Why the AGs Must Not Settle: Robo-signing Is Just the Tip of the Iceberg

A foreclosure settlement between five major banks guilty of “robo-signing” and the attorneys general of the 50 states is pending for Monday, February 6th; but it is still not clear if all the AGs will sign.  California was to get over half of the $25 billion in settlement money, and California AG Kamala Harris has withstood pressure to settle. 

That is good.  She and the other AGs should not sign until a thorough investigation has been conducted.  The evidence to date suggests that “robo-signing” was not a mere technical default or sloppy business practice but was part and parcel of a much larger fraud, the fraud that brought down the whole economy in 2008.  It is not just distressed homeowners but the entire economy that has paid the price, resulting in massive unemployment and a shrunken tax base, throwing state and local governments into insolvency and forcing austerity measures and cutbacks in government services across the nation.

The details of the robo-signing scam were spelled out in my last article, here.  The robo-signing fraud and its implications are expanded on below.

Why All the Robo-signing?

Over half the homes in the country are now held in the name of an electronic database called MERS—Mortgage Electronic Registration Services.  MERS is a smokescreen behind which these mortgages were sold to trusts that sold them to investors.  The mortgages were chopped into pieces and sold as “mortgage-backed securities” (MBS), which traded in a supposedly liquid market.  That meant the investors could sell them in the money market at any time on a day’s notice.  Yale economist Gary Gorton gives this example:

Suppose the institutional investor is Fidelity, and Fidelity has $500 million in cash that will be used to buy securities, but not right now. Right now Fidelity wants a safe place to earn interest, but such that the money is available in case the opportunity for buying securities arises. Fidelity goes to Bear Stearns and “deposits” the $500 million overnight for interest. What makes this deposit safe? The safety comes from the collateral that Bear Stearns provides. Bear Stearns holds some asset‐backed securities [with] a market value of $500 millions. These bonds are provided to Fidelity as collateral. Fidelity takes physical possession of these bonds. Since the transaction is overnight, Fidelity can get its money back the next morning, or it can agree to “roll” the trade. Fidelity earns, say, 3 percent.

That is where the robo-signing came in.  Foreclosure defense attorneys armed with the tools of discovery have discovered that robo-signing — involving falsified signatures assigning mortgages back to the trusts allegedly owning them — occurred not just occasionally or randomly but in virtually every case.  Why?  Because the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors.  The investors are not interested in making 30 year loans.  They want something short-term with immediate rights of withdrawal like a deposit account.  

The Hazards of Borrowing Short to Lend Long 

The problem is that when panicked investors all exercise that right at once, there is no cheap funding available to back the 30 year mortgage loans, rendering the banks insolvent.  And that is what happened on September 15, 2008, when Lehman Brothers, a major investment bank like Bear Stearns, went bankrupt. 

According to Representative Paul Kanjorski, speaking on C-SPAN in January 2009, the collapse of Lehman Brothers precipitated a $550 billion run on the money market funds.  A report by the Joint Economic Committee pointed to the fact that the $62 billion Reserve Primary Fund had “broken the buck” (fallen below a stable $1 per share) due to its Lehman investments.  The massive bank run that followed was the dire news that Treasury Secretary Henry Paulson presented to Congress behind closed doors, prompting Congressional approval of Paulson’s $700 billion bank bailout despite deep misgivings.

The sleight of hand that brought the banking system down was that the mortgages backing the money market were supposedly held by trusts that had lent money to homeowners for 15 years or 30 years.  It was the classic “borrowing short to lend long,” a shell game in which banks have engaged for hundreds of years, routinely precipitating bank panics and bank runs when the depositors or the investors all pull their short-term money out at the same time. 

The Shadow Banking System Is Still Unregulated 

Periodic bank panics were averted in the conventional banking system only when the government agreed to insure the deposits of individual depositors in 1933.  But FDIC insurance covered only $100,000 (now $250,000), and large institutional investors had far more than that to invest.  The shadow banking system, in which deposits were “insured” with mortgage-backed securities, developed in response.  But the shadow banking system is unregulated and is just as prone to another collapse today as it was in 2008.  The Dodd-Frank banking “reforms” barely touched it.  As noted in an article titled “Risky Debt Use on Repo Market Hits 2008 Levels” in today’s Financial Times:

In the repo market, banks pledge their securities as collateral for short-term loans from money managers and other investors.  The market played a key role in the build-up to the 2008 financial crisis. Banks used toxic assets, such as repackaged subprime loans, to secure trillions of dollars worth of cheap funding. 

