Monday

Foreclosures

Posted 8th Jan 2011

How A Massachusetts Court May Have Set Off Another Housing And Banking Catastrophe

Banks got hammered yesterday after the Massachusetts Supreme Court essentially ruled that two foreclosures in the state were illegal because in the process of securitizing the loan, the foreclosing bank lost control of the actual note, and thus didn't have the standing to foreclosure.

Felix Salmon, who nobody would accuse of being pro-bank, sees a real possibility here of a systemic housing market and banking system catastrophe if this ruling is repeated in other states.

Just about everyone who has ever been foreclosed on in Massachusetts will want to confirm that the foreclosure was legal. The Supreme Court ruled that the plaintiffs should actually get their homes back, which should also strike terror into the heart of anyone who bought a foreclosed home at any point.

It just doesn't take much imagination to wargame out a disastrous situation. As Felix notes, if you got this ruling in California, then that would be endgame right there, perhaps.

While the banks may have failed to satisfy the letter of the law, this is deeply problematic justice, since from an economic standpoint, the foreclosing banks were certainly within their rights (there have been a few cases of improper foreclosures, but very few, and it's not obvious that these improper foreclosures are the same side of that coin).

With this ruling, you're left with the problem that people who didn't pay their mortgages get to keep their houses because of paperwork mistakes, which is an unjust remedy.

In December and the first four days of this year, the financial sector was smoking hot. It may have just hit a huge brick wall. [Read more]

Click here to see where foreclosures are still surging >



Automatic Earth article & links re above
Ilargi: Let’s just follow the news today, and cut out main parts too, there's so much going on from where I’m standing. I mean, interesting things are coming from Europe, "Europe unveils sweeping plans to govern reckless banks", and"European nations begin seizing private pensions", but I'm going to have to leave Europe for another day, or before I finish this it will actually already be another day.

And there's plenty of things afloat in the US of A today to fill a book. Or 10. Thom Weidlich has this gem for Bloomberg, which plays into the Randall Wray piece I talked about earlier this week, which claims that most if not all US mortgages and foreclosures and mortgage backed securities are just simply and plainly illegal. Here’s the Supreme Court of Massachusetts:
Foreclosures May Be Undone by Massachusetts Ruling on Mortgage Transfers
Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred.

The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues. A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis. [..]

The banks had initially filed the state-court lawsuits to obtain judicial approval of the use of the Boston Globe to announce auctions in Springfield, Massachusetts. Massachusetts Land Court Judge Keith C. Long in Boston ordered the banks to prove they had the right to foreclose in the first place.

In March 2009, he ruled they didn’t. Published notices listed U.S. Bancorp unit U.S. Bank and Wells Fargo as the foreclosing parties when they weren’t the actual mortgage holders at the time of the 2007 auction, a violation of state law, the judge said. The Ibanez mortgage had been transferred to U.S. Bancorp 14 months after the auction, and the LaRace mortgage was transferred to Wells Fargo 10 months after, the judge said. Long voided the two foreclosures, saying U.S. Bancorp and Wells Fargo didn’t own the mortgages. [..]

Long said the banks couldn’t foreclose without a mortgage assignment that could be recorded in a local land office. The assignments they had didn’t pass muster, he said, because they didn’t name the assignee. "These blank mortgage assignments were never recorded and they were not legally recordable," he said. [..]

The judge also rejected the banks’ contention that having the note, the blank mortgage assignment and a contractual right to obtain the mortgage gave them the "indicia of ownership" of the mortgage. "Even a valid transfer of the note does not automatically transfer the mortgage," Long wrote. In this case, U.S. Bank and Wells Fargo owned the notes while Option One owned the mortgages, he said. The banks’ title-defect problem "is entirely of their own making as a result of their own failure to comply with the statute and the directions in their own securitization documents," Long wrote.

Ilargi: That's quite the puzzle. As Max Keiser said earlier today: "Quick Obama, change the law . . . It’s a NATIONAL EMERGENCY if Wall Street loses a penny and has to comply with the rule of law . . . " I think there's perhaps still hope if and when US courts decide to read, and follow, what's actually in the law. Not that I'm holding my breath. After all, where do these cases go to die? Exactly, the US Supreme Court, the most biased supreme court in the world, along perhaps with those in places like China, Iran and Zimbabwe. Hard to call. Hard to figure who's got the best cards in this game.

• Update Jan. 7: The Massachusetts Supreme Court today ruled against the lenders in the case I addressed above. There may indeed still be hope.

Banks Lose Pivotal Massachusetts Foreclosure Case
US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

Ilargi: Interesting development, but the court leaves open a door or two left and right:
Today’s court decision held out the possibility of securitization documents properly transferring mortgages.

Such documents, along with “a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to be proof that the assignment was made by a party that itself held the mortgage,” Gants wrote. “However, there must be proof that the assignment was made by a party that itself held the mortgage.

