Innocent-looking fixings for sausage (photo: Joel Johnson via flickr)
Let’s pretend mortgages are meat.
No, no — bear with me, this will make sense in a moment.
In the olden days (circa 1990s), banks and other financial institutions would write mortgages, which were backed by the asset — known as the house and/or property. A single piece of meat — say a porterhouse steak. Sometimes that steak would be sold to another entity, and along with it all the paperwork showing where that steak came from, who was responsible for it, and so on. If there was a problem with the steak, you’d just go back to the farm where it came from, deal with it there. If the product was no good, the farm would go out of business (be foreclosed), but otherwise it was a nice situation, and although not hugely profitable, it still made money. Simple, huh?
Then the banks and financial behemoths got a bright idea: Let’s turn all this meat into tasty sausage. We’ll just chuck it into the grinder, mix it all up, and let people buy pieces (shares) of the sausage. On average, it’ll be even better than meat because we can average everything — and we can throw in the nasty bits (the lousy properties, the poor risks), spice it up (give it AAA+ ratings) and it’ll all be the same. As long as our supply of meat is plentiful and keeps getting better and better, we’ll get filthy stinking rich.
Suddenly there was huge demand for more and more meat — and the sausage makers were so eager to get more, they stopped asking where it came from or whether it was any good. People who were in no position financially or situationally to become farmers (homeowners) were cozened into doing so, so as to produce more and more meat for the sausage grinders. Existing farmers were encouraged to buy farms far, far bigger than they could reasonably operate and maintain. The price of farmland skyrocketed. Cost per acre began to far exceed the value of the meat which could be produced on it. [cont'd]
At this point, farmers were told they didn’t need to raise cows or pigs, but whatever they liked (declared income no-doc mortgages, balloons, nasty adjustables with ultra-high upper limits, etc.), and they were told their meat’s value would only go up, up, up — so these farmers began borrowing against future meat sales, some to live lifestyles way beyond their means, some to gamble with it, but most of them just to stay afloat in a troubled economy.
This situation still might’ve remained a resolvable problem, if the sausage makers had kept the records on exactly where the meat was coming from — but the sausage makers had been in a huge hurry for years since there was so much money to be made in the new sausage market, so they also started getting sloppy with the paperwork. Truckloads of unmarked, untracked meat would show up at the sausage makers’ loading docks, be crammed into the grinders as fast as possible, and the sausage shipped with no quality checks whatsoever — just a label claiming it was extra tasty and spicy (unwarranted high ratings).
Worse, suddenly the quality of the meat began to decline massively (collapsing real estate prices) and in some cases was actually toxic (underwater mortgages, defaults). But once made into sausage, there was no way to pull out just the toxic stuff. So the sausage makers just went on making sausage and hoped nobody would notice. Even the profitable farms’ meat began showing up bad though, because they were being forced to produce more and more.
Then it went further, because you see these other groups had been buying all this previously tasty sausage, would eat it, and then repackage what came out the other end (derivatives, securities, funds, you name it). Yes, by this time they were selling shit. Not just any shit, but after the meat became toxic — e-coli poisoned shit. And because the original meat (aka ‘mortgage’) paperwork was long gone, nobody could figure out where the original meat came from or who it belonged to. Hell, by this point, they were losing track of where the sausage itself had come from. The only thing anybody knew is an ever increasing percentage of the sausage was becoming ever more toxic, and the resulting shit even more so. The sausage makers didn’t want to stop making money, so they just kept on making poisonous sausage. Meanwhile, they cast about for a way to deal with the problem. Giving up sausage making was unthinkable to them, so instead they decided to go after all the farmers.
The sausage makers went back to the places where they got the meat — the farms — and tried to impose penalties (foreclosure). But there was no paperwork to prove anything. So what did the sausage makers do? They hired shady document mills to fabricate paperwork out of thin air and partial computer files. They began going to farms they’d never even dealt with before, because ownership of the original meat had been traded multiple times, and then again as sausage.
At first, many of the farms just paid up (submitted to foreclosure). After a while though it became clear this was fraud on top of fraud, and the farmers started to stand up to the sausage makers. Courts don’t like it when they’re lied to. The farmers didn’t lie, they’d admit when their meat was bad, but they didn’t want to lose their farms and were hoping to work something out, maybe go back to producing smaller quantities of higher quality meat. But the sausage makers did lie, and they filed false paperwork, which is usually a very serious crime, because by this point all they cared about was taking the farm, whether they had a claim on it or not — as they felt it was the only thing left of value. They couldn’t care less about the farmers… and in fact, the sausage makers developed a very profitable sideline of taking farms, even if they’d had nothing to do with any meat from a particular farm, and then reselling them. They got away with this for a few years. Then people began to realize they were being swindled on an unprecedented scale.
The sausage makers are very, very screwed. All the sausage they made had been fully converted into shit — they couldn’t even get the original poisonous sausage back. And through their own sloppiness in tracking where the meat had come from, their ability to impose sanctions on the farmers was just about gone. Even the farmers whose meat was tainted (mortgage default) realized that just because a particular sausage maker showed up at their door, the farmer wasn’t necessarily on the hook, since the sausage maker had no proof he’d ever bought their particular cut of meat.
In fact, the sausage makers trying to shake down the farmers also knew that just because they were selling sausage, they couldn’t prove a particular farmer’s meat was even in what they were selling — they just had this Excel spreadsheet saying they did. In an even funnier twist, sometimes two or more sausage makers would confront the same farmer. Or a farmer who’d never sold any meat at all (the guy who paid cash for his house, then had it forclosed illegally) might be threatened by a particularly sloppy sausage maker. Or the farmer whose meat wasn’t good quality, but hadn’t gone to the point of being proven bad, might wake up to find a sausage maker’s hired goon trying to change the locks on her door while she was still in the farmhouse.
This might’ve gone on for a while, but people began to notice the fraud and the lies…and once fraud becomes egregious enough, even simple folks understand they’re getting ripped off. That the sausage makers were still paying themselves huge bonuses, even as the entire sausage market was dead and gone, didn’t help matters for them at all.
My friends: This mess is gonna put the 1980s S&L scandal to shame, and it’s going to be a very bumpy time, these coming months, possibly years. The big question will be whether the Feds are smart enough and have the huevos to step in now with something like the Resolution Trust Corp, before the whole economy crashes and burns. By time this thing is fully investigated, there are going to be millions of what they’re now calling “tainted” property titles. Investment funds will go broke. Those invested heavily in mortgage-based securities? It’s probably already too late. Remember “junk bonds”? These sausages (and the shit derived from them) are even more toxic.
The only way out of this is going to be a wiping out of the toxic garbage, mortgage cramdowns, and some kind of government and/or legislative resolution for all the tainted titles. And no — handing them all to the sausage makers won’t stand. At that point, the farmers will take to the streets with pitchforks and torches.
The only advice I have for anyone who’s made it this far in my extended metaphor is this: If you’re underwater, go ahead and consider a strategic default. Rich people do it all the time, as do corporations. I’m not saying “do default” — but rather it is worthwhile to consider it as a rational option.
The other advice is if being foreclosed upon, even if you’ve not been paying your mortgage or they’ve saddled you with insane penalties and fees — challenge it in court. Demand they produce every piece of original documentation they are required to do by law. And demand they show the judge (or gov’t administrator) your original wet-ink signatures on the mortgage contracts. At the worst, you might delay these parasites a few months and keep your property that much longer; at best, you might find yourself suddenly in full possession of your home, free and clear.
If you’ve already been foreclosed upon? Now might be a good time to contact your attorney for a consult.
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