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Here comes the start of small towns, major cities to go BK … Wall Street’s Tax on Main Street

Here comes the start of small towns, major cities to go BK … Wall Street’s Tax on Main Street


NY TIMES – Gretchen Morgenson

AMID all the talk of debt and default in Washington last week, tiny Central Falls, R.I., went bankrupt.

Like many states and cities in these hard economic times, Central Falls — population: 19,000 — was caught short by hefty pension obligations and weak tax revenue. It may not be the last municipality to file for bankruptcy. Jefferson County, Ala., is now on the brink of it, thanks to a sewer bond issue gone wildly bad.

But while pensions and the economy are behind many of municipalities’ troubles, Wall Street has played a role, too. Hidden expenses associated with how local governments finance themselves are compounding financial problems down at city hall.

[NY TIMES]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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SECURITIZATION AND ITS DISCONTENTS: THE DYNAMICS OF FINANCIAL PRODUCT DEVELOPMENT By Kenneth C. Kettering

SECURITIZATION AND ITS DISCONTENTS: THE DYNAMICS OF FINANCIAL PRODUCT DEVELOPMENT By Kenneth C. Kettering


One cannot step into the same river twice, Heraclitus famously declared.

Abstract:
This article takes as its point of departure the financing technique referred to as “securitization,” a close cousin of secured lending that has grown to enormous size since its origin more than two decades ago. The article pursues two themes. One is a critique of the legal foundations of securitization, which includes a perspective on aspects of fraudulent transfer law that are well established historically but have been neglected in recent decades. The other is exploration of the implications of this product growing so vast despite its dubious legal foundations. In that regard, the article explores two points of legal sociology that apply to new financial products generally. The first is that a product can become so widely used that it cannot be permitted to fail, notwithstanding its dubious legal foundations. The second is that the debt rating agencies have become de facto lawmakers, because it is their decision to give a favorable rating to a financial product the credit quality of which depends on a debatable legal judgment that allows the product to grow too big to fail. Two nascent products are identified as candidates for the operation of a similar dynamic. The article ends with a normative assessment of securitization from a pragmatic perspective, concluding that legislative action is appropriate to ratify the product’s object, with constraints.

Heraclitus

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1012937&

[ipaper docId=58442461 access_key=key-2g894zjhcsy0d0q4375y height=600 width=600 /]

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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SHAREHOLDER VERIFIED COMPLAINT | BRAUTIGAM v. RUBIN  ‘Citigroup Board, Robo-Signing, Nationwide Title, Derivatives, Breach, Putback’

SHAREHOLDER VERIFIED COMPLAINT | BRAUTIGAM v. RUBIN ‘Citigroup Board, Robo-Signing, Nationwide Title, Derivatives, Breach, Putback’


MICHAEL G. BRAUTIGAM,

v.

ROBERT E. RUBIN, C. MICHAEL
ARMSTRONG, JOHN M. DEUTCH,
ANNE M. MULCAHY, VIKRAM PANDIT,
ALAIN J.P BELDA, TIMOTHY C. COLLINS,
JERRY A GRUNDHOFR, ROBERT L. JOSS,
ANDREW N. LIVERIS, MICHAEL E. O’NEILL,
RICHARD D. PARSONS, LAWRENCE R.
RICCIARDI, JUDITH RODIN, ROBERT
L. RYAN, ANTHONY M. SANTOMERO,
DIANA L. TAYLOR, WILLIAM S. THOMPSON,
JR., AND ERNESTO ZEDILLO

~
Excerpts:


I. This is a shareholder derivative action brought on behalf and for the benefit of Citigroup against certain of its current and former directors. Citigroup is a global . financial services company, and provides consumers, corporations, governments and institutions with a range of financial products and services. The recipient of some $45 billion of federal government bail-out monies, Citigroup has suffered, and will continue to suffer, serious financial and reputational impacts from the inadequate servicing of its troubled residential mortgage loans.

