Wall Street Sell-Off; Foreclosure Fraud Issue Grows

Investors weren't interested in buying much of anything on Monday. In fact, the selling pressure persisted from the opening bell to the close as the major indices took a turn lower.

Selling was broad-based with most of the blame placed upon the rising US dollar, as inside players unloaded some of their more profitable trades built up over the past month. With stocks up roughly 9% in September, October should, by shear market dynamics - or, what's left of them in this low-volume regime - revert to the mean, suggesting a 5-7% decline in stocks overall, though a complete reversal cannot be ruled out.

Dow 10,751.27, -78.41 (0.72%)
NASDAQ 2,344.52, -26.23 (1.11%)
S&P 500 1,137.03, -9.21 (0.80%)
NYSE Composite 7,272.53, -63.38(0.86%)

Decliners finished well ahead of advancing issues, 4312-1529. New highs maintained their large edge over new lows, 304-41. Volume was dull, at best.

NASDAQ Volume 1,922,075,250
NYSE Volume 3,770,310,500

Oil, which had traded higher through most of the session, fell victim to heavy selling pressure, losing 11 cents, to $81.47. Precious metals took a bit of a breather, with gold off $1.00, to $1,316.80, and silver losing 2 cents, to $22.04.

Gaining momentum was the ongoing foreclosure fraud story, which is larger than the mainstream media wishes to believe. Late Friday, the nation's largest mortgage servicer, Bank of America, announced that they were halting foreclosures in the 23 states which have judicial foreclosure processes. This news came late in the day, on a report that one of their employees admitted to signing as many as 8000 affadavits in a month without reading their contents.

This was the same kind of issue which caused Ally Bank - formerly GMAC - and JP Morgan Chase to halt foreclosure proceedings in the same states earlier last week.

Over the weekend it was learned that title insurers were in communication with officials from Fannie Mae and Freddie Mac, over the issue of clouded titles on homes sold post-foreclosure, some even going so far as to deny writing title insurance on some properties.

The issue enlarges when one considers the overall ramifications of falsifying documents. The very banks which began the mess by issuing bad mortgage products to unqualified buyers - knowing they had a high risk of default - and then packaging the mortgages into security instruments sold to equally in-the-dark investors, are now attempting to rush through the foreclosure process with another round of fraud, in the form of faulty paperwork submitted to courts across the country.

At the very heart of the issue is ownership, or title, to the properties. When the banks securitized these mortgages, they separated the mortgage from the note, a practice long held to cause title issues, and never before attempted.

Allegations that the banks had this purpose in mind all along, defrauding the note-holders as well as the home-buyers, are gaining traction in legal circles. Some states are calling for complete moratorium on foreclosures until the depth of the fraud is revealed.

What is not occurring are calls for criminal prosecution of the banks which engaged in the practice of defrauding courts, though it appears clear that the practice of rushing paperwork without due diligence - thus denying due process - was as widespread as the subprime and 80/20 loans the banks were pushing and securitizing years earlier.

There should be no downplaying of the seriousness of the issue, though there was no mention of the scandal - and a scandal it indeed is - on any of the Sunday talk shows, weekend nightly news shows nor Monday morning talk programs from the major networks.

If titles to homes are in such a state of confusion that the chain of ownership cannot be maintained, identified and indemnified, the variety and scope of claims and counter-claims threatens to clog the court system for years, which, in a cynical way, might be what the unscrupulous banking interests wanted from the very start.

Without oversight and regulation, this is what happens to money and markets. Insidious operators will take advantage of loose regulations and loopholes and drive billions through them in dirty transactions, which is what appears to have happened on Wall Street, in county clerk offices and courtrooms across the country.

In a perverse kind of way, this overhanging, unresolved issue, one which threatens the entire banking and credit system again, may have been the hidden catalyst behind plenty of today's equity sales.

