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TBR News July 16, 2017

Jul 16 2017

The Voice of the White House

Washington, D.C., July 16, 2017:” It is an established fact that at least 80% of the American public believes that the assassination of President Kennedy was the result of a conspiracy of some type and not the aberrated actions of the lone gunman so frantically supported by officialdom and the so-called mainstream media.

In 1993, Gerald Posner authored “Case Closed.” In this work, he slavishly presented and promoted, in toto, the official government version of Kennedy¹s assassination as accomplished and immutable fact. Unlike the large number of books chronicling various conspiracy theories, Posner¹s book received high and frequent praise from the media because he trumpeted the version of events agreed upon by the government and the print media. Fortunately for historical accuracy, the effort sold very badly.

Posner followed this disaster with another book, again setting forth and supporting the official version, on the assassination of Martin Luther King, Jr. Like the Kennedy work, it too was trumpeted by the media as being the brilliant final word on a painful subject and like the Kennedy book, it too sold badly.

In general, it might be said with some accuracy that unautographed copies of officially approved and sponsored history books are considered rare in the used book market.

In spite of, or more likely because of, constant assaults by writers acting as unofficial governmental public relations outlets on their intelligence, the American public has grown to distrust their government and the media, and its public-relations firm.

In the very rare occurrence when a controversial book that deals with official misconduct or disastrous error is published by a mainstream printing house, it is never quite believed until officially denied by Washington officials. The axiom is that the higher the level of the deniers, the greater the degree of belief.”

 

Table of Contents

  • States Keep Saying Yes to Marijuana Use. Now Comes the Federal No.
  • How Russia-gate Met the Magnitsky Myth
  • North Korea accelerates nuclear fuel processing, satellite images suggest
  • Preparing for Doomsday
  • The Advice Trap
  • This is rapidly becoming a decade of official deceit and public disillusion.

 

States Keep Saying Yes to Marijuana Use. Now Comes the Federal No.

July 15, 2017

by Avantika Chilkoti

The New York Times

In a national vote widely viewed as a victory for conservatives, last year’s elections also yielded a win for liberals in eight states that legalized marijuana for medical or recreational use. But the growing industry is facing a federal crackdown under Attorney General Jeff Sessions, who has compared cannabis to heroin.

A task force Mr. Sessions appointed to, in part, review links between violent crimes and marijuana is scheduled to release its findings by the end of the month. But he has already asked Senate leaders to roll back rules that block the Justice Department from bypassing state laws to enforce a federal ban on medical marijuana.

That has pitted the attorney general against members of Congress across the political spectrum — from Senator Rand Paul, Republican of Kentucky, to Senator Cory Booker, Democrat of New Jersey — who are determined to defend states’ rights and provide some certainty for the multibillion-dollar pot industry.

“Our attorney general is giving everyone whiplash by trying to take us back to the 1960s,” said Representative Jared Huffman, Democrat of California, whose district includes the so-called Emerald Triangle that produces much of America’s marijuana.

“Prosecutorial discretion is everything given the current conflict between the federal law and the law of many states,” he said in an interview last month.

In February, Sean Spicer, the White House press secretary, said the Trump administration would look into enforcing federal law against recreational marijuana businesses. Some states are considering tougher stands: In Massachusetts, for example, the Legislature is trying to  rewrite a law to legalize recreational marijuana that voters passed in November.

Around one-fifth of Americans now live in states where marijuana is legal for adult use, according to the Brookings Institution, and an estimated 200 million live in places where medicinal marijuana is legal. Cannabis retailing has moved from street corners to state-of-the-art dispensaries and stores, with California entrepreneurs producing rose gold vaporizers and businesses in Colorado selling infused drinks.

Mr. Sessions is backed by a minority of Americans who view cannabis as a “gateway” drug that drives social problems, like the recent rise in opioid addiction.

“We love Jeff Sessions’s position on marijuana because he is thinking about it clearly,” said Scott Chipman, Southern California chairman for Citizens Against Legalizing Marijuana.

He dismissed the idea of recreational drug use. “‘Recreational’ is a bike ride, a swim, going to the beach,” he said. “Using a drug to put your brain in an altered state is not recreation. That is self-destructive behavior and escapism.”

Marijuana merchants are protected by a provision in the federal budget that prohibits the Justice Department from spending money to block state laws that allow medicinal cannabis. Under the Obama administration, the Justice Department did not interfere with state laws that legalize marijuana and instead focused on prosecuting drug cartels and the transport of pot across state lines.

In March, a group of senators that included Elizabeth Warren, Democrat of Massachusetts, and Lisa Murkowski, Republican of Alaska, asked Mr. Sessions to stick with existing policies. Some lawmakers also want to allow banks to work with the marijuana industry and to allow tax deductions for business expenses.

Lawmakers who support legalizing marijuana contend that it leads to greater regulation, curbs the black market and stops money laundering. They point to studies showing that the war on drugs, which began under President Richard M. Nixon, had disastrous impacts on national incarceration rates and racial divides.

In a statement, Mr. Booker said the Trump administration’s crackdown against marijuana “will not make our communities safer or reduce the use of illegal drugs.”

“Instead, they will worsen an already broken system,” he said, noting that marijuana-related arrests are disproportionately high for black Americans.

Consumers spent $5.9 billion on legal cannabis in the United States last year, according to the Arcview Group, which studies and invests in the industry. That figure is expected to reach $19 billion by 2021.

A Quinnipiac University poll in February concluded that 59 percent of American voters believe cannabis should be legal. Additionally, the poll found, 71 percent say the federal government should not prosecute marijuana use in states that have legalized it.

“This is part of a larger set of issues that the country is wrestling with right now, where a very strong-willed minority is trying to impose its value system on the country as a whole,” said Roger McNamee, an industry investor.

But marijuana businesses are bracing for a possible clampdown.

“People that were sort of on the fence — a family office, a high-net-worth individual thinking of privately financing a licensed opportunity — it has swayed them to go the other way and think: not just yet,” said Randy Maslow, a founder of iAnthus Capital Holdings. The public company raises money in Canada, where Prime Minister Justin Trudeau campaigned on a promise to legalize recreational use of marijuana.

Representative Earl Blumenauer, Democrat of Oregon and a co-chairman of the Congressional Cannabis Caucus, is urging marijuana businesses not to be “unduly concerned.”

“We have watched where the politicians have consistently failed to be able to fashion rational policy and show a little backbone,” he said. “This issue has been driven by the people.”

 

How Russia-gate Met the Magnitsky Myth

A documentary debunking the Magnitsky myth, which was an opening salvo in the New Cold War, was largely blocked from viewing in the West but has now become a factor in Russia-gate

July 13, 2017

by Robert Parry

Consortium News

Near the center of the current furor over Donald Trump Jr.’s meeting with a Russian lawyer in June 2016 is a documentary that almost no one in the West has been allowed to see, a film that flips the script on the story of the late Sergei Magnitsky and his employer, hedge-fund operator William Browder.

The Russian lawyer, Natalie Veselnitskaya, who met with Trump Jr. and other advisers to Donald Trump Sr.’s campaign, represented a company that had run afoul of a U.S. investigation into money-laundering allegedly connected to the Magnitsky case and his death in a Russian prison in 2009. His death sparked a campaign spearheaded by Browder, who used his wealth and clout to lobby the U.S. Congress in 2012 to enact the Magnitsky Act to punish alleged human rights abusers in Russia. The law became what might be called the first shot in the New Cold War.

According to Browder’s narrative, companies ostensibly under his control had been hijacked by corrupt Russian officials in furtherance of a $230 million tax-fraud scheme; he then dispatched his “lawyer” Magnitsky to investigate and – after supposedly uncovering evidence of the fraud – Magnitsky blew the whistle only to be arrested by the same corrupt officials who then had him locked up in prison where he died of heart failure from physical abuse.

Despite Russian denials – and the “dog ate my homework” quality of Browder’s self-serving narrative – the dramatic tale became a cause celebre in the West. The story eventually attracted the attention of Russian filmmaker Andrei Nekrasov, a known critic of President Vladimir Putin. Nekrasov decided to produce a docu-drama that would present Browder’s narrative to a wider public. Nekrasov even said he hoped that he might recruit Browder as the narrator of the tale.

However, the project took an unexpected turn when Nekrasov’s research kept turning up contradictions to Browder’s storyline, which began to look more and more like a corporate cover story. Nekrasov discovered that a woman working in Browder’s company was the actual whistleblower and that Magnitsky – rather than a crusading lawyer – was an accountant who was implicated in the scheme.

So, the planned docudrama suddenly was transformed into a documentary with a dramatic reversal as Nekrasov struggles with what he knows will be a dangerous decision to confront Browder with what appear to be deceptions. In the film, you see Browder go from a friendly collaborator into an angry adversary who tries to bully Nekrasov into backing down.

Blocked Premiere

Ultimately, Nekrasov completes his extraordinary film – entitled “The Magnitsky Act: Behind the Scenes” – and it was set for a premiere at the European Parliament in Brussels in April 2016. However, at the last moment – faced with Browder’s legal threats – the parliamentarians pulled the plug. Nekrasov encountered similar resistance in the United States, a situation that, in part, brought Natalie Veselnitskaya into this controversy.

