Not content to take just your house, Arizona is now letting banks go after former homeowners for money, even after the foreclosure is sold to a third party.

The way it used to be in Arizona: buy house for $80,000 grand, borrow $100,000, default and you lose the house.

The way it now is in Arizona: Buy house for $80,000 grand, borrow $100,000, default, bank takes house, sells house to real estate vulture for $40,000, bank can now chase former homeowner for $60,000, for the rest of their lives.

And we all know the banks and the vultures are probably the same people.

Old Test:  ”If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest.”

New New Test:  ”If you lend money to people who are poor, make sure the law and the fed are on your side.”

In physics it takes more energy to get on object moving then to keep it moving; static vs. kinetic friction.

Once the populace begins moving against our current kleptocratic regime

LOOK OUT

Until that happens, the kleptocrats will continue their con-game on the silent majority. 

For those who blame Republicans or Democrats, they need to take their blinders off.  They play the good-cop/bad cop ploy to perfection.

I like the Mets and don’t like the Yankees.  If you like the Yankees would you still put good money on them winning the World Series this year??

Eliot Spitzer is a hypocrite of the highest order whose stupidity and hubris rival Greek and Shakespearean actors, but he must be saved to send a countervailing message to the Bear Stearns, ne Wall Street, bail-out.

Without the redemption of Mr. Spitzer, Wall Street will be doubly emboldened to rape and pillage both the American Taxpayer and the American Investor for years to come.

Hypocrisy and self aggrandizing behavior must be tolerated in this case precisely because the main target of Spitzer’s behavior was not the weak but, as evidenced by his swift downfall, the powerful.

Despite the dislike both Democrats and Republicans (the rich ones of both parties that is) have for him and his heavy handed prosecutorial methods, his public persona as a champion of the little guy must trump his other foibles and petty crimes.

Even though his attacks on Wall Street may have been motivated by electoral self-interest and, evidently his prosecution of prostitution was steeped in hypocrisy, his attacks on financial con games were still grounded in real, costly, and long-standing Wall Street malfeasance.

The dual encouragement of bailing out Wall Street stupidity at taxpayer expense and punishing the Sheriff of Wall Street for not towing the party line must not be allowed to stand. Make no mistake, he is no longer Governor because of he refused to follow standard operating procedure when dealing with the sacred NY cow of Wall Street.

Proportionality

Former Senator Phil Gramm, one of the architects of the deregulation that led to our current “credit crunch”, is now making millions as a Vice Chairmen of the Union Bank of Switzerland (UBS) while Elliot Spitzer is being crucified for sex.

“Structuring” may be a crime but so is treason. Senator Phil Gramm championed legislation for yeas that allowed an agent of a foreign government, UBS, to profit enormously for years and which is now threatening the collapse of the American Economy (according to the Federal Reserve).

Of course, we don’t know for sure that Senator Phil Gramm committed treason and the constitution does require overt acts, but has the FBI dedicated the same effort to the investigation of $10 billion in losses that are now being covered by the American taxpayer as they did towards the movement of less the $100 thousand in unseemly commerce.

Add to UBS all the Caymen Island hedge funds that have reaped disgusting profits since both deregulation and the elimination of Glass-Steagall Act. These same tax dodging entities are now threatening our financial security and, if the Bear Stearns model is followed, will cost US taxpayers billions, and maybe trillions, of dollars.

Any prosecutor with high office aspirations could make a career out of attacking these tax dodging, tax bailout, millionaire hedge fund enterprises just like Spitzer did following the Dot Com bubble. But, with the seemingly perfect timing of Spitzer’s comeuppance, these potential prosecutors have been sent a none too subtle message; make your bones attacking the defenseless and handle the powerful with kid gloves .

Eliot Spitzer, like still serving Senators Larry Craig and David Vitter, is a high ranking hypocrite, but that is not the reason for his downfall. He attacked the status quo; attacking long standing Wall Street practices and applying intimidation techniques usually reserved for the defenseless defendant and not the well healed, influence peddlers of Wall Street.

