Monthly Archives: April 2012



UNPUBLISHED - Case law hidden from the public


Patton v. Diemer, 35 Ohio St. 3d 68; 518 N.E.2d 941; 1988). A judgment rendered by a court lacking subject matter jurisdiction is void abinitio. Consequently, the authority to vacate a void judgment is not derived from Ohio R. Civ. P. 60(B), but rather

constitutes an inherent power possessed by Ohio courts. I see no evidence to the contrary that this would apply to ALL courts.


“A party lacks standing to invoke the jurisdiction of a court unless he has, in an individual or a representative capacity, some real interest in the subject matter of the action. Lebanon Correctional Institution v. Court of Common Pleas 35 Ohio St.2d 176



“A party lacks standing to invoke the jurisdiction of a court unless he has, in an individual or a representative capacity, some real interest in the subject matter of an action.” Wells Fargo Bank, v. Byrd, 178 Ohio App.3d 285,2008-Ohio-4603,897 N.E.2d

722(2008). It went on to hold, ” If plaintiff has offered no evidence that it owned the note and mortgage when the complaint was filed, it would not be entitled to judgment as a matter of law”


(The following court case was unpublished and hidden from the public) 

Wells Fargo, Litton Loan v. Farmer, 867 N.Y.S.2d 21 (2008). “Wells Fargo does not own the mortgage loan… Therefore, the… matter is dismissed with prejudice.”


(The following court case was unpublished and hidden from the public)

Wells Fargo v. Reyes, 867 N.Y.S.2d 21 (2008). Dismissed with prejudice, Fraud on Court & Sanctions. Wells Fargo never owned the Mortgage.


(The following court case was unpublished and hidden from the public)

Deutsche Bank v. Peabody, 866 N.Y.S.2d 91 (2008). EquiFirst, when making the loan, violated Regulation Z of the Federal Truth in Lending Act15 USC §1601and the Fair Debt Collections Practices Act 15 USC §1692; "intentionally created fraud in the

factum" and withheld from plaintiff… "vital information concerning said debt and all of the matrix involved in making the loan".


(The following court case was unpublished and hidden from the public)

Indymac Bank v. Boyd, 880 N.Y.S.2d 224 (2009). To establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note. It is the law's policy to allow only an aggrieved person to bring a lawsuit . . . A want of "standing to sue," in other words, is just another way of saying that this particular plaintiff is not involved in a genuine controversy, and a simple syllogism takes us from there to a "jurisdictional" dismissal:


(The following court case was unpublished and hidden from the public)

Indymac Bank v. Bethley, 880 N.Y.S.2d 873 (2009). The Court is concerned that there may be fraud on the part of plaintiff or at least malfeasance Plaintiff INDYMAC (Deutsche) and must have "standing" to bring this action.


(The following court case was unpublished and hidden from the public)

Deutsche Bank National Trust Co v.Torres, NY Slip Op 51471U (2009). That "the dead cannot be sued" is a well established principle of the jurisprudence of this state plaintiff's second cause of action for declaratory relief is denied. To be entitled to a

default judgment, the movant must establish, among other things, the existence of facts which give rise to viable claims against the defaulting defendants. “The doctrine of ultra vires is a most powerful weapon to keep private corporations within their legitimate

spheres and punish them for violations of their corporate charters, and it probably is not invoked too often…” Zinc Carbonate Co. v. First National Bank,103 Wis. 125,79 NW 229(1899). Also see: American Express Co. v. Citizens State Bank, 181 Wis. 172, 194 NW 427(1923).


(The following court case was unpublished and hidden from the public)

Wells Fargo v. Reyes, 867 N.Y.S.2d 21 (2008). Case dismissed with prejudice, fraud on the Court and Sanctions because Wells Fargo never owned the Mortgage.


(The following court case was unpublished and hidden from the public)

Wells Fargo, Litton Loan v. Farmer, 867 N.Y.S.2d 21 (2008). Wells Fargo does not own the mortgage loan. "Indeed, no more than (affidavits) is necessary to make the prima facie case." United States v. Kis, 658 F.2d, 526 (7th Cir. 1981).


(The following court case was unpublished and hidden from the public)

Indymac Bank v. Bethley, 880 N.Y.S.2d 873 (2009). The Court is concerned that there may be fraud on the part of plaintiff or at least malfeasance Plaintiff INDYMAC (Deutsche) and must have "standing" to bring this action.


Lawyer responsible for false debt collection claim Fair Debt Collection Practices Act,15 USCS §§ 1692-1692o, Heintz v. Jenkins,514 U.S. 291; 115 S. Ct. 1489, 131 L. Ed. 2d 395 (1995). and FDCPA Title 15 U.S.C. sub section 1692. In determining whether the plaintiffs come before this Court with clean hands, the primary factor to be considered is whether the plaintiffs sought to mislead or deceive the other party, not whether that party relied upon plaintiffs' misrepresentations. Stachnik v. Winkel,394 Mich. 375, 387; 230 N.W.2d 529, 534 (1975).


"Indeed, no more than (affidavits) is necessary to make the prima facie case."United States v. Kis, 658 F.2d, 526 (7th Cir. 1981). Cert Denied, 50 U.S. L.W. 2169; S. Ct. March 22, (1982).


“Silence can only be equated with fraud where there is a legal or moral duty to speak or when an inquiry left unanswered would be intentionally misleading.” U.S. v. Tweel,550 F.2d 297(1977).


“If any part of the consideration for a promise be illegal, or if there are several considerations for an un-severable promise one of which is illegal, the promise, whether written or oral, is wholly void, as it is impossible to say what part or which one of the considerations induced the promise.” Menominee River Co. v.Augustus Spies L & C Co., 147 Wis. 559 at p. 572;132 NW 1118(1912). Federal Rule of Civil Procedure 17(a)(1) which requires that “[a]n action must be prosecuted in the name of the real party in interest.” See also, In re Jacobson, 402 B.R. 359, 365-66 (Bankr. W.D. Wash. 2009); In re Hwang, 396 B.R. 757, 766-67 (Bankr.C.D. Cal. 2008). Mortgage Electronic Registration Systems, Inc. v. Chong, 824 N.Y.S.2d 764 (2006). MERS did not have standing as a real party in interest under the Rules to file the motion… The declaration also failed to assert that MERS, FMC Capital LLC or Homecomings Financial, LLC held the Note. Landmark National Bank v. Kesler, 289 Kan. 528,216 P.3d 158(2009).


