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The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg

 
by F. William Engdahl
User ID: 215528
United States
11/27/2007 01:35 PM
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The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg

< [link to www.globalresearch.ca]
by F. William Engdahl

Global Research, November 23, 2007


Part 1: Deutsche Bank's painful lesson

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.
What is lacking in their rosy optimism is the realization of the scale of
the ongoing deterioration in credit markets globally, centered in the
American asset-backed securities market, and especially in the market for
CDO's "Collateralized Debt Obligations and CMO's "Collateralized Mortgage
Obligations. By now every serious reader has heard the term. It's a crisis
in Sub-Prime US home mortgage debt. What almost no one I know understands
is that the Sub-Prime problem is but the tip of a colossal iceberg that is
in a slow meltdown. I offer one recent example to illustrate my point that
the Financial Tsunami is only beginning.

Deutsche Bank got a hard shock a few days ago when a judge in the state of
Ohio in the USA made a ruling that the bank had no legal right to foreclose
on 14 homes whose owners had failed to keep current in their monthly
mortgage payments. Now this might sound like small beer for Deutsche Bank,
one of the world's largest banks with over 1.1 trillion (Billionen) in
assets worldwide. As Hilmar Kopper used to say, peanuts. It's not at all
peanuts, however, for the Anglo-Saxon banking world and its European allies
like Deutsche Bank, BNP Paribas, Barclays Bank, HSBC or others. Why?

A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland Ohio
ruled to dismiss a claim by Deutsche Bank National Trust Company. DB's US
subsidiary was seeking to take possession of 14 homes from Cleveland
residents living in them, in order to claim the assets.

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 of no longer.

Again why could Deutsche Bank not show the 14 mortgages on the 14 homes?
Because they live in the exotic new world of global securitization, where
banks like DB or Citigroup buy tens of thousands of mortgages from small
local lending banks, bundle them into Jumbo new securities which then are
rated by Moody's or Standard & Poors or Fitch, and sell them as bonds to
pension funds or other banks or private investors who naively believed they
were buying bonds rated AAA, the highest, and never realized that their
bundle of say 1,000 different home mortgages, contained maybe 20% or 200
mortgages rated sub-prime, i.e. of dubious credit quality.

Indeed the profits being earned in the past seven years by the world's
largest financial players from Goldman Sachs to Morgan Stanley to HSBC,
Chase, and yes, Deutsche Bank, were so staggering, few bothered to open the
risk models used by the professionals who bundled the mortgages. Certainly
not the Big Three rating companies who had a criminal conflict of interest
in giving top debt ratings. That changed abruptly last August and since then
the major banks have issued one after another report of disastrous sub-prime
losses.

A new unexpected factor

The Ohio ruling that dismissed DB's claim to foreclose and take back the 14
homes for non-payment, is far more than bad luck for the bank of Josef
Ackermann. It is an earth-shaking precedent for all banks holding what they
had thought were collateral in form of real estate property.

How this? Because of the complex structure of asset-backed securities and
the widely dispersed ownership of mortgage securities (not actual mortgages
but the securities based on same) no one is yet able to identify who
precisely holds the physical mortgage document. Oops! 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. As of January 2007 some $6.5 trillion of
securitized mortgage debt was outstanding in the United States. That's a lot
by any measure!

In the Ohio case Deutsche Bank is acting as Trustee for securitization pools
or groups of disparate investors who
may reside anywhere. But the Trustee never got the legal document known as
the mortgage. Judge Boyko ordered DB to prove they were the owners of the
mortgages or notes and they could not. DB could only argue that the banks
had foreclosed on such cases for years without challenge. The Judge then
declared that the banks seem to adopt the attitude that since they have been
doing this for so long, unchallenged, this practice equates with legal
compliance. Finally put to the test, the Judge concluded,their weak legal
arguments compel the court to stop them at the gate. Deutsche Bank has
refused comment.

What next?

