The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

“New Deal democrat” is the nom de blog for a professional who is not employed in finance or investment, but who has been an investor for nearly 20 years. NDD publishes regularly at The Bonddad Blog

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As Barry Ritholtz pointed out at the time, exactly one year ago today a very specific intellectual challenge was made. It started with Mish strongly challenging ECRI’s record of predicting recessions.

Subsequently, Prof. Paul Krugman wrote:

Michael Shedlock has an awesome takedown of ECRI’s claim that its indicators (a) have successfully predicted turning points in the past (b) point to a sold recovery now. I’d add that this is a really, really bad time to be relying on conventional indicators.

Why? Basically, because in a zero-interest rate world — the three-month rate was .066% last I looked — especially one that’s suffered from a collapse of the shadow banking system, conventional indicators don’t mean what they usually mean. Increases in the monetary base aren’t especially expansionary. The yield curve more or less has to slope up, even if no recovery is expected. And so on.

So historical correlations, to the extent that they exist — and as Shedlock points out, ECRI is claiming a much better record than it really has — can’t be counted on to prevail. There’s really no alternative to making fundamental analyses of the macro situation.

Lakshman Achuthan of ECRI responded with a very specific challenge:

we fully expect the current economic recovery to prove to be stronger than the last two, at least through mid-2010….

While we don’t necessarily expect our clarifications to change your views about the near-term course of the business cycle, we would hope that if, a year from now, ECRI’s leading indexes are proven to have been correct, you would publicly acknowledge the same. After all, the proof is in the pudding.

It is exactly one year later today. So, was “the current economic recovery stronger than the last two, at least through mid-2010?” The data is in, and we have an answer.

To judge the issue, I am relying on the indicators chosen by the NBER to gauge the end of recessions: GDP, Industrial Production, Real retail sales, Nonfarm payrolls, Aggregate hours worked, and Real income. As of June 30 of this year, here is how they stacked up against the last two recoveries:

Here is real GDP:

This is no contest. Judging based on 12 months from the end of the 3 recessions as decided by the NBER, the year between June 30, 2009 and June 30, 2010 showed the strongest GDP growth.

There is also no contest when it comes to the first 12 months after the recession bottom as to Industrial Production:

The same is true of real retail sales:

Perhaps surprisingly, aggregate hours worked also improved more strongly in the twelve months between June 30, 2009 and June 30, 2010 in comparison with the last two recoveries:

But the biggest surprise of all is the one measured by nonfarm payrolls. In the graph below, the blue line measures payrolls growth for a period of 6 months from the lowest post-recession reading of the “jobless” recoveries (most recently, December 2009 through June 2010). The red line, by contrast, measures job growth (or not) in the twelve months since the official NBER bottom:

I expected the two different modes of measurement to yield very different results. Instead, either way, the present recovery through June 30, 2010 has been stronger for jobs than either of the last two.

Although it is difficult to tell from the graph, real income was stronger in the first year of the recovery from the 1990 recession than at present.

Jimmy Fallon is Justin Bieber who eventually starts dissing Alan Greenspan:

Hat tip David S

These days, the spectrum of market commentary is broad, ranging from permabulls to recessionistas to gold bugs to dollar bears.

More recently, a special group of folks have been out in full force — the PermaBears — and their jargon can be a bit . . . confusing . . . to the uninitiated.

For those you who have been having difficulty understanding their idiosyncratic language, The Big Picture, in conjunction with Google Translate, offers you this handy service.

Enjoy:

The PermaBear to English Translation Guide

Apple: A fictitious company that does not exist.

BLS: A secret society of mathematicians and statistical wonks conspiring to falsify economic data, formerly known as the the sect of Opus Dei; See also Birth Death Adjustment.

Bernanke, Ben: Beelzebub

Bonds: An asset class that will eventually be worthless paper as its value is inflated away, but in the meantime, are a good alternative to equities.

Bubble: A catchall phrase used to describe any market not in freefall.

China: The centrally planned communist economy that is the model for Free Market Economies in the West. alt. An idealized form of Capitalism;

Death Cross: The most reliable and certain technical formation known to man. See also Golden Cross: An old wives’ tale, not to paid attention to or taken seriously at all.

Depression: The current state of economic affairs; See also Pornography.

European Union (EU): A soon to be dissolved association of Socialist states, whose sole purpose is to mislead investors into believing the United States is (comparatively) fiscally responsible. See also EuroFASB: A criminal legal enterprise of accountants whose members help banks hide massive losses;

Fiat Currency: The root of all evil

FOMC: Fertilizer for the root of all evil

Gold: A shiny yellow metal used primarily as an excuse for missing a generational rally in equities.

