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David's Macro Blog

Analysis and commentary on business, economics, real estate, financial markets, and other fun topics


Tag: global financial crisis

During the height of the 2008 credit crunch, Lehman Brothers, led by CEO Dick Fuld, was not bailed out by the government. Instead, it was allowed to fail and become the largest bankruptcy in history.

How did this 150-year old firm that survived the Civil War and the Great Depression fail?

The short answer is, the firm was obsessed with growth so it chased returns with little regard for prudent risk management.

Their business model during the 2000’s economic growth period relied upon:

  • Excessive leverage (40 to 1): a couple percent drop in asset prices renders the firm’s balance sheet without equity.
  • Being the largest securitizer of sub-prime real estate mortgages.
  • The overnight repo market to fund daily operations.
  • Accounting gimmicks such as Repo 105 to make the balance sheet look good for quarterly reporting.
  • Unrealistic modeling with faulty assumptions such as real estate prices only go up and the overnight repo market is always liquid.
  • Believing “this time is different” and not preparing for the inevitable market cycle to reverse course.
  • Retaining ownership in some securities they created to increase their profits.
  • Incorrectly believing they would get a bailout from the government like Bear Sterns (after rejecting a bailout from Warren Buffett before late 2008).

What lesson can individual investors learn from this?

Be wary of investments requiring excessive leverage and market conditions remaining the same in perpetuity.

Barry Ritholtz – Dick Fuld’s Fantastic Revisionism!

The global financial crisis forces us to ask many questions that we previously didn’t bother to think about.

  • Who issues our currency?
  • What’s the difference between debt-free money and debt-based money?
  • Why must credit grow in order for the economy to grow?
  • Can the U.S. Government debt ever be repaid?

Bill Still warned the world about the dangers of our debt-based monetary system with his classic video The Money Masters.

Now he has created an updated video called The Secret of Oz that directly addresses the financial collapse now that his predictions have come true. Our current system is based upon ever increasing debt that someday will become un-payable and the financial system will collapse when this occurs (like what happened to Iceland).

One of my favorite quotes:

“What can government do? The sad answer is under our current monetary system, nothing. It’s not going to get any better under the current system until the root cause of the problem is understood and addressed.”

“Taking the law into their own hands” is a phrase used to describe aggressive actions by people who feel slighted in such a way that waiting for traditional law enforcement isn’t acceptable.

Due to the massive foreclosure fraud (called “Foreclosure Gate”) perpetrated by the big banks, some Americans are fighting back.

Jim and Danielle Earl in Simi Valley, CA broke into their former home that was sold at trustee sale auction to a professional flipping company. The Earl family, with their attorney, Michael Pines, seized the home after the investment company fixed it up and were about to sell it to new owners. The police were there but did nothing to stop the theft of the home by the Earls.

How is this not breaking and entering?

The logical consequence of the banks’ blatantly breaking the law (see Systemic Foreclosure Fraud by Lenders) is that average citizens will fight back and take the law into their own hands.

Do we really want civil unrest? Can the government do anything to fix this quickly? Do two wrongs make a right…or just more wrongs? Share your opinion on this situation in the comments below.

Conejo Capital Partners, the company that bought the home at trustee auction tell their story here: 5893 Mustang

So, does anyone still believe that cheap credit and easy money from the Federal Reserve after the Dot Com Crash was a good thing?

More About Families Stealing Back Foreclosed Homes

Foreclosure Fraud By now you’ve probably heard of the massive fraud in foreclosures perpetrated by lenders in their haste to cut costs and process the high volume of forecloses quickly. Some of the biggest issues at the heart of the now nationwide foreclosure moratorium go to the heart of our legal system and the rule of law.

There are two depositions of paralegals at the David J. Stern law firm in Florida that you must read. These two employees describe the climate, culture, and operations of a “Foreclosure Mill“. This blatant disregard for the rule of law is so embedded in the culture there that our very freedoms and trust in the fairness of the egalitarian “American Way are at risk.

The biggest issues are that the Stern law firm (and probably most of the foreclosure industry) perpetrated fraud upon the courts by falsely signing affidavits and creating fictitious legal documents in order to capture fees for processing foreclosures quickly.

I know these are lengthy depositions, but it is well worth reading BOTH documents (embedded below) so that you understand the issues and realize the gravity of our situation should this systemic fraud continue.

My Thoughts on Foreclosure Fraud

Yes, home owners who haven’t paid their loan should lose their homes to foreclosure, but NOT through legal fraud imposed upon them by the banks and their servicers. Are we a 3rd-world nation where bribes and legal malfeasance direct action?

False affidavits are not unlike perjury in the courtroom because an affidavits is similar to a courtroom testimony. Many, many people should go to jail; let’s hope some of those at the top do; not just a few scapegoats.

Deposition of Tammie Lou Kapusta – Law Office of David J. Stern

Full Deposition of Tammie Lou Kapusta Law Office of David J Stern

Deposition of Cheryl Sammons – Law Office of David J. Stern

Full Deposition of the Soon to Be Infamous Cheryl Samons RE Deutsche Bank National Trust Company, As Truste…

More About the Foreclosure Mess and Fraud

Fraud Factories: Rep. Alan Grayson Explains the Foreclosure Fraud Crisis

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
A Nightmare on Wall Street
Daily Show Full Episodes Political Humor Tea Party

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