In which a match is struck

From the Market Ticker:

“JUDGE CURLEY THE HEAD BK JUDGE IN AZ JUST RULED MINUTES AGO THAT THE BANK OF NEW YORK MELLON MUST PRODUCE THE CUSTODIAL RECORDS IN THEIR VAULT IN A CASE AGAINST AN AZ HOMEOWNER, THEREBY PRODUCING THE NOTE AND ALL OTHER DOCS. THIS IS A TRANSFORMATIONAL DECISION.”

Now we’re cooking. This decision changes literally everything – at least for Arizona. If it spreads, and it probably will, it will change everything period.

If BONY doesn’t have the documentation in their custody, with proper endorsements, then there’s gonna be trouble. You can bet the banks will try to bury notice of this way off the front page, but they’re not going to get away with it.

The key issue here has always been whether the people buying these securities were really buying what they thought they were – and maybe whether they were buying anything at all. If BONY can’t produce the documents because they don’t have them, and cannot prove up ownership of the note with proper endorsements, the lid is going to come off this thing.

Between the insolvency, the fraud, and the mark-to-fantasy, it’s always just been a matter of time before Bank of America, Citibank, Wells Fargo, and JP Morgan Chase go down in spectacular flames. TARP didn’t save them, Quantitative Easing I didn’t save them, Quantitative Easing II isn’t going to save them, and even if the new Republican House can be suckered into passing TARP II as their predecessors were, that wouldn’t save them either. I’ve calculated that at least $3 trillion of the $7 trillion they presently report as assets simply don’t exist. The damage has already been done and it’s time to start trying to staunch the bleeding rather than offering more pointless and costly transfusions.

One of the comments there sums up the entire problem with the US financial system in a nutshell: “Welcome to the failure of fiat wealth… where multiple exclusive claims to underlying real wealth will always become extinguished at some point in time.”

That is the key to understanding debt-deflation right there. Multiple competing claims to the underlying wealth.

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