Google: See Apple

Greece: A nation of tax cheats that will lead to the dissolution of the EU;

Greenspan, Alan: Lucifer

Housing Bottom: A theoretical but mathematically impossible construct.

Hindenburg Omen: A common pick up line at permabear cocktail parties, good for for attracting sexual partners but of little use for anything else.
Vernacular: “Did you see another Hindenburg Omen signal was given today?”

Hyper-Inflation: The eventual fate of all humanity due to the existence of central banks.

Inflation: The precursor condition to Hyper-Inflation.

Japan: A large manufacturing island in the Pacific, whose decades-long recession is the inevitable model for the United States

Money Supply: ∞, an imaginary number.

New Normal: A combination of contracting credit availability, stubborn unemployment and US consumer de-leveraging; See also 1930s, 1950s, 1970s (aka Old Normal).

Overbought: The normal state of equity markets;

Oversold: A theoretical market condition last seen in 1982.

P&L: We don’t talk about that.

POMO: An acronym used by rookie traders in failed attempts to explain the “mysterious” impact of massive liquidity on equities.

QE 2: A code word or shorthand for the event that has been prophesied to bring about the End of the World. Interchangeable with “Apocalypse” as Perma-bears regard both its coming and its destructive power as a quasi-religious inevitability. See also POMO

Recession: See Depression

Risk On: Any Bull market

Rosenberg, David: A minor deity amongst the Perma-bear faithful. The very mention of his name causes a reverential hush to fall over the gathered masses as they hungrily devour his latest proclamations of death and dismemberment. See also Roubini, Faber, Rogers, Cassandra, et. al.

Stress Test: Hoax or Conspiracy

Subprime: The state of all credit in the US

Tony Robbins: The newest economic sage to warn of the coming economic apocalypse, most recently during August 2010; See also Paul Tudor Jones.

Unemployment: An irreversible condition, symptomatic of declining empires. Hence the reason no one in Great Britain ever found a job again after the 1830′s.

Uptrend: Not found.

ZIRP: See QE2

Well, there you have it — unless the trading Gods have terrific senses of humor, the top is now in.

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Previously: The Modern Kudlow To Standard English Translation Guide

Coming Soon: The Gold Bug to English Translation Guide

I am not sure why so many people are so confused over the concerns of the legal status of robo-signers.

I’ll let Thomas A. Cox, a retired lawyer, describe GMAC’s foreclosure process and the work of its limited signing officer, Jeffrey Stephan in a court filing:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

Gee, how could anything go wrong in that situation?

Again, this is not about keeping deadbeat borrowers in homes, it is about the Rule of Law.

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Source:
From a Maine House, a National Foreclosure Freeze
DAVID STREITFELD
NYT, October 14, 2010
http://www.nytimes.com/2010/10/15/business/15maine.html

Visit msnbc.com for breaking news, world news, and news about the economy

I had a bizarre experience today where someone told me that none of the parade of horribles we have been discussing have actually happening. He didn’t use the word myth, but he sure implied it.

I quickly pulled these examples, but I want to ask you the reader: What other cases are there of actual errors — wrong house, wrong bank, wrong note, or wrong person — in the foreclosure fraud fiasco?

I’ll get you started:

• Lawsuit accuses Bank of America of seizing wrong house: Dr. Alan Schroit filed the lawsuit Monday in the 122nd State District Court in Galveston against the bank with which he has neither a relationship nor a mortgage. (The Galveston County Daily News)

• Christopher Hamby of Wheelwright, Ky., filed a lawsuit against Bank of America for repossessing his home by mistake and refusing to pay for damages other than replacing the locks. (Floyd County Times)

• Jason Grodensky bought his modest Fort Lauderdale home in December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage.  (Sun Sentinel)

• A Hampton Pennsylvania woman is suing Bank of America, saying one of its contractors wrongly repossessed her home, padlocked the doors, shut off the utilities, damaged the furniture and confiscated a pet parrot, though her mortgage payments were on time. (Pittsburgh Post-Gazette)

• Charlie P. and Maria Cardoso of New Bedford claimed that their home in Florida was free of any mortgage. They filed a lawsuit for a wrong foreclosure, claiming that the Bank of America had foreclosed. Their lawyers argued that the Bank had already been notified about the wrong foreclosure, in July, despite which it got foreclosed (South Coast Today)