“Kan. Stat. Ann. § 60-260(b) allows relief from a judgment based on mistake, inadvertence, surprise, or excusable neglect; newly discovered evidence that could not have been timely discovered with due diligence; fraud or misrepresentation; a void judgment; a judgment that has been satisfied, released, discharged, or is no longer equitable; or any other reason justifying relief from the operation of the judgment. The relationship that the registry had to the bank was more akin to that of a straw man than to a party possessing all the rights given a buyer.” Also In September of 2008, A California Judge ruling against MERS concluded, “There is no evidence before the court as to who is the present owner of the Note. The holder of the Note must join in the motion.” LaSalle Bank v. Ahearn, 875 N.Y.S.2d 595 (2009). Dismissed with prejudice.


Lack of standing.

Novastar Mortgage, Inc v. Snyder 3:07CV480 (2008). Plaintiff has the burden of establishing its standing. It has failed to do so. DLJ Capital, Inc. v. Parsons, CASE NO. 07-MA-17 (2008).



Bill Black is a former bank regulator who played a central role in prosecuting the corruption responsible for the S&L crisis of the late 1980s. He is one of America’s top experts on financial fraud. And he laments that the US has descended into a type of crony capitalism that makes continued fraud a virtual certainty – while increasingly neutering the safeguards intended to prevent and punish such abuse.

Bank forges signature, homeowner gets temporary victory

By Eric T. Campbell
The Michigan Citizen

DETROIT — A metro Detroit homeowner received a temporary victory in court April 16 against a possible illegal eviction.

Attorney Vanessa Fluker argued in Wayne County Circuit Court that Deutsche Bank is using forged documents to claim ownership of her client’s home. Fluker’s client, who asked that her name not be released to the press, is facing eviction despite seeking loan modifications and attempting to buy her home after a sheriff’s sale.

Deutshe Bank is one of several large financial institutions foreclosing on homeowners without knowing who legally possesses the title, Fluker argued before Judge John MacDonald. Fluker was in court to defend her client from Deutsche Bank.

Fluker says her client is a victim of an epidemic of robo-signings — the practice of banks signing thousands of documents and affidavits without verifying the information.

“The whole issue is that the homeowner was at the eviction stage and they actually challenged the legitimacy of the ownership/interest of the plaintiff, which is Deutsche Bank,” Fluker told the Michigan Citizen. “One of the reasons and rationale for this is that there were numerous assignments, one of which was done by a ‘Linda Green,’ a nationally known robo-signer.”

Fluker argued the assignments were improper and therefore would affect the bank’s standing to initiate a legitimate foreclosure and subsequent eviction.

Judge MacDonald ruled in favor of Fluker’s client, saying a period of discovery was required before he could establish the “assignment of mortgage” and the case could move forward.

But the circumstances leading to her client’s court challenge are not rare, according to Attorney Fluker.

“She’s a hardworking individual who has been fighting to save this home. They’ve done everything they’re supposed to do — tried to get a modification, tried to purchase the home back after the sheriff’s sale. They want to stay in their home as most homeowners do,” she said.

Reports are now surfacing indicating that during the height of the foreclosure crisis — when banks were making billions from the sale of mortgage-backed securities — banks and lenders lost track of vital paperwork. Now, many believe they are using fraudulent practices to replace the missing documents.

An April 3 edition of CBS’ “60 Minutes” indicated that banks such as Deutsche used temp agencies to hire hourly workers for the purpose of signing off on documents as bank vice presidents and other officials. The name “Linda Green” was traced to a Georgia company hired to apply forged signatures to mortgage assignments.

“60 Minutes” sources said the agencies are “sweatshops for forged mortgage documents.” “Linda Green” has appeared thousands of times on mortgage documents nationwide.

Detroit Attorney Jerry Goldberg, of Moratorium NOW!, says cases like this will continue to plague Detroit unless a two-year moratorium on home foreclosures is implemented, either by the federal or state government. He adds that recent figures reflect a loss in home equity in Michigan of over $50 billion since 2005.

“You can imagine what that’s done to the tax base,” Goldberg says. “In the Black community especially, where most of the wealth is concentrated in home equity.”

Moratorium NOW! hosted a conference March 31 to discuss a national movement on the issue. Representatives from the Chicago Anti-Eviction Committee, Miami’s Take Back the Land, Occupy LA and more met at Central United Methodist Church to further the organizing campaign.

Goldberg told the Michigan Citizen that legislation recently proposed by U.S. Congressman Hansen Clarke, D-Mich., may attract enough attention to, at the very least, push the moratorium agenda forward.

According to the congressman’s spokesperson, Lindsey Schubiner, Clarke will introduce the bill this week.

In an e-mailed statement, Congressman Clarke writes: “Home foreclosures in metro Detroit represent a critical, ongoing crisis and urgent action from Congress is required ... If enacted, the bill would stabilize neighborhoods, stop home abandonment, preserve our tax base and most importantly, strengthen our communities.”

Goldberg says a draft bill includes language allowing a homeowner to ask for a three-year moratorium on eviction, if the bank will not come to agreeable payment terms during the 60-day mediation period.

In addition, if the home is “underwater,” meaning the homeowner has negative equity, after the three years, the court will order the principal payment to be reduced to fair market value.

“It’s actually a very progressive bill,” Goldberg says. “We have no illusions that it’s going to pass, but it provides an important lever to help mobilize and help the struggle progress.”

“When Hansen was a state senator, he proposed a moratorium bill here in Michigan,” Fluker added.

“Unfortunately, it was not taken up and passed but it tracked the same terms as the bill he is proposing now, which would allow the parties — the banks and the borrowers — to go into court and arrange a modification. The borrowers would then pay a fair market rent in the interim,” she said.

For more information on the National Conference for a Moratorium on Foreclosures and Evictions, visit or call 313.744.7912.

Eric T. Campbell can be reached at

Inside the foreclosure factory, they’re working overtime


In a quiet office in downtown Charlotte, N.C., dozens of Wells Fargo’s foreclosure foot soldiers sit in cubicles cranking out documents the bank relies on to seize its share of the thousands of homes lost to foreclosure every week.

They stare at computer screens and prepare sworn affidavits that are used by lenders in courts across the country to seize homes. Paid $30,700 to start, these legal process specialists, the title that goes with the job, swear an oath under penalty of perjury that they're corporate vice presidents. They're peppered with e-mails from managers to meet daily quotas of at least 10 or 11 files day.

