There is little real news to begin the week, 4 more banks went to the receivers Friday bringing the 2010 total to 90. Earnings season kicks off today with Alcoa leading as per usual, Friday will bring earnings from a number of notable financial firms, who demonstrate once again that they like to fudge the numbers as will see in a minute. Still earnings season should go quite well as the year ago comparison is extremely weak, but after this quarter it gets harder.
A somewhat esoteric but still significant court ruling was handed down recently involving MERS, an outfit that records assignments of Real Estate Mortgage Backed Securities to facilitate trading of said securities. Essentially they record who actually owns and services them, meaning collects payments and goes after borrowers that do not pay. MERS tried to assert in bankruptcy court that this relationship gave it the right to pursue foreclosure and collection judgments against those that did not pay. The court apparently decided that because MERS could not substantiate ownership, they were simply a nominee, and therefore had no right to enforce ownership related claims. No doubt the lawyers will appeal this one and it only seems to apply to California, but it does serve to cast considerable doubt on the legitimacy of the securitized mortgage market. A market that was essentially a fraud from the beginning as it enabled the mortgage finance companies to purchase the desired credit rating, sell the packaged loans to an investor, with a 6-month look back period, meaning any defaults that occurred after that 6-month period was the investors problem and then take the money and start over pocketing fat fees coming and going. This is why loan underwriting standards were discarded wholesale, they flat out didn’t care if somebody could repay the loan or not, all they cared about was getting past that 6-month look back period and collecting their fees.
On the subject of the legitimacy of various business models, it seems that B of A has been caught deliberately executing Repo 105 transactions to dress up its balance sheet and make its investors happy. You’ll recall that Lehman Brothers did the same thing and that this was instrumental in their failure. Now of course B of A claims it was an honest mistake, one that occurred every quarter for 6 straight quarters, but I digress. Merely the latest example of the failure of regulators to supervise their charges appropriately and that the banks books essentially aren’t worth the paper their printed on because the deliberate shenanigans, assorted accounting rules exemptions particularly the mark to model asset valuation rules make getting a true financial picture of them a fools errand.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. 
