[Travis McGee]

"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."

---Harvard Economic Society, October 19, 1929

“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”

~~Only Yesterday: An Informal History of the 1920’s by Fredrick Lewis Allen

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

~~Ludwig von Mises

[donna]

Mortgage lending used to be a department at your local bank which made good mortgage loans as a service for their valued customers. Banks could not incorporate across state lines and the only outside money for mortgages came from FNMA or the like which gave the eastern banks somewhere to safely invest long term money.

It was a low steady return on investment for all involved. Foreclosures were few and far between because lenders were so careful and didn’t want bad local community relations.

[RockinRight]

Well, looks like we’re f**ked then.

No reason to do anything but play on as the boat sinks, right?

[givemELL]

This detailed and well written piece by Chas. Hugh Smith complements the presented article...it is worth saving..

http://www.oftwominds.com/blognov07/empire-debt1.html

[GOPJ]

Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an “intent to convey the rights in the mortgages.” They could not produce the actual mortgage, the heart of Western property rights since the Magna Charta if not longer.

Buyer beware...

[ricks_place]

The dollar decline provides a double whammy. The value of the foreclosed loans is even lower in their home currency.

[GovernmentShrinker]

Even experienced banker friends tell me that they think the worst of the US banking troubles are over and that things are slowly getting back to normal

That's not the word around the bank where I work, but perhaps that's because we're not one of the ones in trouble, and can afford to face reality.

As for these failed foreclosures due to lack of documentation, this phenomenon actually started surfacing a few months ago (even an article in the NYT about it), and anyone who was paying attention realized then it would be a big factor in the whole developing mess -- though probably more of a beneficial effect on homeowners, than harmful effect on financial institutions. Why would anyone think that 2nd, 3rd, 4th, 5th, 6th generation buyers of pieces of pieces of pieces of pools of pools of mortgages, who we all know weren't keeping track of the underlying value of the homes or paying ability of the home"owners", would be keeping track of the actual whole-house mortgage documentation?

I suspect the resolution will be a quasi-standard settlement process, in which the home"owners" agree to a new, much reduced mortgage debt (reflecting the actual value of the home, which is all the bank would get for it anyway), in return for signing a new mortgage note that the presumed mortgage-holder would more or less clearly hold (and which would be transferable in the event some other institution turned up able to prove -- with or without presenting the original mortgage note -- that it was the actual holder of the original mortgage). This will save a lot of homeowners from foreclosure, while leaving the banks slightly better off than their present true position in the new real estate market (e.g. the house is worth what it's worth, which isn't what the original paperwork said it was worth, but at least a significant percentage of home"owners" will continue paying at the new reduced amount, saving the banks the time and expense of trying to re-sell the houses in a lousy market).

[PapaBear3625]

I’m going to assume for a second that the physical mortgage paper is in existence somewhere. The writer of the article failed to make clear whether the problem was (a) DB failed to produce the paper at the hearing, but could have tracked it down if given more time, (b) DB owned the whole mortgage but had no idea where the paper was, or (c) DB owned just a part of the mortgage, and was falsely acting like it owned the whole mortgage.

[FreedomPoster]

The best explanation of the subprime implosion in 10 minutes or less.

http://youtube.com/watch?v=SJ_qK4g6ntM

“Somehow this package of dodgy debts stops being a package of dodgy debts and starts being a Structured Investment Vehicle!”

Dry Brit humor that’s pretty spot on, from what I can tell.

[FreedomPoster]

I’d love a ping to Part II &c., when they appear, if you’re doing that.

[nkycincinnatikid]

revisit bump

[the invisib1e hand]

A tiny legal detail our Wall Street Rocket Scientist derivatives experts ignored when they were bundling and issuing hundreds of billions of dollars worth of CMO’s in the past six or seven years.

It's not the "rocket scientist's job." It's the lawyers. Tough for them.

And my heart really bleeds for DB.

[givemELL]

This blog, always full of accurate comment, relates to the coming Hedge Fund derivative debacle. Credit has dried up for rollovers. Other articles have stated $500 million per quarter during 2008, $2 trillion for the year, will be attempted redemptions....central bank systems will have more and more difficulty handling this. Here is the blog URL relating to upcoming credit problems for hedgefunds and the loan originating banks...http://ftalphaville.ft.com/blog/2007/11/21/9080/lombard-street-resear

[The Duke]

I suspect that their lawyers just weren’t prepared...and I bet they’ll be prepared the next time around.

