Writing on a ruling in Michigan that came out this week (Hendricks v US Bank), Yves Smith gets to the bottom of where things are with judges throwing out foreclosure cases because mortgage originators failures to comply with the PSA when the created mortgage backed securities. The court ruled that New York trust law applied to the securitization of the trust. Basically if the rules creating a mortgage backed security are followed, the trust exists. But if they’re not, then it’s basically non-existent. In this case the note was not properly delivered to the trust. And since the entity trying to foreclose was the owner of the MBS, they actually are not able to do it. Smith writes:

Note that the judge rules that someone can foreclose, but it’s not the trust, it’s the original lender. But that is unacceptable to the mortgage industrial complex. They cannot afford to admit they defrauded investors, which is what a foreclosure in the name of the original lender amounts to.

So when people complain about borrowers getting free houses, they act as if it’s the borrower’s fault. That’s the wrong place to assign blame. No one is saying the borrower does not owe somebody money. And the borrowers aren’t seeking a free house; they usually came to this juncture because they thought their records had overcharges in them or they thought they were a good candidate for a mod but could not get the servicer to consider their case. It’s the originators and packagers who put themselves in the situation of not being able to enforce the debt, not the borrower.

The apparent widespread abandonment of the practice of crossing the ts and dotting the is potentially devastating. If the failure to convey notes properly is as widespread as we have been told by various observers (and Abigail Field’s sample confirms), the mortgage industry has a monstrous problem on its hands. As the Michigan ruling suggests, at a minimum, notes not transferred properly are actually owned by someone earlier in the securitization chain. But no one wants to admit that; it means the investors were lied to and hold paper that does not have clear legal rights to foreclose and that originators, servicers and trustees have committed massive securities fraud. And in a worse case scenario, if no notes were transferred to the trust by closing, there is a contract formation failure.

Effectively what judges are finding is that we have a lot of MBSs that are in fact non-mortgage backed securities. This is a huge problem and something that investors should be up in arms about. It also should mean that only people who actually own the note to a mortgage can foreclose. But since there’s no clarity about that, that means that there should effectively be no foreclosures until this gets sorted out. And anything that aims to sort this out without addressing these questions should be rejected on its face.

Matt Stoller had a piece in Politico yesterday, “Public pays price for privatization.” It’s a good read about how America has historically completed great national infrastructure projects like the Hoover Dam and interstate highway system though a combination of public and private resources. But at this point we are not only not building things, but privatizing the public infrastructure we have left. Stoller writes:

After all, building infrastructure implies the ability to build things here and being able to use the power of taxation to finance them. Privatizing infrastructure requires the ability to securitize revenue flows. Which one do you think modern America does better?

Privatization takes inherently governmental functions — everything from national defense to mass transit and roads — and turns them over to the control of private actors, whose goal is to extract maximum revenue while costing as little as possible.

Not shockingly, quality suffers when business risk is backstopped by public funds.

Stoller also makes an important point about the dangers of putting state powers in private hands:

Even more perniciously, selling infrastructure such as toll roads puts the coercive power of the state in the hands of private actors. We have great public assets built by prior generations. We should and could be building a better country for our children, rather than liquidating what we have.

The last great era of public works — the New Deal’s roads, bridges, arts programs and schools — did not come from great planning and bipartisan concern over U.S. infrastructure. It came from the desperation of then-new-economy industrialists, who sought an economic structure in which they could profit and a populace seeking to govern its own country.

It was initiated by an unemployed and hungry citizenry and supported by builders clamoring for a government-backed housing-finance system, auto companies demanding roads and airlines seeking airports. The scorching class conflict of the Great Depression led to a national consensus in favor of avoiding unemployment that lasted until the 1970s.

Naturally one wonders whether the continue refusal by DC elites to address unemployment will provoke the a Depression-era style backlash as more and more people lose their jobs, lose their homes and go hungry. Stoller concludes:

Ultimately, of course, we will have no choice but to rebuild our infrastructure or risk social collapse. It’s not just the disintegrating bridges and extreme weather. Recent global supply chain disruptions suggest that certain parts of corporate America may turn toward a pro-infrastructure posture out of self-interest.

But Matt notes that this isn’t where Congress and the White House and state governments are at. Instead the focus is on reducing spending and privatizing infrastructure. This is a dangerous disconnect and one that only makes the further sale of infrastructure more likely, while simultaneously collapses and we’re left with less quality power, fewer good roads, less drinkable water, and unsafe bridges.

We need job creation in America. One of the simplest ways to do it would be to build infrastructure – repair roads, build new sewer systems, rebuild the entire electric grid, build new bridges, and build clean energy facilities like wind farms, solar farms, geothermal and hydroelectric. We could put millions of people to work building big things and ensuring that we have the infrastructure our country needs to survive in the 21st century. Or we could just sell what we have and hope we’re not on a big bridge when it collapses.

Der Spiegel has a great piece on the movement of young people protesting against unemployment and policies that hurt the working class and the ability for young people to move up the economic ladder. As with Egypt, Tunisia and elsewhere, there is a surge happening as people who are unemployed for too long reach a breaking point and find political awareness. The Der Spiegel article looks at rising youth protests in Portugal, Spain and France. In each case, the size and growth of these protest movements is historic.