As a lawyer defending Prevezon, a real-estate company registered in Cyprus, on a money-laundering charge, she was dealing with U.S. prosecutors in New York City and, in that role, became an advocate for lifting the U.S. sanctions, The Washington Post reported.

That was when she turned to promoter Rob Goldstone to set up a meeting at Trump Tower with Donald Trump Jr. To secure the sit-down on June 9, 2016, Goldstone dangled the prospect that Veselnitskaya had some derogatory financial information from the Russian government about Russians supporting the Democratic National Committee. Trump Jr. jumped at the possibility and brought senior Trump campaign advisers, Paul Manafort and Jared Kushner, along.

By all accounts, Veselnitskaya had little or nothing to offer about the DNC and turned the conversation instead to the Magnitsky Act and Putin’s retaliatory measure to the sanctions, canceling a program in which American parents adopted Russian children. One source told me that Veselnitskaya also wanted to enhance her stature in Russia with the boast that she had taken a meeting at Trump Tower with Trump’s son.

But another goal of Veselnitskaya’s U.S. trip was to participate in an effort to give Americans a chance to see Nekrasov’s blacklisted documentary. She traveled to Washington in the days after her Trump Tower meeting and attended a House Foreign Affairs Committee hearing, according to The Washington Post.

There were hopes to show the documentary to members of Congress but the offer was rebuffed. Instead a room was rented at the Newseum near Capitol Hill. Browder’s lawyers. who had successfully intimidated the European Parliament, also tried to strong arm the Newseum, but its officials responded that they were only renting out a room and that they had allowed other controversial presentations in the past.

Their stand wasn’t exactly a profile in courage. “We’re not going to allow them not to show the film,” said Scott Williams, the chief operating officer of the Newseum. “We often have people renting for events that other people would love not to have happen.”

In an article about the controversy in June 2016, The New York Times added that “A screening at the Newseum is especially controversial because it could attract lawmakers or their aides.” Heaven forbid!

One-Time Showing

So, Nekrasov’s documentary got a one-time showing with Veselnitskaya reportedly in attendance and with a follow-up discussion moderated by journalist Seymour Hersh. However, except for that audience, the public of the United States and Europe has been essentially shielded from the documentary’s discoveries, all the better for the Magnitsky myth to retain its power as a seminal propaganda moment of the New Cold War.

After the Newseum presentation, a Washington Post editorial branded Nekrasov’s documentary Russian “agit-prop” and sought to discredit Nekrasov without addressing his many documented examples of Browder’s misrepresenting both big and small facts in the case. Instead, the Post accused Nekrasov of using “facts highly selectively” and insinuated that he was merely a pawn in the Kremlin’s “campaign to discredit Mr. Browder and the Magnitsky Act.”

The Post also misrepresented the structure of the film by noting that it mixed fictional scenes with real-life interviews and action, a point that was technically true but willfully misleading because the fictional scenes were from Nekrasov’s original idea for a docu-drama that he shows as part of explaining his evolution from a believer in Browder’s self-exculpatory story to a skeptic. But the Post’s deception is something that almost no American would realize because almost no one got to see the film.

The Post concluded smugly: “The film won’t grab a wide audience, but it offers yet another example of the Kremlin’s increasingly sophisticated efforts to spread its illiberal values and mind-set abroad. In the European Parliament and on French and German television networks, showings were put off recently after questions were raised about the accuracy of the film, including by Magnitsky’s family.

“We don’t worry that Mr. Nekrasov’s film was screened here, in an open society. But it is important that such slick spin be fully exposed for its twisted story and sly deceptions.”

The Post’s gleeful editorial had the feel of something you might read in a totalitarian society where the public only hears about dissent when the Official Organs of the State denounce some almost unknown person for saying something that almost no one heard.

New Paradigm

The Post’s satisfaction that Nekrasov’s documentary would not draw a large audience represents what is becoming a new paradigm in U.S. mainstream journalism, the idea that it is the media’s duty to protect the American people from seeing divergent narratives on sensitive geopolitical issues.

Over the past year, we have seen a growing hysteria about “Russian propaganda” and “fake news” with The New York Times and other major news outlets eagerly awaiting algorithms that can be unleashed on the Internet to eradicate information that groups like Google’s First Draft Coalition deem “false.”

First Draft consists of the Times, the Post, other mainstream outlets, and establishment-approved online news sites, such as Bellingcat with links to the pro-NATO think tank, Atlantic Council. First Draft’s job will be to serve as a kind of Ministry of Truth and thus shield the public from information that is deemed propaganda or untrue.

In the meantime, there is the ad hoc approach that was applied to Nekrasov’s documentary. Having missed the Newseum showing, I was only able to view the film because I was given a special password to an online version.

From searches that I did on Wednesday, Nekrasov’s film was not available on Amazon although a pro-Magnitsky documentary was. I did find a streaming service that appeared to have the film available.

But the Post’s editors were right in their expectation that “The film won’t grab a wide audience.” Instead, it has become a good example of how political and legal pressure can effectively black out what we used to call “the other side of the story.” The film now, however, has unexpectedly become a factor in the larger drama of Russia-gate and the drive to remove Donald Trump Sr. from the White House.

 

 North Korea accelerates nuclear fuel processing, satellite images suggest

Satellite images taken between September and June have shown increased thermal activity at North Korea’s main nuclear plant, a Washington-based think tank says. It’s a worrying new development for the US and its allies.

July 15, 2017

DW

Thermal images of North Korea’s main nuclear plant suggest that Pyongyang has reprocessed more weapons-grade plutonium than previously thought.

The information, which comes from 38 North, a Washington-based think tank connected to Johns Hopkins University, likely means that the North can expand its nuclear weapons stockpile more rapidly than has been estimated up to now.

The Radiochemical Laboratory operated intermittently and there have apparently been at least two unreported reprocessing campaigns to produce an undetermined amount of plutonium that can further increase North Korea’s nuclear weapons stockpile,” it said.

These conclusions have been drawn on the basis of satellite images showing the radiochemical laboratory at the Yongbyon nuclear facility between September and the end of June.

Worrying security threat

The monitors said images of the uranium enrichment facility at Yongbyon may also indicate an increase in the North’s supply of enriched uranium, its other source of bomb-making fuel.

There were also signs of short-term activity at North Korea’s Experimental Light Water Reactor, which is also cause for concern, according to 38 North.

Images from the radiochemical laboratory indicate at least two processing cycles that were previously unknown. The aim is to produce “an undetermined amount of plutonium that can further increase North Korea’s nuclear weapons stockpile,” according to a statement from the monitors.

It’s a worrying development for US officials, who see North Korea as one of the world’s top security threats.

Yongbyon: silenced in 2007

Pyongang deactivated the Yongbyon reactor in 2007 as part of an aid-for-disarmament agreement, but began renovating the plant after the North’s third nuclear test in 2013.

Increased thermal activity was also noted at Yongbyon’s uranium enrichment facility, but it was unclear whether this indicated an effort to increase supplies, possibly for weapons, or if it was part of maintenance operations.

The researchers also reported that analysis of thermal patterns from a probable isotope/tritium production facility at the site suggested that the plant was likely not producing tritium.

Tritium is a key component used for making sophisticated thermonuclear weapons with substantially greater yields than those made only of plutonium and uranium.

New US sanctions?

Frustrated that China, North Korea’s main trading partner, has done little to rein in Pyongyang, the US administration under President Donald Trump could impose new sanctions on small Chinese banks and other companies doing business with the North in the coming weeks, according to two senior US officials who spoke on condition of anonymity.

Meanwhile, the US ambassador to the United Nations, Nikki Haley, has been seeking to overcome resistance from China and Russia to a UN Security Council resolution imposing stiffer international sanctions on Pyongyang.

Experts at 38 North estimated in April that North Korea could have as many as 20 nuclear bombs and could produce one more each month.

 

 Preparing for Doomsday

A Shelter-in-Place Mentality Is the New American Normal

by William J. Astore

TomDispatch

Has there ever been a nation as dedicated to preparing for doomsday as the United States? If that’s a thought that hasn’t crossed your mind, maybe it’s because you didn’t spend part of your life inside Cheyenne Mountain.  That’s a tale I’ll get to soon, but first let me mention America’s “doomsday planes.”

Last month, troubling news emerged from U.S. Strategic Command (STRATCOM) that two of those aircraft, also known as E-4B National Airborne Operations Centers, were temporarily disabled by a tornado, leaving only two of them operational.  And that, not surprisingly, caught my attention.  Maybe you don’t have the world’s end on your mind, not with Donald Trump’s tweets coming fast and furious, but I do.  It’s a kind of occupational hazard for me.  As a young officer in the U.S. Air Force in the waning years of the Cold War, the end of the world was very much on my mind.  So think of this piece as the manifestation of a disturbing and recurring memory.

In any case, the reason for those doomsday planes is simple enough: in a national emergency, nuclear or otherwise, at least one E-4B will always be airborne, presumably above the fray and the fallout, ensuring what the military calls “command and control connectivity.”  The E-4B and its crew of up to 112 stand ready, as STRATCOM puts it, to enable America’s leaders to “employ” its “global strike forces” because… well, “peace is our profession.” Yes, STRATCOM still references that old SAC motto from the glory days of former Strategic Air Commander Curtis LeMay who was so memorably satirized by director Stanley Kubrick in his nuclear disaster film, Dr. Strangelove.