Ilargi: Still, this is something else, courtesy Hugh Son for Bloomberg:
BofA Says Fannie Deal a 'Necessary Step’ in Housing Recovery
[..]"Our agreements with Fannie Mae and Freddie Mac are a necessary step toward the ultimate recovery of the housing market," Jerry Dubrowski, a spokesman for the Charlotte, North Carolina-based bank, said today in an e-mail. "We have taken a leadership role in responding to the housing crisis." [..]

The agreements resolved claims from McLean, Virginia-based Freddie Mac on 787,000 loans with unpaid principal of $127 billion sold through 2008 by Countrywide Financial Corp. The deal with Washington-based Fannie Mae resolved claims on about $4 billion in loans, Bank of America said.

Fannie Mae Chief Executive Officer Michael Williams said in a Jan. 3 statement that the agreement with Bank of America was "a fair and responsible resolution."

Ilargi: BofA, one of the main culprits in the housing mayhem, if only through their Merrill Lynch acquisition, says about the exact same thing Goldman CEO Lloyd Blankfein stated last year: they're doing the work of God. The fact that BofA gets away with a deal that has them pay $0.01 on the dollar for debts they themselves have originated, is now declared beneficial for the American people. And who's out there saying this is the bullest of shits we've ever seen? No-one in the main media. Well, except Dylan Ratigan, but he's more like the court jester by now, they keep him around for fun.

Gregory White reports for Business Insider that Florida Attorney General Pam Bondi raises her voice in defense of the law, with a great set of slides depicting how mortgage and foreclosure frauds work:
Anatomy Of A Fraudclosure - Florida AG Reveals How It's Done
A day after a report of settlements between banks and Attorney Generals across the U.S. on the issue of foreclosure-gate, the office of Florida Attorney General Pam Bondi released this blistering presentation on the "Unfair, deceptive, and unconscionable acts in foreclosure cases." It doesn't exactly read like someone is about to give in to a weak settlement.

This presentation explains some of the fraudulent and deceptive activities banks have been engaging in Florida. The now famous robo-signers are discussed, but the use of fake witnesses, documents, and affidavits are also eluded to. Examples of forgeries are included. If you had trouble understanding why many state governments put a halt on foreclosures, affecting firms like Bank of America, PNC, Citi, and JPMorgan, this presentation should make it obvious.

Click here to see the presentation >

Ilargi: So now we find ourselves in one of those eerily familiar Wile E. Coyote moments again: will Obama or Congress change the law, in order to make legal what the law today states is not, or are Scalia and Clarence Thomas to shine their dark lights on it, and simply declare legal what was a crime until they got to interpret the law in whatever way they see fit? Here's hoping that Massachussets Supreme Court Judge Keith C. Long, in Boston, has a spine. But I'm not holding my breath.

Then, US states. Hey, and they should have a strong interest in the fraudclosure files, since the MERS mechanism, whose legality is now under real scrutiny, has deprived them of millions upon millions in state taxes. Maybe there's a glimmer of hope there?! Are they desperate enough yet? If not , they soon might be, if we believe Kevin Freking at AP:

State Budgets Unlikely To Get Aid From Congress In 2011
Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That's been the formula for states trying to survive the worst economy since the 1930s. As Republicans prepare to take control of the House and exert more influence in the Senate, it's clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less.

"We've got to put our fiscal house in order in Washington, D.C.," said Rep. Mike Pence of Indiana. "It's going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well." Rep. Kevin McCarthy of California, the new House majority whip, said GOP lawmakers will try to provide states with relief by cutting their expenses, not by giving them more money. For example, he advocates repeal of the national health care reforms enacted last year. "More importantly, what the states can really hope for is that we turn the economy around so revenues will pick up," he said. "But Washington is in very bad financial shape itself."

Ilargi: Isn't that just lovely? And that's not all. Tyler Durden at Zero Hedge has this to add to the picture:

More Bad News For States: State Revenue Plunges By 31% In 2009 To $1.1 Trillion As Spending Increases
The Meredith Whitney "ubiquitous state default" case may have just gotten another leg up. According to just released Census Bureau data, in 2009 total state revenue plunged by 31%, from $1.6 trillion to $1.1 trillion. "The large decrease in total revenue was mainly caused by the substantial decrease in social insurance trust revenue. Social insurance trust revenue is made up of four categories — public employee retirement, unemployment compensation, workers compensation and other insurance trusts (i.e., Social Security, Medicare, veteran's life insurance)."

But the drop in the top line did not stop states from spending more: in the same year, state government spending rose by 3%, while that pervasive source of backstop funding, the US government, saw its grants to states increase by 13% to $477.7 billion. At this point it is safe to say nobody believes there is a deficit that the US government can not fill.

