Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
Articles |The FORUM |Law Library |Videos | Fraudsters & Co. |File Complaints |How they STEAL |Search MSFraud |Contact Us
Nye Lavalle
Intro here and downlink below...

The credit system, which has its focal point in the allegedly national
banks and the big money-lenders and usurers that surround them, is
one enormous centralization and gives this class of parasites a fabulous
power not only to decimate the industrial capitalists periodically but
also to interfere in actual production in the most dangerous manner—
and this crew know nothing of production and have nothing at all to
do with it.

— Marx, Capital, vol. 3, chap. 33

It’s rare that someone should develop an obsession with Wall Street without
sharing its driving passion, the accumulation of money. It would probably
take years of psychoanalysis to untangle that contradiction, not to
mention others too sensitive to name here.
No doubt that contradictory obsession has early roots, but its most potent
adult influence was probably my first job out of college, at a small
brokerage firm in downtown Manhattan. The firm had been started by a
former Bell Labs physicist, who wanted to use his quantitative skills to
analyze and trade a then-new instrument known as listed options. The
refugee physicist was considerably ahead of his time; few people understood
options in 1975, and fewer still were interested in using the kinds of
high-tech trading strategies that would later sweep Wall Street.
My title was secretary to the chairman, which meant not only that I
typed his letters, but also that I got his lunch and went out to buy him new
socks when he’d left his old ones in a massage parlor. And I studied the
place like an anthropologist, absorbing the mentality and culture of money.
It was fascinating in its own way, but it also struck me as utterly cynical
and empty, a profound waste of human effort.
One morning, riding the elevator up to work, I noticed a cop standing
next to me, a gun on his hip. I realized in an instant that all the sophisticated
machinations that went on upstairs and around the whole Wall Street
neighborhood rested ultimately on force. Financial power, too, grows out
of the barrel of a gun. Of course a serious analysis of the political economy
of finance has to delve into all those sophisticated machinations, but the
image of that gun should be kept firmly in mind.
On what is loosely called the left, such as it is these days, two unhappy
attitudes towards modern finance prevail — one, the everything’s-changed and-capital-no-longer-matters school, and two, a stance of uninformed
condemnation. An example of the first is this silly but representative eruption
from Jean Baudrillard (1993, pp. 10–11, 33):
Marx simply did not foresee that it would be possible for capital, in the face
of the imminent threat to its existence, to transpoliticize itself, as it were: to
launch itself into an orbit beyond the relations of production and political
contradictions, to make itself autonomous in a free-floating, ecstatic and
haphazard form, and thus to totalize the world in its own image. Capital (if
it may still be so called) has barred the way of political economy and the
law of value; it is in this sense that it has successfully escaped its own end.
Henceforward it can function independently of its own former aims, and
absolutely without reference to any aims whatsoever…. Money is now the
only genuine artificial satellite. A pure artifact, it enjoys a truly astral mobility;
and it is instantly convertible. Money has now found its proper place, a
place far more wondrous than the stock exchange: the orbit in which it
rises and sets like some artificial sun.
This isn’t that surprising from a writer who can declare the Gulf War a
media event. But it displays an understanding of finance apparently derived
from capital’s own publicists, like George Gilder, who celebrate the
obsolescence of matter and the transcendence of all the old hostile relations
of production. Cybertopians and other immaterialists are lost in a
second- or even third-order fetishism, unable to decode the relations of
power behind the disembodied ecstasies of computerized trading.
And, on the other hand, lefties of all sorts — liberal, populist, and socialist
— who haven’t succumbed to vulgar postmodernism have continued
the long tradition of beating up on finance, denouncing it as a stinkpot
of parasitism, irrelevance, malignancy, and corruption, without providing
much detail beyond that. Many critics denounce “speculation” as a waste
of social resources, without making any connections between it and the
supposedly more fundamental world of “production.” Sociologists who
study power structures write portentously of “the banks,” but their evidence
is often vague and obsolete (see, for example, Glasberg 1989b, a
piece written at the end of one of the great financial manias of all time that
nonetheless relies heavily on evidence from the 1970s). It’s as if such people
stopped thinking and collecting evidence 20 or even 60 years ago.
This book is an attempt to get down and dirty with how modern American
finance works and how it’s connected to the real world. It’s a system
that seems overwhelming at times — almost sublime in its complexity and power, reminiscent of Fredric Jameson’s (1991, pp. 39–44) reading of John
Portman’s Bonaventure Hotel, at once packed and empty, a spatial analogue
of our disorientation as subjects in the dizzy world of modern multinational
capitalism. (It seems especially dizzying as I write this in early
1998, with the U.S. stock market at or near its highest levels of valuation in
125 years, and the broad public the most deeply involved it’s been in
decades, and maybe ever.) As an antidote to that sense of disorientation,
Jameson suggested the need for “cognitive mapping,” critical expositions
of that vertiginous world that remind us that despite its vast scope, it is the
product of human intelligence and society, comprehensible with a little
effort, and maybe even transformable with a little more.
