In September 2018 I sent a 20 page Report to the Royal Commission into Banking. It’s not that I expected anyone would take action on the issues I covered - the Terms of Reference were limited, and it was clear they weren’t going to go near the issues I raised.
However, I wanted to summarise my findings of the last 14 years, and setting myself the goal of doing this in time to submit to the RC was the motivation I needed to finish the task.
Now that it’s finished, I can leave it to sit with the other 10,000+ RC submissions that none of us have access to - or I can make my Report available for those who don’t yet understand the issues I discuss.
So with Christmas over, travels behind me, and the major project of my son’s 80 page 21st Birthday Photo Album just completed I thought I would post my Report, one section at a time, on the BFCSA website.
This, my first post is the Introduction to the Report. After that there are about 20 more sections, each of varying lengths, so if I’m allowed, I’ll keep posting them until the whole Report is online.
Because I wouldn’t be considered qualified to speak on this subject (I haven’t worked in the industry, and I have no letters after my name), my Report largely consists of quotes by experts who are qualified to speak.
Please note, it’s no good trying to go to court with just the information provided here. Courts look for evidence and facts that will prove your case; they won't hear generalised information, no matter how true it is, unless you can demonstrate how you personally have been damaged by it. In fact, I can’t prove the issues in this Report either - I can only raise them. To prove them I’d need competent, knowledgeable Barristers, Discovery, and a Judiciary that wasn’t biased by prejudice and assumptions. I think that currently pretty much disqualifies just about every barrister, lawyer, and judge in Australia. It would be amazing to see that change - and education is one way to achieve that change.
Also note that there are apparent contradictions in my Report. This is because there are contradictions in the way banks define, operate, justify, and explain what they do behind closed doors.
'SECURITISATION FAIL'
(with acknowledgement to Professor Adam Levitin who coined this term)
Introduction
Bank Royal Commission findings to date should leave no doubt that Australian banks will break laws and breach their own Codes of Conduct in order to increase their profits. Banking regulators such as APRA and ASIC have been part of the problem, colluding to protect banks rather than consumers, as found when APRA Chairman Wayne Byres was ultimately proved to have lied at a March 1st 2018 hearing of the Senate Economics Committee. There has been recommendation by lawyers for the RC that some banks should face criminal charges, and the first Class Action as a result of the Royal Commission findings is now being launched.
But there is something else out there in Banking Land that the Royal Commission isn’t going to touch. It involves lies obfuscation, and fraud; is known to many, but hidden to the Australian public; it’s a bigger crime than anything the RC has revealed; and it’s something by which banks make huge profits at their customers’ expense - and in many cases, their customers’ great loss.
It’s impossible to believe that some Australian regulators don’t know of this massive crime against the Australian people. Dare I suggest that it’s more likely they are complicit in a cover-up.
James K Galbraith1 speaks of this banking issue as a ‘swindle’ and a ‘fraud’: “At the root of the crisis we find the largest financial swindle in world history…. The crisis wasn’t an economic crisis but a fraud perpetrated on innocent victims.”
Galbraith is not the only person speaking of a ‘world’ swindle. In October 2010 L. Randall Wray2 wrote, “This is the biggest scandal in human history. Indeed, all previous scandals from around the globe combined cannot even touch this one in terms of scale and scope and stench. This is the mother of all frauds and it will be etched into the history books for all time.”
In a 2009 television interview, Economics Professor William K. Black3 referred to "failed bankers (advising) failed regulators on how to deal with failed assets" they all conspired to create, and use to defraud unwary buyers.
In case there is temptation to discount American experts and experience, let me quote experts from other nations:
Australia
Doctor Pelma Rajapakse (Australia)4, "… in practice, most borrowers are oblivious to the risk that their homes (or investment dwellings) could be sold by downstream financial intermediaries … not due to a failure to pay on the part of the borrower, but as a result of some act or omission by a downstream financial intermediary in the supply chain."
South Africa
Advocate Douglas Shaw5 “… on the face of it, the banks are guilty of committing serious fraud on the investors to whom they sold these mortgage bonds, and they are committing fraud on the bondholders.”
England
Anastasia Nesvetailova and Ronen Palan6 write that there is general problem in today’s financial system where the liquefying of debt structures that is facilitated through the shadow financial system “often involves illicit practices, as well as outright fraud.”