If they fall short, they face a verbal warning. Then written. Two written warnings could cost them the paycheck that supports a family. As more than one source for this story told, "I can't afford to lose this job."

Pressured to meet daily production quotas, they are likely making mistakes that inadvertently could toss a family out of its home and onto the street, according to these workers.

State and federal prosecutors, in a recent settlement with five banks that included Wells Fargo, agreed. The joint state and federal settlement spelled out how the document procedures at the five banks resulted in “loss of homes due to improper, unlawful or undocumented foreclosures,” according to the complaint.

"These are mistakes that could cost someone their home," a Wells Fargo document preparer told

The Wells Fargo worker, who first contacted via email in late January, told of a wide range of concerns about the foreclosure documents she processes. Some families apparently were denied loan modifications after only cursory interviews, she said. Other borrowers applying for help sent comprehensive personal financial documents to a fax machine that she discovered had been unattended for weeks. Others landed in foreclosure after owing interest payments of as little as $1.18 a day, according to documents she said she reviewed.

The legal process specialist asked not to be identified because she was not authorized to speak about the internal workings of the department, where she has worked since last year. Her account was supported by company documents and by a co-worker in the same office.

"There was one file where they weren't even past due and they were in foreclosure status," the loan processor said. "They're pushing these files and pushing these files....”

Five years into the worst housing collapse since the Great Depression, the foreclosure pipeline that is removing tens of thousands of families from their homes every month rests on a legal process that has been badly compromised by errors, misrepresentation and outright fraud, according to consumer attorneys, state attorneys general, federal investigators and state and federal judges.

Are you a foreclosure document processor? Share your story

Sweeping enforcement actions a year ago by the nation's top banking regulators, and a recent settlement among 49 state attorneys general, the Department of Justice and other federal agencies with the five biggest mortgage lenders, were supposed to fix the system. Mistakes are likely still getting through, according to Wells Fargo employees.

Lenders claim that wrongful foreclosures based on paperwork errors are exceedingly rare. But unless that paperwork is challenged in court, there is no way a borrower would know a mistake had been made, or whether the lender had even proved it owned the loan and had the right to foreclose. Half the states use “non-judicial” foreclosure procedures, in which home seizures are subject to limited or no review by a judge.

“We have an adversary system,” said New York State Supreme court Judge Arthur Schack, who has rendered harsh opinions and sanctions for improper and fraudulent foreclosure documents. “So if someone doesn’t challenge it, it’s going to go through.”

Michael DeVito, executive vice president of Wells Fargo’s Home Mortgage Default Servicing, says the bank's processes are built to catch errors: “It’s got redundant checks in it to ensure that the documents going out the door are accurate. And the process is built to help the team member build the personal knowledge they need to sign effectively."

“No one here is asked to sign anything they don’t understand. Period. End of Story," DeVito said. "There’s no production quota and if a team member says, ‘I don’t understand this I’m not going to sign it,’ that’s fine.”

But people who work at Wells Fargo’s office at 401 South Tryon Street in Charlotte said some managers are pushing loan processors to fill workload quotas that don’t allow enough time to thoroughly review documents.

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“They’re pushed to do numbers," said a manager at the office who wished not to be named, referring to a department different from her own.

“My department is much more lax,” she said, “but (in that team) they’re pushing: ‘Get ‘em out, get ‘em out, get ‘em out, get em out.’”

This pressure to produce is spelled out in company e-mails to loan processors that were obtained by

11 a day
One manager, in a daily "3 p.m. pulse check" e-mail reminded her team recently that "we need 11 new signed notarized files per reviewer per day," reminding the staff that "I asked that you take a few files at a time to be signed [and] notarized; it does not appear we are following this process."

On other occasions, the reminders can be more pointed. When a backlog of 59 files needed to be completed by 11 a.m. the next day, another manager e-mailed his team: "No one should be doing anything other than [these] files. No socializing, no going for breakfast, no doing [other] files ... until we are done with [these files]. It is that important. Help me out with this. If you finish all [the] files in your pipeline, you are expected to ask me for more.”

Last December, with just a few working days left in 2011 and the pressure on to churn out the paperwork required to seize a batch of homes in Kentucky and Connecticut, one of the managers sent an e-mail urging his team to "finish this year strong."

"You must sign at least 10 NEW files every day,” the e-mail said. “Less than 10 is unacceptable.”

At least once a month, the work week stretches to Saturday.

"Happy Saturday everyone," one manager greeted his staff in an e-mail before one such weekend session began. "We need to stay focused, keep the socializing to a minimum and get the job done. We are behind and must bring in a good number today. 6 hours and no lunch. Everyone is expected to get 8 new files signed today. No less.”

DeVito, who is based at the mortgage division’s headquarters in Des Moines, Iowa, recently visited the Charlotte office after asked the company for comment on this story.

“We take the concerns that have been raised to you and to us extremely seriously,” DeVito said after that visit. “And we’re going to go back and look at how our managers are communicating (with their employees.)”

In individual consent judgements, Wells Fargo and four other big banks have agreed to sweeping new standards in processing foreclosures. The agreement, approved April 5 by U.S. District Judge Rosemary Collyer, gives the banks 90 days to develop a plan to adhere to the new standards and 180 days to implement those plans. Until then, Americans losing their homes to foreclosure have little assurance that the seizures and sales are proper.

Many of them will lose their homes to Wells Fargo. So far this year, there have been more than 575,000 new foreclosure filings in the U.S. and more than 200,000 properties sold, according to RealtyTrac, which tracks national foreclosure data. Last year, Wells Fargo became the nation’s largest servicer of residential mortgages, with a $1.8 trillion loan portfolio and a 17.7 percent share of the market.

Entry-level vice presidents
Legal processing specialists sign affidavits in the presence of a notary and swear "under the penalty of perjury to the best of my knowledge, information and belief that the contents of the foregoing paper are true." 

To meet legal requirements of state foreclosure laws, the document processors at Wells Fargo’s Charlotte office sign their affidavits as “Vice President of Loan Documentation.”

DeVito said the company’s board of directors has granted all document processors the title, a practice that corporate governance experts say confers on them the legal authority to sign documents as corporate officers.

Entry-level legal process specialists earn between $30,700 and $53,300 a year, according to recent internal job postings. Though basic qualifications in those postings call for one or two years of administrative experience, Wells Fargo says these entry-level workers have the training and expertise to satisfy state requirements that corporate officers review all foreclosure files.