Ilargi: Know what I mean? No more money for the states, and greatly decreased tax revenues. Great combination: now we can see what we're really made of. At the state level, but also at the federal level. It's dog eat dog from here on in. Meena Thiruvengadam and Jeffrey Sparshott write for Dow Jones Newswires:

Geithner Warns Lawmakers On US Debt Limit
The U.S. could reach its debt limit of nearly $14.3 trillion as early as March 31, Treasury Secretary Timothy Geithner said Thursday. Geithner in a letter to lawmakers said failure to raise the debt limit could "precipitate a default by the United States" and have catastrophic economic consequences--potentially more harmful than the financial crisis in 2008 and 2009. The letter received a cool reception on Capitol Hill.

[..] ... by Monday, the federal debt subject to that ceiling stood at around $13.95 trillion, giving the government just $355 billion before it would be legally prohibited from borrowing to pay its financial obligations. A Treasury official said the administration is hoping to separate the debt ceiling increase from the debate on spending. And in his letter, Geithner said deep spending cuts would delay reaching the ceiling by no more than two weeks. Boehner, though, emphasized the importance of spending cuts. "While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," he said.

Failure to raise the U.S. debt ceiling could cast doubt on the U.S. government's ability to meet its obligations and send shockwaves through the bond market. "Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasurys and the dollar's dominant role in the international financial system," Geithner said. A Treasury official described the request for the increase as routine. Still, the political balance on Capitol Hill has changed, potentially making the process more fraught.

Many conservative candidates ran election campaigns criticizing their opponents for voting to lift the debt ceiling last year, and promised to vote against another increase when federal borrowing hits the current cap. Their promises likely will be tested in the coming weeks.

Ilargi: Oh, yeah, I'm so looking forward to this Mexican stand-off. So what's this going to mean, what if the US debt ceiling is not raised in about three months time? Andrew Leonard interviews Bruce Bartlett, who held big posts under both Bushes, for Salon.com:

"It is the most monumental insanity"
[..] Every single day the Treasury has bills to pay, Social Security benefits, interest on the national debt ... But if the debt ceiling is not raised, the only cash it would have to pay those bills would come from the tax revenues that come in on a day-to-day basis -- from the payroll tax or from income tax withholding. But that would not be enough to pay the bills that are due that day, so somebody at the Treasury is going to have to decide -- as individuals do when their pay doesn't cover their credit cards and other debts -- who gets paid this month and who doesn't.

And, of course, there is a problem with this, because not everybody can be put be off. By law, Social Security benefits have to go out on the first of the month. But the Treasury literally would not have the cash in its account to cover those benefits, or to pay interest on the debt -- at which point you have a default. Any time the precise terms of a bond are not adhered to -- if you don't receive exactly the amount of money you were promised, on exactly the day it was promised -- you have a default, and that is what would happen under this circumstance.[..]

Do we really want to introduce an element of doubt into the financial markets, that a security that is primarily bought because there is assumed to be risk zero risk of default is no longer safe? There is no other security on earth that has that reputation, not even German government bonds.

The U.S. Treasury is the gold standard and we have benefited enormously from this fact. Every time there is some disruption in the world financial markets, people flee to quality by buying Treasuries. As a result, we have benefited by not having to pay for the consequences of our own profligacy. Foreign central banks hold trillions of dollars of Treasuries as the backing for their own securities.

The minute we introduce an element of doubt into their own minds about whether these debts will be paid, suddenly other alternative investments may start to look better to them, and we will lose market share, which will greatly increase the costs of borrowing over the long term. It's the most monumental insanity that I can even imagine.

Ilargi: You know, this actually sounds to me like a great tool in the race to the bottom that all currencies are still involved in. I read multiple things every single day about how the US dollar is toast, but I think not. The Euro feel below $1.30 for the first time in half a year today, and I’m thinking, they're all toast, but I still don't see why the USD would get there first.

Which brings us to today's grand theme. Namely, if the Republican Party shuts off the option to raise the US government debt ceiling, then what?

And I’m thinking, The Bernank is not part of the government. The Bernank can do what he pleases. Well, after conferring with the wizards behind the curtain that got him his job, of course. Anyway, so what’ll he do? He's a Republican, after all. And he could stand back and let the entire Capitol Hill system break down, while still funneling money to Wall Street. I mean, cutting all the crazy spending sounds good to me, you got to stop somewhere. But the first big bad STOP sign should be held up to Wall Street. No more money for you guys!

But what are the chances that will ever happen? Nice posturing, Boehner, but will you shut off JPMorgan and Goldman? Yeah, didn't think so. And you can get it both ways, can't you? You can choke America, choke off a million provisions that run through government, from unemployment benefits through municipal sewage systems, and still keep the big banks alive through the Fed. And then let Fannie and Freddie do what they do best: chalk up another dozen notches of debt for the American people. Buy a home, get a loan, we're past the bottom!

Anyway, the Bernank has his plans ready for execution, say Caroline Salas and Joshua Zumbrun at Bloomberg:
Fed May Keep Easing at 'Full Throttle' Until Decline in Unemployment Rate
Federal Reserve officials signaled they’ll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work.

