Update: Bernanke doesn't see a problem with insolvency

Video - Georgetown Law Professor Dr. Adam Levitin

Start watching at 1:35, though the bomb from Levitin comes near the end...

"If they started writing off their second-lien mortgages, they would have no capital left. They would be insolvent."

He mentions Citigroup (nyse:C), JP Morgan (nyse:jpm), Bank of America (nyse:BAC), and Wells Fargo (nyse:wfc) by name.

Though it's nice to hear the truth leak out in front of a small Congressional committee, this is nothing new to Daily Bail readers. It's not even close, really. The 4 largest banks are insolvent many times over. Their puny and massively over-leveraged capital bases would not just be wiped out, they would be turned into negative multiples of the original equity.

Then take the next step and understand that these same criminally fraudulent and insolvent institutions, are paying their executives $144 billion in bonuses this year, based on false accounting that was endorsed by Congress and jammed down the throats of FASB in June of 2009.

I wrote about the criminal insolvency of banks here.

And here:

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Bill Black has made the case recently here...

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Adam Levitin's thoughts can be found in more detail here...

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Quotes from Levitin's testimony before Congress...

"It is important to emphasize that junk fees on homeowners ultimately come out of the pocket of MBS investors. If the homeowner lacks sufficient equity in the property to cover the amount owed on the loan, including junk fees, then there is a deficiency from the foreclosure sale. As many mortgages are legally or functionally non-recourse, this means that the deficiency cannot be collected from the homeowner’s other assets. Mortgage servicers recover their expenses off the top in foreclosure sales, before MBS investors are paid. Therefore, when a servicer lards on illegal fees in a foreclosure, it is stealing from investors such as pension plans and the US government.



Many foreclosure complaints are facially defective and should be dismissed because they fail to attach the note. I have recently examined a small sample of foreclosure cases filed in Allegheny County, Pennsylvania (Pittsburgh and environs) in May 2010. In over 60% of those foreclosure filings, the complaint failed to include a copy of the note. Failure to attach the note appears to be routine practice for some of the foreclosure mill law firms, including two that handle all of Bank of America’s foreclosures.



Recently, arguments have been raised in foreclosure litigation about whether the notes and mortgages were in fact properly transferred to the securitization trusts. This is a critical issue because the trust has standing to foreclose if, and only if it is the mortgagee. If the notes and mortgages were not transferred to the trust, then the trust lacks standing to foreclose."

DB here. We played a game of roulette in the 1980s when all of our large money-center banks were technically insolvent due to Latin American exposure, and most sloggged their way back to solvency over the the next 10 years. The difference this time is simple - LEVERAGE. Paulson's 2004 SEC-enhanced gift of unlimited leverage for the 5 largest investment banks changed the game.

From the New York Times:

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Video - Ratigan on Paulson and the SEC rule change...

Both of these clips are outstanding.

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Video - More of the same from Ratigan with a touch more focus on failed bank CEOs and the Wall Street bonus structure.