In a soundbite, the U.S. financial system performs dismally at its advertised
task, that of efficiently directing society’s savings towards their optimal
investment pursuits. The system is stupefyingly expensive, gives
terrible signals for the allocation of capital, and has surprisingly little to do
with real investment. Most money managers can barely match market averages
— and there’s evidence that active trading reduces performance
rather than improving it — yet they still haul in big fees, and their brokers,
big commissions (Lakonishok, Shleifer, and Vishny 1992). Over the long
haul, almost all corporate capital expenditures are internally financed,
through profits and depreciation allowances. And instead of promoting
investment, the U.S. financial system seems to do quite the opposite; U.S.
investment levels rank towards the bottom of the First World (OECD) countries,
and are below what even quite orthodox economists — like Darrel
Cohen, Kevin Hassett, and Jim Kennedy (1995) of the Federal Reserve —
term “optimal” levels. Real investment, not buying shares in a mutual fund.
Take, for example, the stock market, which is probably the centerpiece
of the whole enterprise.1 What does it do? Both civilians and professional
apologists would probably answer by saying that it raises capital for investment.
In fact it doesn’t. Between 1981 and 1997, U.S. nonfinancial
corporations retired $813 billion more in stock than they issued, thanks to
takeovers and buybacks. Of course, some individual firms did issue stock
to raise money, but surprisingly little of that went to investment either. A
Wall Street Journal article on 1996’s dizzying pace of stock issuance
(McGeehan 1996) named overseas privatizations (some of which, like
Deutsche Telekom, spilled into U.S. markets) “and the continuing restructuring
of U.S. corporations” as the driving forces behind the torrent of
new paper. In other words, even the new-issues market has more to do
with the arrangement and rearrangement of ownership patterns than it does with raising fresh capital — a point I’ll return to throughout this book.
But most of the trading in the stock market is of existing shares, not
newly issued ones. New issues in 1997 totaled $100 billion, a record —
but that’s about a week’s trading volume on the New York Stock Exchange.2
One thing the financial markets do very well, however, is concentrate
wealth. Government debt, for example, can be thought of as a means for
upward redistribution of income, from ordinary taxpayers to rich bondholders.
Instead of taxing rich people, governments borrow from them,
and pay them interest for the privilege. Consumer credit also enriches the
rich; people suffering stagnant wages who use the VISA card to make
ends meet only fatten the wallets of their creditors with each monthly
payment. Nonfinancial corporations pay their stockholders billions in annual
dividends rather than reinvesting them in the business. It’s no wonder,
then, that wealth has congealed so spectacularly at the top. Chapter 2
offers detailed numbers; for the purposes of this introduction, however, a
couple of gee-whiz factoids will do. Leaving aside the principal residence,
the richest 1/2% of the U.S. population claims a larger share of national
wealth than the bottom 90%, and the richest 10% account for over threequarters
of the total. And with that wealth comes extraordinary social power
— the power to buy politicians, pundits, and professors, and to dictate
both public and corporate policy.
That power, the subject of Chapter 6, is something economists often
ignore. With the vast increase of government debt since the Reagan experiment
began has come an increasing political power of “the markets,”
which typically means cuts in social programs in the name of fiscal probity.
Less visibly, the increased prominence of institutional investors, particularly
pension funds, in the stock market has increased rentier power
over corporate policy. Though globalization and technology have gotten
most of the blame for the recent wave of downsizings, the prime culprits
are really portfolio managers demanding higher stock prices — a demand
that translates into layoffs and investment cutbacks. This growth in stockholder
influence has come despite the fact that outside shareholders serve
no useful social purpose; they trade on emotion and perceptions of emotion,
and know nothing of the businesses whose management they’re increasingly
directing. They’re walking arguments for worker ownership.
This book concentrates almost entirely on American markets. That’s not
only for reasons of the author’s nationality, but also because the U.S. (and
British) financial system, with the central role it accords to loosely regu lated stock and bond markets, has been spreading around the globe. Henry
Kaufman (1994) called this “the ‘Americanization’ of global finance.” The
World Bank and its comrades in the development establishment have urged
a stock-market-driven model of finance and corporate control on its client
countries in the Third World and the former socialist world, and the English-
language business press is full of stories on how the Germans and
Japanese are coming to their senses, or have to if they know what’s good
for them, and junk their stodgy old regulated, bank-centered systems for a
Wall Street/City of London model. And all evidence is that they are, though
never quickly enough for the editorialists.