Ilargi: Even as he's racking up losses like there's no tomorrow (maybe that's his cue), says Tyler Durden:

Ben Bernanke Loses More Money In One Day Than All Of LTCM Ever Did... Doubled
The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.

John Lohman explains:

Chairman Top Tick continues to crash and burn, losing $7.2 billion in Treasury and Agency paper in today’s bloodbath alone. Adding a rough estimate for the MBS holdings would put the session’s losses well over $10 billion

Ilargi: Basically, all we need to figure out from here is whether The Bernank has a debt ceiling. And if he doesn't, who'll stop the rain?

I see two equally absurd themes here:
1 You raise the debt ceiling yet another time, which lets extend and pretend continue unabated until the next ceiling is reached (and/or someone somewhere calls the US bluff, which is closer than you might think).

2 You don't raise the debt ceiling, which will lead to highly unpredictable events, not seen since the Roman empire went broke.

But it doesn't really matter either, does it? It's all about political choices, not financial ones. Because this is a political crisis we're in, not a financial crisis.

There are two things wrong here:
1 Financial institutions can mark their worthless paper assets to whatever price they see fit.

2 Those same financial institutions have access to as much of your taxpayer money (present and future) as they want. They can pay their bonuses with it, their Hamptons homes, their Lamborghini's, their drugs and their prostitutes.

These are the same institutions that are broke, broker, and broken. Really, they will not survive no matter what. But for now, they still have unlimited access to your money. And that is not a financial problem, it's a political one. The people you vote(d) for choose to let this happen.

And to that extent, it makes no difference if Boehner and his lackeys decide that the debt ceiling will remain where it is. The negative consequences of this will fall squarely on your laps and shoulders, not on Lloyd Blankfein's.

They’ll just let the banks and the bankers live, and thrive, while the American people will get squeezed under an austerity steamroller the likes of which they’ve never even imagined.

Who's going to stop them? You?

Carswell leads on bank & money reform

by Steve Baker MP September 13, 2010

http://conservativehome.blogs.com/centreright/2010/09/carswell-on-bank-reform.html

[NOTE: House of Commons debate posted at foot of this page]

There is a doctrine which creates wealth and spreads it around. It is just and moral. It works. It is called capitalism and, today, in practice, there is very obviously something wrong with it.

If one were to summarise the doctrine of capitalism in one word, it would be "property". It is property which enables human social cooperation through production, exchange and consumption. The voluntary exchange of property has rules and these are known as contract.

These two concepts, property and contract, are fundamental to capitalism and yet, in relation to money held on demand in bank accounts, they are applied at best inadequately.

On Wednesday, immediately after Prime Minister's Questions, Douglas Carswell MP will be introducing a moderate and conservative ten-minute rule bill which would introduce sound property rights and contract to monetary deposits. It is potentially of profound importance and I am delighted to support him.

Allow me to explain.

If you deposit securities at the bank, they are held in safe custody, ready for immediate use. They are your property, not the bank's. If you wish to increase the yield of your securities by lending them, then you enter into a securities lending agreement with the bank, which borrows your shares for a period, lending them on at a premium. You have forgone your shares for a term in exchange for a fee. The bank is contractually obliged to return your property at the end of the term.

In other words, you either deposit your securities on demand or you save them by lending them to the bank for a term.

I was once intimately involved in the design of a securities lending system for a major international prime broker. There was no requirement to take securities held in safe custody and lend them while maintaining a liability to return them on demand. Lending securities not contractually designated for the purpose would have been an infringement of property rights in breach of trust, that is, a fraud.

While banks maintain clear property rights in securities on deposit, the same cannot be said of monetary deposits. Thanks to a base of judicial decisions, when you deposit your money on demand at the bank, ready for immediate withdrawal without penalty, it is not your property, but the bank's. Banks can lend money held on demand and of course they do so.

This is fractional reserve banking and it may not be the good thing most bankers think it is.

Fractional reserves on demand deposits allow banks to extend credit in excess of real savings. That leads to the creation and destruction of fiduciary media: claims on money for which there is insufficient money to meet all claims. It is what makes bank runs possible. It means that, as the great economist Irving Fisher wrote in 1935,

our national circulating medium is now at the mercy of loan transactions of banks; and our thousands of checking banks are, in effect, so many irresponsible private mints.

As I explained in my maiden speech:

Unlike the situation in respect of any other commodity, in the case of money, price controls do not drive the product off the market. Artificially lowered interest rates increase the demand for credit, and decrease the supply of savings, but the legal privilege granted to banks means that they can meet demand by extending credit that is unbacked by real savings. There is a good argument to say that that causes the boom-and-bust cycle, the misdirection of resources in the capital structure of production, and over-consumption by consumers.


And since the money supply contracts when banks lend less, we find central banks injecting new money through QE, further distorting an economy already distended by excess credit expansion, in an attempt to cope with the anarchy of money creation and destruction caused by fractional reserve banking.