2. On April 13, 2011, the Office of the Comptroller of the Currency (“OCC”) publicized findings from its fourth quarter 2010 investigation into Citigroup’s mortgage servicing and foreclosure processing practices. As a result of that investigation, the OCC concluded that Citigroup (through its wholly-owned subsidiary, Citibank, N.A.): engaged in improper servicing and foreclosure practices; lacked sufficient resources to ensure proper administration of its foreclosure processes; lacked adequate oversight, internal controls, policies, and procedures, compliance risk management, internal audit, third party management; failed to supervise outside counsel and other third parties handling foreclosure-related services; and engaged in unsafe or unsound banking practices. The above findings were made public in the OCC’s formal enforcement agreement with Citibank as set forth in the Consent Order captioned In the Matter of Citibank, NA. Las Vegas, Nevada AA -EC-II-I3 (the “Consent Order”).

<SNIP>

13. Apar from a dismal track record in complying with its obligations under TARP and HAMP, Citigroup also suffered from the effects of a lack of adequate controls over its foreclosure processes. By third and fourth quarters of 20 10, reports had surfàced alleging that companies (including Citigroup) servicing $6.4 trillion in American mortgages may have bypassed legally required steps to foreclose on a home. For example, a New Jersey state cour administrative order specifically implicated Citi Residential Lending, Inc. (“Citi Residential,” a business of Citigroup) in the so-called “robosigning” scandal. Robo-signers, as the court put it, “are mortgage lender/servicer employees who sign hundreds-in some cases thousands-of affidavits submitted in support of foreclosure claims without any personal  knowledge of the information contained in the affidavits. ‘Robo-signing’ may also refer to improper notarizing practices or document backdating.” The administrative order cited devastating evidence of the inadequacies of Citigroup’s internal controls over its loan documentation and foreclosure processes:

An individual employed by Nationwide Title Clearing, Inc., with signing authority for Citi Residential Lending, Inc., testified in a deposition that when he signed documents for Citi, he did not review them for substantive correctness. He could not even explain what precisely an assignment of a mortgage accomplishes. He had no prior background in the mortgage industry.

Further, a second person with signing authority for Citi Residential Lending, Inc. testified that she never reviewed any books, records, or documents before signing affidavits and that she instead trusted the company’s internal policies and procedures to ensure the accuracy of the information she signed. She signed several documents each day (in many instances without knowledge of what she was signing) and indicated that they were often notarized outside of her presence.

14. The deficiencies in Citigroup’s controls over its loan documentation and foreclosure processes have led to tens of thousands of adverse outcomes for the Company throughout the United States. On November 23, 20 i 0, a Managing Director of Citi- Mortgage, in a written statement to the House Committee on Financial Services, Subcommittee on Housing and Community Opportunity, admitted that: (a) the Company was reviewing approximately 10,000 affidavits executed in pending foreclosures initiated before February 2010; (b) affidavits executed before fàll 2009 would need to be refilled;
(c) that the Company was reviewing another approximately 4,000 pending foreclosure affidavits that may not have been properly executed; and (d) it was transferring approximately 8,500 foreclosure files from its former Florida law firm that engaged in robo-signing.

Continue below…

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http://www.scribd.com/full/53708513?access_key=key-1pzxbltfa7cdhtky3rr8

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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GRETCHEN MORGENSON: Too Large for Stains

GRETCHEN MORGENSON: Too Large for Stains


By GRETCHEN MORGENSON The Wall Street Journal

Published: June 25, 2010

OUR nation’s Congressional machinery was humming last week as legislators reconciled the differences between the labyrinthine financial reforms proposed by the Senate and the House and emerged early Friday morning with a voluminous new law in hand. They christened it the Dodd-Frank bill, after the heads of the Senate Banking and House Financial Services Committees who drove the process toward the finish line.

The bill is awash in so much minutiae that by late Friday its ultimate impact on the financial services industry was still unclear. Certainly, the bill, which the full Congress has yet to approve, is the most comprehensive in decades, touching hedge funds, private equity firms, derivatives and credit cards. But is it the “strong Wall Street reform bill,” that Christopher Dodd, the Connecticut Democrat, said it is?

For this law to be the groundbreaking remedy its architects claimed, it needed to do three things very well: protect consumers from abusive financial products, curb dangerous risk taking by institutions and cut big and interconnected financial entities down to size. So far, the report card is mixed.