Now I like an abusive prosecutor even less then I like a philanderer, but this country and it halls of of government are full of both. The truly rare thing is someone who attacks the status quo.

Is it any coincidence that the only other high profile disgraced prosecutor also tried to attack some rich kids, Mike Nifong? The “Duke Lacrosse” prosecutor’s downfall, considered on it’s own in a vacuum, is a triumph for defendant’s rights and a rebuke of an abusive prosecutor’s reprehensible behavior. But we don’t live in a vacuum.

What happened to the prosecutor in the Central Park Jogger Case, that, unlike the Duke case which resulted in no undeserved jail time, saw five innocent young boys serve sentences ranging from five to thirteen years.? Oh yeah, that prosecutor recently ran for President of the United States. See a pattern here?

Eliot deserves a “Get out of Infamy Free” card to send the message that while we bail-out Wall Street for the “Greater Good” we must also bail out the nemesis of Wall Street for the Greater Good.

“Everybody talks about the weather, but nobody does anything about it.” – Mark Twain

I had been trying to get my head around this whole issue with Auction Rate Securities. Once again, the Time’s Gretchen Morgenson covers the basics of another investment shell game in her March 9^th article: As Good as Cash Until it’s Not.

Ms. Morgenson classifies the misrepresentation of Auction Rate Securities as a Wall Street problem: “The investments, which Wall Street peddled as a cash equivalent, are known as auction-rate notes.” As a former ethically inflexible broker myself, my perspective is that this is just another example of rewarding unethical, and most certainly illegal, behavior on Wall Street. By classifying it, incorrectly, as a Wall Street problem, the article takes an editorial stand that the Auction fiasco in not the result of unethical and most likely illegal, behavior but standard Wall Street operating procedure.

Isn’t fraud a common law principle still contained somewhere in the American legal canon? I’m sure the Times isn’t asserting that fraud is standard operating procedure on Wall Street.

Broker Example:

Broker A: Our Money Market Yields 3.5%

Broker B: Our Money Market Equivalent yields 4.5% (never revealing the, now realized, pitfall of zero liquidity)

Allow this behavior for too long and eventfully Broker A will be either be out of business or begin changing his ethics he can compete with Broker B.

On the other side of these transactions are hundreds of municipalities. Similarly caught in this Interest Rate shell game, these municipalities are facing situations analogous to a mortgage borrower with a 7, 14 or 28 day ARM.

Investment Banker Example:

The town of Springfield is trying to build a monorail and needs to raise $30 million dollars.

Investment Banker A: Offers to issue $30 million in 10 year fixed bonds @ 6%

Investment Banker B: Offers to issue $30 million 10 year Auction Pfds @ 4%

Just as Broker B does in the previous example, Investment Banker B never emphasizes the con, only highlights the pros, of these Auction securities. The con being that if no one buys at the next auction the Investor loses liquidity and the Issuer (municipality) gets the exorbitant penalty rate.

Of course prior the recent failed actions (70% failure by some estimates), the Investment Banker assures Springfield that the weekly or monthly auctions have been successful for three decades and the exorbitant failed auction rates, possibly as high as 20%, are only just so much legalese. Just like fraud, I’m pretty sure the word fiduciary is still in our legal cannon.

The Time’s article acknowledges that investors were intentionally misled:

“In interviews, investors who own these securities say they weren’t warned that they might not be able to sell them if an auction failed. They say they were told that the instruments were as safe and liquid as — yes, you guessed it — cash.”

No mention is made of any investors who knew the true nature of these investments. It seems that all current investors are the poor schmos who order the fish of the day not realizing it’s really the fish that went bad yesterday. Most likely, informed investors were smart enough to exit this market months ago.

Neither is there any mention in the Time‘s article of any informed brokers who advised their clients to exit this market in the months preceding their failure. I guess there’s a thin green line preventing them from outing their corrupt brethren.