The Pentagon reassuringly noted that, despite those two disabled planes, the E-4B’s mission — including perhaps the implementation of a devastating nuclear strike or counter-strike that might kill tens of millions and even cause a “nuclear winter” (a global nightmare leading to a billion deaths or more) — could be accomplished with just two of them operational.  Still, relieved as I was to hear that, it did get me thinking about the other 190 or so nations on this planet.  Do any of them have even one “doomsday” plane to launch?  And if not, how will they coordinate, no less survive, the doomsday the U.S. government is so willing to contemplate and ready to fund?

When it comes to nuclear weapons and what once was called “thinking about the unthinkable,” no other nation has as varied, accurate, powerful, deadly, or (again a word from the past) “survivable” an arsenal as the United States.  Put bluntly, the nation that is most capable of inflicting a genuine doomsday scenario on the world is also the one best prepared to ride out such an event (whatever that may turn out to mean).  In this sense, America truly is the exceptional nation on planet Earth.  It’s exceptional in the combination of its triad of nuclear weapons, its holy trinity of sorts — nuclear missile-carrying Trident submarines, land-based intercontinental ballistic missiles, and strategic bombers still flown by pilots — in the thoroughness of its Armageddon plans, and especially in the propagation of a lockdown, shelter-in-place mentality that fits such thinking to a T.

My Lockdown, Shelter-in-place, Cold War Moment

Once upon a time, I thought I was exceptional, or at least exceptionally well protected.  My job as an Air Force software engineer granted me regular access to the innards of the Cheyenne Mountain Complex, America’s nuclear command center.  In the 1960s, the complex had been tunneled out of granite at the southern edge of the Front Range of mountains, dominated by Pike’s Peak, near Colorado Springs, Colorado.

I can still remember military exercises in which the mountain would be “buttoned up.” That meant the command center’s huge blast doors — think of bank vault doors on steroids — would be swung shut, isolating the post from the outside world.  I don’t recall hearing the word “lockdown” in those days (perhaps because back then it was a term generally applied to prisons), but that was certainly our reality.  We sheltered in place in that mountain redoubt, the most literal possible version of a Fortress USA.  We were then cut off (we hoped) from the titanic blasts and radioactive fallout that would accompany any nuclear attack, most likely by that Evil Empire, the Soviet Union.  In a sense, we were a version of a doomsday plane, even if our mountain couldn’t be sent aloft.

My tour of duty lasted three years (1985-1988), the specifics of which I’ve mostly forgotten.  But what you don’t forget — believe me, you can’t — is the odd feeling of having 2,000 feet of granite towering over you; of seeing buildings mounted on huge springs intended to dampen the shock and swaying caused by a nuclear detonation; of looking at those huge blast doors that cut you and the command center off from the rest of humanity (and nature, too), theoretically allowing us the option both of orchestrating and surviving doomsday.

I sometimes think the decision in the 1960s to bury a command center for nuclear war under megatons of solid granite was America’s original lockdown moment.  Then I remember the craze for building small, personal, backyard bomb shelters in the 1950s.  There was a memorable Twilight Zone episode from 1961 in which neighbors fight bitterly over who will take refuge in just such a shelter as the threat of nuclear war looms.  Indeed, the idea of a mountain of a bomb shelter to keep out nuclear war was no more anomalous in those years than Donald Trump’s “big, fat, beautiful wall” to keep out Mexicans is today.  Both capture a certain era of fear, whether of exploding nukes or rampaging immigrants, and an approach to that fear — controlling it by locking it out and us in — that was folly then and is folly now.

For soon after Cheyenne Mountain was completed, the Soviets developed improved missiles sufficiently accurate and powerful to obliterate the command center.  Assuming Trump’s dream wall was ever completed, immigrants would assuredly develop the means to subvert its intent as well.  But no matter: Cheyenne Mountain became a symbol of American resolve as well as fear, the ultimate shelter, just as Trump’s wall has become a symbol of a different sort of resolve and fear. (Keep “those people” out!)

Eventually decommissioned, Cheyenne Mountain lives on as a manifestation of an American bunker mentality in the age of doomsday that’s suddenly back in vogue.  Or rather what’s in vogue now is not the militarized mountain I remember, which was dark, dank, and depressing, or those crude, tiny, private backyard nuclear shelters of the 1950s, but a craze that fits a 1% era with a bizarre billionaire as president.  A new urge is growing among the ultra-wealthy for what are, in essence, privatized mini-Cheyenne Mountains for the super-rich. Think: billionaire bunkers with all the perks of “home,” including a pet kennel, a gun safe, and a small gym, as well as “12-and-a-half-foot ceilings, sumptuous black leather couches, wall art featuring cheerful Parisian street scenes, towering faux ferns, and plush carpets.” Surviving doomsday never looked so good.

And who can blame the richest among us for planning to outlast doomsday or a Trumpocalypse in the style to which they are already accustomed?  With the world’s “doomsday clock” ticking ever closer to midnight, seeking (high-priced) shelter from the storm has a certain logic to it.  If it’s not full-scale nuclear war that beckons, then perhaps major climate catastrophe and social collapse.  As Naomi Klein recently put it at The Intercept, “high-end survivalists” from Silicon Valley to Wall Street are “buying space in custom-built underground bunkers in Kansas (protected by heavily armed mercenaries) and building escape homes on high ground in New Zealand.”  I don’t normally pity the Kiwis, but I will if legions of doomsday-fleeing uber-rich start hunkering down there like so many jealous dragons guarding what’s left of their gold.

The Department of Homeland Security Card: Don’t Leave Home

Remember those old American Express card commercials with the tag line “Don’t leave home without it”?  If America’s Department of Homeland Security had its own card, its tag would be: “Don’t leave home.”

Consider the words of retired General John Kelly, the head of that department, who recently suggested that if Americans knew what he knew about the nasty terror threats facing this country, they’d “never leave the house.”  General Kelly, a big bad Marine, is a man who — one would think — does not frighten easily.  It’s unclear, however, whether he considers it best for us to “shelter in place” just for now (until he sends the all-clear signal) or for all eternity.

One thing is clear, however: Islamic terrorism, an exceedingly modest danger to Americans, has in these years become the excuse for the endless construction and funding of an increasingly powerful national security state (the Department of Homeland Security included), complete with a global surveillance system for the ages.  And with that, of course, goes the urge to demobilize the American people and put them in an eternal lockdown mode, while the warrior pros go about the business of keeping them “safe” and “secure.”

I have a few questions for General Kelly: Is closing our personal blast doors the answer to keeping our enemies and especially our fears at bay?  What does security really mean?  With respect to nuclear Armageddon, should the rich among us indeed start building personal bomb shelters again, while our government continues to perfect our nuclear arsenal by endlessly updating and “modernizing” it?  (Think: smart nukes and next generation delivery systems.)  Or should we work toward locking down and in the end eliminating our doomsday weaponry?  With respect to both terrorism and immigration, should we really hunker down in Homeland U.S.A., slamming shut our Trumpian blast door with Mexico (actually long under construction) and our immigration system, or should we be working to reduce the tensions of poverty and violence that generate both desperate immigrants and terrorist acts?

President Trump and “his” generals are plainly in favor of you and yours just hunkering down, even as they continue to lash out militarily around the globe.  The result so far: the worst of both worlds — a fortress America mentality of fear and passivity domestically and a kinetic, manic urge to surge, weapons in hand, across significant parts of the planet.

Call it a passive-aggressive policy.  We the people are told to remain passive, huddling in our respective home bunkers, sheltering in place, even as America’s finest aggressively strike out at those we fear most.  The common denominator of such a project is fear — a fear that breeds compliance at home and passivity before uniformed, if often uninformed, experts, even as it generates repetitive, seemingly endless, violence abroad.  In short, it’s the doomsday mentality applied every day in every way.

Returning to Cheyenne Mountain

Thirty years ago, as a young Air Force officer, Cheyenne Mountain played a memorable role in my life.  In 1988 I left that mountain redoubt behind, though I carried with me a small slab of granite from it with a souvenir pen attached.  Today, with greying hair and my very own time machine (my memories), I find myself returning regularly to Cheyenne Mountain, thinking over where we went wrong as a country in allowing a doomsday-lockdown mentality to get such a hold on us.

Amazingly, Barack Obama, the president who made high-minded pleas to put an end to nuclear weapons (and won a Nobel Prize for them), pleas supported by hard-headed realists like former Secretaries of State Henry Kissinger and George Shultz, gave his approval to a trillion-dollar renovation of America’s nuclear triad before leaving office.  That military-industrial boondoggle will now be carried forward by the Trump administration.  Though revealing complete ignorance about America’s nuclear triad during the 2016 election campaign, President Trump has nevertheless boasted that the U.S. will always be “at the top of the pack” when it comes to doomsday weaponry.  And whether with Iran or North Korea, he foolishly favors policies that rattle the nuclear saber.

In addition, recent reports indicate that America’s nuclear arsenal may be less than secure.  In fact, as of this March, inspection results for nuclear weapons safety and security, which had been shared freely with the American public, are now classified in what the Associated Press calls a “lockdown of information.”  Naturally, the Pentagon claims greater secrecy is needed to protect us against terrorism, but it serves another purpose: shielding incompetence and failing grades.  Given the U.S. military’s nightmarish history of major accidents with nuclear weapons, more secrecy and less accountability doesn’t exactly inspire greater confidence.

