Daily Caller: One Nation, Under Fraud (Friendly Warning: The Foreclosure Mess is About to Get a Lot Worse, and That Will Affect You) (New Update in Post #508)

[brandymac27]

I'll happily tell you how to become a lot richer after those six months. All it takes is you being willing to listen.

Please tell me how you will be rich. I want to be rich too

[Hubbs]

Less smart ass and insults, and an actual fact?

A document is on file, down at the courthouse.

You keep claiming, without any support whatsoever, that no, it isn't. That it doesn't exist.

I'm sorry, I have a natural tendency to descend into smartass-ness. I'll try to counter it.

The documents on file only state that John Doe owns the house so long as Bank 1 is paid $200k. Well, Bank 1 got paid. So where are the documents stating that John Doe needs to keep making payments?

Please tell me how you will be rich. I want to be rich too

Shorting bank stocks. I don't know if you've seen the stories, but the people who shorted bank stocks in 2008 made millions. Now, that doesn't have anything to do with whether or not I think shorting should be legal. But for now, it is, and you can make a mint shorting Bank of America for an indefinite period of time. Also, credit-default swaps on Bank of America should be golden, because they're activated whenever Bank of America experiences what's called a "credit event," which a bailout normally qualifies as. (Also, ending a sentence with a preposition is something up with which I will put.)

[Larry]

The documents on file only state that John Doe owns the house so long as Bank 1 is paid $200k. Well, Bank 1 got paid.

Paid by whom?

[Hubbs]

Paid by whom?

Paid by other banks, who can't prove that they paid specifically for the mortgage, because the documents showing that they did have been destroyed.

To the courts, the other banks simply gave Bank 1 $200,000. And when the courts ask which bank did this, even if it was a bank who paid a different bank who paid a different bank, the evidence leads to the answer, "I have no ****ing clue." Which is the point of what I'm saying.

[Fergasun]

Larry,

Bank 1: "Absolutely, Your Honor. Here's the original documentation. Which was filed with the Clerk of the Court on the day of the closing, and has been in the court's possession, continuously, ever since."

This is the problem.

From the Economic Populist article I quoted:

The creation of a mortgage backed bond securitization process in the 1990s led to the establishment of a financial industry clearing house for mortgage documents, called MERS. The industry assumed and asserted that MERS replaced the traditional, time-tested legal process for recording with county officials all property titles, mortgages and liens, and notes evidencing indebtedness. The intent of the banks which established MERS was to circumvent the government property record system and privatize it with a system they owned, and which they intended eventually to own all mortgages in the US. This helped the banks avoid billions of dollars in fees and taxes which traditionally had been paid to local governments each time a change was made to a property’s chain of title. Under this system, MERS has claimed that it is the owner of a mortgage in default (it is the mortgagee), but at the same time the member banks which own MERS and must go to court in a foreclosure have also claimed to be the mortgagee.

Do you see the problem? The banks intentionally did not record the transactions at the county level (it is hard to know how widespread this is).

While MERS seemed to do an adequate job of recording electronically on its books the transfer of ownership of a property or any creditor claim to that property, it did not follow through on the necessary recording of titles, notes, and related mortgage documents with the appropriate county officials. For one thing, this avoided paying hefty fees and taxes to these local governments for each transfer of a mortgage or related change to the chain of title for a property. Secondly, this allowed MERS to claim its records alone were sufficient to record property rights, even though its records were restricted to its members and kept hidden from the homeowners involved.

[techboy]

Shorting bank stocks.

Yes, that will work, if the crisis is as bad as you think, and if it hits bank stocks before you go broke holding the shorts and if you start shorting before anybody else realizes what's going on and drives down bank stocks and if the government doesn't keep the stocks propped up by announcing an intervention of some sort before the big fall you seem to think is inevitable.

Don't invest anything you can't afford to lose.

P.S. If this was your only idea, your offer to tell others in six months after you get rich yourself doesn't really make any sense, because the way you would be making money is to ride the stock down, at which point it will be too late to get in on it.

P.P.S. If you really are sure of this, shut up. The more people that get in on it, the less profitable it will be for you (assuming you're right).