On the final item, the bill fails completely. After President Obama signs it into law, the nation’s financial industry will still be dominated by a handful of institutions that are too large, too interconnected and too politically powerful to be allowed to go bankrupt if they make unwise decisions or make huge wrong-way bets.

Speaking of large and politically connected entities, Dodd-Frank does nothing about Fannie Mae and Freddie Mac, the $6.5 trillion mortgage finance behemoths that have been wards of the state for almost two years. That was apparently a bridge too far — not surprising, given the support that Mr. Dodd and Mr. Frank lent to Fannie and Freddie back in the good old days when the companies were growing their balance sheets to the bursting point.

So what does the bill do about abusive financial products and curbing financial firms’ appetites for excessive risk?

For consumers and individual investors, Dodd-Frank promises greater scrutiny on financial “innovations,” the products that line bankers’ pockets but can harm users. The creation of a Consumer Financial Protection Bureau within the Federal Reserve Board is intended to bring a much-needed consumer focus to a regulatory regime that was nowhere to be seen during the last 20 years.

It is good that the bill grants this bureau autonomy by assigning it separate financing and an independent director. But the structure of the bureau could have been stronger.

For example, the bill still lets the Office of the Comptroller of the Currency bar state consumer protections where no federal safeguards exist. This is a problem that was well known during the mortgage mania when the comptroller’s office beat back efforts by state authorities to curtail predatory lending.

And Dodd-Frank inexplicably exempts loans provided by auto dealers from the bureau’s oversight. This is as benighted as exempting loans underwritten by mortgage brokers.

Finally, the Financial Stability Oversight Council, the überregulator to be led by the Treasury secretary and made up of top financial regulators, can override the consumer protection bureau’s rules. If the council says a rule threatens the soundness or stability of the financial system, it can be revoked.

Given that financial regulators — and the comptroller’s office is not alone in this — often seem to think that threats to bank profitability can destabilize the financial system, the consumer protection bureau may have a tougher time doing its job than many suppose.

ONE part of the bill that will help consumers and investors is the section exempting high-quality mortgage loans from so-called risk retention requirements. These rules, intended to make mortgage originators more prudent in lending, force them to hold on to 5 percent of a mortgage security that they intend to sell to investors.

But Dodd-Frank sensibly removes high-quality mortgages — those made to creditworthy borrowers with low loan-to-value ratios — from the risk retention rule. Requiring that lenders keep a portion of these loans on their books would make loans more expensive for prudent borrowers; it would likely drive smaller lenders out of the business as well, causing further consolidation in an industry that is already dominated by a few powerful players.

“This goes a long way toward realigning incentives for good underwriting and risk retention where it needs to be retained,” said Jay Diamond, managing director at Annaly Capital Management. “With qualified mortgages, the risk retention is with the borrower who has skin in the game. It’s in the riskier mortgages, where the borrower doesn’t have as much at stake, that the originator should be keeping the risk.”

In the interests of curbing institutional risk-taking, Dodd-Frank rightly takes aim at derivatives and proprietary trading, in which banks make bets using their own money. On derivatives, the bill lets banks conduct trades for customers in interest rate swaps, foreign currency swaps, derivatives referencing gold and silver, and high-grade credit-default swaps. Banks will also be allowed to trade derivatives for themselves if hedging existing positions.

But trading in credit-default swaps referencing lower-grade securities, like subprime mortgages, will have to be run out of bank subsidiaries that are separately capitalized. These subsidiaries may have to raise capital from the parent company, diluting the bank’s existing shareholders.

Banks did win on the section of the bill restricting their investments in private equity firms and hedge funds to 3 percent of bank capital. That number is large enough so as not to be restrictive, and the bill lets banks continue to sponsor and organize such funds.

On proprietary trading, however, the bill gets tough on banks, said Ernest T. Patrikis, a partner at White & Case, by limiting their bets to United States Treasuries, government agency obligations and municipal issues. “Foreign exchange and gold and silver are out,” he said. “This is good for foreign banks if it applies to U.S. banks globally.”

