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Archive for October 25th, 2010

Foreclosure Fraud: 6 Things you need to know about the crisis that could potentially rip the U.S. economy to shreds

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from Economic Collapse
Posted originally October 2010


THE FORECLOSURE FRAUD CRISIS  SEEMS TO ESCALATE WITH EACH PASSING MOMENT NOW. It is being reported that all 50 U.S. states have launched a joint investigation into alleged fraud in the mortgage industry. This is a huge story that is not going to go away any time soon. The truth is that it would be hard to understate the amount of fraud that has gone on in the U.S. mortgage industry, and we are watching events unfold that could potentially rip the U.S. economy to shreds. Many are now referring to this crisis as “Foreclosure-Gate”, and already it is shaping up to be the worst thing that has ever happened to the U.S. mortgage industry.

At this point, it seems inevitable that some financial institutions will go under as a result of this mess. In fact, by the end of this thing we might see a whole bunch of lending institutions crash and burn. This crisis is very hard to describe because it is just so darn complicated, but it is worth it to try to dig into this thing and understand what is going on because it has the potential to absolutely decimate the entire U.S. mortgage industry.

The truth is that there was fraud going on in every segment of the mortgage industry over the past decade. Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay. Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages. These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments. Those who certified that these junk securities were “AAA rated” also committed fraud. Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became “lost” or “missing”.

Then, when it came time to foreclose on these bad mortgages, a whole bunch more fraud started being committed. The reality is that the “robo-signing” scandal is just the tip of the iceberg. The following are six things that you should know about how deep this foreclosure fraud crisis really goes….

#1 According to the Associated Press, financial institutions were hiring just about whoever they could find, including hair stylists and Wal-Mart employees, as “foreclosure experts” to help them rush through the massive backlog of foreclosures that were rapidly piling up.
Apparently many of these “foreclosure experts” barely even knew what a “mortgage” was according to the AP….
In depositions released Tuesday, many of those workers testified that they barely knew what a mortgage was. Some couldn’t define the word “affidavit.” Others didn’t know what a complaint was, or even what was meant by personal property. Most troubling, several said they knew they were lying when they signed the foreclosure affidavits and that they agreed with the defense lawyers’ accusations about document fraud.

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Why Keynesian policies are dooming the world economy to round after round of asset bubbles

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by Tyler Durden
Posted originally October 24, 2010

IF THERE IS ONE THING THAT EVERYONE SHOULD WATCH TO UNDERSTAND JUST WHY every policy attempt to fix the ongoing depression is doomed, it is the following short clip from Niall Ferguson in which he deconstructs the primary fatal flaw of Keynesianism. Ferguson explains why those who push for Keynesian policies in a globalized world are doing nothing to stimulate the economy, but merely inflate ever more bubbles. Quote Ferguson: “I wonder if it’s worth revisiting the now familiar debate about whether or not Keynes can save us. Because I have some doubts about this. Deep doubts.

Zero Hedge has no doubts about this – we are confident that the confines of a theoretical Keynesian system have been the recipe for the disaster unfolding now before our eyes (which is not to say that Austrian economics is necessarily better, although intuitively they certainly make a far more compelling case, and would certainly not have led to the current pre-apocalyptic economic situation, which only the most addicted to Kool Aid pig lipstickers refuse to acknowledge).

However, that is not news – we have always made our position on the false voodoo religion of economics well known. We are, however, happy that more and more of the “mainstream fold” are finally starting to question the key flawed premise of this fundamentalist doctrine.

Ferguson continues “Remember what Keynes wrote in the 1930s about stimulus and the way in which government could get an economic going again really applied to a post-globalization world in which trade and capital flows had largely broken down, and most economies were quite isolated units. That’s something that Keynes made clear in the German edition of the General Theory when he said the theory applies better in a closed totalitarian economy.” The conclusion – in a globalized world, such as that preached by the BRIC pundits whereby developing nations will bail everyone else out, or so the legend goes, additional stimulus will always and inevitably merely lead to bubbles – either commodity or emerging markets. And all we have is a bunch of idiot Ivy League Ph.D.s’ wrong interpretation of Keynesianism to thank for destroying the economic system as we know it.