[Hubbs]

Yes, that will work, if the crisis is as bad as you think, and if it hits bank stocks before you go broke holding the shorts and if you start shorting before anybody else realizes what's going on and drives down bank stocks and if the government doesn't keep the stocks propped up by announcing an intervention of some sort before the big fall you seem to think is inevitable.

Don't invest anything you can't afford to lose.

P.S. If this was your only idea, your offer to tell others in six months after you get rich yourself doesn't really make any sense, because the way you would be making money is to ride the stock down, at which point it will be too late to get in on it.

P.P.S. If you really are sure of this, shut up. The more people that get in on it, the less profitable it will be for you (assuming you're right).

Yes, I understand all of this. If I'm right, I should shut up for my own benefit. Just like chartists should shut up for their own benefit if they're right.

What I'm telling you is that I'll take the hit. I'll accept the fact that I'll make less money. I'll waste my time, if it means that other people won't be wasting theirs.

I'm doing something entirely and completely counter-intuitive for me. And I'm okay with that.

[brandymac27]

Shorting bank stocks. I don't know if you've seen the stories, but the people who shorted bank stocks in 2008 made millions. Now, that doesn't have anything to do with whether or not I think shorting should be legal. But for now, it is, and you can make a mint shorting Bank of America for an indefinite period of time. Also, credit-default swaps on Bank of America should be golden, because they're activated whenever Bank of America experiences what's called a "credit event," which a bailout normally qualifies as. (Also, ending a sentence with a preposition is something up with which I will put.)

Sorry, I'm a complete dumbass when it comes to this stuff. Exactly how much capital do you need to do this and get rich?

[Hubbs]

Sorry, I'm a complete dumbass when it comes to this stuff. Exactly how much capital do you need to do this and get rich?

Not much, really, because you can short on margin, which means that you borrow the ability to short. I would emphasize that this will only make your rich if I'm right. I'll do a lot to convince you of that fact, but you should never abandon the notion that you'll only get rich if I'm right, and you'll become poor if I'm wrong.

[brandymac27]

Not much, really, because you can short on margin, which means that you borrow the ability to short. I would emphasize that this will only make your rich if I'm right. I'll do a lot to convince you of that fact, but you should never abandon the notion that you'll only get rich if I'm right, and you'll become poor if I'm wrong.

I have no idea how to do what you're talking about, but I do have some extra money ($ that I have saved but could afford to lose) that is just sitting in savings right now. Could you send me a PM telling me how to go about doing this?

[techboy]

Not much, really, because you can short on margin, which means that you borrow the ability to short.

And, as you say, if you're wrong, or if any of the other things I mentioned don't happen, the person that does this on margin will lose his or her shirt. Brokers expect their loans to be paid back, even when the client is wrong.

Anyone thinking about trying any strategy on margin would do well to read

http://www.bogleheads.org/forum/viewtopic.php?p=73207&highlight=#73207'>this thread

. From his edited OP:

Summary: Econ grad student applies Mortgage Your Retirement theory at the top of the last bull market, starting around 2x leverage, loses $210K of borrowed money, and is forced is to sell what's left of his portfolio at S&P 821 in November 2008. The complete wipeout results in a reflective period where he recollects the circumstances that led him to adopt this strategy, some of which will be included in a book.

He thought he had it all figured out too.

It's a fascinating read (and I followed it in real time), because he is very open and honest as things start to go south.

[Larry]

Paid by other banks, who can't prove that they paid specifically for the mortgage, because the documents showing that they did have been destroyed.

I find your assertion that Bank 1 is going to testify that "Your Honor, we were paid for this mortgage, but we don't know who paid us, or when, because we intentionally got rid of the record of who paid us", completely unbelievable.

And if their answer is "We were paid for this mortgage by Bank 2", then the judge's response is "OK, we have now established that Bank 2 owns this mortgage."

[Hubbs]

I have no idea how to do what you're talking about, but I do have some extra money ($ that I have saved but could afford to lose) that is just sitting in savings right now. Could you send me a PM telling me how to go about doing this?