Today, the Cheyenne complex sits deactivated, buried inside its mountain, awaiting fresh purpose.  And I have one.  Let’s bring our collective fears there, America.  Let’s bury them under all that granite.  Let’s close the blast doors behind us as we walk out of that dark tunnel toward the light.  For sheltering in place shouldn’t be the American way.  Nor should we lock ourselves down for life.  It would be so much better to lockdown instead what should be truly unthinkable: doomsday itself, the mass murder of ourselves and the destruction of our planet.

 

The Advice Trap

Financial Advisers Want to Rip Off Small Investors. Trump Wants to Help Them Do It

July 16, 2017

by Susan Antilla

The Intercept

One of the most important investor protections in decades took effect on June 9. The new rule, issued by the Department of Labor, sets in motion a seemingly commonsense requirement that those who advise on retirement investments must put their clients’ interests ahead of their own. Yet it marks a revolution in retirement security, the result of an epic seven-year battle between consumer advocates and the financial industry that sunk millions of dollars into white shoe lobbying firms, industry-sponsored studies, congressional campaign contributions, and major lawsuits in an effort to block the rule.

“Investment advisers shouldn’t be able to steer retirees, workers, small businesses, and others into investments that benefit the advisers at the expense of their clients,” Assistant Labor Secretary Phyllis Borzi, who developed the rule, said in 2011. “The consumer’s retirement security must come first.”

The rule, finalized in April 2016, was scheduled to take effect a year later in order to give firms time to comply. It only survived till now thanks to a veto by President Obama of legislation that would have permanently blocked its implementation; Rep. Paul Ryan, who led the charge in Congress, had tarred the rule as “Obamacare for financial planning.”

Since the rule was already final when President Trump took office, it was invulnerable to his day one directive freezing all pending rule making. Nevertheless, within two weeks Trump signed a memo directing the DOL to review the rule and potentially rescind it. In March, before Trump’s labor secretary had even been confirmed, the Department of Labor issued a proposed rule delaying implementation for 60 days — bringing us to June 9 of this year.

In April, Sen. Elizabeth Warren joined consumer groups and the AFL-CIO to unveil a “Retirement Ripoff Counter,” a digital projection tallying the costs to retirement savers of delaying implementation of the rule — which they calculated at $46 million a day. And in late May, Alexander Acosta, Trump’s newly minted labor secretary, announced in the pages of the Wall Street Journal that the administration had exhausted every “principled legal basis” for further delaying the rule. And so it was that key portions of the fiduciary rule finally went into effect last month.

Whether the rule will survive the Trump administration’s deregulatory campaign is an open question.

Like the dozen or so others gathered for the chicken noodle casserole at Johnny’s CharHouse that cold day in January 2007, Stephen Wingate, then 59, had received an invitation in the mail to learn more about financial planning for retirees. “I was interested in trying to get my affairs in order because I was getting closer to retirement,” said Wingate, who’d begun putting away money in 1986 when he was a supervisor at Ideal Industries, a local company that manufactures wire connectors, hand tools, and other equipment. “I’d been saving 10 percent of my income right along.”

He liked what he heard from Jack W. Teboda that evening in Sycamore, Illinois. A handout described Teboda as an adviser who employed conservative strategies and chose investments “that are best suited for my clients.” His two-page bio ended on a personal note. His wife of 30 years had been his high school sweetheart, and they attended the Harvest Bible Chapel in nearby Elgin. “Our relationship with God is the most important aspect of our lives,” it read.

But it was Teboda’s seemingly prudent investment strategy that attracted Wingate most. “What he basically promised was safety,” he said. “He said he could offer us financial peace of mind.”

Sitting beside his wife in Teboda’s office later that month, Wingate moved his entire retirement account of $282,000 from IRAs that had been invested in plain-vanilla Vanguard and Janus mutual funds into two risky, real-estate investment trusts, known as REITs, that invested in and operated commercial properties.

The funds that Wingate liquidated had annual fees of less than one-half of 1 percent. Andrew Stoltmann, the Chicago lawyer who will represent Wingate in an upcoming arbitration against Teboda and the broker-dealer he is registered with, said that the REITs that replaced them, which were highly illiquid and not publicly traded, offered Teboda a 7 percent commission off the top, immediately zapping more than $20,000 from Wingate’s savings.

As he signed the stack of documents, Wingate says he asked about a disclosure that said he could lose some or all of his money, but Teboda was reassuring. “He said, ‘Don’t pay attention to that because they all say that,’” said Wingate. In one of the documents that Wingate signed, Teboda had written that one reason the REITs had been chosen was to “minimize risk.”

It didn’t turn out that way.

Wingate was thunderstruck three years later by news that the private market value of one of the REITs, Behringer Harvard REIT I, had dropped from $10 to $4.25 a share.

He fired off an email to Teboda. “How do I recommend your company to others when I am totally disappointed with what you have done with my account?” he wrote on June 28, 2010. “These are my life savings in your hands.”

Teboda said to hang tight, but Behringer Harvard didn’t rebound. Last year, after consulting with a new adviser, Wingate sold both REITs at a loss of $147,000, half the original value of his retirement account. Like other securities linked to real estate, Wingate’s REITs lost value during the collapse of real estate prices during the financial crisis. But even under the best of circumstances, these products were too risky for anyone approaching retirement. A Vanguard stock index fund, by contrast, had almost completely recovered its pre-crash value by the end of 2010.

Wingate’s personal financial crisis was part of a larger public one. According to a 2015 White House report, Americans lose $17 billion a year from their retirement accounts as the result of advice compromised by conflicts of interest. And such advice has always been perfectly legal for financial advisers who were not specifically charged by regulators to put their clients’ interests ahead of their own, a level of care known as a “fiduciary duty.” Many retirement advisers skated by under a lower standard that investment need only be “suitable.”

The Dodd-Frank reforms passed in 2010 tackled some of the blatant investment risks to average Americans. In addition to measures designed to rein in too-big-to-fail banks, the law sought to protect consumers by mandating the creation of a Consumer Financial Protection Bureau, putting new restrictions on the packagers of asset-backed securities, and directing the Securities and Exchange Commission to study whether stockbrokers should be held to a “fiduciary” standard. But it did not target the excessive fees that cut into the returns of the nation’s retirement savers.

The same year that Dodd-Frank was signed into law, the Department of Labor, which has jurisdiction over retirement accounts, unveiled its own draft fiduciary rule. While the SEC dragged its heels, the DOL doggedly pushed its proposal through the federal rule-making process.

Experts say that advice like Teboda’s would have been a violation under the DOL’s new rule. “I don’t see how non-traded REITs as they are currently structured and sold would ever comply with the new DOL rule,” said Micah Hauptmann, financial services counsel at the Consumer Federation of America. Craig McCann, a former economist at the Securities and Exchange Commission who has studied the poor performance and conflicts related to non-traded REITs, said in a 2014 blog post that “No investors should buy these illiquid, high-commissioned, poorly diversified non-traded REITs and no un-conflicted broker would recommend them.”

In July 2009, an outspoken former House staffer and public health professor was taking her seat at a daily staff meeting on the fifth floor of DOL headquarters in Washington, D.C. Phyllis Borzi, who had just been sworn in as assistant secretary, charged with running the Employee Benefits Security Administration, had asked her nine office directors to come prepared with a list of their top priorities, the issues they would want on the agency’s agenda if they had her job.

As Borzi listened, most of the directors singled out the same concern: Retirement accounts were hemorrhaging money because of high fees and inappropriate investments, but the agency had limited legal tools to hold the offenders accountable.

The law at the time typically put the fiduciary onus on sponsors of retirement plans, often small employers struggling to set up 401(k)s for their workers. Many of those sponsors, Borzi’s team suggested, were making bad decisions based on the advice of financial experts, resulting in avoidable losses for participants.

“So the employer in many cases was as much a victim of the broker as the employees were,” she said. “They’d paid money to a broker and followed their advice.”

Many of these advisers were free from any fiduciary obligation to their clients thanks to loopholes in the Employee Retirement Income Security Act. That law, known as ERISA, only covered advisers who were giving advice on a regular basis and who had a “mutual understanding” with their client that their advice would serve as the driving force behind investment decisions. One-time consultants advising on which mutual funds to offer in a 401(k) did not have to act as fiduciaries. When their faulty advice blew up, Borzi said, advisers could simply tell her investigators, “‘Yeah, I gave advice, but how could I know they would rely on it?’”

For years, those loopholes hadn’t mattered much, as Americans had relied on employer pensions that provided a steady stream of income in retirement. But by 2013, after decades of corporate cost-cutting, pensions constituted only 35 percent of retirement assets; more than half were in so-called defined contribution plans such as and IRAs and 401(k)s.

Just as investors faced the new challenge of managing their own retirement money, the financial industry was adding complex products like REITs to retirement offerings. Savers like Wingate, trying to sort through the dizzying options, turned to brokers and advisers for help. “I knew I needed a very knowledgeable person handling our retirement money,” Wingate said. “I wasn’t qualified to do that.”

