The latest version of Pretend – going on a couple of weeks now – is the nation whistling past the graveyard of mortgage documentation fraud while skeletons dance around everything connected with the money system. Halloween came early this year. The USA is getting to look like one big Masque of the Red Death, so I suppose it’s convenient that our pop culture has been saturated with vampires, zombies, and werewolves for a decade, coincident with the self-cannibalizing of our economy. Something in the zeitgeist told us to get with the program of a twilight existence. We’re well-schooled now in the ways of the undead, operating under cover of darkness, going for the neck at every opportunity, even eating our young – if you consider the debt orgy, both private and public, as a way to party like it’s 1999 by consuming your children’s’ future.
The big banks leading the charge of the anthropophagi are making like it’s no big deal that notes representing money lent have become mysteriously dissociated from the mortgages that secure them. In the good old days, these things traveled in pairs, like boy-and-girl, Laurel and Hardy, a horse and carriage. It made for straight-forward property transfers, where Person A could be confident he was buying something free and clear from Person B. What a quaint concept, free and clear!
Nowadays, these documents can hardly be located at all – not such a surprise, really, since they were ground out like e-coli infested bratwursts in strip-mall boiler rooms run by former used car salesmen, and pawned off wholesale (literally) on banks who served them up sliced-and-diced, sloppy Joe style, on CDO buns to credulous pension funds, cretinous insurance company yobs, double-digit IQ college endowment managers, and other such nitwits bethinking themselves the reincarnation of Bernard Baruch, not to mention foreign sovereign nations who bought this smallpox-blanket-grade investment paper by the container-ship-load and, finally, the innovative geniuses at the very banks who engineered the stuff and got stuck with tons of it themselves when, as they say, the music stopped.
The Big Picture looks even worse when you figure in the mischief of so-called synthetic CDOs that represent the multiple securitizations of single underlying mortgages – God knows how many times each – which mean, curiously, that a lot of real estate is everywhere and nowhere at the same time, plus the Ponzi universe of credit default swap black holes just sitting out there waiting to suck whole civilizations into oblivion. Ollie to Stan: Well, here’s another fine mess you’ve gotten me into….
But I stray a little from my point, which is the massive systematic monkeyshines involving legal documents relating to American real estate. The bankers say, just bring a “lost note” letter to the closing. “The dog ate it.” Signed, Mom. Like, that’s an okay substitute for the rule of law. Oh, and, by the way, the dog ate the title, too. Congress even tried to get in on the act last week with a bill that would have essentially negated the significance of notarization – that is, of witnessing and attesting to the veracity of documents – in order to mitigate the fiasco of robo-signing, which was endemic in places like the mortgage mills of Nevada and Florida where due diligence went AWOL and Burger King-quality employees just threw some contracts in the trash out of sheer boredom. “Oh, the dog also ate my signature….” President Obama vetoed the damn thing, which was passed in the US Senate unanimously by the human dung-beetles who work that manure pile. The dog ate your financial system.
This is hardly to say that the people who bought property based on those improperly processed and/or scam-a-lama-ding-dong mortgages deserve to avoid foreclosure and get to keep and live in million dollar houses they never could have really afforded to buy in an economy run by grown-ups. But they might, because there are an awful lot of hungry lawyers out there who will demand that the agents of foreclosing parties produce the relevant documents. And some of these foreclosing parties may not have the nerve to hand over forged instruments in a court proceeding once everyone is going over them with scanning electron microscopes looking to find one molecule out-of-order.
Bottom line is that we’ve reached the point where nobody in that particular racket can get away with much anymore. That string is played. The banks are toast. Not only won’t they be able to recover the collateral on a lot of loans, but the MBS related crap sitting in their own vaults goes to zero, not thirty cents on the dollar or some mark-to-fantasy number that has kept them in the zombie zone for two years, like cancer victims desperately eating apricot pits in hopes of a cure. And if the banks are toast then the Federal Reserve is toast, because the Fed has been acting as a dumpster for so much of the smallpox-blanket-grade securities off-loaded by the banks since TARP, with a balance sheet that must look like a suicide note, and if the Fed is toast then the dollar is toast because they are promissory notes issued by the Fed.
Anyway, the states themselves are temporarily shutting down foreclosures, and the upshot will be a paralyzed property sales industry. Who will want to buy property when there is any question about owning it free and clear? You can be sure the sickness will spread into commercial real estate, with its much shorter-term loans and its desperate rollover deadlines. Things begin to look a bit gruesome. But ’tis the season for it! The night of the Blood Beast comes Sunday, just in time for the All Souls Day open of the equity markets. That’s the day when the costumes come off and we stop pretending. That’s the day that the skeletons dance on the real estate destined to be our graves.
The sequel to my 2008 novel of post-oil America, World Made By Hand, is available at all booksellers now.