as Tracy Alloway says, mortgage-bond documentation generally says that if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages. And it’s looking very much as though none of the notes were properly transferred."None of the notes were properly transferred"? Uh oh. That's trouble but what's even more troubling is the sentence right before it - "if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages."
Get that? The trustees for the bondholders can take that "toxic derivatives" and shove it right back down the banks throat. Gee, I wonder how that bodes for the big banks, what being forced to buy back TRILLIONS of their own crappy financial instruments? (At least it looks like they're getting ready for it.)
How much? I'm glad you asked! -
More importantly, a separate study by SNL Financial has determined that the total amount of residential (not commercial) mortgages in foreclosure between directly serviced, and those serviced for others, for the big three banks alone (JPM, WFC, BAC) is nearly a quarter of a trillion dollars!Following the triple rule of government, I'm willing to bet that this particular issue will cost closer to 3/4 of a trillion at least. But wait I'll throw in more, for..well...free!
The hole could end up being as large as a trillion if one throws in the CMBS properties that are delinquent and in foreclosure ($61 billion in August per RealPoint).The Real Effect
As I hate saying, well I do somewhat enjoy saying it - I hate it when I'm right, again and again. But enough posturing, you pay me to make predictions! For the moment let's look at what is coming next and you would do well to listen this time.
- This problem is only starting to be uncovered - it will get MUCH WORSE. When it does we will get the following -
- Fannie and Freddie which are backed by the taxpayers and will start hemorrhaging money. (If you can't foreclose, and squatters aren't paying on their mortgage debts, these two companies start losing more money.) Did I mention they're taxpayer backed? Guess who pays for their "losses"? That's right, YOU.
- When the MBS (Mortgage Backed Securities) referenced in the article go belly up, the investors in the MBS sue the pants off companies - JP Morgan, Citibank, etc because they sold the investors a LEMON. Just who are these investors? This splits into several probable issues:
- A) Public pensions (Cops, firefighters) vaporize - Cops go on strike, crime goes up. Think France.
- B) Private pensions vaporize - Your grandmother goes broke. She riots with half the city!
- C) The aforementioned companies go broke. After all, they're being sued into the ground.
Now, what's a new Republican Congress to do? The whole system is collapsing and don't you know that those dirty, dirty Democrats did it with all their Marxist thinking. (Never mind the fact the Republicans have been along for the ride.) Well, they just have to bail out the financial sector, again because this is the worst crisis evarrrrr! I'm sure Glenn Beck, Malkin and all the RINOs will go along for the ride.
At this point they will have no choice but to nationalize everything - police, firefighters, towns, people...you all belong to the Federal Government.
But wait, won't all this downward pressure put a crushing burden on the dollar? Great, now all we need is a bad bond auction to shake the confidence of the Treasury holders. At this point we will have two choices -
- Sell the military to the highest bidder
- Attack a country (preferably the one holding the bonds) to get it's people back to work.
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