To repeat: demand deposits of money are not subject to the same principles of property and contract as any other commodity. Banks enjoy the legal privilege of open access to money which they are liable to return on demand. In concert with the central planning of interest rates and a range of government interventions, this is what is wrong with capitalism.

It is around this point that scholars of banking theory begin disagreeing, often with very great passion. However, it is a fact that various economists of the three great traditions - Keynesian, Monetarist and Austrian - have, at various times and for various reasons, proposed ending the system of fractional reserve banking.

Douglas's Bill would assert property rights over demand deposits. Real savings - term deposits - would be loaned to entrepreneurs, delivering an economy built on save and invest.

There is a great deal to communicate on this subject, some of which you can find through the links below. In the meantime, I will conclude with some remarks by Nobel Laureate James M Buchanan at the Mont Pelerin Society in 2009:

The market will not work effectively with monetary anarchy. Politicization is not an effective alternative. We must commence meaningful dialogue with acceptance of these elementary verities. Moreover:


Let us not waste this set of crises by exclusive recourse to jerry-built efforts to patch up the failed monetary anarchy we have witnessed.


Douglas is attempting to begin the process of correcting capitalism by asserting sound property rights and contract in banking. I hope Parliamentary colleagues and activists will hear him out, particularly those who wish us to have an economy built on the investment of real savings.


Further information

Events

London School of Economics, 28 October, 18:30-20:00: Professor Jesús Huerta de Soto, this year's Baxendale Distinguished Hayek Visiting Professor, will deliver the 2010 Hayek Lecture, Financial Crisis and Economic Recession. In his 1998 book Money, Bank Credit and Economic Cycles (PDF), Huerta de Soto predicted the economic crisis and comprehensively set out its primary cause: credit expansion unbacked by real savings. Huerta de Soto is a passionate and convincing advocate of capitalism and bank reform - I highly recommend this lecture.


The Cobden Centre, of which I am a director, has a developing events programme, including an annual lecture, a Christmas reception and a series of monthly private dinners. Contact us for more information.

Articles and speeches

I gathered together ten plans for financial reform here.


The Earl of Caithness condemned fractional reserve banking and said "the fault that really needs correcting is our whole banking system" in his speech on the Banking Bill debate, 2009. The noble lord introduced the Safety Deposit Current Accounts Bill in 2008 with similar intent to Douglas. In my maiden speech,


"I condemned fractional reserve banking, central planning of interest rates and the socialisation of risk as the cause of the banking and economic crisis."


James Tyler, Chief Executive of Tyler Capital, explains how the banking system hurts the little guy in The violation of Mr Smith, tells us that Money is not working and sets out How to avoid future encounters with financial meltdown.


Financial engineer Gordon Kerr advocates sound property rights in banking at the European Parliament, explains How To Destroy the British Banking System and asks you to Imagine that the Crisis was a Shortage of Bread.


Entrepreneur and Cobden Centre founder Toby Baxendale describes A day of reckoning: how to end the banking crisis now, developing the next stage of Huerta de Soto's proposals.


Sean Corrigan, Chief Investment Strategist at Diapason Commodities Management, condemns fractional reserve banking and provides a reform in Improper Fractions.


Literature

The Cobden Centre has gathered together a selection of literature from a number of traditions here with downloads available here. Our primer is here.



House of Commons debates, 15 September 2010, 1:28 PM
Motion for leave to bring in a Bill (Standing Order No. 23 )

Bill Presented — Savings Accounts and Health in Pregnancy Grant Bill

1:33 pm

Douglas Carswell (Clacton, Conservative)

I beg to move,

That leave be given to bring in a Bill to prohibit banks and building societies lending on the basis of demand deposits without the permission of the account holder;
and for connected purposes.

Who owns the money in your bank account? That small question has profound implications. According to a survey by Ipsos MORI, more than 70% of people in the UK believe that when they deposit money with the bank, it is theirs-but it is not. Money deposited in a bank account is, as established under case law going back more than 200 years, legally the property of the bank, rather than the account holder. Were any hon. Members to deposit £100 at their bank this afternoon or, rather improbably, if the Independent Parliamentary Standards Authority was to manage to do so on any Member’s behalf, the bank would then be free to lend on approximately £97 of it. Even under the new capital ratio requirements, the bank could lend on more than 90% of what one deposited. Indeed, bank A could then lend on £97 of the initial £100 deposit to another bank-bank B-which could then lend on 97% of the value. The lending would go round and round until, as we saw at the height of the credit boom, for every £1 deposited banks would have piled up more than £40-worth of accumulated credit of one form or another.

Banks enjoy a form of legal privilege extended to no other area of business that I am aware of-it is a form of legal privilege. I am sure that some hon. Members, in full compliance with IPSA rules, may have rented a flat, and they do not need me, or indeed IPSA, to explain that having done so they are, in general, not allowed to sub-let it to someone else. Anyone who tried to do that would find that their landlord would most likely eject them. So why are banks allowed to sub-let people’s money many times over without their consent?

