Le Show; 2012-02-12

From deep inside your radio, this is the show and it's time for what appears to be a semi-annual visit from Eve Smith, financial consultant and blogger. You heard her last on this program last fall talking about the European meltdown and she has been our go to person on the financial meaning of the foreclosure. As we call it here, the new F-bomb, the foreclosure crisis, and she is here to talk about her analysis of the much bragged about, at least in Washington, settlement with the banks led by the United States Justice Department and agreed to by 49 of the 50 state attorneys general. A long-winded way of saying, here once again, is Eve Smith. Eve, welcome to the show. Thanks so much, Harry. I gather you're not one of the cheerleaders for the settlement. No, I'm not.

I'll say, as you're drawing that breath, you have been basically on this story since the first news broke of Iowa's Attorney General Tom Miller heading up the state AG's delegation to discuss this with Warren. This has been in the gestation period for 16 months now, which means it's taken about as long to birth as certain kinds of shark. I'll have to remember that one. I looked up gestation period this morning. Well, that's very good. That's really very good. It's interesting that you go back to the beginning of this because of course in the beginning, like so many of the administration related initiatives, the grand things are promised and then walked or walked back. I mean, Tom Miller at the beginning promised criminal prosecutions. And within weeks, he was walking that back. So we've had these negotiations drag on for a year with the banks continuing to maintain that A, these were paperwork problems, and B, they had solved them when they've continued to file the same kind of problematic documents and courts. And the evidence of the banks unwillingness to either unwillingness or inability to fix this problem is partly evidenced by what's happened in New York.

New York implemented a fairly tough standard in its court system. Lawyers had to certify that they were submitting that they'd taken reasonable steps to verify the documents. Now that basically makes it easier for them to be disbarred or sanctioned if they don't do that. And they were legally required to submit documents that they could certify were true and accurate in court. Imagine that. Well, that's actually what a lawyer should do in here. You're correct. But this basically made it easier to, this procedure made it easier to sanction them if they didn't do that. And foreclosures have basically stopped in this state. I mean, they've gone from over a hundred and fifty an average of over a hundred and fifty day to an average of less than five. I mean, that's an admission and that's, I mean, that's continued now. I mean, that's an admission that they can't do this correctly. Here we had this great settlement, this settlement valleyhood where they're talking about depending on who's doing the messaging. They talk about either greater than twenty six billion or some of them try to make the credits sound more pressive. And I've seen it talked as nearly forty billion when it's, it's five billion in cash.

Across these banks, that's not even a meaningful number in a quarter. And the rest of the credits, the rest of the items are almost certainly going to come from investor pockets and or they're a bit phony baloney. I mean, for example, one of the things they're counting as a credit is three point five billion for writing off deficiency judgments. Now that to unpack that, if someone is foreclosed on and they sell the house and let's, you know, the proceeds from the sale of the house are less than the mortgage. There's a deficiency judgment and depending on the type of mortgage, they can in theory go after the bar or banks, even though banks may or I'm not making noise that they'll do that, they basically hardly ever do. So they're going to get to count for credit, writing off money, they probably weren't going to go after anyhow. I mean, that's the sort of thing that's in this deal, but the part that's really heinous is that of the number that's credits, a big chunk of that is principal right now. So you should say, gee principal, write downs are great. How can you object to principal write downs? Well, these banks have second leans that they have on their balance sheet.

Whereas many, most of the first leans, the first mortgages were securitized, which means they are owned by investors, not the banks, and they get credit for writing down those first mortgages. So here they did bad stuff, but they pay for it by getting to get investors third parties to take the hit. And in many cases, they have second leans on their own books. So if you write down the first mortgage, that makes the second lean better because the bar was got less debt and more ability to pay the second lean. Now, they will have to knock down the second lean a little bit, but basically the bulk of the dollar value is going to come from the first lean because the first leans are bigger numbers. So this is benefiting the banks, sort of in the end. You have been fairly consistent in pointing out the existence, the overhang of the second mortgages, the second leans, and asserting that as long as the banks aren't forced to write them down to the new lower market value that the housing market has reached, they are able to forced all admitting billions of dollars of losses, which in some cases, particularly Bank of America, might render the bank insolvent. That's correct. Bank of America from these second leans, they've got about $120 billion in second leans and their book value of their different measures of equity.

Their broader measure of equity is more like $230 billion. I've had investors tell me those second leans should be written down to $100 billion. In fact, the market already thinks they're worth less than that. The market capitalization is actually $75 billion. So if you were to take the full hit on the second leans, it's more than the stock is trading for in the market right now. Now, the banks argue they shouldn't have to take the hit on this because they claim that people are still paying. Well, guess what? Most of these are home equity lines of credit. They can play all sorts of games to make them look current like taking a very minimal payment right before the 90th day or simply increasing the home equity line so the person pays with it from more money they're borrowing from the bank. They're borrowing money from the bank to pay back the bank. That's right. A conservative critique of this settlement alleged that of that $5 billion in hard cash that you mentioned, that's basically money that the banks got from the government in the bailouts. That's another good way of looking at it, yes. But let's talk about enforcement because you're a critic of the enforcement mechanisms that they've brewed about this this settlement as well.

