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Friday, October 8, 2010

Saturday brainstorming

1. The week closed almost at the high for US markets on the Venus going retrogade in an excellent angle to the US sun which should mark a temporary high for a decent pullback. Monday should start higher but reverse latest by Tuesday for a sharp correction of 5-8 percent over 2 weeks before resuming the current uptrend as stated in earlier posts. The overall bull manipulation has another leg to go but big trouble is ahead once we reach those levels but that we will consider once we reach those insane levels in 4-6 weeks.

2. Lets start with the funny part of the problem - this will be another bonanza for lawyers since the investment banks who sold this toxic stuff are liable for misrepresentation etc. and the foreclosed ones can screw with the banks who screwed with them. Might solve the job market problem though as the country will need a few mio new lawyers to handle all the cases but the banks will now be officially bankrupt due to the fees and settlements after they were already broke but accounting fraud sponsored by DC and a lifeline of zero interest rate financing with some free ride trading profits by the FED kept the dead man walking.

excerpt 1

Jon Stewart On The Humor In The High Frequency Signing Scandal

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Just because every radioactive cloud has a humorous lining, here is how the event that will take home prices another major leg lower is made funny, thanks to Jon Stewart.

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Foreclosure Crisis
www.thedailyshow.com
Daily Show Full EpisodesPolitical HumorRally to Restore Sanity


excerpt 2

Janet Tavakoli On The "Biggest Fraud In The History Of Capital Markets"

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In the following interview with the WaPo's Ezra Klein, Janet Tavakoli shares some more information on why every bank is about to shut down all foreclosures, in what she calls the "biggest fraud in the history of capital markets. Not very surprisingly, we are, so far, spot on in our 29th September projected timeline at this point: "We predict that within a week, all banks will halt every foreclosure currently in process. 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."

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. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on.

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