Property Rights and Securitization of Mortgages

Yesterday's post -Janet Takavoli - "This is the biggest fraud in the history of the capital markets" was done in a bit of a scatter shot manner.  I kind of knew I was on to something significant, but really had not formulated my thoughts on exactly why it was significant.  Hence, the seemingly random collection of data.   Having cogitated on the matter a bit, I believe it boils down to two main issues, namely;

1. Property Rights
2. Capitalization of the (Too Big to Fail) Banks

Property rights, in particular home/land ownership is sacred in the good ol' USofA and is, in some respects, differs us from a third world country, and even some first world countries.  Think about the process of buying and selling a home and the procedures that are in place to insure the title is transfered properly.  There is a title company involved and title insurance to make sure that that title (the ownership of the property) is money good.  This involves the owner as well as any lien holders.  When the property changes hands, the liens must be cleared, recorded with the county in which the property is located - all-in-all a very formal process.  With the exception of eminent domain exerted by the State under strict judicial review, property rights and the transfer of property rights is wholly sacred in this country.  Clearly this process has been grossly violated in the rush to securitize mortgages.  The greed of WS knows no limits.  From the fly-by-night mortgage originators, to the securitizers, to the foreclosure mills who have facilitated the white shoes - a whole sale breaking of the law(s) has occurred.  And to think our congress critters tried to give them a pass - despicable.

The second aspect of this, is the one the Jim Sinclair picked up on immediately.  Namely, that if the ownership of the properties is not validated, not perfectly clear, then the value of the securitized debt becomes in question.  The OTC derivatives that are Mortgage Back Securities, the fuel to the fire of the great housing asset bubble culminating in the financial melt down of 2008, the securities that were supposed to be marked-to-value which caused the rout of the financial markets, until the accounting standards were relaxed to "mark-to-make-believe" - we are now seeing what they are really worth - nothing, since without the ownership and lien order of the underlying securities, the mortgages, being valid, the securities are fraudulent.  And, the banks balance sheets are crap.  It is not clear how this will play out.  While the congress critters probably have no stomach for TARP 2, our government, Treasury, in particular, has shown no lack of willingness to skirt the laws, and you can expect that your childrens children will pay for the criminal folly of the Banksters.  Remember, inflation is the expansion of money and credit (debt) and now we are finding that much of the inflation created by the housing bubble which is secured by the properties themselves cannot even be foreclosed upon...marked-to-market, and may need to be realized as marked-to-zero...the Banks would be toast.  Treasury and The FED will not let this happens, this would be wholesale deflationary, we would be talking Prechter big time.  Turbo Timmy and Helicopter Ben will not let this happen - QE2 to infinity, Au to 1650...