That’s a big if. Even the Glass-Steagall legislation applied only domestically, he noted. Nevertheless, Mr. Patrikis concluded: “The bill is a win for consumers and bad for banks.”

Even so, last Friday, investors seemed to view the bill as positive for banks; an index of their stocks rose 2.7 percent on the day. That reaction is a bit of a mystery, given that higher costs, lower returns and capital raises lie ahead for financial institutions under Dodd-Frank.

Then again, maybe investors are already counting on the banks doing what they do best: figuring out ways around the new rules and restrictions.

A version of this article appeared in print on June 27, 2010, on page BU1 of the New York edition.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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Derivatives Warning – Michael Greenberger interview

Derivatives Warning – Michael Greenberger interview


Pay close attention…We know who should be held accountable for this mess we are in today! How convenient for Greenspan to get out when he did…CRIMINAL!

This is a collection of soundbites from Prof. Michael Greenberger from the University of Maryland School of Law who was interviewed for a PBS FRONTLINE program concerning Brooksley Born, former chairman of the Commodity Futures Trading Commission, who attempted to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the 2008 financial collapse.

[youtube=http://www.youtube.com/watch?v=yLzuTxhhklY]

[youtube=http://www.youtube.com/watch?v=f-kExdTgNZA]

THE WARNING: Long before the meltdown, one woman tried to warn about a threat to the financial system.

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Wall Street cabal seen derailing serious swap reform: REUTERS

Wall Street cabal seen derailing serious swap reform: REUTERS


NEW YORK
Tue Mar 30, 2010 9:05pm EDT

(Reuters) – A major crisis is building in the derivatives market yet a cabal on Wall Street is blocking the formation of a clearing house that could stop the next financial meltdown, a senior official with the Kauffman Foundation said on Tuesday.

The need for disclosure in the swap markets is enormous, yet the will to act is missing because of a small cadre of special interests, said Harold Bradley, who oversees almost $2 billion in assets as chief investment officer at Kauffman.

“There is no incentive from the moneyed interests in either Washington or New York to change it,” Bradley told the Reuters Global Exchanges and Trading Summit in New York.

“I believe we are in a cabal. There are five or six players only who are engaged and dominant in this marketplace and apparently they own the regulatory apparatus,” he said. “Everybody is afraid to regulate them.”

U.S. and European officials are trying to craft new rules to regulate the $450 trillion private derivatives market in broad efforts to avoid another financial crisis.

Policy-makers generally agree that most standardized derivatives should be traded on exchanges or cleared through a clearinghouse, which would assume the risk of a default.

Bradley said those efforts fall short. There needs to be a national market system for fixed income and credit with displayed prices and the posting of open interest and market positions, he said.

Instead, he said regulators have found a boogeyman in high-frequency trading, which has taken the focus off the highly levered derivatives market. After falling in 2008, the nominal value of derivatives is now greater than ever at about $204.3 trillion, according to Ned Davis Research Inc.

The U.S. Securities and Exchange Commission is conducting a broad review of equity market structure, centered on high-frequency trading, often referred to by the initials HFT.

High-frequency traders, who account for an estimated 60 percent of trading on U.S. equity markets, use rapid-fire trading software to buy and sell stocks.

Fears that high-frequency trading could spark the next market meltdown are unfounded, Bradley and other speakers at the summit said.

“We’re going to talk about high-frequency trading instead of the flash points that set off nuclear bombs around our financial markets,” Bradley said, referring to the ever-expanding and loosely regulated market for derivatives.

Complaints about electronic trade are coming from the largest U.S. asset management firms and the investment banks that have lost business to these new operations, Bradley said.

“This is a classic Wall Street land grab. You create an acronym, you basically castigate somebody as villainous and then you regulate them because they’re taking somebody’s profits away,” he said.

Scrutiny of high frequency trading is unwarranted because the U.S. stock market functioned “unbelievably well” during the height of investor panic in late 2008 and early 2009, he said.

“I’d like anyone to show me what didn’t work. (The market) never seized, costs stayed really low,” Bradley said.

“The money that the high frequency traders are taking is coming right out of the old investment banks’ dealing desks’ pockets,” he said.

(Reporting by Herbert Lash; Editing by Richard Chang)

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