Niall on the direct effect of existing failed Keynsian policies in a globalized world:

Globalization has not broken down. In fact the US economy is more open than it has ever been. That means that stimulus, both monetary and fiscal if very prone to what is called leakage. We’ve had an enormous of stimulus in the US, it’s the biggest fiscal stimulus in the world, and huge unprecedented monetary stimulus. What’s been stimulated? Not jobs in Michigan. What’s been stimulated has been commodity markets and emerging markets. Because the liquidity just leaks out, and that’s why another round of stimulus would not stimulate in the promised way. It would stimulate the wrong things. And those things, commodity markets and emerging markets, are already overstimulated to the point of being nearly bubbles.

So simple, yet so incomprehensible by the cadre of false Keynesian prophets who will never admit to this most elegant of realizations. It also means that America can expect more such farces as double stimulus roadsigns, and oil back at $140 (or much higher) before even another job is created out of all the excess money sloshing around.

Must watch clip:

And for those who would rather work in the confines of these two mutually exclusive worlds (Keynesianism and Globalization), there is one thing we would like to share with you, and that is the following extract from an interview by Peter Cook of the last person standing in Obama’s economic team Tim Geithner:

“They’re also letting their exchange rate move up.  And they’re doing that because it’s in their interest.  Makes no sense for China to have monetary policies set by the Federal Reserve. They’re an independent country, large economy.  They need the flexibility to run their policies in a way that makes sense for China.  And that requires that their exchange rate move up over time, as they’re now doing.”

That our economic leaders are stupid enough to utter the bolded [Makes no sense…]  is sufficient validation that we are all doomed: not only is the world being guided by a flawed economic religion, but its priests are the most intellectually challenged individuals ever to enter “public” service.


Market Price is an Illusion

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by Bo Peng
Seeking Alpha
Originally posted Oct 24, 2010

YOU NEED TO CARRY SOME ROCKS AND THE ONLY THING YOU HAVE IS A SCREEN SIEVE. But it’s a fine screen. So as long as it’s strong enough, the bottom is as good as a solid one. Millions of years pass, the screen sieve has always worked and gradually people forget about the holes on the bottom. But as the rocks get weathered over time, they become smaller and smaller, eventually smaller than the screen holes. Now, all of a sudden, “It’s broken!” people gasp.

It’s always broken. It’s just that how it’s broken hasn’t been a problem before.

This is, in short, the origin of recent flash crashes with alarming frequencies and reach. The screen holes are the time interval between quotes. The size of rocks is the reaction time of market participants (traders) executing trades.

During the vacuum between two consecutive quotes, the notion of “market price” is undefined. It could be anything from 0 to infinity. But this is quite ugly and inconvenient. So we assume, driven by our evolutionarily honed instinct of linear interpolation, there still MUST be a market price during the vacuum and it SHOULD be somewhere close to the last quote. I call this the “Continuous Price Assumption”

This seems quite logical, and has always worked ok during the days of human traders. Human traders, or particularly human market makers, have limited reaction speed, say in the 10’s of milliseconds range. Quotes pour in from all sources, faster than human traders can keep up, leaving them no time to see the vacuum. Even if conceptually they are aware of the discontinuous nature, they have little facility to exploit it. Rocks are big. Screen sieve has a rock solid bottom.

Enter GHz computers. The time between two quotes 1 millisecond apart is eternity. During this time the CPUs can scan all internet connections, check for content updates, display a few frames in three video windows, overlay their audio, refresh all the window frames with updated smeared version of the wallpaper for no logical reason, handle 271 senseless events, and then take a good nap, but not forgetting to update the “System Idle Process” CPU utilization percentage during the nap, which should be logically forbidden. It can scan all the ECNs and put out quotes, even execute trades, multiple times during the void. The rocks have become sand. The fundamental flaw in Continuous Price Assumption is no longer just theoretical, it has resulted in the invalidation of the very notion of market price.

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Written by aurick

25/10/2010 at 10:55 am

Posted in Financial

Tagged with , ,