Investment blogger Catherine Austin Fitts [resumé], has written a series of posts concerning the housing bailout bill, and Part V is about something I hadn’t previous knowledge of: mortgage collateral fraud.
She’d done research around the time of the last housing bubble in the 90’s. Apparently, inherent problems then were not addressed or corrected, left to fester like an untreated wound, and low and behold, the patient is exhibiting severe reactions:
“The challenge that US Treasury Secretary Hank Paulson faces when working out the problems with Fannie Mae or Freddie Mac is that a significant number of mortgages that serve as collateral for US mortgage backed securities markets are not real. They do not exist.
“The problem is not that the people who bought the house and borrowed the money can not afford to pay it back or the house that they bought has dropped in value. If these were the problems, we would not be watching the debt the US government is responsible for increase by $5 trillion dollars.
“After I began researching HUD fraud in the last 1990s, I would be contacted by people with experience with HUD fraud. They insisted the same home was being used to create ten or more mortgages that were placed into different pools. They alleged that Chase as the lead HUD servicer and the other big banks were implementing such systems. This was why we would see the same house default two, three or four times in a year, they claimed. You needed to churn the FHA mortgages through multiple defaults to generate the cash to keep all these fraudulent pools afloat. This, they insisted, was all going to finance various secret government operations and private agendas.”
She also revealed strikingly similar fraud infamously occurs in the precious metals markets:
“As I started to learn more about precious metals and the commodities markets I would hear story after story about precious metals arrangements in which investors really had a bank credit — there was no real bullion behind the arrangement.”
Now she has has good reason to believe these very same sort of, erm, irregularities (“cancer”) might very well exist at FNM, FRE, GNM, FHA/HUD and they are being ignored for very good reasons (these would be reasons good from the perspective of socialist hero Hank-Panky and bankers friend Bendover Bukkake because they don’t intend to slow down to let their planned bailout of their investment banking frat-buds scrutinzed by anyone honest):
“Creating and managing such a process would indeed crash the global financial system. It is hard for a multi- trillion dollar financial system to maintain liquidity when contracts and laws are meaningless.
“The challenge for Hank Paulson is that by increasing the national debt by $5 trillion — whether collateralized by real estate or phony paper — he can delay the day of reckoning, but he can not cancel it.”
After reading this a few times, my reaction is still: jeepers creepers.
“It is the aim of good government to stimulate production, of bad government to encourage consumption.” – Jean Baptiste Say