today for just kind of back to the present. that is. effectively impossible it's possible to register everybody but not mistaken you're not allowed to have facebook accounts in the more populous countries such as china. the number is pious guy again it's probable but if i was a high net worth client of goldman sachs would i put my two to five million dollars in it absolutely not tell us about the state of foreclosure crisis you're right that the banks are now walking away from the foreclosures what's going on there reggie. starting on the fringes with low of a properties but there are cases in chicago where banks are actually. banding properties properties i warned of this last year and when i did one of it a lot of. so-called experts were putting the idea of basically saying that there is no. is a very slim chance of economic situation where

a bank would turn down any recovery that's assuming that there is a recovery to turn down there are several situations where the bait simply comes out in the negative if they took to go after the property. i don't know if it's that simple because the bay could potentially still be on the hook with the municipality for back taxes fines etc but as it is starting on the fringes and i believe it's going to work its way up towards the core and the mainstream of loans if things continue to go the way they are and there is absolutely no reason the world to believe that they're not going to go the way they are because going on this path because you still have supply as compared to demand credit still tight underwriting standards are returning back to a practical perspective because you simply can't use of the people's money the way you used to. and we still have you still have yet to come anywhere near equilibrium what's interesting about this is that the banks are still carrying a significant amount of the river products based upon. and the system on

the market rules have been changed due to regulatory capture the banks and that is that p. has literally have the risk iraq true throughout two thousand and i know that because paul martin once in the history of the u.s. markets the problem is fundamentally the problems are not only not gone but they're actually worse than they were back in two thousand and eight yeah what's interesting and you know the point you bring up here is that during the lead up to the crisis the banks are engaged in fraudulent inducement in terms of getting people on board with these mortgages they committed fraud in packaging these mortgages and securitizing these mortgages and training them they committed fraud during the foreclosure price. process and they made a ton of money doing committing all this fraud billions of dollars of bonuses hundred forty billion dollars and years of bonuses this year on wall street tied to fraudulent behavior for the most part and now going forward and you make an interesting point here all of the derivatives that were the exhaust of all this

fraudulent behavior hundreds of billions of trillions of dollars that the derivatives they're still being traded amongst these banks amongst themselves for profits but they've divorced themselves entirely from the underlying real estate market a mortgage market which they've been dumped into the lap of the government of the american people and they said well we have bill thing to do with those houses and yet they still traded derivatives associate of those houses this is taking fraud from goldman sachs j.p. morgan wells fargo bank of america warren buffett to a new it's got to be a new definition because it's fraud to to the degree of fraud fraud to the fraud it's a new hyperbolic fraud. it's called tangible charitable fraud. yes they've been able to securitize your fraud and you are flawed and of course. this is the

argument you hear all the time they say we can't bring any accounting regulatory counted regulatory accountability to these firms because otherwise they'd go out of business let's suppose you have a thousand houses in the suburb of chicago which is the story that i'm quoting a terrible offhand but you have see every thousand houses in the suburb of chicago of which. one particular bank wrote the mortgages on the majority of them securitized sold the mortgages off to secure twice trusts and to securitize trusts allegedly owns the mortgage you still have this foreclosure for fraud closure issue of assignment but let's say they actually do on these mortgages. the houses are have dropped in value to close to zero if not negative due to incumbrances from the city taxes fines etc so you have you know three hundred million dollars worth of mortgages. let's say pick a number a number of the houses are worth zero the banks of literally walked away from the

houses the owners of what were from the houses how much of those mortgages worth. best case in a row they were zero potentially they have a negative value because the municipality can potentially go after the banks for it yet they're actually being traded is that securitize trust now written down to zero or negative number. now i'm not a lawyer i don't know what the legal intricacies off but. i can guarantee you very very very few of these trusts have been written down to their correct tradable market value. is completely they are worth zero and they're trading them as if they have one hundred cents on the dollar and it's a as you say they've they've taken public you're a fraud the facebook deal goldman sachs as a taking fraud public it's not as if there's a barrier to entry any twenty six year old you know college kid going to start a social networking site there's no barriers to entry as we saw in the in the movie . it took ten minutes to create facebook and he can do it easily anywhere in the

world as though it's not like twelve year old scotch i need twelve years to create the product you can do it in five minutes now let's talk about you know we're talking last time you're on the show about j.p. morgan if memory serves you made the point technically with the derivatives on their books there they also have a book value of zero and that's also they just came in with record earnings but two questions regimentals and i don't know if you've tracked this or not number one is the j.p. morgan earnings a result of trading fraud as a problem as a public security number one and number two is j.p. morgan vault in any of this peekaboo accounting that we saw of lehman brothers when they were around when they simply park liabilities off their balance sheet for a couple of weeks during reporting season well not insider. to the best of my knowledge j.p. morgan accounting is in line with gap general. the gap

rules that doesn't i so you mean that it is accurate. a significant portion of j.p. morgan's blowout you know quote unquote earnings came from the releasing of reserves. and i've always disagree with the b.b.c. reserves because the housing market is still in a significant downturn the economy is not on the up term. and there i don't see a credible reason for the releasing of risk reserves of events paired earnings and then there's the matter of the accounting earnings themselves even the ones that are not attributed to the release of reserves let's go back to the foreclosure issue. we have a hypothetical big g.p. michael's so i don't pick morgan all the time you have j.p. michaels a very large bank and it has a bunch of loans on houses which over which the owner of those houses stop paying the mortgage the houses go into foreclosure ok they're non-performing but j.p. michaels can technically conceded. accrue interest on these loans on the books

despite the fact the interest is not accruing because the house the property is in distress by the time they do foreclose they go to focus. the house back so they may have to take a loss on the. interest but there's still the phantom principal loan which they might not have taken a full also on as they will when they sell the property but since properties are not selling they hold this property and inventory. from this point on what looks like potentially in perpetuity so they don't have to take the full write down it's a profit was never so so we buy a house for two hundred thousand dollars we get one hundred fifty thousand dollars mortgage on it we stop paying it the fence and interest on the hundred fifty thousand dollars until they decide to foreclose which is a year and a half to two years after the person stop paying and they charge the loan off. after the person stop paying. and they don't necessarily charge the loan off they go to a year and

a half later they buy the property back they're the only better because nobody else wants it and they hold it in their or your inventory tory and they don't have to write take before write down on this investment until they sell the property which could be no i can see now which is no time soon many properties on selling so you have found some profits on the books of j.p. michaels and they're actually accruing and growing they are getting paid bonuses on it they're probably potentially paying dividends on it is capital coming from the government has issued trillions of dollars to save the banks but eventually you know capitalism is about ups and downs it's about. you know wins and losses and you have to take a loss so eventually you're going to come to the prices mark the market and when that happens you're going to have a collapse and it's guaranteed unless the government or whatever else you could blow a bubble big enough. this debacle that i just experienced when that happens if you

kiss your bubble then you have your money inflated. that's if you can catch it and when that bubble pops it's going to be worse than the last pope was going to two thousand and eight all right well roger middleton thanks again for being on the kaiser report and very welcome to be here again ready and that's rigi middleton and amongst the end siders in the blogosphere a many consider a g.'s site boom bust blog to really be i'd say the reggie jackson financial bloggers he's consistently hitting home runs with is insights so check out boom bust blog that's reggie middleton and that's going to do it for this edition of the cars the report with me max kaiser and stacy herbert my guest reggie middleton of boom bust blog if you want to send me an e-mail please do so at kaiser reported r t t v dot are you till next time this is max guys are saying bio.