Volatility

October 5, 2010

The MERS System and the Land Recourse

Filed under: Food and Farms, Land Reform — Russ @ 3:08 am

 

The legal basis of the “ownership society” continues to unravel. Our aspiration is to make it politically unravel as well. The most important ideas, like walking away from underwater property and making the forecloser produce the note, are gradually spreading. The MERS system continues to unravel.
 
Still, the produce-the-note movement is further advanced among those in the biz than it is even among the people. The past month has stepped up the tempo of the legalistic unraveling, as first GMAC and then JPM and BofA suspended tens of thousands of foreclosures upon revelations of systematic fraud by their robo-signers, officers who signed affidavits assuring the court that although they couldn’t produce the note, they were still the rightful note-holders.
 
I admit I still don’t understand the concept in principle: “I’ve personally seen the note or otherwise know that it belongs to us, and I can personally vouch for the fact that it was lost or accidentally destroyed. This is one of many, many thousands of times this has happened in my experience.” Who would ever believe that? Is it supposed to rely on getting a different judge each of the thousands of times? Surely not. Is it relying on the housedebtor to seldom challenge the documentation, so that judges rarely notice it? More likely. Is it relying on judges to countenance fraud on the court? Most definitely. This is proven by the fact that in many cases the lenders are claiming to have intentionally destroyed the notes, and judges are accepting this. It’s not often that a plaintiff strolls into court, claims “I own that but I destroyed the legally required documentation, but you should take my word for it anyway” and gets a judge to agree. What makes a mortgage note different? Only the political influence of the banks.
 
Some regulators are stirring themselves to get involved. In Florida, California, Ohio, Illinois, Iowa, Connecticut, and elsewhere state attorneys general are at least pretending to care about massive fraud on the part of servicers. More significantly, bona fide “capitalists” are getting spooked. The major title insurer Old Republic National Title Insurance (I love the portent of that name, “the old republic”) announced last week that it would suspend insuring titles on houses foreclosed upon by JPM Chase until “the objectionable issues have been resolved”. Days earlier it had similarly suspended GMAC from its business.
 
Think about that. The company whose business it is to insure that the title is properly conveyed from one legal owner to the next will refuse business where the conveyor is JPM or GMAC. (The former being the uberbank, supposedly the most solvent, stable of all, the feds’ first choice where they need a potemkin buyer for something.) Granted, since those both suspended foreclosures they won’t be producing much new business in the near future, so this announcement ratifies the temporary status quo, but it’s still a significant vote of no confidence. They could have quietly waited and done nothing, but it’s a sign of how market confidence in everyone involved is rapidly diminishing, as we see in the suffering stocks of foreclosure thug outfits like Lender Processing Services.
 
That’s strong testimony as to the rumblings of instability in the structure. The common man feels knocked about by inexplicable tremors and falls into sudden chasms which gape before his feet. But where system players are hunkering down and afraid to move for fear of toppling, the earthquake must be far more general than the propaganda says.
 
Why is this such a mystery to the people, by the way? Propaganda in the media, yes. We need ongoing education for this and everything else. Why should it be such a mystery? Why should the disposition of our land be kept such a secret from us by MERS? Why should the banks “own” our land at all? All this goes to the more fundamental issues of elitist secrecy and ideology. We demand and seek total transparency and to obliterate this ideology.
 
What’s the real issue in this case? The separation of the note and the lien. Of course I deny the banks ever owned the land in the first place, but even by their own legalistic measure they no longer own it. In 45 states the note and the lien cannot be separated. Doing so causes the mortgage to revert to a regular unsecured loan. In theory the distressed housedebtor could file for bankruptcy, discharge the loan, and still hold onto the house by adverse possession or something, since the legal “ownership” has become vacant anyway.
 
