Mailvox: first they came for the defaulters

No doubt it’s very satisfying to pontificate about the sanctity of contracts and the moral importance of paying one’s debts when considering the weighty question of whether mortgage bank fraud is outweighs the pecuniary sin of a defaulting homeowner in borrowing more money than they could reasonably afford. They didn’t make the payments, they should lose the house to somebody, right? What does any of this have to do with you? After all, you have always made all of the necessary payments on your mortgage because you are a fine, morally upstanding, and responsible debtor.

Of course, you may look at the matter just a little differently once you discover that not owing money to a bank doesn’t prevent it from home seizing and selling your home. R sent the following email:

Tonight, my girlfriend comes home to her house in Honolulu Hawaii only to find a foreclosure notice and public auction notice on November 19th, at the First District Court of Honolulu Hawaii.

Only problem is that Bank of America posted the notice. And her mortgage is with Wells-Fargo Bank.

And she’s never been served notice at all. Neither has her attorney.

But her home is going up for sale on the 19th of November.. just like that. Perhaps this fraud needs to be known more, just before election day on November 2nd, 2010, because I really believe that most Americans do NOT know what is going on.

Of course, this can’t possibly happen to you. Surely this guy’s girlfriend has somehow done something to justify having her home put up for auction. She’s probably late on her payments to Wells Fargo or perhaps Wells Fargo sold the mortgage to Bank of America and she should have been paying them. Or maybe Hawaii still has some crazy property laws left over from the reign of Queen Liliuokalani. Because everyone knows they can’t do that, and anyhow, your bank is a really good bank, they aren’t like the evil giant banks, and they were so nice and helpful when that last little detail came up before closing. So obviously nothing like this could ever happen to you….

In which Heimdall takes a deep breath

This news may help explain why the pension funds are so desperate to force the mortgage security push-backs though sooner rather than later… as if the thought of being able to legitimately reclaim billions of dollars in investment losses wasn’t enough incentive in its own right.

On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.

There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability. Under “last man standing” accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies….

FASB’s new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.

Now, obviously I didn’t know that the mortgage fraud would run as deep and wide as it does, nor did I know anything about the way in which this FASB rule is likely to put so much pressure on the pension plans. But I did know that the accounts of every bank, pension, and public corporation were fictitious to some level and would likely be exposed once the pressure of debt-deflation and economic contraction set in. This is why I have resolutely ignored all of the frantic cheerleading of the desperate economists and financial analysts; being cognizant of the true nature of Keynesianism, I recognized it as nothing more than a futile attempt to revive the animal spirits that they, like neolithic cavemen dancing around a bear skull, worship without comprehension.

Moreover, you can be certain there will be more unhappy revelations and “surprises to the downside” ahead.

In defense of double-standards

Donna Reed complains that women are criticized for the same behavior in which men indulge:

Her wanting to explore and have her fun before she settles hardly qualifies as a tramp. Tons and TONS of men do this same thing but what do we call them?

That completely depends upon how “fun” is defined. Considering that the woman concerned a) needed to break up with her boyfriend, b) was by her own admission envious of her single friends being able to go out with other men, and c) Ms Reed claims that “Tons and TONS of men” are doing “this same thing”, it is perfectly clear that what the little would-be tramp wanted to do was exactly what I described in the original post, namely, spend a few years riding the carousel before settling down.

But that’s obvious and one requires a furiously spinning rationalization hamster in order to claim that the young woman merely wanted to break it off with the perfect long-term relationship guy in order to spend time “taking trips with best friends, dancing, and doing anything silly and fun with your pals”. (Of course, as has been pointed out before, “taking trips” aka “travel” is femalespeak for “have sex with strange men”, so I suppose the assertion is not so much incorrect as an incompetent attempt at camouflage.) There is simply no question that the young woman very much wants to go out and get herself ravished a few times by a few different men. It is the bestial temptation that is there to either be resisted by her reason or justified by her hamster.

The more interesting question that Donna Reed raises is this: how and why can anyone object to a sex-based double standard? There is no double-standard if we are discussing morality; fornication and adultery are considered sins for both sexes alike. Therefore, to assert the existence of a double-standard inherently takes the discussion completely outside the subject of morality and puts it in the realm of mere social acceptability.

Now, the supposed double standard is that men who have sex with many women are studs whereas women who have sex with many men are sluts. But different labels for men and women with similar attributes are not a double standard; is it a double standard that attractive men are called “handsome” and attractive women are called “pretty”? Of course not. The labels derive from the observable fact that men’s attraction to women has a negative correlation with her sexual experience while women’s attraction to men has a positive correlation with his sexual experience.