Again, I would only say to you that I'll send you a PM if you think I'm right. It would be bad for me to send you that PM if I'm wrong. What I'm talking about is making money by betting that the stocks of major financial companies will go down. The stock will go down because major financial companies rely upon the ability to foreclose on homeowners that they can't actually foreclose upon. I'll spend time trying to explain to you why that is true. I would hope that you'd be willing to listen.

[Fergasun]

Don't short on margin, please! Don't buy on margin, please!

You will get crushed if it doesn't go your way.

[Fergasun]

Larry,

If bank 1 doesn't own the mortgage they have no business being in court. That's the problem. Some of these affidavits which said "Yes, we own this paper" have started to get thrown out of some state courts because judges are believing them to be fraudulent. There are companies out there advertising the fact that they will help create the paper that was lost. Again, it might not be very widespread, it might be 10% of the cases; but its an issue.

None of this means homeowners are in the clear as I understand it, but it may mean the banks can't foreclose on them.

[redskins59]

Shorting bank stocks is a terrible idea because these stocks have already gone down big time this year already. Take last week, for example. Bank of America alone has been down 10% last week. BAC was almost at $20 in april-may, and now it's at 12. The foreclosure mess IMHO is already baked in to the stock price. I'm personally going long bank of America. What I'm about to do is buy 100k worth of 2013 $15 calls, because if you look at the bank earnings, they've actually been going up. If Bank of America doesn't get to 20 by Jan 2013, I'll cut my ears off. I am that sure about this. Without financials recovering, there will be no economic recovery. Seriously, who believes that the economy won't recover by Jan of 2013? Sure, the unemployment rate will be high, but we'll be adding around 200k jobs a month by then. Obama will lose all 50 states if financials don't recover, because as financials go, so does the economy.

[redskins59]

Larry,

If bank 1 doesn't own the mortgage they have no business being in court. That's the problem. Some of these affidavits which said "Yes, we own this paper" have started to get thrown out of some state courts because judges are believing them to be fraudulent. There are companies out there advertising the fact that they will help create the paper that was lost. Again, it might not be very widespread, it might be 10% of the cases; but its an issue.

None of this means homeowners are in the clear as I understand it, but it may mean the banks can't foreclose on them.

They will eventually be foreclosed. If homeowners aren't paying their mortgage, do you really think they'll be allowed to stay for free? It may take 6 months, but if homeowners aren't paying, they'll be eventually evicted. Yes, documents are a problem right now, but this will be fixed within a month. Just a bunch of greedy lawyers trying to make a mountain out of a mole hill.

[techboy]

What I'm talking about is making money by betting that the stocks of major financial companies will go down. The stock will go down because major financial companies rely upon the ability to foreclose on homeowners that they can't actually foreclose upon.

It's not quite that simple. Even assuming that you are right about the depth and result of this situation (and I'm not convinced at all), there are still other factors at play.

First, you have to avoid getting in too early, because a bump up could wipe you out, especially if you're using heavy margin. As Keynes said, the market can stay irrational longer than you can stay solvent.

Second, you have to avoid getting in too late, because once the stock drops, shorting won't work (obviously). There are legions of professionals on Wall Street whose only job is to analyze companies and determine what is going on with them. You've got to beat these people to the punch, because once they determine the stock is going down, they aren't going to hold it, and once they act, the stock drops. This means that you either need to know more than all of them (and I promise you, they read court documents and newspapers too), or you have to be smarter or luckier than all of them.

Third, you have to know that the stock will plummet at all. Financials dropped hard in 2008 because we were in a nearly unprecedented crisis and no one knew what was going to happen. People expected major banks to go under.The risk of holding a bank stock at all went through the roof. Now, though, we know that the government won't let a big bank fail. The risk is much lower, and it is very likely that if the banks stocks drop much at all, bargain hunters will jump in, secure in the knowledge that no matter what happens, there will still be a Bank of America (for example). That will put the stock right back up.

You yourself have suggested that the government will bail out the banks, and it's not hard for me to imagine that everybody else on Wall Street expects this too, which could easily be why the stocks haven't already fallen, given the public information you've been analyzing yourself.

It's a huge gamble, and again, I wouldn't suggest using money you can't afford to lose. Especially not on margin.