(Probably nothing is more universally hated than this idea, that some alleged “deadbeats” might get something for nothing. Even among those who hate the banks, many seem to hate the idea of this temporary side effect even more. But it seems to me that liberating the land for food production by those who are willing to become food producers is the most important thing. If a temporary result of this is that some actual deadbeats get to squat for awhile, I say so be it. The transformational community can get around to evicting them later. All the land eventually has to go into production. But the first thing is to break the banks.)
 
This isn’t just an attack on one illegitimate property dispensation. It’s also calling an alleged rule of law to account. This kleptocracy has abdicated on all its proclaimed principles. It has violated and abrogated its own alleged mandate. How can a property dispensation be authoritative under this condition of lawlessness? How can social stability be maintained?
 
Hernando de Soto has long sounded the warning on how this system was undermining its very basis of legitimacy by flouting the paper-based rule of law. He has mostly focused on the proliferation of derivatives, and how all real bases of economic activity and property itself were being destabilized by subjection to this regime of galloping securitization. Today when we read one of his jeremiads, in America we think first of the mortgage note disaster.
 
What, according to de Soto, are the “six longstanding procedures that guarantee the value and legitimacy of any kind of paper purporting to represent an asset”?
 

– All documents and the assets and transactions they represent or are derived from must be recorded in publicly accessible registries. It is only by recording and continually updating such factual knowledge that we can detect the kind of overly creative financial and contractual instruments that plunged us into this recession.

 
MERS fails to record in the first place and then denies public access.
 

– The law has to take into account the “externalities” or side effects of all financial transactions according to the legal principle of erga omnes (“toward all”), which was originally developed to protect third parties from the negative consequences of secret deals carried out by aristocracies accountable to no one but themselves.

– Every financial deal must be firmly tethered to the real performance of the asset from which it originated. By aligning debts to assets, we can create simple and understandable benchmarks for quickly detecting whether a financial transaction has been created to help production or to bet on the performance of distant “underlying assets.”

 
MERS systematically split the note and the lien, and then lost the note.
 

– Governments should never forget that production always takes priority over finance. As Adam Smith and Karl Marx both recognized, finance supports wealth creation, but in itself creates no value.

 
On the contrary, the entire thrust of neoliberal policy for 40 years has been to replace real economic production with asset inflation and debt.
 

– Governments can encourage assets to be leveraged, transformed, combined, recombined and repackaged into any number of tranches, provided the process intends to improve the value of the original asset. This has been the rule for awarding property since the beginning of time.

 
On the contrary, the real use-value of “property” has gone below zero, with the advent of asset inflation (socially and economically destructive and destabilizing) and socially and environmentally destructive suburbia.
 
“To improve the value” – since speculative derivatives do no such thing, ban them.
 

– Governments can no longer tolerate the use of opaque and confusing language in drafting financial instruments. Clarity and precision are indispensable for the creation of credit and capital through paper. Western politicians must not forget what their greatest thinkers have been saying for centuries: All obligations and commitments that stick are derived from words recorded on paper with great precision.

 
The MERS system is dedicated to complexity, inefficiency, confusion, opacity, secrecy.
 

Above all, governments should stop clinging to the hope that the existing market will eventually sort things out. “Let the market do its work” has come to mean, “let the shadow economy do its work.” But modern markets only work if the paper is reliable.

Government’s main duty now is to bring the whole toxic environment under the rule of law where it will be subject to enforcement. No economic activity based on the public trust should be allowed to operate outside the general principles of property law.

 
This can never be accomplished by or under a criminal system dedicated to perpetuating these very subversions of the rule of law. Today, to say that bringing the toxic environment under the rule of law is “government’s main duty” is tantamount to saying it’s the duty of we the people to renounce a criminal government. And if we’ve learned anything from our history (which de Soto, still lamentably mired in trickle-down elitism, has not), we’ll have learned that our main duty is to constitute and exercise the government ourselves.
 
Underlying this is the wrong principle of “property law” in the first place. As Proudhon established, injustice and lawlessness are endemic to any regime of parasitic rentier propertarianism. The only productive and moral basis for the land dispensation is useful possession. In the post-oil age that will mean above all food production.
 