Well, they keep talking about how the states will have some enforcement power, but what it what counts here is first line of enforcement is the banks will make quarterly reports. You don't have independent parties going into the banks the way you do, for example, with regular bank regulatory views where you've got examiners come in and sort of kick the tires on a regular basis. Instead, you're going to have a process where the banks report on how they're doing. Do you think if somebody's doing their own grading, they're going to give themselves a bad grade. And similarly, it's modeled very much on the enforcement process, the office of the controller of the currency implemented in some consent decrees they had with these same banks over servicing in early 2011. And there, there's already been a news report where the OCC found close to $400 million of, you know, things that they thought the banks should be fine for. But they're not going to charge them the fines. They're just going to hold the fines in advance. And you know, wave their finger at the banks and tell them to do better. You had on your site, which I should mention, I didn't in the intro, you're the author of the book, Econ, and you're the ringmaster of the wonderful website, naked capitalism.

And you had on your site, which you had gotten from your sources, the template of the press releases, which the state attorneys general were to release simultaneously with the announcement of the settlement in Washington. And there was language in that template press release that described widespread fraud. Was there not? Yes, which was a rather surprising admission. I was sort of shocked that that wound up in there. So they've admitted that there's fraud. And yet they've said they've now determined that the price of committing widespread fraud is 2000 per borrower. That's that's what that's the restitution that's going to be paid for borrowers. They had their homes for closed on from late 2008 through end of 2011. You've also been fairly adamant about the deficiency of this or the advantage that was given to the banks and other financial organizations by the drawing out of this process of reaching the settlement that is to say they've passed the statute limitations.

Yeah, you know, and honestly, I don't know if this was in retrospect. It looks like it was by design. It may have just been dumb luck. But some of the best legal theories are securities law theories, because for a lot of other types of for most other types of fraud, you have to prove intent. And of course, these organizations, you know, they have all kinds of disputes responsibility. I mean, you see the way these CEOs regularly get up in congressional hearings and suddenly, you know, know nothing and have no memories. It's a real generation of hands-off management. Yes, it's really quite astonishing, isn't it? And but you also have in this way, the many of these many of the process related to securitization, you have multiple hands on these things. So for example, you know, servicers for clothes, but but they use a company called lender processing services as arms and legs and lender processing services was off was inserted itself as the interface with the foreclosure attorneys. So the servicers have, you know, if you were to try to pin a lot of stuff on them, I mean, you know, you probably could in the end, but it would take a lot of work because they've got all of this.

Well, it was really the foreclosure bills guys or lender processing services did it. I mean, you have to dig a bit to actually find the smoking gun and paint the picture of who, you know, how the servicers really must have known or did know what was going on. But in any event, whereas with securities laws, they've got to, they've got a very simple standard, which is that the disclosures have to be, they have more technical language, but it amounts to accurate and complete complete in all material respects. So that it's not just that what you say is true, it can't be like that sneaky true, where you, you know, don't omit to say certain things. It had the things you say have to be complete disclosures so that if it turns out something wasn't true and it was something you should have disclosed just the inaccuracy of what you said is securities fraud. Now, just on the issue of fraud for a moment, if I pass a check and I sign it as if I'm the authorize signatory on an account and I'm not. What might I be penalized with?

Yes, because yes, I would assume that as soon as they found out the FBI or somebody like that would be on your doorstep pretty fast. Yeah, and I might be even doing jail time. Is it not possible to interpret this entire affair as another example of we're looking forward? We're not looking back. We're not right. No, I think I think that I think that's right and it and and the the polling part about this is not only is this yet another example that. You know, what does the rule of law mean in this country? I mean, this is that this was just the most massive abuse of well established property law imaginable. I mean, the precedents are so well said here, you know, there's no pretending people didn't know what they were doing and these practices were institutionalized. I mean, it's been well publicized about how these robociners were producing documents on a mass basis. There's no question these organizations didn't know about it and that's only the tip of the iceberg.

You know, one of the parts that keeps getting obscured here is the reason a lot of these bad practices happen was because there were other practices that people are aware of them. But they hadn't, you know, we still don't really know the full extent of them because no one's wanted to go there. The fact that these securitizations originally appear to have been done in a deficient manner in that they established really specific ways that the document, the notes, which is the original when you when you sign on when you sign a mortgage, you actually sign a note. And which is a promise to pay and that had to be transferred in a very specific way to the to the trust, which is the basically the legal box that all the mortgage is sit in. And then the money goes into that and then it gets distributed to investors. But that there were very specific procedures and those were violated and it looks like on an endemic basis. And that's part of why we're having that we have the robust signing was to and the other dot abuses was to sort of fix the problems created by the fact they didn't observe their own procedures. So there's a whole other layers of this mess that that this talk about the robust signing and the settlement, you know, conveniently obscures.

Well, you in our first conversation and in your writings on your website more than 16 months ago, you were on this, you were on the deficiencies of MERS, the electronic registry, which now and much of what you've said has now been discovered and and vetted and vindicated by judges in many states and by several attorneys general filing suit, most notably Eric Schneiderman filing suit against MERS. You have said in your criticism of this settlement as it's been a warning during its gestation, shark-like gestation period. How can you settle claims when you have never done an investigation of how widespread the wrongdoing was? I'm going to quote you from the Justice Department's own press release about this settlement and it lists a series of investigating agencies that this settlement resolves their investigations. And it's the Justice HUD FHA State Attorney General's Office State Banking Regulators, U.S. Attorney's Office for the Eastern District of New York, U.S. Attorney's Office for District of Colorado, Justice Department Civil Division, many U.S. Attorney's Office Federal Trade Commission, Treasury, SIGTARP, which is the special inspector general for TARP FHFA.

