Notes of Note from John F. Ince

Banking Crisis 2.0 Means TARP IIThe significance of ForeclosureGate is being downplayed in the media, but independent analysts warn that it could be the tsunami that takes the big players down.John Lekas, senior portfolio manager of the Leader Short Term Bond Fund, said on The Street on November 2, 2010, that the banks will prevail in the lawsuits brought by investors. The paperwork issues, he said, are just “technical mumbo jumbo;” there is no way to unwind years of complex paperwork and securitizations.But Yves Smith, writing in The New York Times on October 30, says it’s not that easy:The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?Chris Whalen of Institutional Risk Analytics told Fox Business News on October 1 that the government needs to restructure the largest banks. “Restructuring” in this context means bankruptcy receivership. “You cant prevent it,” said Whalen. “Weve wasted two years, and havent restructured the top banks, but for Citi. Bank of America will need to be restructured; this isnt about the documentation problem, this is because [of the high] cost of servicing the property.”

via Foreclosuregate Could Force Bank Nationalization — Seeking Alpha.

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