So the fact is the system has inadvertently renounced its own legalistic property rights in the land by “losing the note”. I of course don’t expect them to meekly obey their own law. I expect them to deploy any necessary and possible level of lawlessness upon lawlessness to prop themselves up. So what can they do? What are they trying? We have Florida’s kangaroo courts. This is the first institutionalized, public overthrow of even the forms of law. (Once again, Florida is setting the standard for banana republicanism.) On a less conspicuous level, we have participants legalistically withdrawing from the system, as with the contracts of adhesion Wells Fargo is imposing on buyers. These are of dubious legality themselves, and this is another example of a major system player declaring no confidence in the system. Wells is disavowing responsibility even for its own statements, implicitly admitting they may be lies.
 
In general, I expect the system to lawlessly muddle through for as long as it can (that is, I don’t think Florida’s dedicated kangaroo courts will be the preferred model; they’ll prefer the same effect but on a less systematic, more ad hoc basis). Then at some point, when the pressure becomes too great, there will be some anti-constitutional declaration of force majeure. Congress or the SCOTUS will retroactively legalize the MERS system. Or perhaps the executive, working through the GSEs, will come up with some kind of super-HAMP.
 
Whatever they try to do will be dictated by their two great imperatives, continuing the Bailout and preserving and augmenting their own power. These mean they have to keep housing prices propped up, maintain the pseudo-integrity of the housing system itself including the foreclosure process, each step of the way appeasing the short-term greed of each individual bank.
 
The fact that there are many conflicts and contradictions bound up in this set of priorities will only make their task more impossible.
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22 Comments

  1. Wow! Nice post, man.

    Comment by Mike — October 5, 2010 @ 4:43 am

    • Thanks, Mike.

      Comment by Russ — October 5, 2010 @ 6:17 am

  2. Nothing arouses the ire of right-wing mouthbreathers like the hint that some poor person somewhere is getting a free lunch — even if it is at the expense of Wall Street criminals. Even so-called liberals strain at this gnat. It truly boggles the mind.

    Comment by reslez — October 5, 2010 @ 5:41 am

    • Implicit in the current valuations of financial stocks is the widespread understanding that Congress and the courts will do exactly what they are paid for. Lawlessness and fraud will be legalized retroactively, by fiat, even if it is prima facie unconstitutional. The Supreme Court never met a piece of pro-corporate legislation it didn’t love.

      Nobody cares how many neighborhoods they destroy or how many innocent families they kick to the curb. (Oh, you thought applying for a mortgage mod meant something? Funny how the payments they told you not to make are the reason they foreclosed on you.) They have to save the banks. And they can’t let deadbeats live a few months rent-free before they’re foreclosed and awarded the credit history Scarlet Letter. It sends the wrong message to the rest of the peasants.

      Comment by reslez — October 5, 2010 @ 5:56 am

      • One thing I’m not sure about is how Yves implied that the judge allowing foreclosure on someone in the HAMP pipeline was an abuse. As I recall, it’s a feature of the system that once you’re in the HAMP, you can be foreclosed upon any time the lender wants, without any further notice. Treasury intentionally wrote it that way.

        (As for the judges not even knowing what the HAMP is….)

        Comment by Russ — October 5, 2010 @ 6:21 am

      • Well, I would certainly argue that “feature” constitutes abuse. Of course, I am not certain precisely what Yves had in mind. They seem to have done a good job of designing HAMP with lender needs in mind.

        There are well documented cases where people were granted modifications and were then foreclosed on, or people were explicitly told to miss payments because they would not otherwise qualify, and then were foreclosed on. The bank’s eagerness to foreclose seems to depend on how much equity is in the home (much like a mugger’s eagerness to rob you depends on how much jewelry you’re wearing).

        Comment by reslez — October 5, 2010 @ 8:39 pm

      • Certainly, from any human point of view it’s an abuse.