Ireland
In the Finance section of the UK Column, John Hurst7 wrote, “The Northern Irish Courts are at the forefront of the campaign to prove that the present system of mortgages is based on fraud and is utterly biased in favour of the lenders. It is so biased that the lenders make greater profits if borrowers are foreclosed upon and lose their homes.”
The above quotes, from experts in the USA, England, Ireland, Australia, and South Africa, all refer to the scheme of Securitisation as it is practiced (as opposed to its concept).
Six years ago, in an August 3rd 2012 press release, Denise Brailey8 said, “The other serious issue for Australian home owners is the selling of the RMBS packages and the securities fraud known as ‘double-dipping’ that goes hand in hand with the process of mortgage securitisation.”
In his book, The Crimes of Wall Street, Danny Schechter9 names too many crimes to list here. However, he includes, “fraud; control fraud; theft; conspiracy; misrepresentation; ponzi schemes; bilking investors, customers, and homeowners; conflicts of interest; misleading the public; making loans and then arranging that they fail; shady lending practices; exploiting customers; overcharging borrowers with arbitrary fees; imposing other hidden costs that bilk consumers.”
Sound familiar? The Royal Commission, along with Senate Enquiries over recent years, has already exposed some of these practices in the Australian banking culture. One would be naive, ignorant, or involved in the cover-up to assert that the cancer has now been fully diagnosed and the Australian consumer is safe from the risk of financial harm, especially with so many experts sounding the alarm about fraud in the securitisation industry.
As Frank Chung reported in the Queensland Times on April 20th 2018 in response to Finance Minister Mathias Cormann's concession that we may need to extend the RC, “… it’s likely we have only scratched the surface of misconduct in the Australian banking sector.”
Securitisation in concept, is the process of converting a pool of illiquid assets, such as residential mortgages, into marketable financial instruments. Pooling and Servicing Agreements and other Trust documents outline the strict requirements that are supposed to be followed to ensure that transactions are legal, and that entities involved maintain their legal place in the scheme. As Professor Adam Levitin10 stated in his written testimony to the US House Financial Services Committee Subcommittee on Housing and Community Opportunity: “Securitization is the legal apotheosis of form over substance, and if securitization is to work it must adhere to its proper, prescribed form punctiliously.”
However, in practice, securitisation is vastly different to its conceptual form.
Attorney Glenn Russell11 states, “Generally the parties involved in the securitisation process of your mortgage did not follow the mandates under the Prospectus Supplement and Pooling and Servicing Agreement governing the securitised trust…”.
Neil Garfield12 says, “There is nothing wrong with securitisation as a concept” but “The entire securitization scheme was built on layers of false information and false premises.”
Garfield identifies ‘three main flavours’ that securitisation comes in:
1. Securitization as a concept
2. Securitization documents as they are written
3. Securitization in practice in real life
then explains that “In the real world those three flavours should all be the same - but they are not. Real life practice is inconsistent with (both) the written documents and the concept of securitization. Instead of spreading risk the investment banks are concentrating it … And in practice it was wide open for ‘moral hazard’ - i.e. outright theft.”
Max Wolff13 minces no words in stating, “You had fraud in the origination of the mortgages, fraud in the underwriting, fraud in the ratings agencies. … The whole process was corrupt at its core”, and William Black3 says, “… So you take something that not only has significant risk, it has crushing risk. That's why it's toxic. And you create this fiction that is has zero risk. That itself, of course, is a fraudulent exercise.”
These strong words are echoed by other international experts. Slow as it may be, a growing number of lawyers and the judiciary world-wide are beginning to ‘get it’, and as a consequence more and more foreclosures have been stopped because plaintiffs (banks and trusts) lacked standing to foreclose. Sadly, this is not the case in Australia. We're not even off the starting blocks when it comes to securitisation as a defence in foreclosure. In fact, I'd say we are behind the starting blocks, as the few brave souls who ventured into that shark infested water were typically denied Discovery, and didn't have the money, the skills, the knowledge, the inspeak, the resources, or the nouse to bring a successful defence. Judges came to scorn what they dubbed 'the securitisation defence'.