This scandal is only beginning, with much more to be revealed in coming weeks and months. with elections front and center, and a questionable terror alert being issued by the US, conspriacy theorists are having a field day trying to tie all of this together. It does make perfect sense that politicians and banksters, working in cohort behind the scenes, would attempt to either delay more allegations of fraud or blow them up prior to the elections, depending on the style of tin-foil of your particular hat.

Fraud should be taken seriously, however, though when it comes to banks, they apparently can get away with just about anything, calling it "procedural errors" or "paperwork issues." In the end, the truth will come out, and the US economy will be the worse for it.

Mortgage, Foreclosure Mess Broadens, Deepens

Following up on yesterday's post, "Should American Homeowners Stop Paying Mortgages?", despite the issues involving apparent widespread fraud by banks originating, servicing and now foreclosing on mortgages being hushed up and brushed aside by the mainstream media, others have taken notice, specifically the Office of the Comptroller of the Currency (OCC), which issued a directive on Thursday ordering seven major banks to review their foreclosure procedures..

The banks include the largest originators and servicers in the industry, including JP Morgan Chase, Bank of America, Wells Fargo, HSBC, PNC Bank, US Bank and Citibank.

That list should be familiar to most Americans, as they are some of the same entities who shared in taxpayer largesse via the $700 billion TARP program and are known collectively as "too big to fail" (TBTF).

Now under closer scrutiny in the aftermath of the most enormous and hastily-prepared bailout in our nation's history due to passage of new financial regulatory legislation, the banks are apparently not yet well enough feted on taxpayer money and have resorted to outright fraud against homeowners in an effort to enlarge their racketeering activities.

The one question that should be asked, but isn't, is "where is Eric Holder and the Department of Justice?" noticeably absent from even the hint of a comment, inquiry or investigation. The DOJ should have been on the banks like lightning, but instead have turned a blind eye to obvious criminal wrongdoing at some of the nation's most "trusted" companies.

Americans are becoming wise to the idea that these major banking institutions should be trusted with nothing, much less anyone's hard earned dollars being deposited in their vaults. Meanwhile, with elections looming, Attorneys General in a handful of states - like New York, where this post is being written - are too busy running for office to be bothered with mundane details such as protecting the rights of citizen homeowners. Specifically, Andrew Cuomo, the NY AG, is busily running for governor when his office should be calling for a complete and total stoppage to all foreclosure proceedings.

It's not like there haven't been enough flags raised in the state. In Brooklyn, State Supreme Court Justice Arthur Schack has earned a national reputation as a friend of homeowners and adversary of foreclosure mill attorneys, routinely tossing out cases wherein the plaintiffs have skirted or short-cut legal requirements in foreclosure actions.

Also weighing in on the mortgage mess is Florida Senator Alan Grayson, who released a video outlining the roots of the national catastrophe. Readers can follow the link above or view the embedded clip at the end of this post.

Minnesota senator Al Franken has chimed in with a letter to Fed Chairman Ben Bernanke, FDIC Chief Sheila Bair and Attorney General Eric Holder, seeking criminal prosecution in the Ally Bank matter.

If it weren't the height of election season, there might be within a few days of a nationwide moratorium on foreclosures, but, with the rhetoric already reaching super-nova status in a number of races, the Obama administration is keeping its distance from this issue, for now.

Once the election is over, expect a flood of moratoria from state leaders and AGs, and a more serious posture from the administration, depending upon the outcome, of course. Our elected leaders don't do anything unless they see a political benefit, so that does not preclude some sort of action by President Obama or the congress in the form of an "October Surprise."

It's a political hot-button issue that has more than its share of adherents and opponents. While the millions facing foreclosure or already having been through that mess, would cheer any kind of action by the federal government, the conservative tea partiers would surely spin it as another bailout or handout and a display of more fiscal irresponsibility.

The upshot is that whatever occurs, expect this issue to continue to explode. Class action lawyers are certain to sniff out the potential for enormous profits in overturning the hundreds of thousands - if not millions - of foreclosure sales made over the past two years, creating a further backlog for already over-stretched courts in the most affected states.