        But you know what I mean – “it’s a feature, not a bug”. Meaning that if something’s intentional and systematic, then that’s the proper use, not an “abuse” on the part of “bad apples”, the way apologists might claim later.

        Comment by Russ — October 6, 2010 @ 4:29 am

  3. Very interesting post.
    There’s a fair amount of technical stuff in it that I am not in any position to understand.
    But there is other stuff that I DO understand.
    I don’t think that the legal basis of the ownership society is unraveling as a primary phenomenon. I think that the social contract, and the trust behind it are unraveling. That is what makes the idea of walking away from those mortgages a double edged sword. My grandma would have sweated blood to reimburse a debt, as I mentioned elsewhere. Because there was still trust, a sense of individual RESPONSIBILITY in HER society. Now ??… It is nevertheless tendentious to assert that BECAUSE the banksters are thugs, “we the people” are justified in unlawful ? activities as a result. As the old saying goes.. two wrongs do NOT make a right. Not last time I checked.
    I am really not thrilled with any form of idealization of “we the people”, as I perceive.. wrongly ? in your analyses ? The tyranny of the majority REMAINS tyranny.
    People working the land were/are no better than those working elsewhere, (or even NOT WORKING) in terms of their basic psychological makeup.
    WORKING THE LAND, however, tends to develop certain perceptions and attitudes that certainly working in a bank does NOT develop.
    But.. all the land for food production ?
    I STILL like the idea of an aristocracy THAT IS ACCOUNTABLE TO SOMETHING BESIDES ITSELF. (dixit above)
    But that is the crux of the matter anyway.
    WHO IS ACCOUNTABLE TO ANYTHING beyond INDIVIDUAL interest these days ?
    You have to admit that WE THE PEOPLE have definitely been encouraged to think this way.

    Comment by debra — October 5, 2010 @ 11:36 am

    • Consumers are making the morally correct decision to default. If the choice is between keeping your family’s head above water and keeping your word to a bank, your family must come first. Any other decision is objectively evil. Trying to shame people into putting the welfare of a bank ahead of the welfare of themselves and their families is morally wrong.

      Exercising a clause in a mortgage contract both sides agreed to is perfectly correct. The homedebtor is within her rights legally and morally to default AT WILL. How dare you to suggest otherwise?

      Modern business is blind to the social contract; it may as well have never existed. The banks’ business models intentionally cause bankruptcy and spiraling levels of debt. Customers who can’t pay their bills generate far more profits through fee and interest income. The banks are reaping the whirlwind they willingly sowed.

      Comment by reslez — October 5, 2010 @ 9:12 pm

      • The “right” issue is what is behind.. my disenchantment with an entitlement society.
        I said a “double edged sword”, and I mean it.
        Keeping faith, and trust is very important.
        It can be important WHETHER OR NOT the other party keeps faith, moreover.
        If you knew me, you would know that I am the last person to encourage INDIVIDUAL PEOPLE to remain in intenable situations of this kind. Nor do i attempt to shame them into anything.
        But I AM remarking on the social GLUE that at least in my eyes, SEEMED to be there during the Great Depression that I see no evidence of whatsoever right now.
        And that is visible in every strata of the population, NOT JUST in the banking industry..
        Just because the working poor is oppressed does not make them.. HEROES.
        Not in my eyes, at least.

        Comment by debra — October 6, 2010 @ 2:45 am

  4. And as for working the land.. we better find farmers who are capable of working it.
    The most recent attitudes, i.e., a phenomenal FAITH that Monsanto and company will provide the technology to give a farmer an easy life and a nine to five job, well… I’m afraid that THIS kind of faith is going to go bust too. Farmers have forgotten what it means to work the land, I fear… In just one or two generations, even. Frightening.

    Comment by debra — October 5, 2010 @ 11:59 am

    • It’s funny you mention faith in Monsanto, since the post projected for tomorrow will discuss how that faith has been eroding lately.

      People are capable of working the land, and more and more are seizing the chance wherever they can find it.

      https://attempter.wordpress.com/2009/12/25/holiday-wish/

      We’re going to have to put all the arable land into production if we’re going to grow enough food post-oil.