As news of this legal precedent spreads across the USA like a California
brushfire, hundreds of thousands of struggling homeowners who took the bait
in times of historically low interest rates to buy a home with often, no
money paid down, and the first 2 years with extremely low interest rate in
what are known as interest only Adjustable Rate Mortgages (ARMs), now face
exploding mortgage monthly payments at just the point the US economy is
sinking into severe recession. (I regret the plethora of abbreviations used
here but it is the fault of Wall Street bankers not this author).

The peak period of the US real estate bubble which began in about 2002 when
Alan Greenspan began the most aggressive series of rate cuts in Federal
Reserve history was 2005-2006. Greenspan's intent, as he admitted at the
time, was to replace the Dot.com internet stock bubble with a real estate
home investment and lending bubble. He argued that was the only way to keep
the US economy from deep recession. In retrospect a recession in 2002 would
have been far milder and less damaging than what we now face.

Of course, Greenspan has since safely retired, written his memoirs and
handed the control (and blame) of the mess over to a young ex-Princeton
professor, Ben Bernanke. As a Princeton graduate, I can say I would never
trust monetary policy for the world's most powerful central bank in the
hands of a Princeton economics professor. Keep them in their ivy-covered
towers.

Now the last phase of every speculative bubble is the one where the animal
juices get the most excited. This has been the case with every major
speculative bubble since the Holland Tulip speculation of the 1630's to the
South Sea Bubble of 1720 to the 1929 Wall Street crash. It was true as well
with the US 2002-2007 Real Estate bubble. In the last two years of the boom
in selling real estate loans, banks were convinced they could resell the
mortgage loans to a Wall Street financial house who would bundle it with
thousands of good better and worse quality mortgage loans and resell them as
Collateralized Mortgage Obligation bonds. In the flush of greed, banks
became increasingly reckless of the credit worthiness of the prospective
home owners. In many cases they did not even bother to check if the person
was employed. Who cares? It will be resold and securitized and the risk of
mortgage default was historically low.

That was in 2005. The most Sub-prime mortgages written with Adjustable Rate
Mortgage contracts were written between 2005-2006, the last and most furious
phase of the US bubble. Now a whole new wave of mortgage defaults is about
to explode onto the scene beginning January 2008. Between December 2007 and
July 1, 2008 more than $690 Billion in mortgages will face an interest rate
jump according to the contract terms of the ARMs written two years before.
That means market interest rates for those mortgages will explode monthly
payments just as recession drives incomes down. Hundreds of thousands of
homeowners will be forced to do the last resort of any homeowner: stop
monthly mortgage payments.

Here is where the Ohio court decision guarantees that the next phase of the
US mortgage crisis will assume Tsunami dimension. If the Ohio Deutsche Bank
precedent holds in the appeal to the Supreme Court, millions of homes will
be in default but the banks prevented from seizing them as collateral assets
to resell. Robert Shiller of Yale, the controversial and often correct
author of the book, Irrational Exuberance, predicting the 2001-2 Dot.com
stock crash, estimates US housing prices could fall as much as 50% in some
areas given how home prices have diverged relative to rents.

The $690 billion worth of interest only ARM's due for interest rate hike
between now and July 2008 are by and large not Sub-prime but a little higher
quality, but only just. There are a total of $1.4 trillion in interest only
ARM's according to the US research firm, First American Loan Performance. A
recent study calculates that, as these ARMs face staggering higher interest
costs in the next 9 months, more than $325 billion of the loans will default
leaving 1 million property owners in technical mortgage default. But if
banks are unable to reclaim the homes as assets to offset the non-performing
mortgages, the US banking system and a chunk of the global banking system
faces a financial gridlock that will make
events to date truly peanuts by comparison. We will discuss the global
geo-political implications of this in our next report, The Financial
Tsunami: Part 2.