Note that we’re talking about attraction here, not the reasoned pursuit of a life-long mate. As is usually the case, what a woman says about the men to whom she is attracted is irrelevant as the fact of the matter is that the virginal adult male is a figure of scorn in modern society whereas the virginal adult female is despised only by her fellow women in the same manner that they hate beautiful women.

So, the female standard for men is that men with less sexual experience are less attractive. The male standard for women is that women with less sexual experience are more attractive. This is not a single double standard, but rather two distinct standards held by two different groups of people about two different groups.

Behind the curve

There are four economics blogs which I follow on a regular basis, the Market Ticker, Mish, the Mises Institute, and Calculated Risk. They’re all considerably different, but CR is arguably the most useful in keeping track of the mainstream perspective because he does such a great job of publishing statistical updates and because he subscribes to more conventional economic theory than I do. So, I was curious as to why CR had been paying so little attention to the Great Mortgage Fraud, especially since he places particular importance on the housing sector as an engine for driving an economy out of recession. After reading his first post on the matter which indicated an opinion which appeared to downplay the issue, I shot him an email suggesting that he might not be quite as up on the burning issue du jour as is his usual wont; he was well ahead of the curve on both the housing bubble and the bank failures. So, it was with more than my usual interest that I read his latest post on the subject:

I fully support these investigations, but I’ve downplayed “foreclosure-gate” because I thought the impact on housing and the economy would be minor – depending of course on the length of the foreclosure delays. Many other people disagree with my view – and please remember I’m not always right.

It is important to separate out two other issues. The first is MERS (the “Mortgage Electronic Registration System”). There are many interesting issues with MERS – and plenty of litigation – but my feeling is that the defects are curable, and these issues will have little impact on the economy. Since I think the impact will be minor, once again I’ve mostly been ignoring these issues.

The third issue is repurchase requests based on Reps and Warranties for mortgages. This is an important story for the banks. I’ve been mentioning the increasing push-backs from the GSEs (Fannie and Freddie). That isn’t a new story. The important development today was that several major bond investors are pressuring BofA to repurchase defective mortgages. Although I’ve been following this story, I haven’t mentioned it – and some people think I’ve been “behind the curve”. Could be.

CR is completely correct to note the multiple facets of the situation. Unlike most of those who have minimized the issue or taken the banking industry’s defense line, he clearly recognizes that the issue is not limited to foreclosures and deadbeat borrowers. And his reasoning is perfectly sound, for as he adds in a comment: “I know others think the impact will be huge… I think they are wrong, especially about foreclosure-gate and MERS. The push-backs will take time and I expect the losses will be spread over several years, and just doesn’t seem like a “blowup” event.”

The reason I disagree with CR’s conclusion is three-fold. First, because his econonomic perspective is essentially a mainstream Samuelsonian one, he doesn’t take the economic impact of the continued decline in bank credit into account even though he is the Internet’s primary chronicler of bank failure and the latest FDIC shenanigans. (NB: I use CR as the source for updating my own bank failure spreadsheets.) Not being an Austrian, he is looking at economic indicators that are presently much less dire than credit indicators such as TOTLL and Z1. The economic environment is already precarious, which reduces the probability of the consequences of the mass bank fraud being contained to the financial sector.

Second, I don’t think the security push-backs are going to take time and be spread out over several years because the big banks are not only on the verge of bankruptcy, they are already insolvent. More importantly, all of the counter-parties to whom reimbursement are owed already know this. Therefore, they are not going to be content to wait and see the matter resolved slowly by federal regulators in the manner preferred by the big banks and their managerial staffs because every victim of the grand securities fraud is going to want to be first in line to get their money back lest they not receive anything at all.

And third, the amount of criminal wrongdoing here is far too excessive, far too obvious, and far too jurisdictionally widespread to permit it to be ignored under the banking industry’s usual “get out of prosecution free” card. (There is no other word for it, not when Wachovia got away scot-free after admitting that they laundered billions in Mexican drug money.) While there is no question that the federal agencies are not going to aggressively prosecute a series of frauds that they clearly permitted and even abetted, the same is not true of the agencies of the states whose tax coffers and pension funds were ripped off by the voracious banksters. And the states have more investigators as well as more autonomy than the SEC and other federal agencies. In short, I suspect the situation is beyond Wall Street-owned Washington’s ability to firewall it.

But, we will see. This is a complex matter and intelligent minds can reasonably disagree. If CR is ultimately correct, I won’t hesitate to congratulate him on his perspicacity. But I have to admit, I expect to be congratulating the Market Ticker instead.