As for the play on the markets this Friday, stocks were buoyed by a number releases off the economic calendar, including the University of Michigan Consumer Sentiment Index, which checked in at 68.2, above consensus, and the ISM Index, below estimates at 54.4.

Pushing stocks more than anything else, however, is the continued promise of cheap money supplied by the Fed, sacrificing the value of the dollar with their inflationary death-wish.

Dow 10,829.68, +41.63 (0.39%)
NASDAQ 2,370.75, +2.13 (0.09%)
S&P 500 1,146.24, +5.04 (0.44%)
NYSE Composite 7,335.91, +54.84 (0.75%)
NASDAQ Volume 1,937,217,000.00
NYSE Volume 4,457,833,500

Advancing issues clobbered decliners, 3627-2069. There were 410 new highs to a paltry 27 new lows. Volume remained depressed as the trade is being led almost entirely by Hedge Funds, Primary Dealers and High Frequency Traders. Individual investors are nowhere to be found, having been scared off by the 2008 meltdown and the May 6 flash crash.

Speaking of which, the SEC released their preliminary findings into the cause of the flash crash, pinning the blame on an unnamed midwest broker-dealer (Waddell and Reed) in a 151-page report, full of charts and data, though devoid of conclusion or recommendations on how to fix the maze of electronic trading at the heart of the issue.

Commodities went completely bonkers, with oil flying another $1.61, to $81.58; gold setting another record at $1,317.80, up $8.20; and, silver up 24 cents, to $22.06, making another 30-year high.

Savvy investors would be therefore holding gold and silver, plus a raft of foreclosed properties on which they would be paying no mortgage, rent or taxes and use to store oil by the barrel indefinitely, or at least until somebody offers them cash for keys or starts foreclosure proceedings.

We certainly do live in interesting times.

Should American Homeowners Stop Paying Mortgages?

Since Wall Street is essentially lined with Zombie traders trading Zombie stocks, there are more interesting developments on the financial landscape that deserve attention.

We'll get to the title of this post in a moment, but first, here's how the day went for those six or seven individual investors still trading stocks.

Initial claims came in better than expected, at 453,000, after last week's upwardly-revised 467,000. Everyone cheered. Stocks started the day on a positive note. At 9:45, the Chicago PMI came out, showing a dramatic ramp-up, to 60.4, after an August reading of 56.7, and far better than the expectation of 55.0. More cheering. CNBC's Mark Haines nearly wet himself, giddy that the Dow was closing in on 11,000, though that's expected from such an utter moron cheerleader.

The Fed executed another POMO, which was not accompanied by cheers, but rather jeers, worth only $2.2 billion. Stocks soured on the news. The Dow, which had been up more than 110 points, dropped to a 90-point loss shortly after noon, with the other indices registering similar declines.

The rest of the day was spent trying to ignore bad news and prop up stocks. The insiders did a fair job, bringing the indices back to show only marginal declines.

Dow 10,788.05, -47.23 (0.44%)
NASDAQ 2,368.62, -7.94 (0.33%)
S&P 500 1,141.20, -3.53 (0.31%)
NYSE Composite 7,281.07, -18.24 (0.25%)
NASDAQ Volume 2,198,369,250
NYSE Volume 4,673,228,500

Declining issues nosed out advancers, 2878-2812. New Highs beat New Lows, 478-36. Volume was at its normal, reduced pace.

Crude oil gained $2.11, to $79.97. Gold fell $1.20, to $1308.70. Silver also lost ground, down 15 cents, to $21.75.

Now, on to the question of whether or not American homeowners should stop paying their mortgages. This question became relevant a few years ago, when many subprime lenders defaulted on what have come to be known as liar loans, no doc loans and NINJA (No Income, No Job and no Assets) loans. The subprime catastrophe began in 2007, and some of the borrowers are probably still living in their homes without making either mortgage or tax payments.