Of course these tactics not only allow the less informed ,or less ethical brokers, and investment bankers to steal business from the better informed and more ethical, it also happens to generate hugely exorbitant fees. Again Ms. Morgenson notes:

“Wall Street made generous fees issuing these securities and running the auctions — as long as there were bidders. After the bidders vanished, some firms stepped in and bid for the securities for a while, giving investors a way out.

No more. What’s the sense stretching your already-thin balance sheet just to keep a market open for your customers? “

A favorite of marketers is the term built in obsolescence. Take a product that lasts for years and turn it into a product that has to be repurchased every couple of weeks; sharpening a straight razors sucks…get a new blade for your Mach 3 every two weeks.

Someone must have realized that a 30 year bond issued at a fixed rate once at inception doesn’t generate as much fees as a 30 year issue that needs to be reissued every week or month.

This behavior makes an investor want to learn how to use a straight razor like a certain Sweeney Todd.

Ms. Morgenson asserts, hopefully incorrectly, that Broker B and Investment Banker B are representative of all of Wall Street. After all she said “Wall Street convinced investors that they were just as good as cold, hard cash.” Individuals people and Individual Corporations committed this fraud and individuals should be held accountable, not “Wall Street”.

In closing, companies and individuals on Wall Street will continue to convince their clients to do things against their own interests so long as it is rewarded handsomely for that behavior. And the ethical and honest will continue to leave Wall Street. Investors must insist that individuals like Broker B and Investment Banker B are held to account in civil, if not criminal, court.

Web Blog Calculated Risk has been breaking great stories on the housing market for quite some time.   My favorites posts are the ingenious ways that savvy deadbeat borrowers are putting the screws to the lenders. Disregarding the poor schmo who naively bought a bigger house then he/she should have, there are great anecdotes about the lender getting the short-end.

A) Jingle Mail is just one hurdle for any mortgage lender. The technical name is Ruthless Foreclosure; it’s when a homeowner with large negative equity simple mails their house key to the lender and walks away. A neat wrinkle involves a borrower who first buys a second house, on the new cheap, prior to destroying their credit score for a few years by walking away.

B) Taxes and mowing the lawn. What does a lender do with a foreclosed property’s taxes? Imagine you loaned someone $600,000 only to foreclose on a property now worth $500,000 with another $5000 taxes due. Needless to say you, as the lender, can’t afford to wait for the market to rebound…paying all the property taxes and mowing the lawn while you hold on.

C) And now we hear of this from Florida via The Big Picture: Foreclosure-Proof Homeowners.  In brief, the court system is so backed up in Dade and Broward counties that deadbeat “owners” of $2 million plus homes are living rent/mortgage free; some for as long as two years. Not only is the court system backed up 8-10 months but the mortgage servicing merry-go-round of the last few years has made it even worse for lenders.  Missing paper, mortgage bundling, and great homeowner attorneys makes these cases ripe for long proceedings.    Of course, this only favors the well healed deadbeat. Keep in mind that most state laws prevent a lender from getting any more then the original collateral.

No wonder some cities are buying the foreclosed properties themselves…and razing them.

I can’t end this post without a story of a true victim.   I heard this sad story from the man’s mother:

He had been renting his home for over five years in 2007 when his landlord told him he was selling the property.   He gave my friend’s son and her two grandaughters two options: move him and his two daughters out in 30 days or buy the house.   Sadly, he chose the latter with both a standard mortgage and the so called “piggy-back” at the height of the market.  Of course the landlord new it was overpriced, that’s why he was selling.   Now, like countless other, this hard working father has negative equity and can’t refinance his ARM like his broker promised at the outset of the purchase.

Luckily, or unluckily, he is in a union and can get all the OT he wants and now needs to keep up with his new scalp rate.   I urged his mother to tell him about the HOPE-NOW program last week when I heard his story.

Well he had already called the number a month ago only to be told that he can afford to pay so no help for him. It seems the hope and help only apply if your already drowning in debt not when you fall off are pushed off the boat and can still tread water.

