Admitted in foreclosure hearing: the banks are insolvement!

[dixiegrrrrl]

The only link I have which is short enough is this one from Market-ticker.
Listen in at the 3:00 minute mark, where the witness says the "if the banks foreclose on 2nd lien mortgages,
they would have NO capital left, they would be insolvent....and this creates a strong incentive to not recognize losses and to pretend they are not there"
( so they are keeping them on the books)

http://market-ticker.org/


I am truly amazed this statement was allowed to be broadcast.
He is talking about the big $ banks being broke.

WE know it is true because the info has been leaking out on truth teller sites for months, but still...at a government hearing?

[fascisthunter]

1. so what now? What Happens now???

[dixiegrrrrl]

5. What happens to ????? now?

the banks?
the gov?
You and me?
stockholders?
bondholders?
foreign investors?

[fascisthunter]

7. all of the above

this looks dire

[dixiegrrrrl]

9. There are those who have forecast, and now point to, a "death sprial"

of debt.
the entire economy is based on fraud, lies and Ponzi schemes.
NO body holding debt wants to declare they are broke, including the government.
They keep "pretending and extending" as it is called, and so far it has worked, thus giving them MORE motivation to continue.

Problem is, the corporations making a profit off the wars and our resources could care less if the lights go out here.
THEY have off shore headquarters, living spaces, banks, etc.

[fascisthunter]

10. "THEY have off shore headquarters, living spaces, banks, etc."

yes they do, and it is exactly why they ignore our dangers.

[Oceansaway]

2. K&R...n/t

[KansDem]

3. How can the big banks be broke?

I give them a mortgage payment each month...I give them a monthly payment on a home-improvement loan each month. I give them a payment on a couple of credit cards.

What are they doing with this money? How can they be broke when I, and a whole lot of other people, give them money in the form of mortgage payments with interest, second-mortgage payments with interest, credit card payments with interest--and don't forget the fees and penalties for late payments--each month?

How can they be broke?

[dixiegrrrrl]

4. The money you give passes thru them.

they act as "servicers" for mortgage payments, the money goes to the owner of the mortgage,
which is the Mortgage Backed security (bond trust).
same with credit card payments, they go to the credit card company, which is a spin off of the actual bank,
which sold ( securitized) THAT debt, too.

All DEBT the banks sold already. they sold your credit card debt, your home loan debt, your mortgage debt, and they get a wee amount for "servicing " that debt.

but, when that housing bubble popped, people left the houses that they had used as cash machines, they left 1st, 2nd, even 3rd/4th mortgages behind.
If the 1st mortgage is not paid, the 2nd mortgage is essentially noncollectable.
for years the banks have kept bad mortgages on their books, counting it as "money" they had.
So their books looked good, their stock rose in the market, everything looked good, plus
the gov't gave them all that bailout money to paper over their losses.
( which was the whole point of the bailout, to keep us from realizing the banks were broke)
hell, half the bonuses banksters got was stock.

It was all a Ponzi scheme, and now it is falling.

If you listen to all of the mortgage hearing video on Cspan, the whole mechanism is wonderfully explained and very educational, I promise.

[girl gone mad]

6. k & r

[Skink]

8. Another round of stress tests perhaps.

[Yo_Mama]

11. If it's an actual bank or credit union

The institution would be required to put them in non-accrual. You are not allowed to "keep them on the books" if they are not paying.

You can change the terms but then you have to write them down in accordance with the changed terms.

Basically, I'm saying this is crap.

I do believe they're insolvent, but not because they are carrying fake loans at face value.

Even if the loan is paying, banks are required (and examined and audited) to follow GAAP, and one of the things you have to do is maintain an ALLL (Allocated Loan and Lease Loss) reserve, and you have to constantly recalculate the requirements based on actual history. You then have to deal with your impaired loans. A loan becomes impaired when it is likely that it will not be repaid as scheduled on the contractual terms.

GAAP standards are prepared by FASB, and see for example FAS 5 and FAS 114.

At a minimum, even a non-bank financial institution held by the public is regulated by the SEC and will have to come to terms with a public accountant that audits and signs off on their financial statements. The public accountant is liable for misstatements separately, which is one reason why financial types track sudden changes of accountants by such financial institutions.

Early on in this disaster, historical loss ratios were misleading. Now they are not. It's unlikely that these firms can get away with too much in their annual financials.

Further, if the second liens held by banks are not being paid, there is no way the bank can extend and pretend. Banks do have a strong incentive to modify loans or authorize modifications to keep them paying, but when they do so, in most cases the auditor/accountant will force them to make an adjustment in the value or an increase in loan loss reserve over and above the "face" writedown, because the modification was made in anticipation of loss.

The expert in the video is listing the entire amount of junior liens, but those liens are either paying (and will have loan loss reserves allocated already) or are in some phase of writedown.

Further, there has to be a separate type of reserve set up to account for recourse for sold loans. Now THAT'S where the current accounting is off.

[jtuck004]

12. Doesn't FAS 157 say they are carried at the price they would be offered

at rather than what someone is offering. So they are being held as assets (that's funny in itself) reflecting a much higher valuation than could be received if they hit the market. That would seem to work against any motivation for them to restructure a loan because, as you stated, they would then have to re-work the value to a more honest apprasisal.

I think you are addressing that in your comment about the "face" writedown.

If they are hiding behind a false value, (which I think was done in expectation of the housing market rebounding sooner, rather than, say, 11-tysomething years from now...), they are broke.

But nobody wants to expose the emperor as naked, cause the housing market would instantly drop 10-30% or more, and the fallout from that would likely throw us into another Great Depression.

[upi402]

14. kick n/t

[Mojorabbit]

13. Color me not surprised. Good catch! nt

[Delphinus]

15. Wow!

Why isn't this front-page news?

[dixiegrrrrl]

16. Because the MSM is controlled by people who won't print this news.

So even tho it was said, aloud, in a Congressional Hearing covered by CSpan, it won't go far, and it will be forgotten quickly.

Except for the Internet bloggers.
and the alternative and foreign media.

Which is where the real news is.