Chris McConnell AIFA® Issues 2011 Fiduciary Alert™: Before the 2008 Financial Crisis, a Real Real Estate Market Did Not Exist

Share Article

Chris McConnell AIFA®, FiduciaryFORENSICS® expert based in Los Angeles, has released his FiduciaryALERT™ for 2011. According to McConnell, after every mortgage borrower signed their name they thought they were just getting a mortgage. In addition to lending the money, certain banks “converted” those mortgages into residential mortgage backed securities (RMBS)and held them as investments, for their own profits. The so-called “value” of these mortgages, was leveraged quite literally for pennies on the dollar. Paper profits mushroomed allowing banks to hand out massive bonuses to their own proprietary traders. It was all done according to certain banks’ and often the very same traders’ internal proprietary computer models.

McConnell says, “It’s clear that some banks hid their massive mortgage exposures (bets) in darkness, away from the sunshine of the market and away from market participants, investors, regulators, especially the SEC and brought huge profits to themselves.

Chris McConnell AIFA®, FiduciaryFORENSICS® expert based in Los Angeles, has released his FiduciaryALERT™ for 2011. According to McConnell, after every mortgage borrower signed their name they thought they were just getting a mortgage. In addition to lending the money, certain banks “converted” those mortgages into residential mortgage backed securities (RMBS)and held them as investments, for their own profits. The so-called “value” of these mortgages, was leveraged quite literally for pennies on the dollar. Paper profits mushroomed allowing banks to hand out massive bonuses to their own proprietary traders. It was all done according to certain banks’ and often the very same traders’ internal proprietary computer models.

The banking industry prefers that the meltdown be described as “the real estate market collapsed” as if it were an Act of God, a misfortune visited upon those doing God’s work, an unforeseeable accident. However, this explanation contains a major unproved assumption. It assumes everyone agrees that there was a market to begin with. Close examination reveals that a real real estate market did not exist!

Banks (not God) created SIVs. One side, the banks knew two things: 1) that they held trillions of investments in their own MBS and 2) that these investments were hidden off balance sheet. Banks’ SIV’s (Structured Investment Vehicles) tells us three things; 1) MBS are “Structured”, 2) “Investment” and 3) “Vehicles” means off balance sheet; The other side did not, including every mortgage borrower, real estate agent/broker, appraiser, mortgage broker, loan originators, and perhaps even some at the very bank lenders themselves. When one side withholds material, essential and fundamental information as massive as this turned out to be especially to the detriment of the unknowing side of a contract this often means there was no meeting of the minds.

Trillions of dollars worth of (MBS) and related derivatives were not traded on or ever shown to a real market; they simply sat, hidden, off balance sheet in “200-story tall mortgage warehouses.” FiduciaryALERT™ 2011 points out that had the existence and the size of these 200-story tall warehouses been known to mortgage borrowers (and their real estate agents/brokers, appraisers, mortgage brokers, even loan originators); some would have realized that house prices were artificially inflated and propped up and decided, based upon equal, full, correct and known discloseable information not to apply for a mortgage.

In his latest FiduciaryALERT™, McConnell discusses the following:

  •     Did mortgage borrowers know they should have asked how leveraged their lender’s balance sheet was, how much banks had invested in their own MBS and how banks concealed their investments in MBS and derivatives bets?
  •     How could so many millions of individuals borrow money from a handful of banks and yet collectively lose trillions of paper wealth?
  •     The housing price (and building) bubble was caused by hidden, estimated 2,000 times leverage--or more at some banks.
  •     The unwillingness of Money Market funds to make even short term investment caused the “Mother of all MBS Margin Calls” and led to the massive Wall Street bailout.
  •     Are trustees ignoring the news again?
  •     Are trustees and their professional advisers failing yet again in their fiduciary responsibility? Will they ignore the warning signs as the main stream media again misses the mark?

Now mortgage borrowers, fellow Americans with underwater mortgages, in foreclosure or eviction, investors, insurers, state and federal governments and GSEs, may have a few new reasons to consider putting some loans and or RMBS, CDO securities all the way back to certain banks.
McConnell urges that all investors, banks, regulators and particularly trustees and fiduciaries study historical returns of the major asset classes. Real estate’s average increase, for example, was about 10% annually since the 1980s. For decades before that it was in the low single digits. One can only conclude, that leverage both explicit and implicit caused the real estate bubble of the 2000’s and coincidentally it was “2,000X leverage”™ at certain banks; only the banks controlled leverage; not borrowers; the Fed, FDIC or SEC did not control the amount of leverage certain banks voluntarily took on solely for proprietary profit.

Since 2004, McConnell’s alerts take positions that few—even financial industry professionals have considered. For instance the first FiduciaryALERT™ was issued in August 2004, highlighting risks in hedge funds, May 2006 was “What do Elvis and Johnny and Fiduciary Duty have in common?” And July 2008’s was titled “Denial of twin-flation™ or inaction is not a prudent investment strategy”; issues running through each were valuation, transparency and leverage-both explicit and implicit. According to him, only by arming themselves with accurate information and independent analysis, can trustees, home buyers, home builders and mortgage lenders avoid repeating the same mistakes that contributed to the financial distress that began in the early years of the past decade and whose unsafe and unsound banking practices have continued to weigh heavily on the US and global economy through today.

McConnell says, “It’s clear that some banks hid their massive mortgage exposures (bets) in darkness, away from the sunshine of the market and away from market participants, investors, regulators, especially the SEC and brought huge profits to themselves while taking advantage of their customers and loan borrowers’ fundamental trust. Each FiduciaryALERT™ is an attempt to bring critical knowledge—often hidden or hard to find—to the financial marketplace’”

Past Alerts from 2005, 2006 and 2008 are in the right side bar

FiduciaryALERT™ for 2011 can be found at http://fiduciaryexpert.com/page19.html

About Chris McConnell

Chris McConnell AIFA® is an independent expert on fiduciary responsibility. He is a respected resource for training, education, audits, litigation support and expert witness services to trustees, beneficiaries. He has over 27 years of securities experience. Since 2003 as an independent expert consultant, McConnell has worked both as an expert witness or consulted on banking, insurance, securities, hedge funds, compensation, valuation and pensions involving trusts, IRAs, foundations, regulatory agencies and family law matters.

Fiduciary Duty, if any, is in addition to, precedes and supersedes suitability, and may arise at any time, affect any type of account, investment, asset or insurance and real estate, copyrights, trademarks, patents, intellectual property, family or closely held business, LLP's, LLC's, FLP's, general or limited partnerships.

###

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Martin Grossman

Martin Grossman
Visit website