My Bill would give account holders legal ownership of their deposits, unless they indicated otherwise when opening the account. In other words, there would henceforth be two categories of bank account: deposit-taking accounts for investment purposes, and deposit-taking accounts for storage purposes. Banks would remain at liberty to lend on money deposited in the investment accounts, but not on money deposited in the storage accounts. As such, the idea is not a million miles away from the idea of 100% gilt-backed storage accounts proposed by other hon. Members and the Governor of the Bank of England.

My Bill is not just a consumer-protection measure; it also aims to remove a curious legal exemption for banks that has profound implications on the whole economy. Precisely because they are able to treat one’s deposit as an investment in a giant credit pyramid, banks are able to conjure up credit. In most industries, when demand rises businesses produce more in response. The legal privilege extended to banks prevents that basic market mechanism from working, with disastrous consequences.

As I shall explain, if the market mechanism worked as it should, once demand for credit started to increase in an economy, banks would raise the price of credit- interest rates-in order to encourage more savings. More folk would save as a result, as rates rose. That would allow banks to extend credit in proportion to savings. Were banks like any other business, they would find that when demand for what they supply lets rip, they would be constrained in their ability to supply credit by the pricing mechanism. That is, alas, not the case with our system of fractional reserve banking. Able to treat people’s money as their own, banks can carry on lending against it, without necessarily raising the price of credit. The pricing mechanism does not rein in the growth in credit as it should. Unrestrained by the pricing mechanism, we therefore get credit bubbles. To satisfy runaway demand for credit, banks produce great candy-floss piles of the stuff. The sugar rush feels great for a while, but that sugar-rush credit creates an expansion in capacity in the economy that is not backed by real savings. It is not justified in terms of someone else’s deferred consumption, so the credit boom creates unsustainable over-consumption.

Policy makers, not least in this Chamber, regardless of who has been in office, have had to face the unenviable choice between letting the edifice of crony capitalism come crashing down, with calamitous consequences for the rest of us, or printing more real money to shore up this Ponzi scheme-and the people who built it-and in doing so devalue our currency to keep the pyramid afloat.

Since the credit crunch hit us, an endless succession of economists, most of whom did not see it coming, have popped up on our TV screens to explain its causes with great authority. Most have tended to see the lack of credit as the problem, rather than as a symptom. Perhaps we should instead begin to listen to those economists who saw the credit glut that preceded the crash as the problem. The Cobden Centre, the Ludwig von Mises Institute and Huerta de Soto all grasped that the overproduction of bogus candy-floss credit before the crunch gave rise to it. It is time to take seriously their ideas on honest money and sound banking.

The Keynesian-monetarist economists might recoil in horror at the idea, because their orthodoxy holds that without these legal privileges for banks, there would be insufficient credit. They say that the oil that keeps the engine of capitalism working would dry up and the machine would grind to a halt, but that is not so. Under my Bill, credit would still exist but it would be credit backed by savings. In other words, it would be credit that could fuel an expansion in economic capacity that was commensurate with savings or deferred consumption. It would be, to use the cliché of our day, sustainable.

Ministers have spoken of their lofty ambition to rebalance the economy from one based on consumption to one founded on producing things. A good place to begin might be to allow a law that permits storage bank accounts that do not permit banks to mass-produce phoney credit in a way that ultimately favours consumers and debtors over those who create wealth. With honest money, instead of being the nation of indebted consumers that we have become, Britons might become again the producers and savers we once were.

With a choice between the new storage accounts and investment accounts, no longer would private individuals find themselves co-opted as unwilling-and indeed unaware-investors in madcap deals through credit instruments that few even of the banks’ own boards seem to understand.

Question put and agreed to.

Ordered,

That Mr Douglas Carswell and Steve Baker present the Bill.

Mr Douglas Carswell accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 19 November and to be printed (Bill 71).

Money Headlines

Could central banks have closed off credit globally in Nov & Dec 08, or did they just lie about it?

US Punk'd by Bailout?

Did America Get Punk'd on the Bailout?
By David Sirota, Campaign for America's Future. Posted Dec. 18, 2008.

David Sirota appeared on the bailout. Did we get punk'd? As progressive bailout critics have been saying since the current Wall Street bailout was first proposed, the answer is yes.

Minneapolis Federal Reserve reports, the major claims about a credit crisis that justified Congress cutting a trillion-dollar blank check to Wall Street were demonstrably false. And new data and reports show they remain demonstrably false.

http://www.alternet.org/workplace/113758/did_america_get_punk%27d_on_the_bailout_/

G 20 ECB Dissent

G20's global cash splash infuriates European Central Bank
Ambrose Evans-Pritchard, Telegraph, London April 9, 2009

THE European Central Bank has launched a blistering attack on G20 plans to use the International Monetary Fund to pump liquidity into the world economy, calling it "pure cash creation" outside the normal mechanisms of control.