I hope these protests continue until young people in these countries are treated like a serious constituency whose demands are critical to the future strength of these European economies. I’ll be in Madrid in ten days and I want to see the protests in Puerta del Sol first hand. I hope these brave, passionate young people keep up their fight for jobs and job creation.

Ari Berman has a great piece in The Nation on the financial industry’s assault on the Consumer Financial Protection Bureau on whole and Elizabeth Warren in particular. Banks, mortgage lenders, credit card lenders, payday lenders, and the student loan industry all seem petrified of Warren and the CFPB and it’s showing. Of course, as Matt Taibbi pointed out a few days ago, the reality is that while the finance industry was able to stop a lot of good ideas from coming into play in Dodd-Frank, they are still trying to kill the few workable reforms that slipped through Congress. Every possible avenue is being pursued to ensure that the status quo is maintained. Taibbi makes the point in the context of poisonous interest rate swaps that are destroying communities like Jefferson County, Alabama. But he explains how the pushback against swaps regulations in Dodd-Frank is part of the larger effort to prevent any reform from taking hold:

The other angle here is how finance reform inevitably gets whittled down into nothing. Dodd-Frank to begin with was maybe a ten-percent reform effort; the finance lobby killed about 90 percent of the real stuff before it even got voted on. The ten percent that did make it into “law” was still in limbo, as it always is after such laws are passed, while regulators hammered out the actual procedures for implementing the new legislation. These rulemaking processes inevitably take place in conference sessions heavily attended by industry stooges and lobbyists, with reform advocates seldom having even one or two voices at the table. You can count on another five percent disappearing in that process, if not more.

And now here comes the way to deal with the last five percent: stall. When all else fails, go into the four-corner offense and wait out the public. They will eventually forget, or else the political winds will change. It’s really a beautiful demonstration of political organization and willpower – too bad it’s, you know, evil. All this for a new sewer!

We see a similar analysis from Berman on the CFPB:

Different sectors in the finance community feuded over Dodd-Frank, but now they’re united in efforts to weaken the bureau.

The Chamber has an entire division devoted to fighting Dodd-Frank, the Center for Capital Markets Competitiveness, and a huge budget. In the first quarter of this year, the Chamber spent $17 million on federal lobbying, far more than any other group, with a dozen lobbyists focused on the CFPB alone.

Berman has a lot more on the opposition to Berman and Warren, including how the banking industry is molding freshmen congressmen with no background at all in finance into hardened legislative warriors against CFPB. You can get anything for the right price, I suppose.

More than anything, this is an important lesson for how the forces opposed to reform work in Washington, DC. The fight is never over just because a law was passed. Regressive business lobbies will keep fighting to return to a late-1800s style economy free from any form of regulation or consumer protection. If they can’t get a law the dislike stopped, they’ll elected more pliable members of Congress and fight it from the inside in subsequent years. The climate for achieving real change is even more hostile when you add in the lack of willingness for Democrats to do things that piss off their donors in the financial industry.

I don’t know how this ends, but in the near term I can’t say I have high hopes for maintaining even the modest reforms of Dodd-Frank in the absence of a massive public outcry against the finance industry’s efforts to continue to deregulate after the financial collapse of 2008.

This is incredibly powerful stuff.

Via Yves Smith.

Louise Story and Gretchen Morgenson have a long piece in today’s New York Times about the lack of investigation into Goldman Sachs and other big banks fraudulent activities in mortgage security creation leading up to the financial collapse. They look at the SEC suit against Fabrice Tourre, a young, junior official at Goldman whose brash emails have become a signifier of the way that bank was fleecing clients and purchasers of their mortgage-backed securities.

Across the industry, “it’s impossible that only one person was involved with fraudulent activities in connection to the sales of these mortgage securities,” said G. Oliver Koppell, a New York attorney general in the 1990s and now a New York City councilman.

The Story-Morgenson piece goes on to look at how unlikely it is that Tourre is the sole individual responsible for fraudulent activity at Goldman, given that the Abacus deal that Tourre was sued over was one of many similar deals Goldman did in this period. Senator Carl Levin’s investigatory report, aimed primary at Goldman Sachs, provides ample evidence for their to be other investigations targeting high-level Goldman officials – investigations that should go beyond civil fraud and look at criminally fraudulent activities.

The best way to understand the alleged impossibility of one low-to-mid level official at Goldman Sachs being the sole target of SEC investigation into the firm is to recognize that punishing powerful people is not something the federal government is interested in. Even if the Department of Justice were to look only at perjurious statements made by Goldman officials to Congress, they would have ample grounds for prosecution from the Levin report. While the DoJ says they’re looking into the report, as of yet nothing has been forthcoming. And it’s not as if the Levin report was the first to discover fraudulent, criminal activity inside Goldman’s headquarters (or that of any other Wall Street bank). A two-tiered system of justice is in place and Fabrice Tourre is the perfect example of it. A young, arrogant, unlikable banker who wielded more power than any of the “widows and children” he proudly claimed to fleece, but who is so unimportant to Goldman that they’ve paid him for the last year not to work. While the federal government has proven unwilling to investigate, the work of state level attorneys general like Eric Schneiderman, George Jepson, Mark Shurtleff, Lisa Madigan and Kamela Harris is a much more promising path to accountability for fraudulent bankster behavior.