Document processors typically have several years of experience in mortgage document processing, according to Vickee Adams, a Wells Fargo spokeswoman. They also undergo online training and have to pass a test before being authorized to sign affidavits as vice presidents, she said.

Personal knowledge
Concerns about document preparation at Wells Fargo and other major lenders first came to light nearly two years ago.

Investigators at the Department of Housing and Urban Development, who are charged with finding "waste fraud and abuse" among lenders filing claims for payment when a federally-insured mortgage defaults, checked into problems at all five big banks after reports surfaced in 2010 of widespread document fraud.

Those investigators reported last month that Wells Fargo document processors had “signed the great majority of the judgment affidavits without personal knowledge or otherwise verifying the data and information.”

That investigation took place in the fall of 2010. But the Wells Fargo employees who spoke to on condition they would remain anonymous said those practices persist in the Charlotte office.

Their knowledge of a foreclosure filing is limited by a process that relies on data provided by a third party vendor and based on documents they don't always have time to review, according to the employees.

As they prepare each affidavit, which carries the same legal weight as sworn testimony by a witness in a courtroom, document processors are tasked with certifying two basic claims that Wells Fargo makes before it sends a homeowner out onto the street. The first includes the bank's detailed accounting of what it claims the borrower owes in back payments. The second claim requires that processors sift through the paper trail that shows Wells Fargo has the legal right to seize a home.

Companies that manage mortgages typically collect only a small fee for each loan that is current. But loans in foreclosure generate a laundry list of foreclosure-related revenues, including legal fees, late charges, back interest, home inspections and maintenance. Last year, Wells Fargo earned $3.3 billion in profits from its mortgage servicing business, or about 20 percent of the bank’s total net income, according to its annual report.

The accuracy of a homeowner's final default accounting is critical. If a borrower can raise the shortfall by either tapping savings or obtaining a personal loan from family or friends, the default could be corrected.

But Wells Fargo uses a process to certify the official accounting that doesn't give many of their document preparers enough time or information to make sure it's accurate, according to the employees.

Like many mortgage servicers, Wells Fargo relies on a company called Lender Processing Services to assemble some of the information used to foreclose on properties.

With each file they prepare, the bank’s document processors must swear “personal knowledge” that the information in each affidavit was properly collected and is accurate and complete.

But they have no way of making good on that promise because they are not able to check whether LPS properly collected and processed the data, according to the document processor.

"We're basically copying and pasting" information from the LPS system, she said. "It's data entry. We just input (on the affidavit) what's on that system. And that's it. We don't go back through system and look."

If they were able to take a closer look, Wells Fargo's document processors might be surprised at what they found.

In December, Nevada Attorney General Katherine Cortez Masto sued LPS alleging that the company had forged documents, forced attorneys to churn through foreclosures sacrificing accuracy for speed, and required workers to notarize up to 4,000 foreclosure-related documents a day.

LPS moved to dismiss the lawsuit, saying it failed to show that any document “executed by subsidiaries of LPS was incorrect, contained errors, or caused any borrower financial harm.” It said the allegations were based on “misguided legal conclusions and inflammatory rhetoric.”

LPS also was among the companies cited by federal regulators in April 2011.

DeVito said Wells Fargo has multiple accounting checks in place, including a second review of signed affidavits, which catch any mistakes in the LPS system that could result in a wrongful foreclosure.

But the loan processor said not all files are subject to that level of scrutiny in the Charlotte office.

Secretary of Housing and Urban Development Shaun Donovan discusses the details of the Obama administration's $25 billion settlement with banks for alleged foreclosure abuses.

"We're not calculating out each fee," the processor said. "We're not going through their payment history and making sure that every figure is correct. That would take too long.”

Lawyers defending homeowners in foreclosure say they're well aware of the problem.

"These people simply do not have personal knowledge, as required by the rules of evidence, about the business practices or processes that they're signing affidavits with respect to," said Max Gardner, a Shelby, N.C. bankruptcy attorney who has trained hundreds of other lawyers across the country defending homeowners in foreclosure. "They just don't. And that's the fundamental problem with it."

Who owns the loan?
Once the document processors have cut and pasted the bank's accounting of fees on the affidavit that will be used to seize a home, they then review the paper trail that gives Wells Fargo the legal right to take a borrower's property. Verifying that a mortgage has been properly transferred from one lender to another can be vexing.

In the frenzy of mortgage lending in the mid-2000s, when hundreds of now-defunct lenders churned out a blizzard of mortgages that were quickly sold off to investors, the paper trail of ownership was sometimes badly scrambled, according to consumer attorneys defending homeowners in foreclosure cases. Some of those attorneys are successfully attacking lenders’ effort to paper over missing links in the chain of documents that establish who owns a mortgage.

In some cases, the transfer process relies on a widely-used third party, known as the Mortgage Electronic Registration Systems, Inc. or MERS, which was also cited in last year's enforcement action by federal regulators. The system was designed to bypass the costly and time-consuming process of recording mortgage transfers at county or town clerks' offices. Critics of the system, including state prosecutors who have sued MERS, have argued that it doesn't provide an adequate paper trail to prove who actually owns a mortgage. MERS has disputed those complaints and has also won someimportant court victories upholding its legal standing in transferring mortgages and establishing ownership of a loan in foreclosure.

In other cases, when mortagages aren't registered on the MERS system, Wells Fargo loan specialists in the Charlotte office have to verify ownership by reviewing images scanned into their computers. In theory, all relevant, original documents are available for review. But it's not unusual for a critical piece of paper to be missing, according to employees at Wells Fargo’s Charlotte office.

Locating the original document could require ordering it up from a storage warehouse in a different location, which "would probably take you forever," said the loan processor. Strictly-enforced production quotas often make it all but impossible to devote the time needed to verify each file, she said.

'Severe misconduct'
Banks were ordered a year ago to fix error-prone document systems and procedures, after a sweeping enforcement action last April by four of the nation’s top bank regulators. Fourteen mortgage-related firms, including Wells Fargo, LPS and MERS, signed consent orders with bank regulators. At the time, Wells Fargo agreed to “ensure that all factual assertions made in pleadings, declarations, affidavits or other sworn statements” are “based on personal knowledge or a review of the Bank’s books and records.”

But lenders' disregard for the law is still rampant, according to consumer advocates and regulators. Lawyers defending homeowners against foreclosure say the process in some states has been so corrupted that faulty and fraudulent documents have become commonplace.