Brokers had an irresistible opportunity to steer naïve clients to opaque products that offered the biggest commissions, said Sarasota investment adviser Raul Elizalde. They were also legally permitted to choose funds whose annual fees were higher than equivalent investments. “The model of the financial industry under the suitability rule is to take it little by little – and many times,” he said.

Perhaps most perilous for the burgeoning ranks of small investors was a shift in the industry’s marketing strategy: Stockbrokers, once understood as salespeople, began to call themselves “advisers,” a title that had been used previously only by so-called registered investment advisers who were required to operate as fiduciaries.

In a rule published in 2005, the Securities and Exchange Commission conceded that investors were confused about the titles that advisers were using and the obligations they were under. Six out of 10 investors had come to the wrongheaded conclusion that brokers had a fiduciary responsibility, the SEC said, citing research by a brokerage firm. The confusion, the SEC said, raised “difficult questions.”

That year the SEC ordered up focus groups of investors. In a typical response, one Baltimore participant said that he regularly received invitations to free dinners from financial people but was clueless as to what their titles meant. “I don’t know if they’re a financial consultant, financial adviser or financial planners,” he said. “How would I even know the difference?”

Despite the conclusions of its own research, the SEC chose to do nothing about the misleading titles. “We are concerned that any list of proscribed names we develop could lead to the development of new ones with similar connotations,” it wrote at the time.

By October 2010, just after Dodd-Frank was signed into law, Borzi and her team had designed a proposed fiduciary rule that would shut down ERISA’s loopholes and introduce a new definition of fiduciary advice. But her first stab at a rule was met by ferocious attacks in comment letters and public statements from the securities industry, afraid it would undermine its commission business, and the insurance industry, concerned the rule would make it harder to sell lucrative annuity products. In the year following the release of the proposed rule, not a single consumer group registered to lobby in support of the rule. But the Chamber of Commerce; industry lobby groups including the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Roundtable; major firms that offer mutual funds and annuities such as Fidelity Investments and Prudential Financial; and major financial firms including JPMorgan Chase, Charles Schwab, and Blackrock sent lobbyists to quash various aspects of it — altogether 37 organizations that cumulatively spent more than $61 million on lobbying that included the fiduciary issue during that period.

“They have more money than God,” Borzi said. “For every 15 or 20 meetings we had with opponents, we would have one conference call or meeting with supporters, and that’s probably overstating the number of supporter meetings.”

By September 2011, the DOL had withdrawn the rule, and she and her staff had regrouped to work on a new version. “We have said all along,” Borzi said in a press release, “that we will take the time to get this right.”

Dodd-Frank had required the SEC to study a possible fiduciary standard, too. As part of that process, the SEC solicited public comment and held sit-down meetings with industry and consumer groups. Of the 111 meetings the SEC held between August 2010 and October 2012, only 31 were with groups promoting stronger fiduciary requirements. The SEC’s 80 meetings with industry included 15 with SIFMA, which represents security firms and banks; eight with the Financial Services Institute, which represents brokers; and 14 with insurance companies and trade groups. After producing a study that recommended establishing a fiduciary standard, the SEC’s efforts stalled. “They had been ‘studying’ the issue for years but never took the next step and actually proposed something,” said the Consumer Federation’s Hauptman.

In the years that followed, Borzi said, as she oversaw the development of a new rule, the disproportionate influence of the financial industry was constantly an issue. As the DOL moved toward a final rule in 2016, the number of organizations registered to lobby against it multiplied. Throughout, consumer advocates, who universally support the rule, have been outflanked.

Of the 98 organizations that declared they lobbied the Senate on the fiduciary rule in 2016, only 11 were unambiguously in favor of the rule. Members of the financial industry prefaced many of their public comments with vague endorsements of a best-interest standard, but these letters typically went on to complain about portions of the rule that didn’t serve their interests.

Those lobbying in favor, including the AARP, the American Association of Justice, which represents trial attorneys, and the AFL-CIO, spent a total of $23.9 million on lobbying during the quarters when they were active on the rule.

By comparison, those who lobbied against the rule, including the U.S. Chamber of Commerce, SIFMA, the Financial Services Roundtable, the American Bankers Association, the Investment Company Institute, Nationwide, Allstate, and Americans for Prosperity, collectively spent $187.3 million in the quarters when they were registered to lobby on the rule. (The filings don’t break down how much was spent lobbying on the fiduciary rule in particular.)

Along with its big spending on lobbyists, the financial industry has also splashed its largesse directly to lawmakers. In a study released in March based on public filings, Americans for Financial Reform found that the financial sector was by far the biggest business category contributing to federal candidates for office and their leadership PACs during the 2015-16 election cycle, spending $1.1 billion.

Among the top 20 contributors? The American Bankers Association, SIFMA, Wells Fargo, New York Life Insurance, and the Investment Company Institute, the trade group for the mutual fund industry — all of which have filed comment letters opposed to the DOL’s rule.

The brokerage industry argues that since the new rule discourages use of the commission-based accounts that are common among small investors, it will effectively cut off average retirement savers from access to investment advice. The insurance industry claims that the rule will impede access to products, including annuities, which provide investors with guaranteed income.

The stakes, apparently, are high. The consulting firm A.T. Kearney calculated last year that it will cost the financial industry as much as $20 billion in lost revenue by 2020 to comply with the rule, in part because it will dramatically reduce the fees the industry collects from investors.

While hearings about the rule were in progress in August 2015, a coalition of insurance companies called Americans to Protect Family Security aired a classic scare-tactic television ad that featured a couple heading home in the car after dropping their daughter off at college.

When the wife says that government bureaucrats want to “make it really hard” to get advice from “Ann,” their financial adviser, her husband is indignant. “We’re gonna call our senators,” he says with resolve.

In another ad that month, this one sponsored by the conservative group American Action Network, an investor who can’t get through to a human at his brokerage firm hears the doorbell ring only to discover a drone hovering at his front door. Hanging from the drone is a sign that reads “NOTICE: NO PERSONAL SERVICE FOR YOUR IRA.” The group, founded by Fred Malek, a former assistant to Presidents Richard Nixon and George H.W. Bush, spent $5.6 million during the 2016 federal elections, according to OpenSecrets.

More recently, the U.S. Chamber of Commerce released a slick 20-page report featuring cartoon graphics depicting “Jane,” an investor with a small account, whose broker “Steve” was dumping her because the oppressive new rule would make it uneconomical to advise her. “Sadly,” the caption reads, “Steve’s company no longer allows him to serve accounts less than $25K.” Chamber spokesperson Stacy Day declined to comment, but referred me to an article in which a Chamber executive said small investors will be “dumped from their plans” or subject to high fees “that may not be the right option for them.”

The research behind these claims is sometimes thin. The Investment Company Institute, the mutual fund trade group, filed a comment letter to the DOL this year in opposition to the rule, claiming that it had “informally surveyed” its mutual fund members and discovered that 31 out of 32 funds had either received “orphaned” accounts from brokerage firms or gotten notice about accounts that would be orphaned by the firms that previously held them. An ICI spokesperson said in an email that this would be harmful to investors because they would lose access to financial advice and the convenience of having a single financial institution hold all their funds in one place.

“A lot of the pushback is a little bit too hysterical,” said Charles Rotblut, vice president at the Chicago-based American Association of Individual Investors, a nonprofit that educates investors on how to manage their money. “These are accounts that the investor has likely forgotten about. The loss of access to financial advice is a weak argument because the investor probably wasn’t using the advice anyway.”

As for the risk of modest investors losing access to a brokers’ advice? “I’m not so sure at the end of the day that that’s bad for the investor,” Rotblut said. “In fact, quite the opposite – some of these so-called advisers are just glorified salespeople who’ve passed a regulatory exam.” He recommends that investors consult with an hourly financial adviser instead.

The Chamber of Commerce report, issued in May, outlined “new information” about a wave of class-action litigation expected in response to a provision of the rule that allows investors to bring class-action lawsuits for systemic abuses. The Chamber cited a February report by Morningstar, Inc. in claiming that the wealth management industry would pay between $70 million and $150 million annually in new legal costs. The Chamber never mentioned that the same Morningstar report said the risk of litigation could serve as an incentive for firms “to create and adhere to prudent policies and procedures that protect retirement investors’ best interests.”

Michael Wong, the Morningstar senior equity analyst who authored the report, said in an interview that his estimates could actually be too high. “If no investors are harmed, there is no basis for class lawsuits and class settlements,” he said. “Through many lenses, it looks like the benefits outweigh the costs of this rule.”

The Chamber report also referred to a post by Meghan Milloy, director of financial services policy at the conservative American Action Forum, in which she suggests that most consumer claims are baseless. Citing Milloy, the report said that consumers filed nearly 4,000 arbitration cases last year with FINRA, the Financial Industry Regulatory Authority, alleging wrongdoing by brokers, but that only 158 — about 4 percent — of those cases were decided in favor of the consumer.

But Milloy’s denominator was off by a factor of 10. Only 389 cases were decided by arbitrators in 2016, meaning that those 158 customer wins represented 41 percent of the cases decided by arbitrators. The reference to the 158 customer wins appeared on a FINRA chart which clearly shows that customers had won 41 percent of the cases they brought, out of 389 cases decided, not Milloy’s “nearly 4,000.”