F. William Engdahl is the author of A Century of War: Anglo-American Oil
Politics and the New World Order. He is a Research Associate of the Centre
for Research on Globalization (CRG). His most recent book, which has just
been released by Global Research is Seeds of Destruction, The Hidden Agenda
of Genetic Manipulation.
Anonymous Coward
User ID: 186755
United States
11/27/2007 01:41 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
who cares...

big banks and mortgage companies they will get bailled out

its there system and they run the making and printing of the currency... money for nothing chicks for free

minum wage and outsourcing you home and job to third world that is for you

worry about yourself op
Anonymous Coward
User ID: 295724
United Kingdom
11/27/2007 02:05 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
This is brilliant.
Well, let's see what will happen: Big banks could lose and the little guy keep his home, or the supreme court will rule against the little guy.

We have already seen how politics drives the court in Bush's first "election". The guy lost by 2million votes and yet was still crowned king.

So, what are the chances of the little guy winning?

Zilch.
Daddy Warbucks
User ID: 110342
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11/27/2007 02:55 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
money for nothing chicks for free
 Quoting: Anonymous Coward 186755


SIGN ME UP!!!!!!!!!!!!!

5a
Anonymous Coward (OP)
User ID: 215528
United States
11/27/2007 03:04 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
at some point
sooner i hope rather than later
all the crazy financial shenanigans all those good old boys at the top of the financial food chain regularly practice will come falling down
Anonymous Coward
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11/27/2007 03:29 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
' Sounds' like one might NOT pay the mortgage for a while and they won't be able to foreclose.

HOWEVER, HOW do you know if YOUR morgtage was resold to someone else ?

DON'T think the banksters will tell you, now WILL they ???
Anonymous Coward
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11/27/2007 03:30 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
We'll go down with them.
Dr. P ( On THIS ! )
User ID: 330602
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11/27/2007 03:39 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
215528 ... Those big boys ... " at the top of the food chain'... have already jumped from their high flying, crooked planes and are riding their GOLDEN PARACHUTES down to their yatchs, homes in distant lands AND bought GOLD and SILVER, as they KNOW what happens to ALL FIAT currencies.

YOU, the American taxpayer will be left with the banksters STILL at the controls, who WILL steer the crooked
politicians/superme court to ANY solution that leaves them BLAMELESS, and YOU and your grandchildren paying the their bills, BUT, without physical shackels. After all, your already enslaved to debt, but are too dumb to realize it.
Anonymous Coward
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11/27/2007 04:27 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
bump
Scrooge
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11/27/2007 04:31 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
' Sounds' like one might NOT pay the mortgage for a while and they won't be able to foreclose.

HOWEVER, HOW do you know if YOUR morgtage was resold to someone else ?

DON'T think the banksters will tell you, now WILL they ???
 Quoting: Anonymous Coward 330602


Try not paying your property taxes for a short while, ordinarily rolled into the monthly mortagage payments, & the local tax authority will quickly step in to settle any and all ambiguous questions of ownership, as in, "Where's the nearest bridge?"

Idol1
Anonymous Coward
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11/27/2007 04:37 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
If you bought into the media hype that debt creation equates to wealth creation, than you got what you paid for.

Greed is what created this bubble in the first place. Banksters didn't force you to borrow what you couldn't truly afford, you did that to yourselves.
Anonymous Coward
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11/27/2007 04:39 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
If you bought into the media hype that debt creation equates to wealth creation, than you got what you paid for.

Greed is what created this bubble in the first place. Banksters didn't force you to borrow what you couldn't truly afford, you did that to yourselves.
 Quoting: Anonymous Coward 332347


Perfectly summed up
Eagle # 1
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11/27/2007 05:01 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
I was told by my son-in-law that I could get a FIXED rate mortgage for SO MUCH less via this group.

Went to first meeting, and KEPT asking, " IS this a fixed rate?" Answer ALWAYS was " Yes " !

At closing, I READ the FINE print and came to part about it ONLY being for 2 years.

Called the guy on it, Saying " You said this was a fixed rate."