In February, the National Consumer Law Center surveyed some 260 consumer attorneys in 45 states, who reported that thousands of homeowners were improperly foreclosed on in just the past year. In four out of five cases, the attorneys reported, lenders failed to properly credit payments or they wrongly claimed homeowners owed bogus fees.

In February, an audit by the San Francisco assessor’s office of 382 foreclosure cases over the past three years found “one or more irregularities” in 99 percent of the loans and “what appear to be one or more clear violations of law” in 84 percent of the loans.

Concerns about widespread foreclosure abuses were echoed recently by Sarah Bloom Raskin, a Federal Reserve governor, who urged that "the severe misconduct that has been uncovered in the mortgage servicing sector be addressed through intensified public enforcement of the law."

"The dockets of federal courts, bankruptcy courts, and state courts include numerous cases involving a wide range of troubling issues," Bloom Raskin told a gathering of law professors at the annual meeting of the Association of American Law Schools in January.  Those issues, she said, include claims of forged and missing documents and allegations that homeowners were being overcharged.

Wells Fargo insists that the bank has fixed the problems identified by regulators and state and federal prosecutors.

“There have been a number of voluntary actions within Wells Fargo … to address those issues aggressively through investment in technology and through investment in the work force,” said Adams, the spokeswoman. “So there have been a number of adjustments and in fact a number of our adjustments preceded the regulatory requirements.”

The Notary Room
But the Wells Fargo loan processor says those adjustments haven't overcome a work environment that often prizes speed over accuracy for some teams.

Employees who arrive every weekday morning pass a long, unstaffed reception desk in front of a large "Wells Fargo" sign in red and gold, to enter a yellow-carpeted space furnished with high-walled cubicles, she said.

The phones rarely ring. It's quiet but for the sound of clicking keyboards. Workers stare at their screens, listening to music via iPod earplugs to better concentrate on the task at hand. Brief conversations between co-workers are interrupted hastily as soon as a manager walks by.

The nine-hour workday includes a lunch break of up to an hour, along with two additional 15-minute breaks, though some smokers in the group take more. From the break room, you can look out over the nearby rooftops and apartment buildings to see traffic flowing around Charlotte's downtown on the Interstate 277. A TV is typically tuned to CNN. 

The conference rooms are named for warm, sunny destinations: St. Thomas, St. Kitts and Belize. From time to time, managers summon the staff to one of these rooms to review the latest performance numbers.

Once the loan process specialists fill out the information in a standard affidavit template, they sign it before a notary, a public official licensed by each state to perform legal functions that include administering oaths and witnessing signatures on documents.

In the Charlotte office, that means a trip to a separate room where a handful of notaries sit all day behind a few small desks with lamps. Much of their time is spent reading a newspaper or a book or playing with smart phones while they wait for the next legal processes specialist to stand before them, swear that the affidavit they've just filled out is true, and sign it.

"It's exactly like an assembly line," said the loan processor in that office. "You sign it, you push it off to a notary, they stamp it, you put it in a box and it goes somewhere else."

Judges rely on these affidavits to approve home seizures by lenders.

"These are not technicalities, if you're going to take someone's home," said Schack, the New York State judge, speaking generally about the foreclosure process. "We've got something called due process of law. And you've got to play by the rules. "

Those rules require that an attorney be given the opportunity to challenge any piece of evidence presented to the court. But because the Wells Fargo legal process specialists are rarely available for cross-examination, that test is very hard for a homeowner's attorney to apply.

"An affidavit, to be admissible, has got to meet the same test as if a witness was really in court in the box testifying," said Gardner.

The Wells Fargo legal process specialist said she has not been called once to testify in court to the accuracy of her work in the past six months. Court appearances by her co-workers are a rare event, she said.

Asked if she could she explain to a judge how she had obtained personal "knowledge, information and belief" that the documents she prepares are accurate, she said, "I wouldn't even feel comfortable answering that question."

Next Wave of Foreclosures Underway


by Sylvia Hsieh

Contrary to some recent rosy predictions of a recovering housing market, thousands of homeowners are still underwater on their mortgages and lawyers who represent homeowners say the next wave of foreclosures is looming.

Companies that track foreclosures have already seen a rise since the beginning of the year. Lawyers working in the trenches with distressed homeowners see no let up.

“We’re constantly deluged by calls,” said Patrick Dunlevy, a Los Angeles attorney with the country’s largest pro bono law firm who represents consumers who have been defrauded.

“The numbers are showing huge waves coming and foreclosures already filed,” said April Charney, a lawyer who provides legal services to low income clients in Jacksonville, Fla., one of the worst-hit states in the foreclosure crisis.

Ironically, one of the reasons more consumers may lose their homes is that some major banks recently reached a settlement over illegal foreclosure practices.

“The banks held off on foreclosures so they would look good during settlement negotiations. Now that the settlement is wrapping up, those banks – Bank of America, Citibank, Chase and Ally – are going to start processing more homes for foreclosure,” said Dunlevy.

He added that the banks involved in the settlement account for about 38 percent of mortgages, while Fannie Mae and Freddie Mac make up the majority of mortgages.
Another reason for the new rise in foreclosures is the still-stagnant economy leaving families one paycheck or one illness away from going underwater on their homes.


A sad phenomenon in the wake of the foreclosure crisis is that homeowners desperate to keep their homes are turning to companies promising help in getting loan modifications that turn out to be scams.

“Foreclosure rescue scams are our number one complaint right now,” said Dunlevy.

Some states, including California, have passed laws regulating companies that advertise as foreclosure consultants, such as requiring that  they actually secure a loan modification for a homeowner before taking money.

But, according to Dunlevy, in spite of these laws, scammers have become even bolder and more brazen. Whereas in the past, fly-by-night foreclosure rescuers charged $2,500 – $3,000 and would then disappear with the money, Dunlevy said he is now seeing scams where so-called foreclosure consultants charge $5,000-$7,000 up front, plus trick struggling homeowners into paying their monthly mortgage payments to them with the false claim that they will pass the money on to the bank while they renegotiate their loan. Homeowners victimized by such scams have unknowingly paid up to $25,000 before they realize they have been scammed, falling further behind on their mortgages, said Dunlevy.

A major problem preventing homeowners from getting back on their feet is that banks are not giving many loan modifications. Dunlevy has filed three class action lawsuits accusing Bank of America and Wells Fargo of not providing relief on mortgages that it promised.