Even more homeowners defaulted during the recession of 2008-2009, cratering the housing markets in Nevada, California, Florida and Michigan primarily, but spreading nationwide as foreclosures soared and millions were kicked out of their homes and onto the street.

Recently, however, the sad saga of the residential housing collapse took an even more severe turn, when it was discovered that thousands of affidavits used by banks in foreclosures were invalid. The signers of the affidavits were employees of Ally Bank, formerly GMAC, whohad neither read the contents of the affidavits nor had any knowledge of the events described therein.

Ally Bank responded by halting all foreclosures, evictions and repossessions in 23 states.

Also, implicated was JP Morgan Chase, one of the largest holders of mortgage paper. The bank responded by halting 56,000 foreclosures in their respective tracks. With an average value of $200,000 (probably worth something closer to $125,000 today), that's more than $11 billion in mortgage loans facing foreclosure that are just going to have to sit and wait while the bank and the courts sort all of this out.

In response, today, the Attorney General of Ohio, Richard Cordray, has referred the GMAC foreclosure fiasco to the Justice Department as a possible criminal matter.

And, not to be left out, late Wednesday, Ambac Assurance sued Bank of America for $16.7 billion, saying the bank's Countrywide unit fraudulently induced Ambac to insure bonds backed by improperly made loans.

On top of all of that, savvy homeowners with underwater loans have been strategically defaulting in droves, choosing to fight the banks rather than spend hard-earned money on a home which may never be worth what they paid for it. That only adds to the hundreds of thousands of strapped homeowners who defaulted due to job loss or other personal calamity.

With word out now that the bank paperwork may be in tatters, with titles clouded on homes across America, the banks - who started the whole mess by making mortgage loans to anybody with a pulse during the mid-2000s - are looking more and more like the eventual fall guys in all of this.

For background, this interview on King World with Institutional Risk Analytics Co-Founder Chris Whalen gives a very concise and scary view of where the banks stand and what may come next.

In essence, the banks have reams of paperwork on mortgages all over the country, though nobody is really certain which parts are real, which are forgeries and how this is all going to play out in the courts. What is known is that the banks face extremely expensive litigation for years to come, courts are overwhelmed with foreclosure cases and meanwhile, many non-paying homeowners are living in the houses rent-and-mortgage-free, most not paying property taxes either.

Banks may choose to "walk away" rather than litigate on many mortgage loans, especially those with known defects (so-called "putbacks") that have been returned by the GSEs (Fannie and Freddie) or the trusts of MBS.

With scads of homeowners living the good life, those stuck with mortgage payments may get the idea that they too might like to take their mortgage payment and sock it away or spend it rather than give it to the bank, who may or may not have legal title and thus the right to foreclose in the first place.

It's a calculated risk, depending upon the state in which you live and the pertinent laws. Most states are judicial foreclosure states, in which the only way for the bank to repossess is through the courts, while others are non-judicial. Even in those states, faulty paperwork would prevent foreclosure, should the homeowner hire a capable attorney or handle the proceedings on one's own.

With the outlook for the economy generally glum over the coming five to ten years, there are for certain more than a few people considering the strategic default route, foregoing the mortgage payment, and thus risking being kicked out of your home, and weighing the risk with the distinct possibility that the litigation could take anywhere from nine months to three years and that the bank may not have the proper paperwork, anyway.

In such a case, the homeowner may receive a windfall in the form of a free house, though he or she may not be able to ever sell it, due to defects in the title. The scenario is cloudy for most people, but still worth consideration.

One thing is for sure. The more people who openly default, the more the idea gains traction and at some point the flood of defaults could reach critical mass, wherein the banks and the courts are so completely overwhelmed - and the economy suffers severely as a result - that it makes complete sense NOT to pay.

