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And in doing so, create economic distortions.

Like create financial instruments that have no connection to the underlying asset (ostensibly) being securitized.

The really absurd thing is being the extent to which this is literally true in the sense that the rush to bet on the derivativee meant that the conveyance of the underlying asset was never even properly recorded.

But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks' minimalist approach to meeting legal requirements -- bookkeeping matters, really -- when pooling thousands of loans into securitization trusts.

Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.

But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.

On Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

Yet another argument for nationalization. If the government owns all the banks that can't provide proof that they own mortgages, then the simple fact of the government owning them all means that question is cleared up.


And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 2nd, 2009 at 10:13:51 AM EST
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