The purpose of this Report is to draw your attention to just some of the issues. I am not an ‘expert’. I am a simply a wife, mother, and grandmother who has, when time permitted, researched these issues over the last 14 years. I am also a victim of Securitisation and Foreclosure Fraud.
End of Introduction
Part 2 can be found here...
Footnotes (Footnotes will only be included once per person even though I quote some people multiple times)
1. James K. Galbraith - Economist, Professor at Lyndon B. Johnson School of Public Affairs and the University of Texas, Senior Scholar of Bard College and on the executive committee of the World Economics Association.
2. L. Randall Wray - Professor of Economics, University of Missouri-Kansas. A Fulbright Scholar in 1994-95, he served as visiting professor in Rome, Paris, and Mexico City. From 2015 he has been a visiting professor at the University of Bergamo, Italy. Wray has published widely in journals, and is author of numerous scholarly articles in edited books and academic journals.
3. Professor William K. Black - lawyer, academic, author, and a former senior bank regulator. He is a Professor of Economics and Law, and considered the world’s leading academic specialist in banking fraud. Since the early 2000’s he has warned about the epidemic of subprime mortgage fraud.
4. Doctor Pelma Jacinth Rajapakse - Senior Lecturer on Commercial Law at Griffith University, Brisbane Australia.
5. Advocate Douglas Shaw - South Africa’s last practicing Queen’s Counsel. Chairman of the General Council of the Bar of South Africa, with ‘unrivalled mastery’ of Tax Law, Insurance Law, the Law of Contracts and other areas of law.
6. Anastasia Nesvetailova and Ronen Palan. From research article, Securitization, Ponzi Finance, and the Crisis of Northern Rocks. First published January 28th 2013. Anastasia is a Reader in International Political Economy, Rosen is Professor of International Political Economy, Both at Department of International Politics, City University, London, UK.
7. John Hurst. Article: Capitalisation, Securitisation, and Fraud by Mortgage Lenders. UK Column.
8. Denise Brailey - President of the Australian Banking and Finance Consumer Support Association (BFCSA), and tireless Consumer Advocate with three degrees from Murdoch University in Criminology, Political Science and International Studies, and Legal Studies.
9. Danny Schechter is a veteran journalist, author, television producer and independent filmmaker who writes and speaks about economic and media issues. A Cornell University graduate, he received his Master's degree from the London School of Economics, an honorary doctorate from Fitchburg College, and was a Neiman Fellow in Journalism at Harvard. His well researched book, The Crime of our Time: Why Wall Street is Not Too Big to Jail investigates the complex web of fraud and crime surrounding securitisation practices.
10. Professor Adam J. Levitin - Associate Professor at Law, A.B Harvard; A.M. M.Phil Columbia; J.D. Harvard. Adam specializes in bankruptcy, commercial law, and financial regulation.
11. Attorney Glenn Russell Esq. graduated Cum Laude from Suffolk University Law School in 1997. He is considered an expert on mortgage litigation, and is sought nationally to speak on issues related to mortgage litigation. In 2013 Attorney Russell was asked to appear before the Federal Housing Finance Agency [FHFA] to present a discussion regarding "mortgage securitization”.
12. Neil F. Garfield, M.B.A., J.D., is well placed to comment on Securitisation practices.. He has authored voluminous numbers of articles, as well as technical treatises on law, finance and economics. He has been a trial lawyer for 41 years, but concentrated his law practice for the last 11 years on issues related to structured finance (securitization in particular). He has been licensed by government agencies and securities trade groups to do business on Wall Street. As a former investment banker and real estate investor, he knows mortgage securitization issues from the inside out, who the deciders are, and how they arrived at a catastrophic scheme to defraud, people, agencies, institutions, and governments all over the world. He has correspondent or co-counsel relationships with attorneys in all 50 states of the USA, is a licensed member of the Florida Bar and appears as special counsel, trial consultant and expert witness across the United States and in 26 countries. He currently serves as consultant, writer, researcher and expert witness on cases involving the securitization of debt.
13. Max Wolff is an economist and strategist with 10 years experience in alternative assets and 10 years teaching Economics and Statistics at the graduate level. He has made hundreds of appearances and published articles in leading media outlets including Bloomberg TV, CNBC, Fox News, The Financial Times, CBS Evening News, ABC News, BBC, and The Wall Street Journal.