That condition almost certainly already exists in Detroit, Las Vegas, Miami and parts of California and Arizona, the epicenters of mortgage default. The municipal authorities have to be under severe pressure in these cities, as property tax revenues have likely fallen to depression levels. When the government begins to take significant hits because of the calamity in home-ownership, squatting and vandalism become rampant. This is already the case in the aforementioned areas. The question is whether or not it is coming to your town or city and whether or not your local mayor or supervisor has enough vision - and money - to keep the municipality operational.

And that's the ultimate fear: anarchy, as debt becomes the brunt of jokes, homes are lived in without regard to legal ownership and the government cracks under fiscal pressure. If the onslaught of defaults isn't handled properly and quickly enough, America's cities could turn into seething, decaying cesspools of debt, default and doubt, with the suburbs soon to follow suit.

In such a scenario, guns and metal doors may serve occupants better than clear title and paying off a mortgage would move to the bottom of the list after safety, security, food, water and utilities.

So, the next time you're about to write that check for the monthly mortgage payment, consider that moral hazard has already been slain by the actions of the banks and the government and your next move could be the most critical, life-changing action you'll ever undertake.

Borrowing a line from Clint Eastwood's "Dirty Harry", you have to ask yourself, "do you feel lucky?"

No POMO Today; Stocks Down

The Fed didn't pass along any free money to the primary dealers, so trading was slow, nobody buying much of anything, stocks fell.

I told you my ob was going to get easier thanks to POMO and the Fed, didn't I?

There's a POMO scheduled for Thursday, so stocks will be up.

Here's today's scoreboard, as if anyone actually cares:

Dow 10,835.28, -22.86 (0.21%)
NASDAQ 2,376.56, -3.03 (0.13%)
S&P 500 1,144.73, -2.97 (0.26%)
NYSE Composite 7,299.31, -11.01 (0.15%)
NASDAQ Volume 2,116,638,250
NYSE Volume 4,256,400,000

Yes, that's the gist of it. Advancing issued did outnumber decliners, 3076-2607. There were 421 new highs and just 27 new lows. The economy must be absolutely booming! Volume? Don't ask.

Oil gained $1.68, to $77.86, but it probably can't go much higher as $80 has been upside resistance for the last year and a half.

Gold, last bid was $1309.90. Silver was up another 16 cents, to $21.90.

Jobless claims tomorrow at 8:30 am. Place your bets!

POMO Commences; Currency Wars Underway

Get used to hearing and seeing the acronym "POMO" because it will become a substantial part of the financial lexicon over the coming years. In some circles it is already standard parlance.

POMO stands for Permanent Open Market Operations and is a tool used by the Federal Reserve to supply liquidity (cash) to markets. The Fed announces these POMOs in advance, so nobody is surprised by them, though the general public has little to no idea of their existence. On Wall Street, however, they are greeted like manna from heaven, because, in a way, that's what they are.

Technically, the Fed sells Treasuries to Primary Dealers (PDs), such as Goldman Sachs, morgan Stanley and all the rest of the Too Big to Fail (TBTF) crowd, then buys them back via the POMOs to replenish the brokerages with fresh infusions of cash. These primary dealers then do what every red-blooded crooked bankster does with free money - they invest it in stocks. It's all very tidy and well-organized and though there's no explicit instruction from the Fed that the PDs should or must buy stocks, it's pretty much an implied contract.

So, just in case you're wondering why stocks begin to nose-dive - like today, down more than 80 points on the Dow at 10:00 am - and then suddenly recover and turn positive, it's thanks to the Fed and the Primary Dealers and the POMO. It's all one big happy family down there in lower Manhattan, keeping the indices moving ever higher, no matter the real conditions in the economy.

On top of the Fed and the banksters keeping the world safe from true price discovery (rigging the markets), there's more going on out there in the wild world of high finance that most people don't know about nor understand at all, especially in the FOREX markets where dollars are exchanged for Yen, Euros for Francs and all manner of currency changes hands constantly.

