old victim of the scheme, said she began investing with Frew in 1998 after her husband died. For years, she received regular payments that came in “like clockwork” but in April her “14% check” didn’t come in, according to SFGate. Over the years, Geer invested about $370,000 with Frew.

So far, some 20 to 30 investors have contacted Lapidus with their complaints. Lapidus estimates that Frew solicited money from customers and others totaling between $1 million and $10 million based on what he’s seen so far, Lapidus told Bank Investment Consultant.

Both FINRA and Wells Fargo declined to provide details of the investigation beyond what was in the settlement letter that Frew signed with FINRA last week.  The letter, which banned him from the industry, provided scant information about Frew’s actual misdeeds. “I can’t comment on the record on that at all I’m afraid. It’s an ongoing investigation,” said Tony Mattera, a spokesman for Wells Fargo Advisors. 

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Let banks fail, says JPMorgan Chase chief Jamie Dimon

Let banks fail, says JPMorgan Chase chief Jamie Dimon

Jamie Dimon, the chief executive of JPMorgan Chase, one of the world’s largest integrated financial institutions, says the United States is almost at the point where big banks should be allowed to fail without taxpayers ­bearing losses.

“Too-big-to-fail has hugely diminished and my guess is that when all is said and done, it will be gone,” he said in an interview with The Australian Financial Review in Sydney.

He said financial regulators in the US, in partnership with the Federal Reserve, were working to put in place resolution structures that would allow banks to go bust without causing ­systemic risk and without costing ­taxpayers money.

“We are making a lot of changes to make it easier to dismantle bankrupt parts of the company and not the whole company,” he said on Tuesday.

“So maybe if you make each [bank] sounder, you’ve made the whole system sounder. If a bank ever does fail for some reason, the chance of there being a domino effect is very small.”

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COMPLAINT | MASSACHUSETTS VS FHFA, FANNIE & FREDDIE — LAWSUIT ALLEGES VIOLATION OF STATE’S 2012 ANTI-FORECLOSURE LAW

COMPLAINT | MASSACHUSETTS VS FHFA, FANNIE & FREDDIE — LAWSUIT ALLEGES VIOLATION OF STATE’S 2012 ANTI-FORECLOSURE LAW

COMPLAINT 1. The Commonwealth of Massachusetts, by and through its Attorney General Martha Coakley, brings this action against defendants Federal Housing Finance Agency (FHFA), Federal Home Loan Mortgage Corporation, (Freddie Mac) and Federal National Mortgage Association, (Fannie Mae) to require them to comply with a Massachusetts law that forbids banks and lenders from refusing to allow the sale of homes in foreclosure to non-profit organizations if the property will be resold or leased by the non-profit to the former homeowner. As described more fully below, Fannie Mae, Freddie Mac and their regulator and conservator, FHFA, have employed policies that restrict the sale of properties owned or guaranteed by Fannie Mae or Freddie Mac, in direct violation of M.G.L. c. 244, §35C(h). The Commonwealth asks the Court to enjoin the Defendants’ unlawful practices in Massachusetts.

 

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Deutsche Bank Says 2nd Circ. MBS Appeal Falls Flat

Deutsche Bank Says 2nd Circ. MBS Appeal Falls Flat

Case Title

In Re Deutsche Bank AG Securit

Case Number

13-2364

Court

Appellate – 2nd Circuit

Nature of Suit

3850 STATUTES-Secur Comm Exchange

Date Filed

June 14, 2013

Law360, New York (June 03, 2014, 2:56 PM ET) — Deutsche Bank AG on Tuesday urged the Second Circuit not to revive a class action suit alleging it wrongly failed to disclose its €20 billion ($27.24 billion) exposure to risky mortgage assets during the financial crisis, with a defense attorney arguing that “clairvoyance” was not required under the law.

Charles Gilman, an attorney for Deutsche Bank, asked a three-judge panel to affirm a New York federal court ruling tossing the suit. Investors claim the bank failed to adequately reveal that it faced €20 billion exposure to…