"This is helicopter money for the globe," said Jurgen Stark, the ECB's chief economist .......... "What is happening with the IMF is scandalous. They are going to lay waste to everything in this crisis as a result of political horse-trading." .......... Markets have been in confusion over the implications of the G20 deal .......... "lets governments take out an overdraft but also contains the seeds of a global currency."

http://business.theage.com.au/business/g20s-global-cash-splash-infuriates-european-central-bank-20090408-a0v2.html

G 20 ECB Dissent

http://business.theage.com.au/business/g20s-global-cash-splash-infuriates-european-central-bank-20090408-a0v2.html

The Age - Business News, World News & Breaking News in Australia

G20's global cash splash infuriates European Central Bank
Ambrose Evans-Pritchard, Telegraph, London
April 9, 2009


THE European Central Bank has launched a blistering attack on G20 plans to use the International Monetary Fund to pump liquidity into the world economy, calling it "pure cash creation" outside the normal mechanisms of control.

"This is helicopter money for the globe," said Jurgen Stark, the ECB's chief economist and Germany's member on the bank's executive board. "There hasn't been a study to see whether the world needs additional liquidity. In the old days one would take a long time to explore such a thing," he told the German business newspaper Handelsblatt.

The newspaper cited an "unidentified" central banker protesting that the G20 had rammed through radical changes that could do "irreparable damage" to the global financial system. He added: "What is happening with the IMF is scandalous. They are going to lay waste to everything in this crisis as a result of political horse-trading."

Markets have been in confusion over the implications of the G20 deal for the IMF to issue $US250 billion ($A355 billion) in special drawing rights (SDR), a hybrid instrument that lets governments take out an overdraft but also contains the seeds of a global currency.

The summit communique stated clearly that the purpose of activating the SDR powers was to "inject $US250 billion into the world economy and increase global liquidity". This is separate from the move to triple the IMF's fire-fighting fund to $US750 billion. If used to create liquidity, the plan turns the fund into a proto-central bank for the world, running an expansionary monetary policy over the heads of central banks.

It appears G20 delegations from Germany and other European Union states may have signed the agreement in last Thursday's rush without studying the details. SDRs on this scale pose an immediate threat to the ECB, worried about resurgence of inflation once recovery begins.

Dennis Snower, head of the Kiel Institute for the World Economy, said the scheme not only risked inflation but incubated crises, allowing badly run countries to put off the day of reckoning. "If the international community does not take steps against this, the future bill for this stimulus could prove expensive," he said.

The dispute between the ECB's hawks and policymakers in the rest of the world stems from a disagreement about the nature of this crisis. The IMF fears events similar to those of the early 1930s, warning of civil unrest and even wars.

Berkeley professor Barry Eichengreen, an expert on the Great Depression, said global industrial output had been declining more steeply in the past nine months than in the early 1930s. World trade had also fallen faster. "It's a depression all right," he said.

U.S. Green Party: Closer To Monetary Revolution


US Green Party: One Step Closer To Monetary Revolution

http://www.monetary.org/greenpartymonetaryplank.html


The U.S. Green Party is proposing the nationalization of the 12 Federal Reserve Banks because the private creation of money or credit which substitutes for money, will cease and with it the reckless and fraudulent practices that have led to the present global financial and economic crisis.


Dear Friends, some exciting and historic news from the U.S. Green Party! This past week (end of August 2010) the Green Party's National Committee working on monetary and economic policy matters have approved an historic, comprehensive Monetary Reform Plank in their 2010 Platform which actually does the job, as it includes all three of the necessary elements to achieve real reform. We're happy to report this mirrors the proposed American Monetary Act.


Monetary Reform (Greening the dollar)

"While the banking reforms outlined in the above 12 points are very important to ameliorate the present crisis in our banking system, to affect long term, transformative change, it is imperative that we restructure our poorly conceived monetary system. The present mis-structured system of privatized control has resulted in the misdirection of our resources to speculation, toxic loans, and phony financial instruments that create huge profits for the few but no real wealth or jobs. It is both possible and necessary for our government to take back its special money creation privilege and spend this money into circulation through a carefully controlled policy of directing funds, through community banks and interest-free loans, to local and state government entities to be used for infrastructure, health, education, and the arts This would add millions of good jobs, enrich our communities, and go a long ways toward ending the current deep recession.

To reverse the privatization of control over the money issuing process of our nation’s monetary system; to reverse its resulting obscene and undeserved concentration of wealth and income; to place it within a more equitable public system of governmental checks and balances; and to end the regular recurrence of severe and disruptive banking crises such as the ongoing financial crisis which threatens the livelihood of millions; the Green Party supports the following interconnected,


Green Solutions:


1. Nationalize the 12 Federal Reserve Banks, reconstituting them and the Federal Reserve Systems Washington Board of Governors under a new Monetary Authority Board within the U.S. Treasury. The private creation of money or credit which substitutes for money, will cease and with it the reckless and fraudulent practices that have led to the present financial and economic crisis.