When the US housing bubble burst, the banks’ trading partners refused to accept such securities as collateral and the repo market rapidly contracted.

However, a study by Fitch Ratings says the proportion of bundled debt being used as security in repo transactions has returned to pre-crisis levels. 

Using the repackaged loans can increase risk in the repo market, the rating agency says. This is because the securities may be prone to sudden pullbacks such as the one experienced in 2008.

We could be looking at another banking collapse at any time; and to fix the problem, we first need to know what is going on.  The AGs should not agree to drop the curtain on the robo-signing scandal until all the evidence is on the table.  It is not just a matter of punishing the guilty; it is a matter of a banking scheme based on fraud, one that ultimately does not work and has jeopardized the homes, savings and investments of the public not just recently but for hundreds of years.  

The Way Out 

There is another way to design a banking system.  The deposits of large institutional investors do not need to be backed by sliced and diced pieces of our homes to be “safe” (something that has proven not to be safe at all).  The large institutional investors seeking safety are largely “us” – the pension funds and mutual funds in which we have stored our savings and on which we rely for support when we can no longer work.  Hundreds of years of history have demonstrated that the only reliable guarantor is the government itself. 

Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do.  But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money.  Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public.


Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org.  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.  Her websites are http://WebofDebt.com and http://EllenBrown.com.

23 Responses

  1. Get all the answers here,ALL:
    “How the Banks Broke the Social Compact, Promoting their Own Special Interests”

    by Prof. Michael Hudson

    And read :Seeking Alpha ” Economic Solution (2012) : ZERO INCOME TAX ! by Justaluckyfool

    Amend the Fed.www.justaluckyfool.wordpress.com

  2. I would like to see owners of homes with clear title have the opportunity to help colateralrize the housing debt, This way they could recoup some of what they have invested in their home.

  3. Nice article. I am sending it to Texas Attorney General Greg Abbott today.

    Texas patriots who care about fellow Texans ripped off and thrown out on the streets, do likewise TODAY!

    I am amazaed how there has been ZERO coverage in the media of this impending major decision whereby the state “elected” officer charged with protecting its citizens from fraud is about to flim-flam the people once again by quiet scurrilous sell-outs of we the people.

    Here is a CBS “60 Minutes” video and article with FCIC head.
    She proposes a “clean up fund” that the banks would pay in to. It would be billions. It would pay homeowners an amount not to “accept a bank’s ownership claim without a lawsuit”.

    Bair DISINGENOUSLY said she thought banks could eventually prove they truly owned the property but it would take a lot of time and expense .



  4. You wrote: “Our pension funds and mutual funds need a government guarantee just as much as our individual deposits do. But we don’t want to be guaranteeing the gambling and derivatives schemes of too-big-to-fail, for-profit Wall Street banks playing fast and loose with our money. Banking and credit need to be public utilities, operated for the benefit of the public in plain sight of the public”

    Whether an institution is public or private is immaterial as it pertains to corruption and fraud: people are people. Just as it is idiotic to claim that American’s are morally superior to other nations (which of course sadly we do), just as it is retarded for one race to claim moral superiority over another (which of course we do), just at is is utterly insane for one religion to claim moral superiority over another (which of course we do), the reality is people are people and all are corruptable.

    The only REAL solution to the problem is to hold government accountable to put criminals in jail. Corruption should be punished very heavy handed: beheadings, public hangings, public beatings should be brought back for all white collar criminals that steal money from hard working people. This includes punishing those for treason (e.g. central bankers stealing the labor of hard working people e.g. the savers to bail out their banking buddies).

    The bottom line is as long as there are no real punishments for financial corruption and fraud the problem perpetuates. Public hangings and beheadings would solve the problem REAL FAST—GUARANTEED!

    • Bill, I believe there a western movie called Hang Em High !!!!
      with Clint Eastwood . you are correct it would work. GUARANTEED !!!