Justice says these agencies conducted investigations, your contention is they haven't even started, right? That's correct. The two investigations that were the most serious were basically over the administration's dead body. One was by the Inspector General of the HUD, which is an independent body within HUD, and they found errors by different services, in some cases, up at a rate of 60 percent, as high as 60 percent. The other one was by the U.S. Trustees Office, where they found that the error rate in bankruptcy filings was 10 times at the level found by a very limited federal foreclosure task force.

The big investigation they'd like to hang their hat on big, I should put a big irony alert around that word, is one that they had a little more than a year ago, again, right after the robust signing broke, it was an eight-week investigation, it involved 11 different federal bodies. Those 11 names would all be on that list, but it was HUD. I think the FHFA, definitely the office of the control over the currency, definitely the Fed. They looked at a grand total of 2,800 loan files. They did not do any external verification of the information in those loan files, and they looked at a mere 104 closures. That was considered to be adequate. There have been certain states, certain counties, even that have sued the banks and MERS, tried to reach around MERS to the banks for all of the fees that were not paid, that would have, under normal real estate law, been paid as these mortgages were transferred from one hand to another on their way to trusts. Do those remain enforced? Do those have those been wiped out by the settlement?

The Schneiderman lawsuit is the most recent that stands. I'm pretty sure the other two, the Cochley and the Biden suits stand as well. Now, Biden only sued MERS and did not name any banks, but he said he would insist on being able to add banks when he developed the evidence. That's Delaware Attorney General. Delaware, right. We have Bob Biden, right. Cochley of Massachusetts, Martha Cochley of Massachusetts, already named the five biggest servicers in her suit. Schneiderman named three of the five, and he says that he reserved the right to name additional banks. Now, that's good news. Bad news of this story is that I'd be delighted to be proven wrong. I mean, I would be delighted to be proven wrong. But it's very clear that recording fees were avoided. I mean, in fact, MERS brags about this on its website, about one of its big raise, you know, raise on DETRA, is that it saved originators the hassle of the multiple transfers. Again, we discussed earlier the multiple way the notes were transferred multiple times. Well, every time the note was transferred, they were supposed to be recording paid, which averaged about $35.

Obviously, it varies a lot by county, but $35 is not a bad number. We're able to skip a number of those transfers, and then only transfer the mortgage basically out of the MERS system when they try to foreclose. Well, the problem is establishing who actually benefited from saving all that money. Now, MERS clearly did, because again, MERS brags about it, and MERS would have probably no business if it weren't for saving the recording fees and also saving the hassle. But MERS is an itty bitty company with 50 employees. I mean, there's nothing there. There's nothing to sue there. So to get any money and get any resolution, you're going to have to reach through to other parties. And the problem is who benefited from saving the recording fees? The banks are going to argue, oh, well, it was all the parties to the origination, including these little shell companies that the notes were passed through, oh, and the investors, oh, and the borrowers. I mean, they're going to claim that, you know, they're basically going to say to the extent we owe anything, it's us and a zillion other people, and you got to go after them too, you know, it should be prorated among us and a huge number of people. And we really don't owe very much of this problem.

But if the, but if MERS was formed based, let's, let's look at it in the darkest possible light for a moment. Let's wear that mode anyhow. Yeah. As a conspiracy to avoid paying recording fees. If homeowners and all these little bitty shell companies were not present at the conception, how can you blame them? Well, I think the issue is financially, it's financially who best, the legal theory would be that you go after the conspirators and who conspired to organize MERS in the first place. Well, that, you know, that's an interesting way of going about it. I guess the problem I see with that is that the normally you can't reach through and assign liability to a shareholder. So if you, you know, if you were the venture capitalists who, you know, let's say it was, you know, let's say, you know, some high tech company launched a device that really did give everybody cancer very quickly, you know.

You can't go after the venture capitalists. Yeah, right. But let's, let's look at another analogy, use of the RICO statutes. Everybody talks about that. I haven't seen anybody willing to do it. And I admit I haven't looked that hard, but I'm, I'm, Bill Black has written something and I have, he has an impact. Bill Black is, is a, is a former banking regulator who is now a professor of law and economics at the university of Missouri, Kansas City. And a criminologist and a criminologist. Yes. In fact, he's, he's trying to promote the specialty of white collar criminology and let's hope he, he succeeds in turning this into a real discipline. But in any event, Black has basically said something in passing that I didn't see him in unpack. But he said basically that that effectively that RICO suits are kind of hard to prove. And he sounded like he wasn't so keen about them.

