Shi$ Hitting Fan: Tavakoli - Biggest Fraud In The History Of Capital Markets

[kpete]

Shi$ Hitting Fan: Tavakoli - Biggest Fraud In The History Of Capital Markets
It's actually quite simple - the investors were swindled. Period. Just like they were in the 1990s by the exact same scam, but in a different sector.
by Badabing
Fri Oct 08, 2010 at 05:30:39 PM PDT

Janet Tavakoli is now saying that every bank is about to shut down all foreclosures, in what she calls the "biggest fraud in the history of capital markets. She is also stating that within a month, all foreclosures executed within the past 2-3 years will be retried, and millions of existing home sales will be put in jeopardy.

What this essentially will mean for what is left of the national housing market is a nightmare, beyond our wildest dreams. We are only beginning to see the final Iceberg coming into view, that could very well finally destroy all homes values, and credibility in our entire Banking system, the could finally go over the cliff, because of their own greed and malfeasance.

The following is part of the interview conducted by Ezra Klein:

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

EK: And how much danger are the banks themselves in?

JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one.

EK: My understanding is that this now pits the banks against the investors they sold these products too. The investors are going to court to argue that the products were flawed and the banks need to take them back.

JT: Many investors now are waking up to the fact that they were defrauded. Even sophisticated investors. If you did your due diligence but material information was withheld, you can recover. It’ll be a case-by-by-case basis.

EK: Given that our financial system is still fragile, isn’t that a disaster for the economy? Will credit freeze again?

JT: I disagree. In order to make the financial system healthy, we need to recognize the extent of our losses and begin facing the fraud. Then the market will be trustworthy again and people will start to participate.

EK: It sounds almost like you’re saying we still need to go through the end of our financial crisis.

JT: Yes, but I wouldn’t say crisis. This can be done with a resolution trust corporation, the way we cleaned up the S&Ls. The system got back on its feet faster because we grappled with the problems. The shareholders would be wiped out and the debt holders would have to take a discount on their debt and they’d get a debt-for-equity swap. Instead we poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism.

more:
http://www.dailykos.com/storyonly/2010/10/8/908857/-Shi$-Hitting-Fan:-TavakoliBiggest-Fraud-In-The-History-Of-Capital-Markets

[Bitwit1234]

1. Not only did the previous administration relax the regulations

and did not stop this nightmare, this administration has not taken a strong enough approach against Wall Street and the Banks because as with the republicans, wealth is their master.

[madrchsod]

2. the only winners are the banks and savings and loans...

that did`t sell their mortgages. my bank does`t sell their mortgages and they do not foreclose. if you don`t make the payments after so many months you are out and they resell the house.

[Octafish]

3. Bank of Scamerica halted foreclosures.

Looks like there'll be lots of shark blood in the water, for a change.

[glitch]

4. "Just like they were in the 1990s by the exact same scam, but in a different sector"

b i n g o

[dgibby]

5. My first mort. is with BoA.

My second was with Citibank until last month when it was sold to Fannie Mae. I'm up to date on all payments, never late, and am not under water, so don't know what's going on. Got the notice from Fannie Mae today stating that the mort. had been sold to them, but that Citibank would continue to service the loan and that's where I should send the payment. They gave no reason for the sale, so I have no idea what's going on. :shrug:

[Ruby the Liberal]

6. They are the investor and paying Citibank to do your paperwork

Collect payments from you, pass the Principle and Interest to Fannie.

[dgibby]

7. Thanks, Ruby.

Just as long as they're not getting ready to screw me. Can't be too careful these days.