      With any luck the necessity of Peak Oil can be transformed into the virtue of food production self-management.

      Comment by Russ — October 5, 2010 @ 3:50 pm

      • My husband’s mother’s family lives in a rural farming community. We regularly discuss.. working the land.
        Up until very very recently, any attempt on our part to suggest that maybe “the system”, with its… BIG BIG shiny tractors that cost a fortune, sucking the farmers into a vicious circle of indebtedness and overproduction for the European Union, was met with incredulity, and the phrase “it can’t be done” (pull out of the industrial agriculture treadmill).
        Funnily enough, on this one, at least from what I see, SOME of the RURAL communities are really BEHIND the city folks, who do not want the heaviest doses of pesticides in the EU sprayed all over their food.
        When I go to the market here, even on the farmer’s market I see… calibrated tomatoes that are all the same size and color. Calibrated EVERYTHING. (Well, in all fairness, this is beginning to change, and we are just starting to see UNCALIBRATED food again..)
        Much of our food is grown… above soil. NOT IN THE EARTH. (You wanna know why ? Because.. when it’s IN THE EARTH IT’S DIRTY. Ew, yuccky when it’s dirty. The CONSUMER just might have to SPEND SOME TIME and MAKE AN EFFORT washing that food, eh ?)
        “We” are still CONSUMMATELY LAZY, I fear.
        It is only in the past year or so (after at least 15..) that the people in OUR rural community at least are capable of admitting that MAYBE, JUST MAYBE, the agroalimentary industry is not such a good idea…
        But… WHAT WILL THEY DO WITHOUT ALL THOSE PESTICIDES ?
        And HOW WILL THEY SELL when the general public has got used to seeing.. food that looks as shiny, new and PLASTIC as the big tractors that are working the land ?
        We’ll see, eh ?
        In the meantime, farmers are gonna have to get some exercise to keep up with working the land again, I fear.
        It can be done. I’m sure. But there’s gonna be an awful lot of groaning..

        Comment by debra — October 6, 2010 @ 2:59 am

      • These changes are going to be psychologically hard on a lot of people. For many, I think, that’ll be the hardest part. Not the physical arduousness.

        It’s maddening at times to ponder how all of this is really just a psychological struggle. Phil Gramm was, at the deepest level, exactly right – this is a “mental recession”.

        Meaning the people can take back their countries at will, as soon as they rouse themselves from their psychological torpor. (Inculding the cult of elites.)

        Even the end of the Oil Age, while a physical fact, isn’t as severe a barrier to any worthwhile action as the psychological one.

        Comment by Russ — October 6, 2010 @ 4:36 am

  5. Excellent piece, again, and pardon the pedantry, but how can something be more impossible?

    Comment by Edwardo — October 5, 2010 @ 3:02 pm

    • LOL, you caught me talking literal nonsense.

      But how about it’s rhetorical – what they’re trying to do is already impossible, and all their convulsions will just render the impossibility more destructive.

      Comment by Russ — October 5, 2010 @ 3:53 pm

    • You, like Ben Jonson, must enjoy this line:

      Caesar never did wrong but with just cause…

      So I’m in good company.

      Comment by Russ — October 6, 2010 @ 4:38 am

  6. You will appreciate the link to TomDispatch on naked capitalism about the over 50 guy who can’t find work. THAT’S where I got the Montsanto idea.
    I’m over 50.. educated, AND A WOMAN TO BOOT.
    Zero chance of employment, there.
    You won’t catch ME getting up at 7 in the morning and running around to go to those job interviews.
    I will write a piece soon on MY blog about my loony forum friend who has a disability allowance, and got pushed into going back to work despite his psychological fragility. Now.. the government is demanding he pay back taxes on his meager earnings, and reimburse his disability earnings.
    Ah… the joys of WORK as salvation, heh ?
    I’m NOT BUYING.
    That doesn’t make me a scrounger. I tell my loony friends (like me..) that being loony is no excuse for not looking after… your neighbor.
    That would go over better.. IF we were not living in an entitlement society..