But I mean, they certainly sound, you know, just in terms of, you know, getting to criminality, you know, sort of basically saying it's something that was, you know, a pattern and practice, you know, that was deliberate really is criminal as opposed to civil. I mean, I think that, you know, it's, I mean, I wish it. I would pursue criminal angles here. I mean, I think that that really everybody keeps poo-pooing that that doesn't, isn't a deterrent. I think that's the converse. I think white collar people are very afraid of going to jail. If they're not, they should be. Yes, they need to be. Yeah. There are a couple of videos on YouTube I could point them to if they're not. The settlement is a release from certain civil cases, but it is not a release of criminal action. Is that right? That's correct. Now again, but again, the only criminal action we've seen so far are our suits of basically very specific actors. I mean, we, there was one Nevada that appeared that was of two people who were effectively managers of a robust signing operation.

They were sort of, you know, supervisory level. And then the other one was just filed in Missouri that goes after a shuttered subsidiary of the company lender processing services. They go after both the company and the president of that company, the former president of that company. So that would be, you know, kind of interesting to see if that one goes anywhere because that would actually would be a more senior level person, but again, it's related to forgery. Was that Doc X? That was Doc X, yes. And people seem remarkably unwilling to call forgery forgery. You know, it's called all sorts of other things like robust signing or surrogate signing or paperwork. Yeah, paperwork problems.

You've also been fairly consistently critical of the impact that any such settlement would have on the, the buyers, which are identified by you and others as pension funds among others of the securitized mortgages, the securities based on these sliced and diced mortgages. So where are they in this? Those, those buyers, those investors. Well, they, they're, they're, they're a couple that I've been speaking to and they're extremely unhappy with the provision that I mentioned earlier that the first mortgages would be written down without the second mortgage, second mortgages being wiped out because because normally you would always have a second lean eliminated before you would ever modify. And that doesn't mean that they're opposed to mortgage mods per se, they just want the seconds to take, I mean, the seconds got higher interest, you know, that was the whole second in line. And sort of why is this well established hierarchy of who gets paid first being, you know, upended, I mean, this, this is, you know, from a securities law, from securities payments standpoint, this is just, this is unheard of. And, but the fact is that there seems to be no interest in fixing the private securities market. I mean, we've had the housing finance has been on government life support since the crisis.

I mean, well, a well over 90%. I think it's close to nine, it was 99%. I think now they've been, they've been one category, teeny category that's picked up a little bit. But basically mortgage finance is now completely coming from the government. There really is no meaningful private mortgage securitization market, whereas before the crisis, about 60% of the mortgages were non, were non fanny and fretting mortgages. So, so there's been a big shift in terms of how that market works. And the experts I speak to all say there's no way that investors are ever going to come back into that pool. Or at least it has to be very, very radical changes. And they weren't even willing to, to invest before this because they saw how bad the practice had had been both, you know, as we, as we've, you know, alluded to earlier in this talk, the fact that the loans were really misrepresented in a very major way when these deals were put together, they were, they were, they were investors were told they were better than they were. And then the deals were, wasn't, wasn't that the purpose of the, of the triple a ratings was to mislead investors as to the quality of the underlying loans?

Well, the rating agencies would say that wasn't the purpose of the triple a ratings, but, but, you know, certainly the people who are together, the effect, no, the people who are putting together these deals knew that the new understood how the rating agencies models worked and worked hard at gaming them. I mean, that's, that's people in the industry are quite upfront about saying that. But they, but they also just affirmatively lied. And the rating agencies will say they're not, weren't responsible for, you know, they just, they just take the information that's presented to them and assume it's truthful. They're not in the position, you know, they claim our job is not to verify the accuracy of the information. Again, it's supposed to be reported accurately in those securities and exchange commission documents that when somebody's given a prospectus, the prospectus is supposed to be truthful and complete. You know, and so this is why the lack of securities suits is pretty appalling. So, so that part is a mess, and the other part, which is a mess, which isn't as much talked about, but investors are acutely aware of is a whole not a level of services service or abuses that no one is talking about the fact that the.

Services are putting all kinds of junk fees and impermissible fees and just literally making up stuff numbers up. I mean, there was, this was one thing that came up in the, the US trustees report and their unit. They are basically the part of the Department of Justice that's responsible for making the bankruptcy courts work well, and they found abuses like literally like somebody, somebody in a bankruptcy. A servicer said that that the bar owed $50,000, you know, for one piece of the mortgage, like something like $50,000 in fees and the bar challenged them and they said, oh, it's only $3,000. I mean, you know, and with, and there was no substantiation for either the first or even the second number. I mean, so, so where they get the $3,000 from, you know, that was probably made up to it, just $3,000 is better than, you know, $52,000. But the point is that this, you know, as bad as that sounds for the borrowers, when it, when it's in a foreclosure, remember that all those fees that were thrown onto the borrowers, the bar does and pay them, it then gets recovered from the investor.

Because when they sell the house, the thing that gets taken out first are the fees that, that the servicer charged or loaded in there that aren't legitimate. So that's first out, that's first out. That's first out, that's first out. So actually, wait, take it back. The first thing that's out is, is servicer advances, take it back. The first thing that's out, and that's still not very good, is that when, when somebody defaults, that the investor still keeps getting paid as if the loan was performing, as if the borrower was paying. So they'll still keep paying as if the borrower was paying. So let's say you've got a foreclosure that goes on 20, 30 months. The investor is getting paid, but they're just basically, you know, taking from one pocket and giving to another because that money then gets taken out of the liquidation of the house, the sale of the house. So they have to turn right around and pay it back to the people. They have to get right back and that, but that also gives the, and that may sound like that's a wash, but really it isn't because it gives the servicer motivation to keep extending these foreclosures because as long as they still have the loan in their system and they haven't actually sold the real estate, they're still collecting a monthly servicing fee and they still get to collect late fees.