[groanup]

The tale of the missing documentation. LOL. This has happened before. The boom/bust of the 1970’s was full of this kind of crap. I know, I audited REITS and found, you guessed it, mortgage loans galore with no documentation.

[Calpernia]

http://digital.library.unt.edu/govdocs/crs/permalink/meta-crs-1247:1
CRS Report for Congress

02/16/99 German Chancellor Gerhard Schroeder announced the creation of a fund, projected to amount to $3.5 billion to $4.6 billion and financed by 12 German companies, to compensate victims of the Nazis during World War II. The creation of the “Remembrance, Responsibility, and the Future” fund, according to remarks by CRS-16 Chancellor Schroeder, was “to counter lawsuits, particularly class action suits, and to remove the basis of the campaign being led against German industry and our country.” Payments are expected to start by September 1, 1999. The 12 companies contributing to this fund are: Allianz insurance, BASF, Bayer, BMW, Daimler-Chrysler (formerly Daimler-Benz), Degussa, Deutsche Bank, Dresdner Bank, Hoechst, Krupp, Siemens, and Volkswagen. This initial list of 12 companies includes automakers, banks, chemical production, insurance, and other German industrial sectors accused of profiting from forced/slave labor during World War II

03/31/99 A class action complaint was filed in San Francisco Superior Court by the Simon Wiesenthal Center, California Governor Gray Davis, and representatives of Holocaust survivors who reside in California against German and American companiesthat used slave labor and “Aryanized” Jewish assets duringthe Holocaust. The companies named in the lawsuit are Deutsche Bank, Dresdner Bank, Commerzbank AG, Deutsche Lufthansa, VIAG, Ford Motor Company, and General Motors Corp.

06/10/99 Industry representatives of 16 German companies announced their participation in the creation of a compensation fund in an effort to settle slave labor lawsuits against the following companies that profited from Nazi-era slave labor: Allianz, BASF,Bayer,BMW, Commerzbank, Daimler Chrysler (settling on behalf of Daimler-Benz), Deutsche Bank, Degussa-Huels, Deutz, Dresdner Bank, Thyssen-Krupp, Hoechst, RAG, Siemens, Volkswagen, and Veba. Called the “Remembrance, Responsibility, and the Future” fund, it will be administered with the help of the German government and estimated at $1.7 billion. Lump-sum payments would be based on need and on 6-months or longer of slave labor service. Attorneys representing victims in the class action lawsuits against these companies charge that the total fund isinadequate and that 6 months or longer of forced/slave labor was the exception rather than the rule since many laborers lasted barely 3 months under such brutal conditions. The aim of these German companies in setting up this fund is to protect them from any future claims.

12/23/99 The American Jewish Committee released a list of German companies that announced their participation in the German Compensation Fund. They are: Agfa (owned by Bayer); Agfa-Gaevert (Belgian owned); Allianz, Bahlsen; BASF; Bayer; Beiersdorff AG; BMW; Bosch; Brandt; Buderus; Carl Zeis Foundation (all subsidiaries included); Commerzbank; Consumer Electronic AG; Continental; DaimlerChrysler; Degussa-Huls; Deutsche Bank; Deutsche Telekom; Deutz; Dillinger Huettenwerke; Dresdner Bank; Felten and Guillaume; Ford; Gemeinde Buedelsdorf (Schleswig-Holstein); Gerrisheimer Glasshettenwerke; Heraus; Henkel & Cie; Hoechst; Kloeckner AG; Kloeckner Werke (owned by VIAG); Knoll AG (owned by BASF); Lufthansa; MAN; Mannesman; Merck KG; Omnia Moebelwerke; P. Holzmann; Poppe Gummi; Porsche; Ruhrgas; RWE; Schering; Schwartau; Siemens; Stadtwerke Duesseldorf; Steinbeiss; Taming; Thyssenkrup; Veba; Veritas; Gelnhausen Vorwerk & Sohn; Volkswagen; Wieland; Ulm; Zahnradfebrik; and Zwilling J.J. HenckelsAG. For the latest update of German companies that have pledged support, scroll down and click on “View List of German Companies Participating in Compensation Fund”at the AJC Website:[ http://www.ajc.org/pre/germanylist.asp ].

[thinking]

I have everyday knowledge of economics...however, it seems to me that, a bank makes a series of marginal loans, then sells off the loans, knowing the loans would default, to some other bank/institute, this enables the original bank to wash their hands of the matter...."no longer our problem"

[Revel]

Great article Travis. Things could get bad.