• A Las Vegas woman whose condo was mistakenly emptied in a bungled foreclosure action could be the first person to benefit from a new state law.  Nilly Mauck, left Las Vegas in mid-December for a snowboarding trip to Utah and returned to stay with a friend for a few days when she received a disturbing phone call. Something was amiss at the Coronado Palms condominium on Badura Avenue that she had owned for the past two years. (Las Vegas Sun)

Now, we know the above are “legal impossibilities” and yet they happened. What other legal impossibilities have actually happened. Please provide data, links, and actual examples. You lawyers should be able to provide info using just initials or first name, the bank, and the town or county

Bank of America Announces That It Has Discovered Some Trivial Technical Problems With a Small Number of its Mortgages

Bank of America announced that it has discovered a few trivial, easily-remedied technical problems with some of its mortgages. “We will stop foreclosure sales in some states until our assessment has been satisfactorily completed, or until the politicians whom we have compensated so generously do their damn jobs and get rid of those pesky laws and rights that are slowing us down. Our ongoing assessment shows the basis for foreclosure decisions is accurate, except in those few regrettable cases where we repossessed a house that actually had no mortgage on it whatsoever—hey, nobody’s perfect, ha ha,” a Bank of America spokescreature said. “It’s really quite a lot of trouble to verify the address before we take someone’s house,” the spokescreature continued. “Comparing addresses on two documents slows us up by a good fifteen seconds. After all, we have a lot of houses to foreclose on. Anyway, many of those people actually do owe money to us, or to somebody, anyway. I know it is a bit confusing to citizens when our competitor HSBC and another bank simultaneously try to foreclose on the same property, especially when they are in a federal foreclosure prevention program. It’s sort of like one of those programs on Animal Planet where each hyena grabs a leg of the still twitching gazelle and tries to pull it away from the other hyenas. But that’s the way nature works—nobody asks those hyenas petty-minded questions about whether title to the gazelle was properly transferred, and to which hyena, and whether the title was properly notarized by an authorized local cheetah. Sometimes a company just has to sink its fangs into a customer, lock its jaws, which can exert a pressure of 1,000 pounds per square inch, brace its legs, yank, and see what tears loose. If we get the wrong gazelle, we will make every effort to compensate it for our erroneous gnawing, bone-crushing, and marrow-sucking.”

“It appears that some of our process servers may not have actually served the owners with notice of our intent to foreclose. But, honestly, wouldn’t warning them make it a whole lot harder to catch them? It is a myth that hyenas giggle and cackle before they attack. Actually, they are usually quite silent until they get close enough to bite. On the Serengeti, due process means that the gazelle runs as fast as it can and the pack keeps ripping small chunks off until the gazelle collapses due to shock and blood loss and inability to pay for a lawyer. There may have been some trivial, unimportant problems with the relevant documents, but we are confident that many of those gazelles really did owe us money, and we believe that our ripping them into pieces, digesting them, and regurgitating their horns and hooves is ecologically sound and generally in accord with the law of nature. Now, if you’ll excuse me, I will have to go mark the boundaries of my pack’s territory with the musk from my anal scent gland. We don’t want other hyena packs like J.P. Morgan invading our turf. That could be a real mess—those guys know how to sink their fangs in, and they know how to break down the door of a house and change the locks even when they haven’t foreclosed on the property.”

Asked for comment, a J.P. Morgan spokesperson said, “We have no interest in invading the grasslands turf of Bank of America or HSBC because we are not hyenas. We are amphibious apex predators, and our preferred mode of foreclosure is to lurk underwater by the bank of a river. When a gazelle or a wildebeest sticks its muzzle in the water, we surge upward and, um, serve papers on it, or something. Or grab a leg and go into our famous death roll, spinning and thrashing until the leg comes off. Then we like to take the borrower’s corpse up-river for a few days of what we in the mortgage business call ‘seasoning’. We would also like to remind you puny, pathetic citizens that we can grow to twenty-three feet long, we can gallop at up to seventeen miles per hour for short distances, we have maintained our distinctive business culture successfully since before dinosaurs evolved, we have thick dorsal osteoderms which are hard to penetrate even with an axe, and we are much more biologically complex than other reptiles: unlike them, we have features like a cerebral cortex and a four-chambered heart, and many of us have Ivy League degrees. We recommend that AMBAC and Pimco think carefully about all of these features before trying to push their mortgage-backed securities back onto our balance sheet. As for any legislators or prosecutors who might be thinking about going after us, we have very slow metabolisms. We can submerge for an hour and go for months without eating. We will outwait you and probably eventually hire you as a lobbyist. We would also like to note, though, that we are not without compassion. We honor our prey and weep for it: do you see the large tears rolling out of our eyes and down our scaly cheeks? You probably thought crocodile tears were a mere myth or proverb, but we do in fact have lachrymal glands that secrete a proteinaceous fluid. Crying has an important place in our corporate culture: it lubricates our eyes and cleans our nictitating membranes.”