So that incentivizes the drawing out of the foreclosure process, which people keep saying, well, we've got to, we've got to clear the market. We've got to speed this up. Right. And then they're, they're implying that it's all the fault the courses and went again, you know, I gave the example of New York, but there's also the example of Florida where after the robes signing scandal, you know, judges now say that they can't get, they can't get a bank in court. You know, the banks and I, and I've heard reports the other day from somebody in Baltimore saying, you know, now this, this may change a little with this settlement. I, but I sort of doubted where they say, you know, people who want to do, you know, short sales or by, or by properties of the bank's own. The banks will talk to the, they're in foreclosure and they think the bank is going to sell the property, right? The bank hasn't actually, you know, finished the last step of eviction and putting the property.

There's a category called real estate on, you know, they may sort of be in the advanced foreclosure stages, but you know, the cases in Florida where it's months, where from when, when they have a final judgment, where the bank really in theory owns the house and they don't, they don't evict. I mean, they just, and so there are other reasons they're dragging it out. That's probably the second, the second mortgages that because once they, once they evict and they actually finally take the property, then they would have to write down the second lean if there was a second lean. So there are all kinds of, you know, there's all kinds of behavior, which is very dysfunctional. And, you know, people are theorizing as to why it is. And the court system does not seem to be anywhere near as efficient explanation. I mean, there's just too many facts out there in terms of what's happening in the courts on specific cases. Let's say it's not court backlog. If the investors are, and you correct me if I'm wrong, but the, the investors are characterized, as I say, as pension funds, among other things, CalPERS is in big time, right? Right.

And the very biggest ones, the, you know, PIMCO, the big bond investor is very big in that space. Why aren't they going after the banks and the servicers and the, and the misbehavers? Well, there are a bunch of complicated reasons. One is that they're really not very well set up to sue people. Bond managers get very little in the way of fees. Most of them are part of bigger fund complexes. So it's not like even if the manager of a particular fund is really motivated and upset and wants to do something, he can't go launch a suit. He has to like, you know, go through a big bureaucratic procedure and get the general counsel on, you know, he can't just call up a learn, do it. The reason is that for many types of lawsuits, there were restrictions. Now, I don't think that it actually probably doesn't apply to these sort of, you know, stealing from the trust ones, but for the ones that most people have talked about, where they were lied to in the beginning of the deal about how good the deal was. Believe it or not, you have to get in most deals 25% of the investors together to sue. And it's not easy to find them because there aren't lists of who the other investors are.

So somebody's had to, literally somebody had to form a great big database, even for investors to sort of find each other to see if they could get to the 25% number to be able to sue. So you've got that problem. And then the other problem that you've got is, frankly, a lot of the investors are afraid of the banks. I had one of the attorneys. And Tau Franklin, who has represented some investors in litigation. And he said to me that he said that for some of these investors, if Jamie Diamond were to kill their children, they would not call the police. They do business with these banks. They think they depend on these banks. They don't want to ruffle them too much. There was one one invest as a completely different kind of abuse, but this is indicative of what the banks are getting away with these days. One former client of mine is a is a billionaire. And among all the industrial entities that he owns, they had about a billion in cash sitting around and they go, well, billion in cash, that's enough. We should like, you know, get it together and, you know, haven't managed a little better than we are.

And they, and they didn't have ambitious goals. They just wanted to get a little bit more than, than if they put it in treasury bills. And they had all this, I mean, I read the agreement. They have this, you know, language about how it's supposed to be managed conservatively and distributed in different buckets and be very liquid. You know, safe, safe, safe was all over what they had written. Well, it turns out that on a billion dollars, JP Morgan Chase lost, managed to lose about 100 million on a billion. 100 million. So 10%. And they're suing them. And this, this billionaire goes on. And he makes it very clear that he, you know, that he wants to make it very clear that his beef is with JP Morgan, that he's not an enemy of the banks generally, that he does a lot of business with banks and, you know, that he uses him for financing and whatnot. And in all these players, you know, have, have some dependency on the banks. And they end. So unless you have a lot of big investors get together. Individual ones feel very, it's like the wildebeest, right? You know, if you've got one wildebeest on Savannah, it's vulnerable. You know, if the wildebeest all go in a herd, then they're safe. You know, so you've got to get a really big herd of these investor wildebeest.

For them to feel safe. And so far, they haven't gotten together in big enough numbers to feel like they can, you know, go across this Savannah together. And hearing you describe that, my question would be supposedly these banks compete. So if you sue, thank you. Not when I went there so few anymore. Thank you. Thanks for the laughs. So when you sue JP Morgan Chase, maybe Wells Fargo would like your business. You're, you're. So the theory behind this would seem to be that they have bigger fish to fry than competing against each other. Well, that part is true. But I guess, you know, I should say that the other reason the billionaire is a different case is that he doesn't need to work with as many different banks. These big funds. Typically already need to work with different banks. They typically are in a position where they couldn't possibly work with one bank for all their business. They're very horses for courses. So they, they. In particular, the very large funds, I would, I would suspect that the big funds like Pimco probably have relations with all the major Wall Street firms. They use them for, you know, they spread their business around because they get, you know, they get intelligence and they don't want to be too, they think they get a television to notice the intelligence they get as any good.