  5. While the article contains many true, salient points, do any of us really believe that anything resembling justice will be obtained via our corrupt-to-the-core system? It would be nice if that came to pass, but, in my opinion, it is much too late for that. There will be renewal, but it will happen in a way most cannot presently conceive. Godspeed to you and yours in 2012 and beyond.

    • First of all, here is a summary of the “deal” our state AGs may accept.


      Exclusive: Mortgage deal would give states enforcement clout

      By Rick Rothacker and Aruna Viswanatha | Reuters

      It makes the deal sound really wonderful, however you can read the comments and see that the deal is not much help at all for past events.


      I do not have much hope for our state AGs doing the right thing. But I do know that it is my duty to do everything I can to shine the light of truth on this matter, especially since the big decision deadline day is tomorrow, Feb. 6, 2012.

      I would really appreciate if Ellen Browns or someone wrting stomething and posting to inform us which states and which states did not accept the deal, and having that information right away. I do not believe I will be able to readily obtain that information tomorrow by calling the AG’s office. I believe the announcement about that will be orchestrated by our presstitute media.

  6. What a fabulous case of misdirection.
    The financial institutions can buy justice.
    They can steal trillions,pay off justice with billions and
    walk away being held harmless.(read: pay back $25 for every $10,000
    Just goes to show you, “The Best Way to Rob a Bank, Is to Own One”,
    William Black got it right!

    • You are correct. The irony is that for most it is “hard to believe” that the U.S. financial system and system of governance has become a kleptocracy of thuggery, corruption and fraud. It is hard to believe, and this is why so many still have their head in the sand.

      The most amazing thing for me is even though I have known for many years the pervasive and systemic corruption that exists, even I am amazed on daily and sometimes hourly basis as the degree of corruption and the ways in which it is flaunted in the public’s face without consequence.

      As an example, last week Congress passed so-called “insider trading” legislation that will supposedly curb the rampant corruption of our lawmakers, but we all know this legislation is just a dog and pony show. The fact is their are literally tens of thouands of laws on the books that our congress “selectively” enforces—-if just 1 of them were actually enforced most bankers would be in jail. New laws are meaningless and are only used to further control the masses while enriching the corrupt elite.

      Last one out turn off the lights!

  7. “Barry Fagan v Wells Fargo Bank

    Reply Brief with Expert Opinion of CPA Shawn P Adamo and Forensic document examiner Dr. Laurie Hoeltzel concerning Wells Fargo’s bank and document fraud.


  8. I was auditing sub-prime loans at a company owned by Bear Sterns when they collapsed. This explains much such as why fraudulent loans that were written up were taken behind closed doors and magically declared issue free. Seems they had to have as many loans as possible to run the scam.The fact California is getting the majority of the funds is not a surprise since that is one of the main states where borrowers committed fraud.
    Fraud/corruption on both ends leaves the man in the middle to pick up the tab

  9. Those who follow this story may wish to check Yves Smith’s site – Naked Capitalism:


    This effort by the B Obama administration seems to simply be another political campaign strategy to try to convince the public that it has modified its pedigree.

  10. This article really helps to understand why we are in such economic peril, and why most of us are suffering. It’s hard to imagine that there was a much larger scheme behind the clusterfraud that screwed up the economy and brought it down in 2008, and from which we are still reeling. We are all paying the bill. It is not just people that are being foreclosed on who are the victims. Our whole economy is paying the bill, with millions of jobs lost, a shrunken tax base…and this in turn has had a cascade effect on state and local governments, forcing them into insolvency, giving republicans another excuse to put austerity measures in place, and make cutbacks in government services across the country.
    It is disturbing to learn that the robo-signing, and shadow banking system were created so that investors could have total freedom to buy the mortgages and sell them on a daily basis, that they could falsify signatures, and leave mortgages free in order to buy and sell them daily in the money market.
    So if I understand this correctly, the entire economy went into a tailspin because basically, investors always want a setup so that they can have…”immediate rights of withdrawal like a deposit account.”
    As is said in this article,…”the mortgages had to be left free to be bought and sold on a daily basis in the money market by investors…They want something short-term with immediate rights of withdrawal like a deposit account.”
    It is also unsettling to hear that the “shadow banking system” is still unregulated, and that we can have another banking crisis at any time. The banking system is totally corrupt, forces the 99 % to pay the bill, and will continue to ruin the economy until we reform it from top to bottom.
    We need public banks based on the model of North Dakota in every state, and in states like California, which has many counties, we need public banks in the counties also.
    I agree with Ellen Brown that State attorneys general shouldn’t settle on the Robo-Signing issue, and I am really glad that Kamala Harris has withstood the huge pressures to dismiss this issue.

