It is both extraordinary and amusing to see how fast Washington and the Wall Street lapdogs that presently pass for our financial media have been forced to turn on a dime by the exposure of pervasive criminal activity on the part of mortgage-backed security sellers. The summer-long collusion of the Republican and Democratic Parties in passing H.R.3808 on an off-the-record voice vote, which would have permitted some of the financial institutions that committed loan title fraud to retroactively hide their misdeeds, was shut down by a furious reaction across the blogosphere that sparked the Obama administration to act in a single day.
And the initial response to the fraud by the market cheerleaders that the whole story was essentially a great big “nothingburger” has rapidly subsided into desperate attempts to change the focus from the widespread fraud committed by the security-selling banks to the possibility that defaulting homeowners might inadvertently profit from this pervasive criminal activity on the part of the banks that offered them mortgages. But it’s not about the foreclosures. The foreclosures are merely the deadly tip of a four-part iceberg that involves mortgage-writing fraud, mortgage-backed security-selling fraud, title-transfer fraud and finally, in a futile attempt to cover up the preceding three frauds, the much-discussed foreclosure fraud.
Notice, for example, how the banks and their pro bono defenders in the media have stopped arguing about the importance of respecting the rule of law in favor of making emotional appeals to fairness and the American way. The reason for this is that the law is very clear on the matter: “If the chain of title is broken, then the borrower’s loan is no longer secured by the property.”
The line of defense presently being put forth by the banks is that it would be wrong for the government to give anyone, especially a defaulting homeowner, a free house. But this is not only a spectacularly dishonest and hypocritical line of defense since the banks are demanding that the government give them the free houses, it is also a direct attack on the rule of law. Nor is any government involvement required, except to protect the rightful owner’s possession of his home, since the home loans are no longer secured by the property in the absence of an unbroken chain of title.
The only way to respect the law and minimize the effects of the damage that has already been done to the American economy by the mortgage-selling banks is as follows:
1) Free and clear title must be granted to homeowners who took out loans in which the chain of title was broken. This will mean that some people will get free houses – better innocent homeowners than criminal banks. This will support the housing market as well as the credit market since many people who are presently underwater on their home loans will be able to borrow against the value of their debt-free property.
2) Audit the mortgage-backed security sellers and force them to reimburse all buyers of fraudulent securities. This will significantly help state and local governments, whose pension funds were the primary victims of the security fraud.
3) Shut down MERS. State and local governments that lack laws enforcing the ancient land title system should immediately pass laws banning the use of electronic documentation as a legal substitute for actual paper documentation with signatures held at the county.
4) State and federal prosecution of banking employees responsible for committing MBS fraud, title transfer fraud, and foreclosure fraud, beginning with the CEOs and boards of directors.
5) Wind down the insolvent banks, including Bank of America, Citi, Wells Fargo and JP Morgan Chase. If they are not bankrupt already (and there is sound reason to believe that they are since at least 40 percent of their reported assets are in fact worthless), they will be after reimbursing the pension funds and international investors they ripped off by selling fraudulent mortgage-backed securities.
6) Congressional investigations of the regulatory bodies whose failed oversight made this vast series of banking frauds possible.
There is no question that this will be a long and painful process for the economy, but the important thing to remember is that the damage has already been done. There is no way to retroactively undo it. Every attempt to deal with the matter in any less straightforward manner is not only doomed to failure, but will definitely make matters worse because the banks responsible are still engaging in exactly the same activities that led to the present situation.
As for those who are myopically focused on emotional matters of fairness and free houses, they should consider the matter of who the truly guilty parties are. While it is certainly foolish to borrow more than you can reasonably afford, is doing so really more morally offensive than 1) profiting from encouraging people to borrow more than they should, 2) ignoring the land title laws, 3) selling things you don’t own, 4) committing mass forgery and finally, 5) stealing things to claim that you owned them all along?