But they, you know, spread their business around. So and even, even hedge funds that aren't very large, you know, hedge funds that aren't very large always try to spread their business around two or three banks. So the, and I know aren't that many left. Right. So the, the, the, the civil litigation door in many cases is being shut by the settlement, the, by, by litigation by governments and the litigation by some of the affected parties, IE, the investors is, is forced all by fear of bank retaliation. So what's left is the, is criminal prosecution in these few instances that are not where the statute of limitations has not expired. Is that where we are? Well, and individuals still consume. So we're going to have this crazy disconnect where borrowers are going to be because because borrowers are still getting more sophisticated in terms of understanding the problems with how these deals were put together and the bases they have for, for fighting banks.

And this, this settlement is not going to provide relief to that even, even to the extended works, right, because the, the principal modifications, the banks have three years to do that. And I think the admit, I mean, you know, different people thrown at different numbers, but at least the number that I've seen is, is 750,000, although I think HUD keeps spinning it as it could be up to two million. So, you know, either they're either a few are going to get fewer going to get more or a lot more going to get less. Out of 11 million people that are under water, underwater, exactly, exactly. So, so yeah, two million is the maximum and given how, how well the administrations past efforts to fix the problems have done. I mean, hemp, I think, came in at well under helping well under a quarter of the people that was, you know, targeted to help. And even at the point is you still have a large number of people who are not going to get a benefit from this, who are under stress. And, and you've also got these huge number and we've got this huge number for closures that are still in, in some degree of being processed that aren't going to be affected by this either.

So, you know, you still have this tremendous overhang of property, well, you know, what people are calling shadow and inventory. Nobody sort of knows how big that number is, but it's large. And then you've also got the fact that borrowers are still going to be able to fight for closures on an individual basis, very successful, you know, well, depends on the judge. I mean, it all depends on their willingness to fight. So what, so the effect of taking the A, A, G's out of the picture and the government out of the picture was that we've lost a big mechanism for coming up with some, some a good, well, not there's a good resolution of bad situation, but a comprehensive solution that would really get it much more of the roots of this problem. Instead, we've basically put a bandage over over over a gunshot wound that's now starting to get infected and is on its way to gangrene. I mean, this is just crazy.

But had the settlement not occurred, the attorney's general might have pursued investigations, the results of which could have benefited those private parties in litigation. That is to say they could have used the fruits of the investigation. Oh, yes, absolutely. So this has this has weakened. Yes, even though private parties can still sue, they aren't in as good a position as they probably would have been if they had. And, you know, evidence that had been found by attorney generals and legal theorists, plus just the prep. I mean, look how the robossigning changed the attitudes of judges. I mean, judges, it used to be that if a bar came into court and they tried saying the bank screwed up, it was just like your deadbeat bar or the banks of bank, of course, I'm going to believe the bank. I mean, who are you? You didn't pay. And the robossigning scandal, the press around that completely changed attitudes, not all, but a lot of judges. And similarly, if the attorneys general were pursuing suits, again, the press around it would have an impact on judicial attitude. So yes, the banks, you know, the banks went on, you know, even though private parties still can sue or fight, this was still a very big one on lots of other levels for the banks.

So, you're overall verdict on this settlement, Eve. Well, it's stinky. You know, I just am so, I'm just so appalled that the, you know, in some ways, I'm actually more appalled by the attorneys general who had been fighting throwing in the town. So the administration's behavior on this was predictable. And I had, you know, and the administration really could have done a deal, even with the 40 attorneys general, 40 to 40, 40 to 44, they were probably going to get anyhow. You know, all of the Republican AGs were going to go for this, except interestingly for the Oklahoma holdout. And all of the significant number of the Democratic ones were really not going to pursue any investigations, either for budget or just attitude reasons. But the ones who were pursuing this aggressive, and of course they're going to maintain this still pursuing it aggressively, but they've just narrowed what they can do tremendously. They're basically saying, well, you know, we've decided just just picking a few spots will be okay and we'll live without.

I mean, I just find that really inadequate. So what's your view of the state of the law of real estate transactions and financing? It's really been, we're really back to before something called the 1677 Statute of Fraud. I mean, these procedures all came about the whole fact that you have a signature note arrives by an independent party. You know, that came about because there's appeared in England, England, England, where literally you could basically hire an expert wouldn't wouldn't wouldn't wouldn't wouldn't wouldn't. You could basically hire an expert witness and have a person lie and steal someone's property and and things became so chaotic that they had to basically say stop and we're going to implement some procedures and those procedures, you know, comported themselves very well for hundreds of years. And and now we've decided to reverse that to a significant degree because we've decided the banks can't take a hit. I mean, this is this is just crazy. I mean, you know, even you sort of alluded to conservatives earlier on, but you know, you know, conservatives believe that of the sanctity of contract and the sanctity of property rights.