  11. Barry Fagan v Wells Fargo Bank re: Consumer Financial Protection Bureau Complaint


    Information about the company
    Wells Fargo Bank NA
    United States

    Wells Fargo Bank has fraudulently altered Barry Fagan’s Deed of Trust and the attached expert opinion dated 1/12/2012 from Forensic Document Examiner Dr. Laurie Hoeltzel specifically explains that the handwritten page 4 has been altered on two separate versions of that original Deed of Trust. Barry Fagan has recorded all 3 versions of the same deed of trust with the Los Angeles Registrar Recorders Office on November 29, 2011 as instrument no. 2011-1608398. The recorded Notice of Pendency of Action showing three different versions of that same July 9, 2007 Deed of Trust as originally recorded under instrument no. 2007-1622100. Judge Tarle, of The Superior Court of California, West District has taken Judicial Notice of that Recorded Document. Barry Fagan has submitted credible evidence from a forensic document examiner with over 20 years of experience that multiple fraudulent alterations have occurred on the “Handwritten Number page 4” which is located on page 3/4 of the Deed of Trust. All of the Deeds of Trust now reflect an entirely different handwritten NUMBER 4, and one of the exhibits also has a snake like line drawn on it, which is not present on the other two exhibits. C.P.A. Shawn P. Adamo stated: “It is my professional opinion that the altered deed of trust is concealing an irrevocable assignment, and explains why Wells Fargo is unable to produce loan level accounting concerning Mr. Fagan’s loan. Wells Fargo claims that any level of detail relating to Mr. Fagan’s mortgage is non- existent. As a result, CPA Shawn Adamo provided two expert opinions, (one an affidavit signed under penalty of perjury dated January 24, 2012 and the other is a Feb. 6, 2012 complaint letter sent to various regulatory agencies) from C.P.A Shawn Adamo explaining that Wells Fargo Bank has failed to provide a loan level balance sheet accounting and is concealing the fact that they do not own Barry Fagan’s loan. Additionally, forensic document Expert Dr. Laurie Hoeltzel has declared under penalty of perjury on January 2, 2012 that Wells Fargo Bank is robo-signing Discovery Responses by using multiple authors of the name Rhonda Bernard Thomas.(see attached declaration from Dr. Laurie Hoeltzel) I have also attached an affidavit from from forensic loan analyst/expert Javiar Taboas dated July 14, 2011 who is specifically stating that Wells Fargo securitized/sold Barry Fagan’s note and is fraudulently claiming continued ownership without any proof whatsoever.(See attached affidavit of Expert Javiar Taboas) Also attached is an illegally prepared Declaration of Default which is not actually signed by a natural person, but is signed by Wells Fargo Bank NA. This is a blatant California Civil Code Section 2923.5 and 2924 violation in that this illegally prepared document set in motion the entire illegal Non-Judicial Foreclosure. Also attached is a letter from Wells Fargo Bank dated December 5, 2011 and states that Wells Fargo Bank is reviewing Barry Fagan’s file and will respond on December 15, 2016 (THAT’S 5 YEARS FROM NOW!). Barry Fagan claims that this was a form of retaliatory contact. Wells Fargo is a criminal enterprise that is attempting to illegally foreclose on my primary residence by way of fraudulently altered documents, robo-signed discovery responses, invalid Declaration of Default, no loan level accounting and Barry Fagan’s loan file needs to be investigated at the highest level within your organization to see that a crime has actually occurred! The law offices of Kutak Rock LLP located in Irvine, California needs to have Barry Fagan’s NOTE and Deed of Trust subpoenaed so that your own CFPB organization can inspect those documents to see that they have indeed been fraudulently altered and photo-shopped. Please also visit http://www.fedup99.com/following-barry-fagan/ to see that even Barry Fagan’s loan application was fraudulently prepared by Wells Fargo private banker Dalia Warren.