“It turns out to be more financially positive for those servicing the loans to foreclose than to modify,” said Dunlevy, who added that when the banks were bailed out in 2008, they promised to provide loan modifications to homeowners and were projected to have  provided about 4 million loan modifications by this time, but have actually provided less than 1 million.


Homeowners facing foreclosure have legal arguments against the loan servicer.

There may be a new wave of foreclosures, but the same old problems with securitization of mortgages – where loans are bundled and sold over and over without the proper documentation – still exist, Charney said.

In virtually every case where she is defending a homeowner against foreclosure, she is able to challenge whether the loan servicer can prove it owns the loan by forcing it to come up with documentation they rarely have.

“The lawsuit is totally flipped. It’s no longer a foreclosure; it’s a prosecution of civil fraud on the court. … I tell the court that the absence of transferring documentation is evidence of fraud on the court and the loan servicer was fully aware of the missing documents when it filed the foreclosure,“ she said.

She also said most homeowners do not know that loan servicers are required to follow guidelines that give homeowners who fall behind on their mortgages special “intensive care” treatment before the foreclosure process kicks in.

If homeowners are looking for help in getting a loan modification, Dunlevy warns them to be careful of scammers and to look for a HUD-certified counselor.

Most homeowners do not contact a lawyer quickly enough.

Charney said a homeowner facing the threat of foreclosure should look for a consumer attorney who practices foreclosure defense full time and can prove past success in court filings or orders.

She recommends homeowners in the same neighborhood band together and pitch in to pay for a lawyer together, since their property values are tied to every house on their block or every unit it their homeowners’ association.

“I tell people: When you have a toothache, go to a dentist. When you have a home ache, go to a lawyer,” Charney said.


AG wants mortgage protections in law


April 16, 2012, 05:00 AM By Don Thompson The Associated Press

SACRAMENTO — California’s attorney general is seeking to build on a recent nationwide bank settlement over home foreclosures by lobbying state lawmakers to advance a package of mortgage-protection bills, which faces critical tests in legislative committees this week.

The proposals by Attorney General Kamala Harris would provide additional safeguards for homeowners while giving her office more freedom to investigate financial crimes.

Harris, a Democrat, has made combating mortgage fraud and protecting homeowners a centerpiece of her 16 months in office. She was instrumental in negotiating a settlement with the nation’s top five banks in February that will bring $18 billion in relief to California, one of the states hardest hit by the mortgage crisis.

More than 500,000 Californians have lost their homes to foreclosure since 2008, more than in any other state.

Her 11-bill package would ban some of the worst practices that contributed to the housing crisis. It would write the terms of the national agreement into state law and apply them to every lender.

“A lot of the reform that we’re talking about was agreed to by the banks in the national foreclosure settlement, but it only has a life of three years,” Harris said in a telephone interview. “Let’s not go back to the days of robo-signing. Let’s not go back to the days of having dual-track systems that confuse and kind of handicap people. Let’s learn from our mistakes.”

She plans to testify before legislative banking committees Monday and Wednesday as she promotes what she is calling the California Homeowner Bill of Rights. Other bills in the package also face their first committee hearings this week.

The banking industry is opposing the key elements in Harris’ proposals, including her core legislation to increase homeowners’ due process rights and to expand terms of the national settlement for all California homeowners.

The industry particularly objects to letting individual borrowers go to court if they feel they have been wronged. Allowing that would “result in a de facto moratorium on foreclosures,” the California Bankers Association said in a statement last week. Letting borrowers sue to halt foreclosures could “unduly delay the inevitable” and result in some homeowners being awarded monetary damages when they suffered no real financial harm.

“This just allows for an excess of litigation that is just going to stall progress in California and stall the housing recovery,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “You can guarantee that future loans would be expensive, more expensive than they are now. For some homeowners, that will price them out of the market.”

Harris responded that if lenders act properly to begin with, delinquent borrowers won’t be able to block a lawful foreclosure.

“Robo-signing certainly expedited things — that was the problem. ... There were homes that were foreclosed on that shouldn’t have been,” she said.

Although she has the backing of Democratic leaders who control the Senate and Assembly, previous efforts to reform the mortgage industry have failed in the Legislature or been rendered toothless.

Enactment of the bills cannot come too soon for Ethan Hoff. 

The 63-year-old retired in 2010 after 34 years as a Sacramento-area school teacher and administrator. He soon had to go back to work when his wife became disabled and her small business failed. He applied in August for a mortgage modification program offered by his lender, Wells Fargo, after he fell behind on the property taxes he owes on his home in the Sacramento suburb of Carmichael.

“I’ve had to deal with 25 different people and I’ve made over 51 calls and sent over 22 faxes,” Hoff said. “My frustration is, every time I call I get a different person.”

Hoff plans to testify in favor of a bill that would require lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing. Wells Fargo provided a single contact to Hoff, but he said the employee is never available.

“I suspect that most people give up on this process because they make it so difficult,” Hoff said. “The banks say they want to work with customers, but I just don’t see that.”

Wells Fargo spokeswoman Vickee Adams did not return two telephone messages left with her assistant.

The 11 bills in the package address six separate proposals. Five are contained in duplicate Assembly and Senate bills. The package includes:

— AB1602 and SB1470, which would extend to all California homeowners many of the protections contained in the national banking settlement. They would address the practice known as a “dual-track foreclosure” by prohibiting lenders from filing notices of default while they are also considering alternatives to foreclosures. The bills also would require lenders to prove to homeowners that they have a right to foreclose on the property and would create a new Office of Homeowner Protection to aid borrowers. Banking associations are opposed.

— AB2425 and SB1471, which would increase borrowers’ due process rights. They would require lenders to provide a single point of contact starting on July 1, 2013, for borrowers who want to discuss foreclosures or refinancing. The bills would increase penalties for banks that sign off on foreclosures without properly reviewing the documentation, a process known as robo-signing. Also, borrowers could act on their own to challenge foreclosure proceedings in court. Banking associations are opposed.

— AB2314 and SB1472, which would give cities more ability to fight neighborhood blight from vacant houses. The measures increase penalties against the owners of the blighted properties and let local governments charge the owners for the cost of cleaning up the properties. Banking and mortgage groups oppose the penalty increases.

— AB2610 and SB1473, which would give renters more notice before they have to vacate a foreclosed home. Banking and mortgage associations want more limits on which renters would qualify and how long the restrictions would be in effect.

— AB1763 and SB1474, which would allow the attorney general to convene a special grand jury to investigate financial crimes that cross county lines and involve multiple victims. Banking organizations have taken no position.