I mean, this is this is an issue for people of both sides of the political spectrum and and it's it's, you know, shocking that that if you and I signed a contract or held to it. And if a bank signs an agreement, they're not. I mean that they can just, you know, pay, pay a fine, which is not proportionate to the damage they've done and treated as a cost to doing business. I mean, in there and there are cases and again, I keep coming back to this issue of what is called service or driven foreclosure. You know, first there and there and there are lots of levels of abuse is there less than that. For example, there's, you know, one attorney that I know who he first got into foreclosure defense. When a guy walked into his office at five in the evening and said, you got a file bankruptcy and he says, what are you talking about? Finally for bankruptcy at five in the evening. I mean, can't this wait. He goes, no, the bank's about to take my house and I need to file for bankruptcy now. And he said, he said, he said, and he said, I've really made all my payments. You know, this I've been fighting with the bank and this, you know, this is why it's happening such a late hour.

You know, I've, you know, I've been able to get them to pay attention. He said, he said, and he said, he says in the guy goes, he goes, I've done a lot of law. He goes, like, you know, the guy commits is made all my payments. And the guy says, yeah, I have. And he says in here and he like dumps it on the guy's desk. And he goes through it and the guy had made all his payments on time. The foreclosure had been precipitated by a single $75 disputed late fee. And the guy still had to, and you know, then he calls the attorney from the foreclosure firm said, look, this guy's really right. You know, you got to stop this foreclosure. You know, let's figure out how extreme something. I said, no, we're for closing tomorrow. And so he had to file. He had to like get an emergency petition to the court and the guy to go through bankruptcy. I mean, but that's a kind, I mean, that's, that's, you know, a more extreme version, but this kind of thing, you know, when people are close to the edge financially, and that's where a lot of people are with this economy still being, you know, weak and a lot of people having hours cut back or job losses. It doesn't take much in the way of fee abuses to push somebody who could, who could pay with some strain into being, you know, pushed over the edge. And that's happening a lot. And it's just not getting the, it's not getting the attention to deserves.

So there's a whole, just a whole, you know, so the whole notion that the, you know, the banks are always right and the borrowers are, you know, well, so not so bad. The borrow lost their house. I mean, even if the bank screwed up on the paperwork, you know, they really deserved it. I mean, that to this point of wrongful foreclosures, it's not many cases not just wrongful because of the problems with the documentation and the fact that the bank screwed up on their own contracts in many cases. And many, and again, unknown because nobody has investigated. You know, there is a significant but unknown number of foreclosures, which really are not warranted. They really are, they really are a bank abuse. And you've used a phrase in, in the site that I've never quite understood as in the context of service or abuses. What's forced place insurance? Okay. In many, in most home purchases, you, you, we write a check to the bank and the bank pays for insurance in taxes. And then for some reason, the insurance lapses or the bank pretends you're not insured. They can then put their own insurance policy on.

And there have been cases where banks have, and that's why it's called forced place. You didn't sign up for the insurance, the bank, the bank basically puts insurance policy on you and demands, demands. Did you pay for it? Did bands that you pay for it? And those four, you know, typically these policies are egregiously priced. Bank of America had its own subsidiary that provided insurance. So there's a direct conflict in many. How convenient. In many, yeah, in many cases, sorry, country, the old country wide, but now Bank of America. So this was an old country wide thing that Bank of America inherited. But also there's, there've been cases where the, the service has been found to get, you know, commissions, i.e. kickback, you know, blarge kickbacks for the forced place insurance. And there've been cases where they've just put insurance saw, you know, like the, you know, the bar where would suddenly be forced place insurance. And they already had an insurance policy. And the only way the bank should think that they didn't have insurance policy would be at the insurance sent them a note saying we've canceled the policy, you know. I mean, there was no reason there's no legally justified reason for the bank suddenly to have put a put insurance policy on. So so that's that's one type of abuse that's been happening.

So you're, if you grade this settlement, if you were, if this was, if you were teaching a class and the settlement was presented as a solution to this problem, what would grade would you give it? Oh, it's an F. I mean, it's not a solution to the problem at all. I mean, because as I said, there really are much larger problems. And what this one does is it takes away the, from the banks, the liability for the behavior that it's easiest to, easiest to demonstrate that they did wrong. And, you know, the classic way that you prosecute people is oftentimes when there's complex behavior that's difficult to prove is to go after the easy stuff to hope that you'll get the evidence of the hard stuff, you know, that you're going to discovery and the discovery on the easy or or the classic mob strategy, you know, which is, which is what at least masked the Nevada Attorney General, the master appeared to have been starting. I don't know if she's going to continue on that path or not with the suit she was pursuing, but was she criminally prosecuted a couple of employees for, for, for, you know, that was criminal, but the point you can do the civil version of the same, right?

You, you, you target some of the companies in the environment, you, you go in and you do discovery and then you find more evidence and you add to the charges as you go in and you pursue the paths that, that you get from discovery just on the clear abuses. And, you know, these were media enough, the violations on these were media enough that they were worthy targets in and of themselves. I mean, you know, you, you could, if nothing else, most states have consumer fraud statutes, the, you know, for example, the, the New York Mursuit, I think it's 5,000 per violation. I think in, I think in about it's 10,000 per violation, but a lot of this stuff, you could wrap in consumer fraud statutes and, you know, get reason, and you, and you could define the violations as being pretty specific like, you know, a bad document filed in corn. So you could have gotten to reasonable dam, you know, damages that would make an it worth while for an age to pursue this and then see where it led and, you know, that's just been cut off now. So basically they killed the low hanging fruit.