In a telephone interview, Milloy initially said that the FINRA arbitration statistics were evidence of the prevalence of “baseless claims” by investors. When I pointed out her substantial error, she responded that it was “still less than a majority” of cases decided in favor of consumers. She has not corrected her original post, which on June 29 was cited in a letter to the SEC from lobbyist Kent A. Mason of the Washington, D.C., law firm Davis & Harman on behalf of an unnamed “group of firm clients.” Mason told the agency that its role protecting IRA investors would be “reduced dramatically” under the rule.

To boost its claim that the fiduciary rule will hurt average Americans, the Chamber features on its website small business owners who express deep concern over the new standard. The government watchdog group Public Citizen got in touch with some of those businesspeople, only to learn that several had little knowledge of the rule.

One business owner, Richard Schneider of Ellisville, Missouri, was quoted on the Chamber’s website saying that the rule would mean more paperwork and hurt his employees. “The Labor Department should just fix this rule already,” he said. When contacted by Public Citizen to hear more about his views, though, Schneider said he didn’t follow the rule closely.

Another person featured on the Chamber’s site, Jim Dower, runs a nonprofit in Chicago. The Chamber quoted him as saying that the “DOL may have the right intention … but I’m worried they’ll still get it wrong in the end.” When Public Citizen emailed him about his comment, Dower responded, “Who do I call to get this down?” The Chamber has since removed him from its site.

In a March 16 letter to the DOL on behalf of unnamed clients, lobbyist Mason slammed the agency for taking “the stunning position that selling is advising.” Yet a study earlier this year by the Consumer Federation of America demonstrates that is precisely the message that the financial industry has been delivering to the public

Even as securities firms assailed the fiduciary rule in the lead-up to its June 9 effective date, they continued to deliver marketing messages suggesting they already were serving clients at the elevated standard. On their websites, firms large and small pledge to variations on the themes of “clients first” and advice given “with our clients’ best interests in mind,” despite allowing brokers to pitch high-commission products or illiquid investments, like the non-traded REITs sold to Wingate, that are ill advised for all but the wealthiest investors.

In a study of 81 non-traded REITs published in 2015, McCann, the former SEC economist, found that REIT investors over the past 25 years would have earned as much or more by investing in U.S. Treasury securities. More than half their underperformance, he found, resulted from the upfront fees charged to investors, which largely went to brokers.

“The entire industry is built around practices that would be a crystal clear violation of a fiduciary duty,” said Wingate’s lawyer, Stoltmann. “There is no faster way to clean up the securities industry than imposing a mandatory fiduciary rule.”

Opponents of the DOL rule suggest that improved disclosure would solve many of the problems the rule was designed to fix. But Anthony Pratkanis, a professor of psychology at the University of California, Santa Cruz, who has studied the characteristics of financial fraud victims, said that’s nonsense: “Consumers and investors do not read disclosures. Period.” Multiple studies have shown that even the people who do read them don’t understand them, he said.

A 2012 report from the SEC found that investors often don’t even understand the information they get from brokers about their trades: Only 53 percent of respondents in an online survey of 1,200 investors could correctly identify a trade confirmation as having been for a stock purchase.

Nevertheless, President Trump’s new secretary of labor, Alexander Acosta, has publicly opposed the rule based on an argument that the government should trust in investors’ “ability to decide what’s best for them.”

White House National Economic Council Director Gary Cohn, one of Trump’s closest advisers, has gone further. “We think it is a bad rule,” he told the Wall Street Journal. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

After five more years, four more days of public hearings, thousands of comment letters, and hundreds of meetings, mostly with industry representatives, the DOL finally published its new rule on April 8, 2016. It took the U.S. Chamber of Commerce and eight other business organizations less than two months to file suit against the agency, saying it had exceeded its authority.

In February, a Dallas federal judge ripped apart their arguments in an 81-page opinion denying summary judgment. To a complaint that the DOL had violated the freedom of speech of insurance agents and brokers, Chief Judge Barbara M.G. Lynn of the Northern District of Texas said, “At worst, the only speech the rules even arguably regulate is misleading advice.” The Chamber and the other litigants have appealed.

Just days before that ruling, on February 3, President Trump signed his memo in the Oval Office directing the DOL to review the rule. He then handed his pen to Rep. Ann Wagner, the Republican from Missouri, standing just to his right, and suggested she say a few words. Wagner isn’t the top recipient of Wall Street money in Congress, but support from the sector looms large for her, and she has returned the favor, sponsoring bills to rein in the power of the DOL and the SEC. According to the online publication Investment News, in a 2015 speech to insurance professionals, Wagner said that if efforts to kill the rule fail, “By God we’ll just defund them.”

In a draft bill in early July, Wagner proposed that the rule be eliminated and replaced with a new standard of conduct that would require investment recommendations to “be in the retail customer’s best interest.” But Wagner’s bill lacks the protections of the DOL rule and fails to adequately address the “complex web of toxic financial incentives” that lead to bad advice, according to a July 11 letter to members of the House Financial Services subcommittee from the Consumer Federation of America.

In the 2015-16 election cycle, insurance companies, securities firms, and commercial banks were the top three industries backing Wagner’s campaign, donating more than $549,000. The two firms that gave the most were Jones Financial Companies, a brokerage firm, and the insurance company Northwestern Mutual. Both wrote to the DOL to oppose the rule. Over the last two election cycles, the financial industry contributed more than $1.1 million to her campaigns.

There in the Oval Office, she referred to the executive order as “my baby,” claiming that the edict would help “low- and middle-income investors and retirees.” It was, she said, a “big moment” for Americans who invest and save. A Wagner spokesperson did not respond to requests for comment.

Three months later, in a May 22 Wall Street Journal op-ed, Acosta said that the DOL should examine ways to revise the rule and open up yet another comment period. Acosta’s arguments, said Barbara Roper, director of investor protection at the Consumer Federation of America, were “straight from the talking points of industry.” A DOL spokesperson declined to comment.

Acosta’s op-ed appeared just weeks before the House Financial Services Committee passed the Financial CHOICE Act, an omnibus bill designed to roll back many of the Dodd-Frank reforms. The bill would repeal the DOL’s fiduciary rule and block the DOL from promulgating a new one until at least 60 days after the SEC issues a final fiduciary rule of its own.

On June 1, shortly before the CHOICE Act passed the full House, the SEC suddenly woke up from its slumber. Trump’s new SEC chairman, Jay Clayton, released a request for public comment about the standards of conduct expected of investment advisers and brokers, asking for feedback about possible investor confusion over “the type of professional or firm that is providing them with investment advice.”

“The timing of the request is troubling,” said Stephen W. Hall, legal director at Better Markets, a nonprofit that promotes financial reform. “It appeared after years and years of SEC inaction, but just as the DOL rule came under fresh scrutiny by the new administration.”

In his request for comment letters, Clayton noted that Acosta wanted the two agencies to work together to analyze the standards of conduct for brokers and investment advisers.

Ben Edwards, associate professor of law at the University of Nevada, Las Vegas, said that a new fiduciary rule from the SEC could give Acosta the legal ammunition he needs to scrap the DOL’s rule. “An SEC rule would materially change the regulatory environment,” he said, because it could provide “a basis to question the need” for a DOL rule. That would be a win for the insurance industry in particular, Edwards said, because the SEC’s authority “does not ordinarily extend to insurance products.”

Judith Burns, an SEC spokesperson, declined to comment.

Lisa Donner, executive director at the consumer advocacy group Americans for Financial Reform, worries that the DOL rule, just weeks after taking effect, is already “in danger of being undone.” On June 29, the undoing began, with a request for comment from the DOL asking whether the remaining aspects of the rule, which as of January 2018 would require legally enforceable contracts between clients and any brokers who receive commissions, should be further delayed.

Wingate, now retired, said the catastrophic loss to his retirement account has been “really rough” on his wife, who at 69 continues to work as a nurse to compensate for the lost savings. To make ends meet, they sold the family vacation condo in Florida earlier this year. “It was a real strain on our marriage,” Wingate said.

On Saturday mornings at 7 a.m., Wingate’s former adviser, Teboda, has a radio show on Chicago’s AM 560. On a recent Saturday, Wingate said he listened in frustration as he heard the adviser describe himself as a fiduciary who had clients’ best interests at heart. “My wife said, ‘I can’t take it anymore, so please turn it off.’” On Teboda’s June 17 show, he similarly referred to his “fiduciary firm” several times, noting that he worked in clients’ “best interest.”

Wingate and his lawyer, Andrew Stoltmann, say they will face off in November against Teboda and the broker-dealer he is registered with, ProEquities, at a FINRA arbitration hearing. ProEquities spokesperson Eva T. Robertson and Teboda declined to comment, but ProEquities said in its answer to Wingate’s complaint that he is a sophisticated investor who was able to “talk intelligently” with Teboda.

While they await their day in Finra’s closed-door court, the battle over the kind of advice Teboda got will go on. “It’s a profoundly broken system,” said Donner of Americans for Financial Reform. “If there wasn’t so much money at stake for people making money off the broken system, it would not have taken seven years to get this rule done.”

This article was produced in partnership with The Investigative Fund at The Nation Institute.

 

This is rapidly becoming a decade of official deceit and public disillusion.

The issue under discussion here is MERS (Mortgage Electronic Registration System).