A)Huffington Post 2/27/2008 : US Imprisoning More Than 1 In 100 Americans

“For the first time in U.S. history, more than one of every 100 adults is in jail or prison, according to a new report documenting America’s rank as the world’s No. 1 incarcerator.

B) Leonard Lopate Show 2/28/2008 : Unfair Crack and Cocaine Sentencing Guidelines

“According to current federal sentencing guidelines, convictions for the sale of 500 grams of powder cocaine – and only 5 grams of crack cocaine – both result in a 5-year mandatory minimum sentence. Jesselyn McCurdy, legislative counsel for the ACLU, explains why this sentencing disparity is unfair and fails to address the larger problem of the drug trade. Karen Garrison is the mother of 2 sons who are each serving long sentences in federal prison for non-violent crack cocaine offenses.”

C) Bloomberg 12/13/2008 : Bush Fraud Probes Jail Corporate Criminals Less Than Two Years

“Median sentences for white-collar crime changed little in the 1990s, holding in a range of 12 to 13 months, commission data shows. That number increased to 15 months in 2001 and reached 18 months last year, reflecting the new guidelines…On July 17, the task force’s five-year anniversary, then- Attorney General Alberto Gonzales announced that the department had obtained 1,236 corporate fraud convictions….”

I’ll leave it to someone else to crunch the numbers thrown out in all these stories. It should be obvious that with 1,236 corporate convictions of less then two years, on average, would account for less the 0.0001 percent of the current prison population.

Even the high profile convictions of Enron, Ebbers and Conrad Black do not change the profitability of corporate crime.

From Bloomberg: “Sixteen HealthSouth employees pleaded guilty and helped prosecutors unravel a $2.7 billion accounting fraud that surfaced in 2003. Eleven got no time in prison. Former HealthSouth CEO Richard Scrushy was acquitted of accounting fraud charges.”

Ask yourself what the punishment might have been for these sixteen individuals if they were caught selling $2.7 billion of crack or even 2.7 pounds.

Unlike drug use or dealing, corporate fraud is not a victimless crime, so why the lighter sentences??

From ESPN Today:

Congress talking about legislating PEDs in all sports

(PEDs: Performance Enhancing Drugs)

“WASHINGTON — Once again, professional sports and their leaders were hauled up to Capitol Hill on Wednesday by lawmakers who say they might try once again to legislate drug-testing policies for U.S. leagues.

Facing a House subcommittee that also held hearings on steroids in 2005, commissioners sat side-by-side with their sport’s union chief: Bud Selig was inches away from Donald Fehr; the NBA’s David Stern was next to Billy Hunter. Then there was the NFL’s Roger Goodell and Gene Upshaw, and the NHL’s Gary Bettman and Paul Kelly, who rounded out the day’s first set of witnesses. “

Notice anyone not represented is this august group….FANS !

I’m sure that the rich players and the even richer owners will get a sympathetic ear from the rich Democrats and the even richer Republicans

It’s akin to asking drug dealers and a drug addicts to draft drug laws.  Oh wait, it’s exactly like that.

From Bloomberg: “SEC Struggles to Pin Insider Trading on Fund Sales“ Simply put, Hedge funds that make money on inside information and inside access to private stock offerings escape prosecution. Just another example of eroding trust in the financial markets.

Whether its new DNA tests or other scientific advances, we read almost daily about innocent people on death row; and hundreds more falsely imprisoned for years. I applaud those who strive to free the innocent, more often then not on a pro bono basis. Unlike some conservatives, I have always felt the imprisoning the innocent is a greater threat to society then allowing the guilty to go free.

Look here to see how many innocents we know of: Innocence Project

Doesn’t the lack of a any state sponsored reinvestigation of the Kennedy assassination indicate something to you? If scientific advances can free the indigent can’t it be applied with great benefit to history, to a crime last investigated in the sixties?

Just as an unethical prosecutor is reluctant to free the obviously innocent, our country still won’t acknowledge any new truth about who killed JFK and possibly answer the why as well.