[techboy]

For the record, while I agree with this...

The foreclosure mess IMHO is already baked in to the stock price.

...this...

What I'm about to do is buy 100k worth of 2013 $15 calls, because if you look at the bank earnings, they've actually been going up.

... is pretty nuts too.

What makes you think that your opinions about the economy and earnings aren't just as "baked in"?

[redskins59]

For the record, while I agree with this...

...this...

... is pretty nuts too.

What makes you think that your opinions about the economy and earnings aren't just as "baked in"?

It's highly risky, but I'm willing to lose all my money. JP Morgan has hinted that they will raise dividend next year. That alone will make the stock price go up. Bank of America will do the same thing. Now, if you look at all the bank stocks, which I have been doing, Bank of America has been hammered the most because of Countrywide financial. Merrill Lynch also has a huge mortgage portfolio. In the long term, Merill Lynch and Countrywide will add value to Bank of America.

[techboy]

It's highly risky, but I'm willing to lose all my money. JP Morgan has hinted that they will raise dividend next year. That alone will make the stock price go up. Bank of America will do the same thing. Now, if you look at all the bank stocks, which I have been doing, Bank of America has been hammered the most because of Countrywide financial. Merrill Lynch also has a huge mortgage portfolio. In the long term, Merill Lynch and Countrywide will add value to Bank of America.

And again, the same people that "baked in" the financial crisis know all of this too, I can assure you.

Still, I wish you (and Hubbs) the best of luck, though I don't see an easy way that can happen at the same time.

[redskins59]

And again, the same people that "baked in" the financial crisis know all of this too, I can assure you.

Still, I wish you (and Hubbs) the best of luck, though I don't see an easy way that can happen at the same time.

Eugene Fama, who is the father of the efficient market theory, found out through his research that if you buy companies with a low price/book or low price/earnings ratio, you will in the long run beat the market. Now, you would obviously want to diversify your portfolio, but there are times, when markets can be really inefficient. For banking stocks to go up in the long haul, all they need to do is keep beating analyst expectations. Bank of America was this low last year in July, if I am correct. I know that around february-march last year, BAC actually hit $3.

[zoony]

The $10 billion dollar amount was suggested by someone who doesn't know the full scope of what's going on.

Still think the people talking about a depression are, as Basil Marceaux.com would say, "nutcakes"?

Quite frankly, yes. At least with the reasoning I've seen so far.

....

[brandymac27]

Well then what's the best way to make a lot of money in this economy w/ limited cash??

And Hubbs, I'm more than willing to listen to you.

[techboy]

Eugene Fama, who is the father of the efficient market theory, found out through his research that if you buy companies with a low price/book or low price/earnings ratio, you will in the long run beat the market. Now, you would obviously want to diversify your portfolio, but there are times, when markets can be really inefficient.

Fama and French (his collaborator on most of his work) weren't really the fathers of EMH, which has been around in one form or another for over a hundred years, though they did lead the wave that made it the dominant theory in academia for most of the 20th century.

And yes, they found in their research that over long periods, what they call value stocks (and small too) tended to do better than the general market historically. This doesn't necessarily mean the market is inefficient, though (as you can imagine, since Fama is still the most vocal efficient markets theorist), because many people think that small and value outperform because they are riskier, and therefore are properly compensated. Others think it's behavioral. Who knows? I personally tilt a bit to small and value in my portfolio, but I couldn't tell you for sure why the outperformace has occurred or even if it will persist (I hope so, though). Some people think it won't, by the way, that it is an historical artifact.

Either way, what you will also see if you examine the work of Fama and French and their five factor model is that there are also very long periods of time (sometimes a decade or more) where small and value do not outperform. Recently, small and value have done very well, but Five factor investing is a very long term play.

Betting it all on a single stock, over a period of just a couple years, strikes me as insanely risky, and I still don't understand how you can think that some public information is included in the stock price, while other public information is not.

Good luck, though.

Well then what's the best way to make a lot of money in this economy w/ limited cash??.

Bet it all on black.

Sadly, as usual, there are no certain "get rich quick" schemes.