July 16, 2017

by Arthur D. Royster

MERS, set up by the government in 1995, now claims to be a privately-held company and their official function is stated to be ‘keeping track of a confidential electronic registry of mortgages and the modifications to servicing rights and ownership of the loans.’  MERS is actually a U.S. government initiated organization like Fannie Mae and Freddy Mac and its current shareholders include AIG, Fannie Mae, Freddie Mac, WaMu, CitiMortgage, Countrywide, GMAC, Guaranty Bank, and Merrill Lynch. All of these entities have been intimately, and disastrously, involved with the so-called “housing bubble,” and were subsequently quickly bailed out by the supportive Bush administration

In addition to its publicly stated purpose of simplifying mortgage registration MERS was also set up to assist in the creation of so-called  Collateralized debt obligations (CDOs) and Structured investment Vehicles (SIV). The CDOs is a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs securities are split into different risk classes, or tranches, which permits these entities to be minced into tiny tranches and sold off by the big investment banks to pensions, foreign investors and retail investors. who in turn have discounted and resold them over and over.

It is well-known inside the American banking institutions that these highly questionable, potentially unsafe investment packages were deliberately marketed to countries, such as China and Saudi Arabia, that are not in favor with elements of the American government and banking industry and were, and are, marketed with full knowledge of their fragility.

The basic problem with this MERS system that while it does organize the mortgage market, it also knowingly permits fiscal sausage-making whereby a huge number of American domestic and business mortgages, (59 million by conservative estimate) are sliced up, put into the aforesaid “investment packages” and sold to customers both domestic and foreign.

This results in the frightening fact that the holders of mortgages, so chopped and packed, are not possible to identify by MERS or anyone else, at any time and by any agency. This means that any property holder, be they a domestic home owner or a business owner, is paying their monthly fees for property they can never own. Because of the diversity of the packaging, it is totally and completely impossible to ascertain what person or organization owns a specific mortgage and as a result, a clear title to MERS-controlled property is impossible to get at any time, even if a mortgage is fully paid. No person or entity, has been, or never can be, identified who can come forward and legally release the lien on the property once the loan is paid.

In short, MERS conceals this fact from the public with the not-unreasonable assumption that by the time the owner of the home or business discovers that they have only been paying rent on property they can never get clear title to, all the primary parties;  the banks, the government agencies, the mortgage companies, or the title companies, will be dead and gone. MERS is set up to guarantee this fact but, gradually, little by little, mostly by word of mouth, the public is beginning to realize that their American dream of owning a house is nothing but a sham and a delusion.

The solution to this is quite simple. If a home or business American mortgage payer , goes to the property offices in their county and looks at their registered property, they can clearly see if MERS is the purported holder of the mortgage. This is fraudulent – MERS has never advanced any funds in the transaction and owns nothing. It is merely a registry. If MERS is the listed holder, the mortgage payers will never, ever, get clear title to their property.

In this case, the property occupier has two choices: They can either turn the matter over to a real estate attorney or simply continue pouring good money after bad. And is there relief? Indeed there is. In case after case (95% by record) if the matter is brought to the attention of a court of law, Federal or state, the courts rule that if the actual owner of the mortgage cannot be located after a reasonable period of time, the owner receives a clear title from the court and does not need to make any further payments to an unidentified creditor! It will stop any MERS based foreclosure mid process and further, any person who was fraudulently foreclosed by MERS, which never held their mortgage, and forced from their home can sue MERS and, through the courts, regain their lost homes.

MERS Basic Corporate Information

MERS is incorporated within the State of Delaware.

MERS was first incorporated in Delaware in 1999.

The total number of shares of common stock authorized by MERS’ articles of incorporation is 1,000.

The total number of shares of MERS common stock actually issued is 1,000.

MERS is a wholly owned subsidiary of MERSCorp, Inc.

MERS’ principal place of business at 1595 Spring Hill Road, Suite 310, Vienna, Virginia 22182

MERS’ national data center is located in Plano, Texas.

MERS’ serves as a “nominee” of mortgages and deeds of trust recorded in all fifty states.

Over 60 million loans have been registered on the MERS system.

MERS’ federal tax identification number is “541927784”.

The Nature of MERS’ Business

MERS does not take applications for, underwrite or negotiate mortgage loans.

MERS does not make or originate mortgage loans to consumers.

MERS does not extend any credit to consumers.

MERS has no role in the origination or original funding of the mortgages or deeds of trust for which it serves as “nominee”.

MERS does not service mortgage loans.

MERS does not sell mortgage loans.

MERS is not an investor who acquires mortgage loans on the secondary market.

MERS does not ever receive or process mortgage applications.

MERS simply holds mortgage liens in a nominee capacity and through its electronic registry, tracks changes in the ownership of mortgage loans and servicing rights related thereto.

MERS© System is not a vehicle for creating or transferring beneficial interests in mortgage loans.

MERS is not named as a beneficiary of the alleged promissory note.

Ownership of Promissory Notes or Mortgage Indebtedness

MERS is never the owner of the promissory note for which it seeks foreclosure.

MERS has no legal or beneficial interest in the promissory note underlying the security instrument for which it serves as “nominee”.

MERS has no legal or beneficial interest in the loan instrument underlying the security instrument for which it serves as “nominee”

MERS has no legal or beneficial interest in the mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no interest at all in the promissory note evidencing the mortgage indebtedness.

MERS is not a party to the alleged mortgage indebtedness underlying the security instrument for which it serves as “nominee”.

MERS has no financial or other interest in whether or not a mortgage loan is repaid.

MERS is not the owner of the promissory note secured by the mortgage and has no rights to the payments made by the debtor on such promissory note.

MERS does not make or acquire promissory notes or debt instruments of any nature and therefore cannot be said to be acquiring mortgage loans.

MERS has no interest in the notes secured by mortgages or the mortgage servicing rights related thereto.

MERS does not acquire any interest (legal or beneficial) in the loan instrument (i.e., the promissory note or other debt instrument).

MERS has no rights whatsoever to any payments made on account of such mortgage loans, to any servicing rights related to such mortgage loans, or to any mortgaged properties securing such mortgage loans.

The note owner appoints MERS to be its agent to only hold the mortgage lien interest, not to hold any interest in the note.

MERS does not hold any interest (legal or beneficial) in the promissory notes that are secured by such mortgages or in any servicing rights associated with the mortgage loan.

The debtor on the note owes no obligation to MERS and does not pay MERS on the note.

MERS’ Accounting of Mortgage Indebtedness / MERS Not At Risk

MERS is not entitled to receive any of the payments associated with the alleged mortgage indebtedness.

MERS is not entitled to receive any of the interest revenue associated with mortgage indebtedness for which it serves as “nominee”.

Interest revenue related to the mortgage indebtedness for which MERS serves as “nominee” is never reflected within MERS’ bookkeeping or accounting records nor does such interest influence MERS’ earnings.

Mortgage indebtedness for which MERS serves as the serves as “nominee” is not reflected as an asset on MERS’ financial statements.

Failure to collect the outstanding balance of a mortgage loan will not result in an accounting loss by MERS.

When a foreclosure is completed, MERS never actually retains or enjoys the use of any of the proceeds from a sale of the foreclosed property, but rather would remit such proceeds to the true party at interest.

MERS is not actually at risk as to the payment or nonpayment of the mortgages or deeds of trust for which it serves as “nominee”.

MERS has no pecuniary interest in the promissory notes or the mortgage indebtedness for which it serves as “nominee”.

MERS is not personally aggrieved by any alleged default of a promissory note for which it serves as “nominee”.

There exists no real controversy between MERS and any mortgagor alleged to be in default.

MERS has never suffered any injury by arising out of any alleged default of a promissory note for which it serves as “nominee”.

MERS’ Interest in the Mortgage Security Instrument

MERS holds the mortgage lien as nominee for the owner of the promissory note.

MERS, in a nominee capacity for lenders, merely acquires legal title to the security instrument (i.e., the deed of trust or mortgage that secures the loan).

MERS simply holds legal title to mortgages and deeds of trust as a nominee for the owner of the promissory note.

MERS immobilizes the mortgage lien while transfers of the promissory notes and servicing rights continue to occur.

The investor continues to own and hold the promissory note, but under the MERS® System, the servicing entity only holds contractual servicing rights and MERS holds legal title to the mortgage as nominee for the benefit of the investor (or owner and holder of the note) and not for itself.

In effect, the mortgage lien becomes immobilized by MERS continuing to hold the mortgage lien when the note is sold from one investor to another via an endorsement and delivery of the note or the transfer of servicing rights from one MERS member to another MERS member via a purchase and sale agreement which is a non-recordable contract right.

Legal title to the mortgage or deed of trust remains in MERS after such transfers and is tracked by MERS in its electronic registry.

Beneficial Interest in the Mortgage Indebtedness

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The beneficial interest in the mortgage (or person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note and/or servicing rights thereunder.

MERS has no interest at all in the promissory note evidencing the mortgage loan.

MERS does not acquire an interest in promissory notes or debt instruments of any nature.

The beneficial interest in the mortgage (or the person or entity whose interest is secured by the mortgage) runs to the owner and holder of the promissory note (NOT MERS).

MERS As Holder

MERS is never the holder of a promissory note in the ordinary course of business.

MERS is not a custodian of promissory notes underlying the security instrument for which it serves as “nominee”.

