The Financial Tsunami: By F. William Engdahl

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


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 not 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 ...Continued>>>
http://globalresearch.ca/index.php?context=va&aid=7413

this is great news for homeowners. All we have to worry about now is our corrupt, fascist, nazi supreme court! When we get this country back we have to impeach the bastards. Bush was never legally elected president so he doesn't get to appoint anybody for anything.

Money As Debt
http://video.google.com/videoplay?docid=-9050474362583451279

from the great unwashed to the guys and gals living in luxury they are all in involved in this elaborate scam to defraud the entire system....truly amazing.

The Journal's lead story today states that in the 1Q of '08, some $362B in ARM's will "reset" (read: interest rates will rise).
The article states that many of the foreclosures already taken are from speculators and/or homeowners that went in for a flip and were caught in the market collapse. Now, with the yearly uptick in rates due, we can look forward to continued erosion of equity in R.E.
Meanwhile, the idiototic media stands in front in Best Buys trying to figure out if the yearly holiday insanity will somehow rescue the country from the inevitable.
Folks, there's no way to sugarcoat this: we're in for tough times.

as an "opportunity" to screw us all..

Um, yes, he does. Because he was inaugurated. The constitution has no nullification clause for election fraud because that's a state matter. His signatures on bills, his vetoes, and his appointments are as legal and binding as those of non-scumfuc presidents who didn't steal the office. Sorry to close down your fantasyland, but that just ain't how it works.

He said u didn't even need a reason. That's cool with me. I just want them GONE!

stateroom by stateroom.

It's a fact. The whole banking system is about to collapse. If you read articles especially over at the Daily Kos, you can see that the whole thing is finished. There's not enough equity to cover all the debt or vanishing equity in these subprime portfolios.

The bankers all know this. So do the financial companies, along with FNMA and FMAC. Of course they know it in Washington as well. Take a close look at Bush and Cheney. See the pasty white faces? Their hair has just taken a new shade of grey. They know what's coming.

It's an absolute, unstoppable un-fixable Meltdown. Because it covers more than just the subprime mortgages. It involves construction loans, credit cards, jobs which are related to the real estate industry the Whole Enchilada.