The Senate and the House, with remarkable foresight, have already passed HR 3808, a bill to facilitate the sharing of taxpayer carcasses across state lines. The bill’s sponsor, Representative Robert Aderholt, an Alabama Republican, said, “It is important to ensure that multiple species of predators can efficiently divide a taxpayer carcass and transport pieces of it from one waterhole to another.” David Axelrod, an advisor to President Obama, said, “We originally planned to sign it, but we are less than a month away from elections, and many gazelles and springboks seem to be agitated about this issue, so we decided to table it for now. We have complete confidence, though, in our ability to find some swift, quiet resolution of this problem after the election.” Secretary of Predation Timothy Geithner added, “I think we can all agree that our nation’s highest priority is to ensure a steady and increasing flow of protein to our apex predators. Crocodiles and hyenas are actually very delicate creatures, and any regulatory interference with their feeding habits could have a catastrophic effect on the entire ecosystem.” Despite their superficial differences, both parties fervently agree on the crucial importance of making life easier for apex predators.

October 14, 2010
Joshua Rosner
646/652-6207
jrosner-at-graham-fisher.com

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Several new-media have quoted an early story on our October 12th note which suggested we saw risks that origination flaws would allow investors to challenge securitizations on $1.3 trillion of mortgages. This is incorrect. The story read: “potential paperwork errors on some of the $1.34 trillion of securitized home mortgages may give investors an opening to challenge the legality of deals, threatening to unnerve financial markets”.

Based on the large scale operational failures in foreclosure processing and the number of foreclosures in which borrowers have been able to challenge a mortgage trusts ability to foreclose, it appears that some trustees are at risk of large scale failures to properly assign the notes to the trust.

Before anyone can offer a reasonable estimate of the number of mortgages or trusts at risk, there needs to be a broad assessment of operational controls that oversaw the moving of pools of mortgages from originators to trusts for the benefit of MBS investors. We believe that the assignment of notes in “blank” name, which was a standard practice, materially increased the risks of shoddy assignments.

We are not suggesting a Lehman style crisis will necessarily occur. We are suggesting
that if the investigation of front-end documentation practices uncovers assignment
failures in any scale resembling the back-end foreclosure processing failures, the scale of uncertainty could create a market response reminiscent of that Lehman period.

It is our belief that, given the black box nature of the process and the former white-hot origination market, some trustees may not have properly transferred notes to the trusts. If not properly transferred, the “true sale” of mortgages to the trusts that issued mortgagebacked securities would be in question. If this proves to have occurred we believe the Trustee, may have liability.

To understand the increased risks posed from “blank” assignments, it is worth
understanding the arcane process by which mortgages are transferred from a
securitization sponsor to the trust. As we stated in our comment of October 12th:

“Nearly all Pooling and Servicing Agreements require that “On the Closing Date, the Purchaser will assign to the Trustee pursuant to the Pooling and Servicing Agreement all of its right, title and interest in and to the Mortgage Loans and its rights under this Agreement (to the extent set forth in Section 15), and the Trustee shall succeed to such right, title and interest in and to the Mortgage Loans and the Purchaser’s rights under this Agreement (to the extent set forth in Section 15)”. Also, an Assignment of Mortgage must accompany each note and this almost never happens. We believe nearly every single loan transferred was transferred to the Trust in “blank” name.

“In blank name” is a concern to us because of the increased risks of documentation failure that it brings. When a note is assigned “in blank name” it apparently becomes a “bearer instrument”. As a result the requirements of transfer become significantly more cumbersome and at risk of failure. Because “blank name” makes this a bearer instrument, a receipt of delivery and acceptance from the originator to the sponsor, a receipt of delivery and acceptance from the sponsor to the depositor, and a receipt of delivery and acceptance from the depositor to the trustee are all required. Moreover, the custodian must have all of these documents and the original notes before the loan is considered to be owned by the trust. It is the responsibility of the trustee to make sure that all documentation has been properly delivered to the custodian and, it is our belief and understanding, that is would be the trustees that would be on the hook for failing in that capacity.

