NewGeography.com blogs

Since October 2008 I’ve been writing here about problems in mortgage backed securities (MBS). There is more evidence surfacing in bankruptcy courts that the paperwork for the underlying mortgages wasn’t provided correctly for the new bond holders, leading to delayed or denied foreclosure proceedings.

New York Times’ Gretchen Morgenson is reporting new successes in cases from Florida and California. A judgment on a home in Miami-Dade County (FL) was set aside on February 11 when the new mortgage holder could not produce evidence that the original mortgage lien had been assigned. In one of the California cases, the lender tried for foreclose on a mortgage that had previously been transferred to Freddie Mac!

The earliest decision I’ve seen is from Judge Christopher A. Boyko in Cleveland. Plaintiff Deutsche Bank’s attorney argued, “Judge, you just don’t understand how things work.” In his October 31, 2007 decision to dismiss a foreclosure complaint, Boyko responded that this “argument reveals a condescending mindset and quasi-monopolistic system” established by financial institutions to the disadvantage of homeowners. The Masters of the Universe were anxious to pump out mortgages into MBS so they could continue to earn fees – making money at any cost.

One element of the newest Homeowner Bailout program is to allow bankruptcy court judges to modify mortgage loans. If the types of cases decided in OH, FL and CA continue to spread, that may not be necessary. The first question in any foreclosure procedure will become: can you prove a lien?

This raises further questions about those “toxic assets” that Geithner and Bernanke are so anxious to buy up at taxpayer expense. According to the Morgenson article, some MBS holders are trying to force the mortgage originator to take back the paper. However, many of the worst offenders are already defunct.

How far can the totals go? Federal Reserve Chairman Ben Bernanke testified before the Senate Budget Committee on March 3, 2009. He believes that the markets will be “quite able” to absorb the debt issued by the US government over the next couple of years to cover all the bailout and stimulus payments “if there is confidence that the US will get it [the economy] under control.” When Senator Lindsey Graham (R-SC) suggested an “outer limit” at which the national debt was three times gross domestic product, Bernanke said that “it wouldn’t happen because things would break down before that.” They’ll be lending to homeowners who have higher debt ratios than that. Frankly, I’d rather lend to the US government at that ratio, and I suspect a lot of investors – both domestic and foreign – feel the same way.

On the one hand, Bernanke spoke like a “Master of the Universe” when he told the Senators that he wasn’t worried that printing all this extra money would generate future inflation. He said that when the economy begins to grow again, the Federal Reserve is “very comfortable” they will be able to deflate their bloated balance sheet. On the other hand, he did not sound like a Federal Reserve Chairman when Bernanke said “We don’t know for sure what the future will bring.” Of the two Bernankes I like the second one better: no one knows exactly what the future will bring. Why pretend that you know what the best action to take three years from now will be – or what impact it will have. I find it disconcerting, to say the least.

There are a few things we can watch for in the coming weeks and months. The President’s budget came out yesterday and will go through Congress now for approval. Don’t get too distracted by it though – virtually everything in it can change. Instead, work with what you know. The stimulus package was passed and the states are getting details now on how much and for what they can expect money from Washington. Focus on where that money is going. The best way to minimize the damage being done by the Federal Reserve’s printing presses is to be sure that money is spent in the real economy. That means roads, bridges, schools, sewer systems – and not research and development on sources of alternative fuel or studies on global warming. We are in the middle of a crisis. This is not the time to spend on wishes and dreams. If the money is spent on real infrastructure projects, it can help to mitigate the potential inflationary effects later.

The Treasury and the Federal Reserve have no choice but to keep their foot planted fully on the accelerator. Setting infrastructure in place now means we’ll get good traction later when the economy starts moving forward.

Paris Mayor Bertrand Delanoë has spent much of his first term in implementing measures to restrict car use. Delanoë took many lanes of road traffic away from cars and turned them into exclusive bus and taxi lanes. This had virtually no effect on public transport use, according to University of Paris researchers who also found as a result that traffic congestion worsened, greenhouse gas emissions increased and overall cost to the Paris economy of more than $1 billion annually.

Now the Mayor is establishing a car hire program that will make electric cars available throughout the ville de Paris at electric charging stations. Initially 4,000 cars will be involved in the “Autolib” program. London Mayor Boris Johnson has announced plans for a similar program. These are healthy developments and a further reflection that preferred lifestyles can continue, while still reducing greenhouse gas emissions.

From late-night refrigerator raids to splurging on a new wardrobe, everyone is prone to the occasional overindulgence. For San Francisco Mayor, Gavin Newsom, that overindulgence meant nothing more than a plastic water bottle.

In June 2007, the mayor “issued an executive order directing city government to no longer purchase bottled water,” to cut down on waste in the city landfill and to utilize the pristine Sierra Nevada reservoir’s resources.

Last year, Newsom also called on restaurants to stop selling bottled water to customers and has generally declined bottled water at most events.

In something better suited to cushy celebrity gossip rags, an empty case of Crystal Geyser Alpine Spring Water was discovered in the mayor’s trunk of his car.

While a spokesman for the mayor has assured the public that the water was for the mayor’s security detail, the Newsom camp also issued a statement that would be better suited for rehab-bound celebrity.

“The mayor will be the first to admit that he occasionally indulges in bottled water,” said his spokesperson. “It’s not something he’s proud of.”

During these bleak economic times, the public’s hyper-vigilant scrutiny of politicians seems zeroed in on busting them on seemingly inevitable examples of hypocrisy.

Needless to say, Newsom will think twice before purchasing bottled water again.

Looking for a safe haven for your banking investments? The Royal Bank of Canada is about three times the size of Citigroup, Royal Bank of Scotland or Deutsche Bank – and they haven’t cut their dividend in more than 70 years. Although Canadian banking profits declined double-digits last year, they actually had profits. Pretty much the rest of the world’s banks are reporting massive losses.

It seems the folks above the 49th parallel have been fiscally responsible. According to a story on Bloomberg.com “not one government penny” has been needed to support any Canadian bank “from British Columbia to Quebec” since the financial meltdown began in 2007. Not that the Canadian government left them out in the cold, either. A $C218 billion fund was set up last October – ostensibly to be sure Canadian banks could compete in international markets with all the government-backed banks in the rest of the world – but none of the banks took any of it.

According to Bloomberg, European governments “committed more than 1.2 trillion Euros ($1.5 trillion) to save their banking systems from collapse.” As close as I can tell, between the Federal Reserve and Treasury, the US has poured over $3 trillion down the drain of financial institutions.

(To understand the complications in calculating an exact U.S. amount, see my earlier articles for more information on how the Federal Reserve Bank of New York, under now-Secretary of the Treasury Tim Geithner, funneled money through Delaware limited liability companies to non-bank entities.)

Only 7 banks in the world have triple-A credit ratings – 2 of them are Canadian. While the rest of the developed, industrial nations are pouring hundreds of billions each down the black hole that is their financial systems, our Neighbors to the North were engaging in “solid funding and conservative consumer lending.”

Canada is the only member of the G-7 to have balanced their budget 11 years in a row. Immigrating to Canada is looking like a better idea all the time.