That's right. That's a good way of putting it. Yes. Yes. Eve Smith, you make the complex and almost impenetrable so easy to understand daily on naked capitalism.com and an econ and on your occasional visits to the show. Thanks. Oh, thank you so much. I really appreciate you making the time for me. My pleasure vice versa. And now, as if that's not enough, I'm going to read the trades for you. Because you see that interview was recorded on Thursday the day that the settlement announcement was made in Washington less than 24 hours later this from American banker magazine. I'll read it for you. More than a day after the announcement of that mortgage servicing settlement, the actual terms of the deal aren't public. The website lists the document as coming soon.

That's because a fully authorized legally binding deal has not yet been inked. Spokes persons for both the Iowa Attorney General's office and the Department of Justice told American banker the actual settlement will not be made public until it's submitted to a court. Representative for the North Carolina Attorney General downplayed the significant of the documents non-final status. Other sources who spoke with American banker raised doubts that everything is yet in place. A person familiar with the mortgage servicing pack says that a settlement, term sheet, doesn't yet exist. Instead, there's a series of nearly complete documents that will be attached to consent judgment eventually filed with court. Some who talked to American banker said that the political pressure to announce the settlement drove the timing in effect putting the press release cart in front of the signed settlement horse. We got sharks, wildebeest and horses, ladies and gentlemen.

It's a wildlife edition of the show. Whatever the reason for the documents continued non-appearance, the lack of a public final settlement is already the cause for disgruntlement among those who closely follow the banking industry, quite simply says American banker, the actual terms of a settlement matter. The devil's in the details says the chairman of a law firm, venable financial services group until you see the document you're never quite sure what your rights are. Few news outlets asked for the actual document, and those that did, like American banker, have been unsuccessful. So I understand why they didn't ask. Just the Marisquino cherry on top of that particular Sunday. When I read the trades for you, it is so very much a copyrighted feature of this broadcast.

And now, news of nice corp, nice people doing nice things. The other British tabloid, the one that was not shuttered as the result of the phone hacking scandal, has been rocked. Its worst ever crisis, five of its most senior journalists have been arrested over corruption allegations, moving Rupert Murdoch to fly to London and swear that he will keep the paper open. You know what that means? Goodbye. His total commitment. Deputy editor, the picture editor, the chief reporter, the chief foreign correspondent, and the deputy news editor were arrested. The editor-in-chief said, quote, I'm as shocked as anyone. So he's up for the Claude Reigns role. And among those arrested, in addition to people from the Sun newspaper, were, quote, public officials, meaning that this scandal has now gone beyond phone hacking, gone beyond police corruption, to the corruption other, perhaps higher, public officials. Therefore, reports writers, U.S. authorities are stepping up, and in FBI criminal inquiry into possible violations by employees of the Murdoch Empire of Nice Corp, of a U.S. law banning corrupt payments to foreign officials.

U.S. investigators have found a little to substantiate allegations of phone hacking inside the United States. But this is a more promising field of investigation, apparently, under the Foreign Corrupt Practices Act, which bans bribery of foreign officials. Nice people, doing nice things. It's Nice Corp. Oh, and on the same subject, this week's apology comes from James Harding, the editor of the other Murdoch newspaper in Britain, the Times, for a judicial inquiry into press practices in Britain.

No justice levels, and if you'll allow me, there is one thing I would like to say, which is, in the last couple of weeks, I've learned a great deal more about what happened in this incident. As editor of the paper, I'm responsible for what it does and what its journalists do. And so I want to say at the outset that I, I sorely regret the intrusion into Richard Horton's email account by a journalist, then in our newsroom. I'm sure that Mr. Horton and many other people expect better of the Times, so do I, so on behalf of the paper, I apologize. Mr. Horton was a police blogger who had been outed thanks to phone hacking by The Times.

Nice people. Continuing to do nice things. Ladies and gentlemen, that's going to wrap it for this week's edition of the show. The program returns next week at the same time over these same stations of our NPR Worldwide throughout Europe. The use in 440 cable systems in Japan around the world from the cities of the American forces network up and down the east coast of North America via the shortwave giant WBCQ 7.490 megahertz shortwave on the mighty 104 in Berlin. Available for your smartphone through Stitcher.com and available as a free podcast at KCRW.com. And be just like, understanding all this. If you'd agree to join with me, I know, wouldn't you? Alrighty, thank you very much. My thanks to Jeffrey Talbot at AudioWorks here in New Orleans and to the gang at Argos Studios in New York City. For making today's program possible and thanks also to Jenny Lawson here at WWNO. She did too.

A typical a show shop out of the San Diego. Pittsburgh, Chicago and Hawaii desks. And thanks as always to Pam Hallstead. This broadcast is on Twitter. Join the nearly 56,000 followers at The Harry Shirt. I'm going to go out in this, it's as cold in New Orleans as it is in London. That's, that's totally not right. I'm going to go out and see a parade. Next week, I'll be in one. See, get to do both things. Both sides now. The show comes to you from Century Progress Productions and originates through the facilities of KCRW Santa Monica. Community recognized around the world as the home of the homeless. Following from New Orleans.