  12. Barry Fagan v Wells Fargo Bank
    Reply Brief with Expert Opinion of CPA Shawn P Adamo and Forensic document examiner Dr. Laurie Hoeltzel concerning Wells Fargo’s bank and document fraud.


  13. There are two ways to take ones life. One is to snuff out the living body with a bullet or imprison it till it’s end, the other is to take the fruits of one’s life toil through a corrupt system.

    A plain vanilla solution that mitigates the risk to the system goes as follows. The mortgages get absolute assignment to a centralized facility such as MERS and the new mortgage owner gets recorded where the properties are domiciled. An institution can park funds with the facility and obtain shares or certificates of ownership in the facility that can be extended only to the extent of the assets of the facility. The government provides FDIC like insurance on the underlying mortgage assets. This is a mortgage backed money market fund with government guarantees that provides liquidity to institutions, funding for home buyers. This is actually what FNMA and FMAC should be doing with designated mortgage asset pools.

    The Federal Reserve Bank didn’t need to purchase bank portfolios of non performing assets, they just need to provide insurance and let the banks continue to own and service the mess that they created. The FED needs to nationalized and the failed banks need to be taken in and dealt with.

  14. Barry Fagan v Wells Fargo Bank Request for Judicial Notice Re SEC Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents Civil Action No. CV-1280087

    Comes now Plaintiff Barry S. Fagan herewith serves upon Defendants and their Attorneys of record his Request for Judicial Notice of a related case issued from the UNITED STATES OF AMERICA SECURITIES AND EXCHANGE COMMISSION

    Securities and Exchange Commission v. Wells Fargo & Company, Civil Action No. CV-1280087 CRB Misc. (N.D. Cal. March 23, 2012) and Plaintiff hereby requests that the Court take Judicial Notice of the following Case: Securities and Exchange Commission v. Wells Fargo & Company, Civil Action No. CV-1280087 CRB Misc. (N.D. Cal. March 23, 2012) On March 23, 2012, the SEC Files Subpoena Enforcement Action Against Wells Fargo for Failure to Produce Documents in Mortgage-Backed Securities Investigation and attached with this Request For Judicial Notice is the Litigation Release No. 22305 dated March 23, 2012.

    Pursuant to subpoenas dating back to September 2011, Wells Fargo Bank was obligated to produce (and agreed to produce) documents to the Commission, but has failed to do so. Accordingly, the Commission filed its Application for an Order Requiring Compliance with Administrative Subpoenas. The issues and findings are intimately related to the case at bar and is authorized under California Evidence Code § 452.

  15. Barry Fagan v Well Fargo Bank


    Pursuant to the provisions of California Evidence Code §§ 451, 452, and 453, it is a matter of judicial notice that that Defendant WELLS FARGO has an established pattern and practice (modus operandi) of falsifying real property documents including recorded instruments, and of submitting such falsified documents to courts in an effort to commit intentional fraud upon said courts. Defendant WELLS FARGO has heretofore submitted altered, and hence false and fraudulent, documents and recorded instruments to this Court in the course of this action, with the intention that the Court be deceived and misled thereby. For purposes of judicial notice, the court’s attention is directed to the following:



    C. Request for Judicial Notice of the Federal Reserve $87,000,000 Consent Decree against Wells Fargo Bank for employees falsifying borrowers loan applications. (As filed with the court on July 22, 2011)

    D. Request for Judicial Notice of the OCC Consent Decree dated April 13, 2011. (As filed with the Court on April 21, 2011 on file herein)

    E. Request for Judicial Notice of U.S. Department of Housing and Urban Development Office of Inspector General, Region IV Office of Audit MEMORANDUM NO. 2012-AT-1801. (As filed with the Court on March 15, 2012)

  16. I’ve been browsing online more than 3 hours lately, but I by no means found any attention-grabbing article like yours. It’s beautiful value enough for me.
    Personally, if all site owners and bloggers made excellent content as you did,
    the net shall be a lot more helpful than ever before.

  17. […] Ellen Brown Featured Writer Dandelion Salad webofdebt.com February 4, […]

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