Also, the international financial markets, which Japanese and German
investors participate in, resemble the Anglo-Saxon system in all their looseness
and speed. Finally, the stock market has become a kind of economic
ideal in the minds of neoliberal reformers everywhere: every market,
whether for airline tickets or human labor, has been or is being restructured
to resemble the constantly fluid world of Wall Street, in which prices
float freely and arrangements are as impermanent as possible. For these
reasons, a study of the U.S. financial markets, particularly the stock market,
could be of interest to an audience beyond those specifically curious
about the American way of financial life.
This book inhabits a strange world between journalism and scholarship:
the first three chapters in particular look at the empirical realities of
the financial markets — the instruments traded and the agents doing the
trading — and then the fourth and fifth chapters look at some of the things
economists have said about finance over the past two centuries. I hope
that I’ve managed to bring the two normally separate worlds together in
an illuminating way, but of course the risk is that I’ll only succeed at alienating
both the popular and the academic audience. It’s worth the risk.
Most financial journalism is innocent of any theoretical and historical perspective,
and academic work — mainstream and radical — is often indifferent
to daily practice.
I must confess that I am not a “trained” economist. For someone not
initiated into the priesthood, several years spent exploring the professional
literature can be a traumatic experience. One of the finest glosses on that
experience came long ago from, of all people, H.L. Mencken, in his essay
“The Dismal Science”: “The amateur of such things must be content to
wrestle with the professors, seeking the violet of human interest beneath
the avalanche of their graceless parts of speech. A hard business, I daresay,
to one not practiced, and to its hardness there is added the disquiet of a doubt.” That doubt, Mencken wrote — after conceding that in things economic
he was about as orthodox as they come — was inspired by the fact
that the discipline
hits the employers of the professors where they live. It deals, not with ideas
that affect those employers only occasionally or only indirectly or only as
ideas, but with ideas that have an imminent and continuous influence upon
their personal welfare and security, and that affect profoundly the very foundations
of that social and economic structure upon which their whole existence
is based. It is, in brief, the science of the ways and means whereby
they have come to such estate, and maintain themselves in such estate, that
they are able to hire and boss professors.
Apostates, Mencken argued, were far more unwelcome in the field than in
others of less material consequence (like, say, literary studies).
There are few subspecialties of economics where this is truer than in
finance. The bulk of the finance literature consists of painfully fine-grained
studies designed for the owners and managers of money capital. Important
matters, like whether the financial markets serve their advertised purpose
of allocating social capital effectively, are studied with an infrequency
surprising only to someone unfamiliar with Mencken’s Law.
But the violet of interests is no longer hidden behind graceless parts of
speech alone; mathematics is now the preferred disguise. The dismal science
now flatters itself with delusions of rigor — an elaborate statistical
apparatus built on the weakest of foundations, isolated from the other
social sciences, not to mention the broader culture, and totally dead to the
asking of any fundamental questions about the goals of either the discipline
or the organization of economic life itself.
I do ask, and I hope answer, lots of those difficult questions, but I also
want to take on the dismal scientists on their own terms. For many nonspecialist
readers, this may seem like heavy going. I’ve tried, wherever
possible, to isolate the heavily technical bits and plaster appropriately cautionary
headlines on the dangerous sections. But too much writing these
days, and not only on the left, consists of anecdote, narrative, moralizing,
and exhortation. Even though both the financial markets and the discipline
of economics have penetrated so deeply and broadly into much of
social life, these institutions remain largely immune to critical examination.
The next 300 pages undertake that examination, and perhaps in more
detail than some readers might like, but I don’t ever want to lose sight of
this simple fact: behind the abstraction known as “the markets” lurks a set of institutions designed to maximize the wealth and power of the most
privileged group of people in the world, the creditor–rentier class of the
First World and their junior partners in the Third.
I’ve committed at least two commercial sins in writing this book —
one, the omission of practical investment advice, and two, going lightly
on scandal-mongering and naming of rotten apples. As penance for the
first, I’ll offer this bit of advice: forget about beating the market; it can be
done, but those who can do it are rare. And for the second: pointing to
rotten apples implies that the rest of the barrel is pure and refreshing. My
point is that the entire batch of apples is pretty poor nourishment. By this
I don’t mean to imply that everyone who works in finance is devious,
corrupt, or merely rapacious. There are many fine people who underwrite,
analyze, trade, and sell securities; some of them are my friends and
neighbors. Their personal characteristics have nothing to do with what
follows. That’s the point of a systemic analysis — to take apart the institutions
that are larger than the personalities who inhabit them.
Between the publication of the hardcover edition of this book and the
paperback, the U.S. stock market rose almost without interruption, to truly
extraordinary levels of valuation, the highest since modern records begin
in 1871. In the past, high valuations have been associated with nasty subsequent
declines, but it’s always possible this is a new era, a Nirvana of
capital, in which the old rules don’t apply. If Social Security is privatized,
it could constitute an official stock price support mechanism.
