Friday, March 11, 2011

The Fix Is Nearly In And You Will Be Left Broke

Earlier today I read this piece in the AOL/Huffington Post and immediately heaved a sigh of resignation. The article summarizes a Fed review panel regarding improper foreclosures and concludes that there haven’t been any. Let me repeat that: the Fed says there have been no improper foreclosures. Anywhere. Under any circumstances. To say that this is mind-boggling to me underestimates the notion of mind-bogglement by orders of magnitude conceivable only through the measurements of cosmology.

According to the report, a foreclosure is justified simply if a borrower has failed to make their payments and has gone into default. Period. No consideration is given whatsoever about who then has the right to foreclose on the property in question despite the fact that rightful possession of property is pretty much fundamental to the existence of the country and most of the developed world.

Among the basic precepts of the founding of the United States was that anyone (well except people of African heritage and most women at first) could own their own property, their own land and use it to their own benefit. The free flow of property was a relatively new thing in the western world and it is among the major reasons that the notion of liberty entered the minds of colonists and early Americans. But with the free flow of property, came a need to keep track of who owned what in order for the entire process of property transfer to remain stable and reliable. Knowing who has a right to a piece of land, to use it, enter upon it, do work on top of or under it, build something on it, live on it, sell something on it, get a loan using it as collateral, and sell it, among many other things, is the hallmark of the United States and the entire system of American individualism. The “American Dream” is to own your own home.

The idea that it doesn’t matter who can take that home away when payments go late completely overturns the whole system. From at least 2002-2008 (and probably before if you follow the stories about MERS), the great majority of the American banking system has routinely failed to maintain records of who owns what when it comes to real estate in this country. They took the low risk, low yield, genuinely conservative notion of compound interest and superheated it into the high risk, high yield notion of securitized investments. And they did so without the permission of the people who were put at greatest risk: the American homeowner.

Without detailing it here, a great number of home loans, especially the ones that weren’t standard 30-year fixed interest rate loans, did not meet proper guidelines for offering such loans. They then got sold off to investment agencies under false pretenses and with false ratings regarding the quality of the loans. And then got split up again with more false ratings. And at nearly every point along the way, nothing ever got filed to state who it was that bought these loans and therefore had a right to collect them, or go after the collateral if they weren’t paid. What that creates in law is a problem of standing. The question is: do you have a right to say I owe you money? If so, prove it to me and I’ll pay you otherwise get lost. Without proper documentation, it’s hard to prove who owes what to whom. And there are rules and deadlines for filing some of this paperwork. For most people who own a home, it is their most important possession so it should be taken equally seriously by the entity that can collect money on or claim to take away that possession. If someone is going to be thrown out in the street, then a court better be damn sure the people doing it have a right to do so. But so far, that isn’t happening, and this Fed report suggests that the banks are working towards getting away with it (which shouldn’t be surprising).

The line that states that negotiations may be underway to settle the matter for $30 billion effectively means that the banks will get an oops (on top of all the other ones they already got), and then they are off the hook for failing to keep track of everything. For creating a Gordian Knot of the entire country's real estate market it is entirely likely that they will actually get paid multiple times for their transgressions for what will amount to a small fee (the $30b). They got reimbursed through TARP. They got paid one hundred cents on the dollar via claims run through AIG (because of TARP). And they will now get possession of the original asset and get to sell it again, often for cash, and otherwise with loans that they give and earn interest on again, or possibly even use to start the whole friggin’ process of fraud all over again!!!

If this happens, if the banking system gets a mulligan for a decade of thievery, then the United States as we have known it has truly ended. The rule of law will be a farce and there will no longer be any reason to rely on anything unless you happen to be a member of the 1% club. The 1%ers are the ones whose total wealth equals most of the rest of the 99% combined. The Roman Republic will be the Roman Empire and the Goths will be sniping at the edges most egregiously.