— AB1950, which would give prosecutors four years to bring charges in foreclosure-related crimes, up from the current one year. The bill also would impose a $25 fee on each notice of default filed by a lender, with the money going to the attorney general’s office for investigation of mortgage-related crimes. Banking and mortgage associations oppose what they say would be a new $25 tax.


An angry priest scatters the money lenders


An angry priest scatters the money lenders

April 7, 2012


COLEMAN-RAYNER. Los Angeles, California, USA. 4th April 2012.Ryan Bell, Pastor at the Hollywood Adventist Church in Los Angeles California. Pastor Bell along with other ministers and priests around America are upset with the lack o


Pastor Ryan Bell ... has divested his L.A. church's funds from the major banks in protest at their foreclosures. Photo: Glen McCurtayne


Father Robert Rien, of St Ignatius at Antioch, a Catholic church east of San Francisco, speaks with a crisp buoyant voice that belies his 65 years. When he is angry it fairly crackles.

This Lenten season he is angry at America's big banks, so angry he has pulled all his parish's money out of the Bank of America and opened accounts at a small local bank.

He has called on his flock to do the same and joined a nationwide interfaith movement dedicated to divesting from the major banks. They see Lent as the perfect time to spread the word.

''We have a mandate from the gospels to act,'' says Father Rien.

''Jesus went to the temple and he challenged the banking system of his day. He said, 'you are thieves and marauders, you are wrong in what you are doing'.'' On Ash Wednesday this year a group of San Francisco clergy spilled ashes outside a Wells Fargo ATM and called for a foreclosure sabbatical, invoking the Biblical term for the ancient practice of forgiving debts.

It is hard to exaggerate how poorly America's banks have treated their customers throughout the financial crisis that saw about 4 million homes being foreclosed upon, and Father Rien's voice crackles away as he discusses it.

The banks helped precipitate the financial collapse by selling mortgages to people who could never afford them. When the financial system collapsed they accepted a $US205 billion ($199.2 billion) bailout from taxpayers, but once refinanced they refused to help homeowners by modifying their mortgages.

''I actually went to a meeting in Washington and I said to Tim Geithner [the Treasury Secretary and author of the bank bailout], that he had to make them help, but he said there was nothing he could do. I was astounded,'' says Father Rien.

But it was the outright fraud by America's big banks that finally made Father Rien an activist for the first time since he was ordained 40 years ago.

As the crisis snowballed through 2007 and 2008, parishioners started coming to Father Rien for help, saying they had dutifully filled out and filed mortgage modification applications with the Bank of America, only to be suddenly evicted. Time and again the bank, equipped with their own legal documents, said their customers' paperwork had been lost and their applications were too late.

''I had 24 or 25 families just in my parish saying the same thing; it was untenable.''

When Father Rien approached the Bank of America to plead his parishioners' cases the bank told him he had no connection to the families and no right to speak on their behalf.

He did not know it then but Father Rien was seeing early signs of what became known as the robo-signing scandal, in which four American banks admitted forging signatures on untold thousands of documents to speed up foreclosures.

In February this year they came to a $US26 billion legal settlement over the issue, but Father Rien says they are still failing to help many of their struggling customers.

The priest seems stunned by what he says is the corporate and personal greed that has led to this situation.

''Look at how much money some of these people [in finance] earn; no one needs to be that rich, no one.'' So Father Rien joined PICO (Pacific Institute for Community Organisation), the faith-based network that launched the bank divestment campaign. ''I am angry,'' he says.

About six hours' drive up the Californian coast, in a suburb of Hollywood that over the past few years has transformed itself from near slum to thriving family neighbourhood, Pastor Ryan Bell found his way into PICO and the divestment campaign for the same reasons.

The Seventh Day Adventist pastor had always been engaged in his community, serving as a chaplain for local police and fire brigades. But he had never seen himself as an activist before the banks started foreclosing on members of his flock.

''The same people who transformed this area were being thrown out,'' he recalls. That many of their houses remained vacant after the evictions made the community even angrier.

Two years ago Pastor Bell found himself publicly supporting a city council move to only do business with responsible banks. It led to him divesting church funds from the major banks as well.

He, too, turns to the gospels to explain his protest, but for him it is the parable of the unforgiving servant that sheds best light on the banks' role in the crisis.

In this story a merciful king forgives the debt of a servant, who later chokes an even more humble servant to extract a debt owed to him. ''The taxpayer is the merciful king,'' says Pastor Bell. ''And the banks are choking my parishioners even though they have had that bailout.''

Pastor Bell has also targeted the Bank of America, which his church had banked with for 50 years. When he closed the church's accounts an executive did get in touch, but declined to help modify mortgages.

An assistant professor of law at Albany Law School, Ray Brescia, echoes the clergymen's frustration.

Two years ago he wrote in The Huffington Post, ''Isn't it high time to admit that mortgage lending in the United States and the foreclosures that have followed are so tainted by fraud, abuse and illegality that a moratorium on all foreclosures, everywhere, is the only just response?'' He described filing of falsified documents to facilitate foreclosures as ''likely the greatest fraud ever perpetrated on the courts of this country''.

He says not only have the banks behaved unjustly, but they continue to behave illogically. ''In this environment when values have dropped so much, it makes more sense to keep people in their homes paying off their mortgages,'' he says. This would take what the divestment calls ''meaningful mortgage adjustment'' - cutting mortgage-holder's debt. ''If you foreclose everyone loses.''

Professor Brescia says banks' recalcitrance is borne of the business model they adopted to profit from the boom. When they sold on their mortgages they became middlemen. They no longer have any incentive to help customers pay off their loans.

''I can see why people are angry. There is a disconnect between how the government extended the banks a lifeline and then the banks turned around and pulled up the same lifeline that could have been extended to customers that are underwater.''

And so the campaign against the banks goes on.

''This is a season of repentance and looking inward; we ought to be asking our institutions to do that,'' Pastor Bell says.

A national organiser with PICO, Tim Lilienthal, says he expects pressure to grow on the banks throughout the year in the wake of the Lenten campaign. So far only 25 of PICO's 1000 affiliates have divested from the banks, removing a total of $US31 million. But the success has drawn interest and support from other members. ''I expect the divestment to grow in size and speed throughout the rest of the year,'' Mr Lilienthal says.

He says recent reports show that America may be only half-way through the foreclosure crisis, meaning millions more could lose their homes.