The latest craze among Central Bankers - those devious minions of high muckety-mucks, like our own dear Federal Reserve - is called "race to the bottom," in which each nation tries to see who can devalue its own currency faster than the other guys. The reasoning is that a cheap currency will cause exports from that country to sell more quickly, thus boosting profits for the most-favored corporations.

If it all sounds very socialistic, maybe even fascist and totalitarian, that's because, as a policy, it is. Nothing causes countries to become extinct better than debasement of the currency, but, since the central bankers don't want to disturb the TBTF private banks with real accounting standards and true remedies to bad loans, bad trades, bad debts (the reason the global financial system nearly fell apart in 2008 and also why no banks went bankrupt), the race to the bottom strategy is most favored these days.

Over the past couple of weeks, the Japanese have tried their hand at it to little avail, but also Switzerland, South Korea, Brazil and even Peru have been out selling their own currencies and snatching up others in planned attempts to cheapen their own money. Strangely enough, this kind of monetary protectionism is the same kind of thing that exacerbated, broadened and lengthened the Great Depression, although back then it was mostly done by slapping tariffs on foreign goods. Today's method is so much cleaner, simpler and effective. At least that's what the brainiacs at the Fed and other central banks would like you to believe.

The problem with racing to the bottom is that when everybody does it, the net effect is bad for everyone, but mostly the working or middle class of the participating nations because the workers get paid in dollars or yen or yuan or euros that were worth more yesterday than today, and the process continues until somebody eventually defaults, bringing that nation to quicker ruin than the other players.

Rest assured, even though America likes to be first in everything, this is one game we're probably not going to win, though our Fed Chairman, Ben Bernanke, is trying as hard as he can, announcing that the Fed will just print up an additional $100 billion per month in order to assure that the US dollar will be wanted by nobody. So far, we're winning, but the Eurozone nations and the Japanese will probably beat us down the abyss of financial ruin and become the first to create some other exchange, like barter or shells or whatever they think people will readily use.

The entire concept of currency debasement is not new. It has been around for years. It's just that now, with economic stress manifold, it's become popular. These central bankers know that time is not on their side. They realize that the days of floating currencies are coming to an end and that eventually some kind of asset-backed currency will have to replace the fiat (paper) money, and that asset is likely to be gold, silver, oil or a combination of all of them.

In the meantime, stocks will be moving at the whims of the primary dealers and not along the lines of fundamental valuations. It's almost a certainty that stock markets will rally and crash, making boom and bust the normal cycle rather than something to be avoided. In fact, we're already there. The 2008-2009 crash was just the first taste. There are many more crashes and mini-rallies to come. That's how the PDs make their money after all, trading, and being on the right side of more trades than the other guy.

Because of all this manipulation, my job just got easier. Now, all I have to do is announce the size of the POMO, when it's going to be completed and report how high stocks rose. Simple, easy and clean. Unfortunately, not a real market and nowhere for individual investors to play. Here's a hint: buy gold and silver from a dealer and take physical delivery. It's just about the only way to protect yourself from the currency manipulators who would steal all your wealth.

Dow 10,858.14, +46.10 (0.43%)
NASDAQ 2,379.59, +9.82 (0.41%)
S&P 500 1,147.70, +5.54 (0.49%)
NYSE Composite 7,310.32, +46.95 (0.65%)
NASDAQ Volume 2,140,495,250
NYSE Volume 4,189,045,750

Advancing issues pounded decliners, 3956-1766. New highs: 397; new lows: 35. Volume was in the toilet. Apparently the computers didn't find the POMO all that interesting.

November crude fell 34 cents, to $76.18. Gold made another new high, up $9.90, to $1,306.60. Silver reached another 30-year high, gaining 23 cents, to $21.69. Don't think the precious metals traders are going to take a break here. As long as the developed nations of the world insist on devaluing their currencies, gold and silver will price higher. They are, after all, not only the most-trusted store of value, they're going to be used as money again, real soon.