    Comment by debra — October 6, 2010 @ 9:51 am

    • That’s the right way to look at it. At the same time they’re destroying as many real jobs as possible, their propaganda tells people to treat the job search as a job.

      To put in a full day, every day – where you’re not actually going on interviews, to be setting up new ones, practicing for them, reworking your resume for the nth time, and of course paying for bogus “retraining”.

      All of it for jobs that don’t exist and will never come back under this system.

      At all costs, they don’t want us to make a virtue of necessity by treating the enforced exile from work as an opportunity to really educate ourselves about what’s happening, and to seek the real networking, skills, and actions of relocalization and other aspirations beyond this cesspool.

      Comment by Russ — October 6, 2010 @ 10:39 am

      • Ah, yes. The retraining myth. Conservatives get off on blaming the victim: they feel so much better about themselves when they can blame the unemployed for their plight and pretend the rich deserve their plunder. The below is quoted from Bill Mitchell’s blog Even the most simple facts contradict the neo-liberal arguments and Training does not equal jobs!

        The main reason that the supply-side approach is flawed is because it fails to recognise that unemployment arises when there are not enough jobs created to match the preferences of the willing labour supply. The research evidence is clear – churning people through training programs divorced from the context of the paid-work environment is a waste of time and resources and demoralises the victims of the process – the unemployed.

        [snip]

        Case study: the parable of 100 dogs and 95 bones

        Imagine a small community comprising 100 dogs. Each morning they set off into the field to dig for bones. If there enough bones for all buried in the field then all the dogs would succeed in their search no matter how fast or dexterous they were.

        Now imagine that one day the 100 dogs set off for the field as usual but this time they find there are only 95 bones buried.

        Some dogs who were always very sharp dig up two bones as usual and others dig up the usual one bone. But, as a matter of accounting, at least 5 dogs will return home bone-less.

        Now imagine that the government decides that this is unsustainable and decides that it is the skills and motivation of the bone-less dogs that is the problem. They are not skilled enough.

        So a range of dog psychologists and dog-trainers are called into to work on the attitudes and skills of the bone-less dogs. The dogs undergo assessment and are assigned case managers. They are told that unless they train they will miss out on their nightly bowl of food that the government provides to them while bone-less. They feel despondent.

        Anyway, after running and digging skills are imparted to the bone-less dogs things start to change. Each day as the 100 dogs go in search of 95 bones, we start to observe different dogs coming back bone-less. The bone-less queue seems to become shuffled by the training programs.

        However, on any particular day, there are still 100 dogs running into the field and only 95 bones are buried there! [snip]

        In the US there are about 91 bones for every 100 dogs and in Spain 80 bones for every 100 dogs! (ed: Of course these statistics are considerably worse if you include underemployment and folks who’ve dropped out of the workforce)

        The point is that fallacies of composition are rife in mainstream macroeconomics reasoning and have led to very poor policy decisions in the past.

        There are simply not enough jobs

        Comment by reslez — October 7, 2010 @ 7:11 pm

      • Good illustration, reslez. That sums it up well.

        (It also reminds me of my own Peak Oil metaphor:

        You go out to collect $2 million which has been left to be collected. The first million is in $100 bills just lying on the ground. It takes awhile but is easy to do.

        But for the second million you need to pick up fives and then ones. Eventually you have to dig several feet into the ground to find pennies.

        That’s what it means to have used up all the easy oil.)

        Comment by Russ — October 8, 2010 @ 2:48 am

  7. […] abrogated their own property rights in the land, according to their own rigged law, most recently here. How this is systematic, endemic lawlessness, which must more and more suck in the courts […]

    Pingback by The Next Crash At Hand? (Mortgage System Collapse, MBS Disaster) « Volatility — October 8, 2010 @ 2:36 am


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