2. Create a Monetary Authority, which will, with assistance from the FDIC, the SEC, the U.S. Treasury, the Congressional Budget Office, and others, redefine bank lending rules and procedures to end the privilege banks now have to create money when they extend their credit, by ending what is known as the fractional reserve system in an elegant, non disruptive manner. Banks will be encouraged to continue as profit making companies, extending loans of real money at interest; acting as intermediaries between those clients seeking a return on their savings and those clients ready and able to pay for borrowing the money; but banks will no longer be creators of what we are using for money. Many new forms of banks will be encouraged such as community banks, credit unions, etc., see 11 and 12 above)


3. The new money that must be regularly added to an improving system as population and commerce grow will be created and spent into circulation by the U. S. Government for infrastructure, including the human infrastructure of education and health care. This begins with the $2.2 trillion the American Society of Civil Engineers warns us is needed to bring existing infrastructure to safe levels over the next 5 years. Per capita guidelines will assure a fair distribution of such expenditures across the United States, creating good jobs, re-invigorating the local economies and re-funding government at all levels. As this money is paid out to various contractors, they in turn pay their suppliers and laborers who in turn pay for their living expenses and ultimately this money gets deposited into banks, which are then in a position to make loans of this money, according to the new regulations."


"Over time, whoever controls the money system controls the society," Stephen Zarlenga, Director of the American Monetary Institute.

World Bank “corruption is a 20 % tax”

[Home]


By Agence France-Presse

http://rawstory.com/rs/2010/0531/holder-world-bank-estimates-corruption-serves-20-percent-tax/

Monday 31st May 2010


US Attorney General Eric Holder on Monday reaffirmed his country's commitment to fight corruption, which he described as "one of the great struggles of our time."


"Put simply, corruption undermines the promise of democracy. It imperils development, stability, and faith in our markets," he said at the Paris headquarters of the Organisation for Economic Cooperation and Development.

"The struggle against corruption, as President Obama has put it, 'is one of the great struggles of our time'," Holder said in a speech to delegates of the 35-nation OECD economic grouping in Paris.


The attorney general said that World Bank estimates showed that more than one trillion dollars in bribes are paid each year.


"That's a staggering three percent of the world's economy," he noted. "In fact, the World Bank estimates that corruption serves, essentially, as a 20-percent tax."


Holder paid tribute to the OECD as a leader in the global fight against graft.

"A little over a decade ago, foreign bribery was not only legal in many countries; it was tax deductible. That has changed," thanks to advances such as the OECD's Anti-Bribery Convention, he said.


The United States for its part has since 2004 prosecuted 37 different corporations for foreign bribery-related offences, levying criminal penalties in excess of 1.5 billion dollars, Holder said.


The US Justice Department has also focused on prosecuting individuals guilty of corruption to reinforce the message that "the risk of heading to prison for bribery is real, from the boardroom to the warehouse."

South Carolina - State Currency

South Carolina Politico Wants to Create State Currency
"State Sen. Lee Bright introduced legislation to create a new state currency in the event of a breakdown of the Federal Reserve System."

“If folks lose faith in the dollar, we need to have some kind of backup.”

How ironic. South Carolina followed the first shots of the Civil War. We've actually shown here that several states are actively drawing up alternative currency plans and proposing the introduction of a partial gold and silver standard. I don't think this will come to life just yet, but the drawing boards are filling up. It's just a matter of time. I applaud this. -- MCR

Read more: http://www.businessinsider.com/south-carolina-politico-wants-to-create-state-currency-2011-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+(Business+Insider)#ixzz1DzHtKye8

South Carolina Politico Wants to Create State Currency

Read more: http://www.businessinsider.com/south-carolina-politico-wants-to-create-state-currency-2011-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+%28Business+Insider%29#ixzz1E3jbcokv

State Sen. Lee Bright introduced legislation to create a new state currency in the event of a breakdown of the Federal Reserve System. The Spartanburg Herald Journal reports,

The Federal Reserve System has come under ever-increasing strain during the last several years and will be exposed to ever-increasing and predictably debilitating strain in the years to come, according to the legislation.

“If there is an attempt to monetize the Fed we ought to at least have a study on record that could protect South Carolinians,” Bright said in an interview Friday.

“If folks lose faith in the dollar, we need to have some kind of backup.”

…Per the legislation, South Carolina’s new currency could consist of “gold or silver, or both.”

What a contrast to the growing political movement in the PIIGS of Europe:

Ultimately, the solution is, the root cause of the problem is we’re not printing our own debt free money. That is what we need to do. Like Abraham Lincoln’s greenback , we need to get back to printing our own debt free money.

Isn’t Fort Sumter in South Carolina?



Read more: http://www.businessinsider.com/south-carolina-politico-wants-to-create-state-currency-2011-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+businessinsider+%28Business+Insider%29#ixzz1E3jTs4VL