His answer , " YES, it's a fixed rate, for TWO years."

Was too deep into it to back out, and the lower rate looked SO GOOD, I signed.

The rate finally DOUBLED from about $250 per month to $500 per month. via CitiBank. About a year and a half ago, I got repeated calls from lenders trying to sign me up for REAL FIXED rate mortgages. MY reply was always, " You caught me on the way UP; NOW you think I'm dumb enough to be STUCK with fixed rate on the way DOWN. UP YOURS." Click!

Rate dropped to $441 this month and I expect with ANOTHER 1/2 point drop to be just over $400, as the 'elevator' goes DOWN TOO !


Eagle
Anonymous Coward
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11/27/2007 06:12 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
.


So when does Financial Tsunami part 2 hit the presses?



.
Anonymous Coward
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11/27/2007 08:42 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
>>Try not paying your property taxes for a short while, ordinarily rolled into the monthly mortagage payments, & the local tax authority will quickly step in to settle any and all ambiguous questions of ownership, as in, "Where's the nearest bridge?"
---


Well shit, if you could get buy on paying just property taxes-that would be OK with me.

Where the hell *IS* the original ink-signed mortgage?
Baerwolfe
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11/27/2007 08:45 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
[link to www.insurancejournal.com]

If this does not get fully passed and signed into law by the Whitehouse prior to January 1, 2008, and if there is a terrorist act on US soil after this date, the impact to the US economy (particularly commercial real estate) would be HUGE.

Bears watching...

Another possible part of the iceberg.
Anonymous Coward
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11/27/2007 08:48 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
[link to www.insurancejournal.com]

Working link to the above TRIREA issue that is looming. Started another thread about it, but thought it fitted here too.
diottowallogy
User ID: 534959
Israel
05/17/2009 02:57 AM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
Should they even be there? Please comment on this video clip. I don’t think Robert Cooper or Brad Wright would ever let these two ever have any serious part on Stargate Universe. Well maybe the brunette…

[link to www.koldcast.tv]
Anonymous Coward
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05/17/2009 03:20 AM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
So these people just get a free house? If so thats crap. Again, the US would be rewarding bad behavior. Responsible people who had decent credit so they qualified for a normal fixed rate mortgage and have paid their mortgage on time every month would be the ones to get screwed and irresponsible people who bought more house than they could afford would walk away mortgage and that would be total bullshit. I guess the irony would come in a few years when the local government foreclosed on these peoples houses for not paying their property taxes even though their house was mortgage free.
diottowallogy
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Israel
05/19/2009 04:53 AM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
Can anyone tell me who the hot brunette is that may be a new cast member on Stargate Atlantis?

[link to www.koldcast.tv]
9teen.47™

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05/19/2009 05:05 AM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
:nikinto:

" 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. As of January 2007 some $6.5 trillion of
securitized mortgage debt was outstanding in the United States. That's a lot
by any measure!"

Or perhaps not. Someone somewhere must be holding the paper.
Zec 12:3 And in that day will I make Jerusalem a burdensome stone for all people: all that burden themselves with it shall be cut in pieces, though all the people of the earth be gathered together against it.
Psa 9:17 The wicked shall be turned into hell, [and] all the nations that forget God.
Jer 6:2 I have likened the daughter of Zion to a comely and delicate [woman].
STOCK UP NOW. You should have at least 6 months worth of basics for every member of your household. Stay away from crowds when trouble starts, do not forget water storage, tobacco is worth more than gold or silver, and be kind to hungry children.
jinlyBync
User ID: 1131700
Israel
12/11/2010 01:17 PM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
Hi Folks

Just thought I'd post to say hi. I've been a lurker on here for a while and as a natural introvert, I thought it was time to "man-up" and make myself known.

Anyway, hopefully I can add some value on here and don't get flamed too badly ;-)

Thanks
Cannon Fodder :-)
adjdaa2
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China
08/31/2012 12:50 AM
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Re: The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg
lt0831sm

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