There have been a large numbers of foreclosure proceedings where, because of improper assignments, the trust has been unable to demonstrate the right to foreclose. It is thus that we raised concern about the transfer “in blank name”. We do believe it likely the rush to move large volumes of loans may well have resulted in operational failures in the “true sale” process by some selling firms and trustees. Were this “missing assignment” problem, which we are witnessing in individual foreclosure proceedings, to be found to have resulted from widespread failure of issuers and trusts to properly transfer rights there would be appear to be a strong legal basis for the calling into question securitizations. As example, consider an investor who bought an MBS security in 2007 and sold that MBS at a loss in the market meltdown of 2008. As a result of the information coming out during the “foreclosure moratoria”, the investor might now witness the trusts inability to
foreclose on a defaulted borrower because it is found not to have properly perfected their mortgage note claim. Substantively, the original investor who bought and took a loss on a “mortgage backed” security would have taken a loss on a “mortgage backed” that did not properly own the mortgages it claimed to be backed by. It is reasonable to believe that this investor would consider suit against the trustee to recoup losses.

Unfortunately, the rising uncertainty is only increased by the current reality that real
estate, trust and many of the related tax issues are currently addressed as state rather than federal issues. Other than offering to act as referee, short of a politically charged battle that may result from asserting interstate commerce authorities, there appears no current opportunity for the federal government to create a uniform solution.

Matt Taibi – Magic Money Printing Machine at The Fed

Roach: QE Won’t Work

Airtime: Tues. Oct. 12 2010 | 12:40 AM ET

Quantitative easing is not going to work, warns Stephen Roach, non-executive chairman at Morgan Stanley Asia. In this First On CNBC interview, he tells CNBC’s Chloe Cho why, as well as if capital controls will

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October 14, 2010

Robert S. Mueller III
Director
Federal Bureau of Investigation
935 Pennsylvania Avenue, NW
Washington, DC 20535

Robert O’Neill
U.S. Attorney
Middle District of Florida
400 North Tampa Street, Suite 3200
Tampa, FL 33602
Dear U.S. Attorney O’Neill and Director Mueller,

When it comes to foreclosures, there is mounting evidence of a state of rampant lawlessness in Central Florida. There are increasing signs that big banks routinely evade laws meant to protect homeowners, in many well-documented cases of ‘foreclosure fraud.’ Despite the demonstrated existence, for instance, of ‘robosigners’ signing affidavits attesting to documents that they have never seen, the parties engaging in such misconduct are not being brought to justice. Big banks are mischaracterizing this as mere ‘technical problems,’ and apologizing only where there is clear and very public evidence of harm.

It is not enough for big banks only to apologize for fraud, perjury, and even breaking and entering – when they are caught. It is time for handcuffs. Fraud does not become legal just because a big bank does it.

On September 20, 2010, after my office found evidence of systemic foreclosure fraud perpetrated by big banks and foreclosure mills, I called for a halt to illegal foreclosures.

Since then, big banks such as Bank of America, JP Morgan Chase, GMAC, PNC and others have suspended foreclosures or foreclosure sales. These banks are still claiming that the massive fraud they have perpetrated amounts to nothing more than a series of technical mistakes. This is absurd. This is deliberate, systemic fraud, and it is a crime.

To give but two of the many available examples, attached is a deposition from an ex-employee of one of the largest ‘foreclosure mills’ in the state, the Law Offices of David Stern. In it, this employee testifies under oath that it was routine for that office to falsify documents regarding military records, in order to move foreclosure cases along more quickly.

The local media has reported on the case of Nancy Jacobini; a contractor for JP Morgan Chase broke into her home after the bank mistakenly foreclosed on it. JP Morgan Chase ‘apologized’ for terrifying her. But , US ; we have a system of laws. I am writing to ask you to enforce them.

The organized and systematic manufacturing of falsified documents to deprive people of their homes is not only a threat to the integrity of the legal system. It also aggravates and extends the weakness in the housing market. Who is going to feel comfortable buying a home if a big bank can simply take it, whether or not that bank has a right to it? Given the securitization of mortgage-backed securities, this misconduct is a threat to our securities markets as well. But fundamentally, this is a question of protecting basic
property rights – if you don’t own it, then you shouldn’t try to take it. Without clear property rights, and a legal system that insists on clear proof of those rights before transferring ownership by force, the economy will fall apart.

If perpetrators of perjured affidavits and other systematic criminal activity can get off simply with civil liability – or even less, an insincere bureaucratic apology – the freedom that Americans enjoy will erode quickly in the face of lawless seizures of property. I appreciate your work on the joint Middle District of Florida’s Mortgage Fraud Initiative, and respectfully request that the efforts of your offices turn towards reining in this rampant criminality.

Regards,

Alan Grayson

Member of Congress