Households — presumably mostly in the upper half of the income distribution
— plunged into stocks (through the medium of mutual funds) in
a way not seen in 30, or maybe 70, years. At the same time, households —
presumably poorer ones than the mutual fund buyers — have also continued
to go deeper into debt, and with record debt levels matched by record
bankruptcy filings. The more a society polarizes, the more people on the
bottom borrow from those on the top.
When I started this book, the prestige of Anglo-American stock-marketcentered
capitalism was a lot lower than it was when I finished it. I say a
few kind things about Japanese and Germanic systems of corporate finance,
ownership, and governance that would have been taken as semirespectable
in 1992. In 1998, it is deeply against the grain (though not as
against the grain as saying kind things about Marx). But I’ll stick to my
position. The stagnation of Europe has a lot less to do with rigid structures
and pampered citizens than it does with fiscal and monetary austerity
dictated by the Maastricht project of unification. To blame Japan’s problems on overregulation is to ignore that the 1980s bubble was the product of
deregulation and a speculative mania. Isn’t enthusiasm about the American
Way in 1998 a bit reminiscent of that about Japan ten years earlier?
Coming after Japan’s extended slump, the collapse of the Southeast
Asian economies in 1997 was a great booster shot for American
triumphalism. Quickly forgetting the extraordinary growth performance
that led up to it — which, together with Japan’s is without precedent in
the history of capitalism, sustained rates of growth two to three times what
Britain and the U.S. experienced during their rise to wealth — Alan
Greenspan, editorialists, and professors of economics have pronounced
this the final word on economic policy.
It’s not clear why the weakest U.S. expansion in decades should be
taken as vindication of the American Way. Growth between the recession’s
trough in 1991 and the last quarter of 1997 was the slowest of any post-
World War II business cycle. Despite the mighty stock market, investment
levels are only middling, and productivity growth, modest. From the hype,
you’d also think the U.S. was leaving its major rivals in the dust, but comparisons
of per capita GDP growth rates don’t bear this out. At the end of
1997, the U.S. was tied with France at second in the growth league, behind
Canada, and just tenths of a point ahead of the major European countries.
Step back a bit, and the U.S. sags badly. For the 1989–95 period,
when the U.S. was stuck in a credit crunch and a sputtering recovery, it
was at the bottom of the G7 growth league, along with Canada and the
U.K. Between 1979 and 1988, there’s no contest, with the U.S. tying France
for the worst numbers in the G-7. Comparisons with the pre-crisis Asian
tigers are hardly worth making.
It may be as capitalisms mature, financial surpluses break the bounds
of regulated systems, and force an American-style loosening of the bonds.
So all these questions of comparative capitalisms may be academic; it may
be the destiny of Japan and Western Europe to become more like the U.S.
Certainly that’s one of the likely effects of European monetary union. But
if that’s the case, then the debate shouldn’t turn on what “works better” in
some sort of engineering sense.
And moving beyond this technocratic terrain, to say a U.S.-style system
“works better” doesn’t say what it’s better at. The November 22, 1997,
issue of the Financial Times had three stories above its fold: two on the
crises in Asia, and one headlined “Reform may push US poor into squalor.”
According to the last, a survey by the U.S. Conference of Mayors
reported that “huge numbers” of poor Americans could face utter ruin when welfare “reform” takes full effect in 1999. That prospect, surely a
social disaster of great magnitude, is not defined by official lexicographers
as either a disgrace or a crisis.
The planned immiseration of the American poor has a lot to do with
the subject of this book. U.S. financial and ownership relations, which are
fragmented, abstract, and manic, seem deeply connected to other social
mechanisms — partly as causes, partly as effects — that make this such a
voracious, atomized, polarized, turbulent, often violent culture, one that
insists each of us be in competition with every other. If this is success,
then the U.S. model is a great success. It may even be partly duplicable in
countries interested in a fresh lifestyle strategy.
After several hundred pages of diagnosis, readers have a right to expect
a prescription for cure at the end. I’ve tried to fulfill that, but the final
chapter is short and mainly suggestive. I could get high-minded and say
that the reason for that is that a transformative agenda is worth a book in
itself, which is true enough. But another reason is that financial reforms
are no easy or isolated matter. Money is at the heart of what capitalism is
all about, and reforms in the monetary sphere alone won’t cut much ice. If
you find the hypertrophy of finance to be appallingly wasteful and destructive
then you’re making a judgment on capitalism itself. That’s not
very chic these days, but if I thought that this cultural pathology would
persist forever, then I wouldn’t have written this book.

Doug Henwood
New York, April 1998

Quote 0 0
Write a reply...