Bank of America did not respond to a request for comment, but this month announced that it would reduce the amount owed by up to 200,000 home-owners as part of its settlement over the robo-signing scandal.

In San Jose, 55-year-old Mercy Martinez, who claims to be the victim of a predatory loan from Bank of America, proudly pulled her savings out of the bank in front of television cameras with her priest at her side two years ago. She wants the campaign to spread: ''Keep moving your money. What good is an empty house?''


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Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s Stopped


Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, also communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

Near Eastern rulers proclaimed clean slates for debtors to preserve economic balance

Charging interest on advances of goods or money was not originally intended to polarize economies. First administered early in the third millennium BC as a contractual arrangement by Sumer’s temples and palaces with merchants and entrepreneurs who typically worked in the royal bureaucracy, interest at 20 per cent (doubling the principal in five years) was supposed to approximate a fair share of the returns from long-distance trade or leasing land and other public assets such as workshops, boats and ale houses.

As the practice was privatized by royal collectors of user fees and rents, “divine kingship” protected agrarian debtors. Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance. This practice survived in the Jubilee Year of Mosaic Law in Leviticus 25.

The logic was clear enough. Ancient societies needed to field armies to defend their land, and this required liberating indebted citizens from bondage. Hammurabi’s laws protected charioteers and other fighters from being reduced to debt bondage, and blocked creditors from taking the crops of tenants on royal and other public lands and on communal land that owed manpower and military service to the palace.

In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) proclaimed a debt amnesty and abolished debt-servitude when faced with a military threat from Ethiopia. According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.) The pharaoh reasoned that “the bodies of citizens should belong to the state, to the end that it might avail itself of the services which its citizens owed it, in times of both war and peace. For he felt that it would be absurd for a soldier … to be haled to prison by his creditor for an unpaid loan, and that the greed of private citizens should in this way endanger the safety of all.”

The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts. It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients. In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who “add house to house and join field to field till no space is left and you live alone in the land.”

Creditor power and stable growth rarely have gone together. Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets – and personal liberty – forced debtors into bondage that became irreversible. By the 7th century BC, “tyrants” (popular leaders) emerged to overthrow the aristocracies in Corinth and other wealthy Greek cities, gaining support by cancelling the debts. In a less tyrannical manner, Solon founded the Athenian democracy in 594 BC by banning debt bondage.

But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, Cleomenes and their successor Nabis sought to cancel debts late in the third century BC. They were killed and their supporters driven out. It has been a political constant of history since antiquity that creditor interests opposed both popular democracy and royal power able to limit the financial conquest of society – a conquest aimed at attaching interest-bearing debt claims for payment on as much of the economic surplus as possible.

When the Gracchi brothers and their followers tried to reform the credit laws in 133 BC, the dominant Senatorial class acted with violence, killing them and inaugurating a century of Social War, resolved by the ascension of Augustus as emperor in 29 BC.

Rome’s creditor oligarchy wins the Social War, enslaves the population and brings on a Dark Age

Matters were more bloody abroad. Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province. The rule of law all but disappeared when publican creditor “knights”  arrived. Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC. Charges for back interest multiplied this sum six-fold by 70 BC.

Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the fall of the Republic on creditor intransigence in waging the century-long Social War marked by political murder from 133 to 29 BC. Populist leaders sought to gain a following by advocating debt cancellations (e.g., the Catiline conspiracy in 63-62 BC). They were killed. By the second century AD about a quarter of the population was reduced to bondage. By the fifth century Rome’s economy collapsed, stripped of money. Subsistence life reverted to the countryside.

Creditors find a legalistic reason to support parliamentary democracy

When banking recovered after the Crusades looted Byzantium and infused silver and gold to review Western European commerce, Christian opposition to charging interest was overcome by the combination of prestigious lenders (the Knights Templars and Hospitallers providing credit during the Crusades) and their major clients – kings, at first to pay the Church and increasingly to wage war. But royal debts went bad when kings died. The Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war debts. Banking families lost more on loans to the Habsburg and Bourbon despots on the thrones of Spain, Austria and France.

Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” Richard Ehrenberg wrote in his Capital and Finance in the Age of the Renaissance (1928): “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”

The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy which has lasted to this day.

At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.” (Charles Wilson, England’s Apprenticeship: 1603-1763: 1965.) The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. By the end of the eighteenth century Austria was left “without credit, and consequently without much debt,” the least credit-worthy and worst armed country in Europe, fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars.

Finance accommodates itself to democracy, but then pushes for oligarchy

While the nineteenth century’s democratic reforms reduced the power of landed aristocracies to control parliaments, bankers moved flexibly to achieve a symbiotic relationship with nearly every form of government. In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns. In China, Sun-Yat-Sen wrote in 1922: “I intend to make all the national industries of China into a Great Trust owned by the Chinese people, and financed with international capital for mutual benefit.”

World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 per cent of the world’s monetary gold. Its diplomats shaped the IMF and World Bank along creditor-oriented lines that financed trade dependency, mainly on the United States. Loans to finance trade and payments deficits were subject to “conditionalities” that shifted economic planning to client oligarchies and military dictatorships. The democratic response to resulting austerity plans squeezing out debt service was unable to go much beyond “IMF riots,” until Argentina rejected its foreign debt.

A similar creditor-oriented austerity is now being imposed on Europe by the European Central Bank (ECB) and EU bureaucracy. Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure. The response of taxpayers stuck with the resulting debt has been to mount popular protests starting in Iceland and Latvia in January 2009, and more widespread demonstrations in Greece and Spain this autumn to protest their governments’ refusal to hold referendums on these fateful bailouts of foreign bondholders.

Shifting planning away from elected public representatives to bankers

Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to taxrentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Finance vs. government; oligarchy vs. democracy

Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentierwealth while indebting the economy at large. The economy shrinks, falling into negative equity.

The financial sector has gained sufficient influence to use such emergencies as an opportunity to convince governments that that the economy will collapse they it do not “save the banks.” In practice this means consolidating their control over policy, which they use in ways that further polarize economies. The basic model is what occurred in ancient Rome, moving from democracy to oligarchy. In fact, giving priority to bankers and leaving economic planning to be dictated by the EU, ECB and IMF threatens to strip the nation-state of the power to coin or print money and levy taxes.

The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).

This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.

Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.

To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.

The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentierwealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.

Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.

This article appears in the Frankfurter Algemeine Zeitung on December 5, 2011.

MICHAEL HUDSON is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website,