MERS does not even maintain copies of promissory notes underlying the security instrument for which it serves as “nominee”.

Sometimes when an investor or servicer desires to foreclose, the servicer obtains the promissory note from the custodian holding the note on behalf of the mortgage investor and places that note in the hands of a servicer employee who has been appointed as an officer (vice president and assistant secretary) of MERS by corporate resolution.

When a promissory note is placed in the hands of a servicer employee who is also an MERS officer, MERS asserts that this transfer of custody into the hands of this nominal officer (without any transfer of ownership or beneficial interest) renders MERS the holder.

No consideration or compensation is exchanged between the owner of the promissory note and MERS in consideration of this transfer in custody.

Even when the promissory note is physically placed in the hands of the servicer’s employee who is a nominal MERS officer, MERS has no actual authority to control the foreclosure or the legal actions undertaken in its name.

MERS will never willingly reveal the identity of the owner of the promissory note unless ordered to do so by the court.

MERS will never willingly reveal the identity of the prior holders of the promissory note unless ordered to do so by the court.

Since the transfer in custody of the promissory note is not for consideration, this transfer of custody is not reflected in any contemporaneous accounting records.

MERS is never a holder in due course when the transfer of custody occurs after default.

MERS is never the holder when the promissory note is shown to be lost or stolen.

MERS’ Role in Mortgage Servicing

MERS does not service mortgage loans.

MERS is not the owner of the servicing rights relating to the mortgage loan and MERS does not service loans.

MERS does not collect mortgage payments.

MERS does not hold escrows for taxes and insurance.

MERS does not provide any servicing functions on mortgage loans, whatsoever.

Those rights are typically held by the servicer of the loan, who may or may not also be the holder of the note.

MERS’ Rights To Control the Foreclosure

MERS must all times comply with the instructions of the holder of the mortgage loan promissory notes.

MERS only acts when directed to by its members and for the sole benefit of the owners and holders of the promissory notes secured by the mortgage instruments naming MERS as nominee owner.

MERS’ members employ and pay the attorneys bringing foreclosure actions in MERS’ name.

MERS’ Access To or Control Over Records or Documents

MERS has never maintained archival copies of any mortgage application for which it serves as “nominee”.

In its regular course of business, MERS as a corporation does not maintain physical possession or custody of promissory notes, deeds of trust or other mortgage security instruments on behalf of its principals.

MERS as a corporation has no archive or repository of the promissory notes secured by deeds of trust or other mortgage security instruments for which it serves as nominee.

MERS as a corporation is not a custodian of the promissory notes secured by deeds of trust or other mortgage security instruments for which it serves as nominee.

MERS as a corporation has no archive or repository of the deeds of trust or other mortgage security instruments for which it serves as nominee.

In its regular course of business, MERS as a corporation does not routinely receive or archive copies of the promissory notes secured by the mortgage security instruments for which it serves as nominee.

In its regular course of business, MERS as a corporation does not routinely receive or archive copies of the mortgage security instruments for which it serves as nominee.

Copies of the instruments attached to MERS’ petitions or complaints do not come from MERS’ corporate files or archives.

In its regular course of business, MERS as a corporation does not input the promissory note or mortgage security instrument ownership registration data for new mortgages for which it serves as nominee, but rather the registration information for such mortgages are entered by the “member” mortgage lenders, investors and/or servicers originating, purchasing, and/or selling such mortgages or mortgage servicing rights.

MERS does not maintain a central corporate archive of demands, notices, claims, appointments, releases, assignments, or other files, documents and/or communications relating to collections efforts undertaken by MERS officers appointed by corporate resolution and acting under its authority.

Management and Supervision

In preparing affidavits and certifications, officers of MERS, including Vice Presidents and Assistant Secretaries, making representations under MERS’ authority and on MERS’ behalf, are not primarily relying upon books of account, documents, records or files within MERS’ corporate supervision, custody or control.

Officers of MERS preparing affidavits and certifications, including Vice Presidents and Assistant Secretaries, and otherwise making representations under MERS’ authority and on MERS’ behalf, do not routinely furnish copies of these affidavits or certifications to MERS for corporate retention or archival.

Officers of MERS preparing affidavits and certifications, including Vice Presidents and Assistant Secretaries, and otherwise making representations under MERS’ authority and on MERS’ behalf are not working under the supervision or direction of senior MERS officers or employees, but rather are supervised by personnel employed by mortgage investors or mortgage servicers.

The Fundamentals:

In the period beginning in 1999 and ending in March of 2008, Mortgage Electronic Registration Systems Inc., aka MERS, has been named as a “mortgagee” on over 50 million mortgages. Yet MERS has never originated a single mortgage loan nor loaned a dime to a single borrower.

In 2001 the New York Supreme Court ordered the Suffolk County Clerk to accept MERS mortgages for recording as a purely ministerial duty. However the Court denied MERS request for a judgment declaring that MERS mortgages were “lawful in all respects”.

The New York Court of Appeals affirmed the Supreme Court’s order directing the County Clerk to record MERS mortgages. The Court of Appeals did not reverse the Supreme Court’s denial of MERS request for a judicial declaration that MERS mortgages are “lawful in all respects”.

MERS, for obvious reasons, did not want a published opinion of the fact that MERS mortgages are legal nullities and/or that MERS has no standing to enforce a mortgage when it is not a creditor entitled to collect a debt. The New York Court of Appeals did address and frame these two issues but left them to be decided at a future date.

No Note No Foreclosure:

In reality MERS is really nothing more than a shell, or a front corporation for its so-called “members”. Many of these MERS members were once some of the most prestigious names in American finance. Many MERS members are now reporting hundreds of billions of dollars of losses as result of their ill conceived scheme to ramp up mortgage origination so they could pretend to flip millions of mortgage loans into trusts in exchange for trillions of dollars of investor’s money. One big problem was that the promissory notes were never actually delivered to the trustees of these trusts. Therefore these trusts have no evidence of ownership of the debts they purportedly purchased.

Akin to purchasing a home without being given a deed and to make matters worse many of the debts evidenced by these undelivered promissory notes were supposed to be secured by mortgage liens. However in place of mortgages being executed in favor of the original lender many of these mortgages were executed in favor of MERS and because MERS never holds these notes or owns a debt it is not a creditor. MERS therefore has no legal standing to enforce a debt, or so it told the Nebraska Court of Appeals in 2005. However this lack of standing defense must be raised by property owners who are sued.

The most effective economic way to raise this lack of standing defense is by bringing a motion to dismiss in response to the complaint to foreclose. In many states and in federal court this is called a Rule 12 motion. This motion is brought in place of answering the complaint.

An honest attorney in most areas of the country should be willing to prepare and bring such a motion for $500.00 to $1,500.00 for a distressed homeowner. Or you might be able to find a lawyer to do it for you pro bono and perhaps a legal aid attorney. At least five judges around the country have dismissed these actions for lack of standing sua sponte, which means they did it on their own volition. Perhaps more judges will feel the duty to do the same thing in the future to protect the integrity of the Court.

MERS members, mortgage industry executives, invented the so-called MERS paperless system to short cut standing mortgage lending safe guards and circumvent the legal requirements for originating mortgage loans and/or for selling and transferring these loans to subsequent holders. This would allow MERS members like Countrywide Financial, Fieldstone Mortgage, and Option One Mortgage to make loans to anyone with a heartbeat and then quickly flip these questionable loans to other MERS members such a Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Lehman Brothers to name just a few. (“Secondary Mortgage Market Players”)

These Secondary Mortgage Market Players would claim to package millions of these loans, with or without being delivered the promissory notes, into loan pools or “mortgage backed security trusts” and then flip the loans by selling trillions of dollars of bonds to investors around the world. The bonds were touted by Secondary Mortgage Market Players as producing safe yet high returns. The investors who bought these bonds included many of the world’s largest national banks. Initially MERS members reported windfall profits year after year by quickly originating, packaging into pools and then flipping trillions of dollars of mortgages loans to investors.

Other MERS members, such as title insurance companies, also took their cuts from each of the fifty million loans that were made while this high speed gravy train was rolling. MERS itself would earn over a billion dollars a year by charging its members $250.00 for each mortgage that MERS would be named as “mortgagee”.

A June 10, 2007 article in Forbes magazine details the carelessness in the securitization process by which mortgage loans were packaged and sold off to mortgage pools is now coming back to bite the trustees of these mortgage backed trusts who are now seeking to foreclose millions of loans that are in default.

The financial engineering (i.e. mortgage securitization) helped oil the housing boom by making credit more available, but stalled housing prices and rising defaults have revealed a mess. In the rush to flip paper, lots of the new lenders or pools don’t have the proper paperwork to show they even hold the mortgage.

The reported profits from the sale of these mortgaged backed securities would result in billions of dollars of salaries and bonuses being paid to the senior executives of many of MERS member corporations. Ultimately the bond investors who actually provided all the money would learn that their “safe” investment was anything but safe.

As hundreds thousands and then millions of these loans fell into default, these bondholders would lose hundreds of billions of dollars. As of April 1, 2008, the largest banks around the world had already written off loses of one hundred and fifty billion dollars relating to bonds they had purchased. One Swiss bank, U.S.B., has recently reported 40 billion dollars in losses.

These loses may only be the beginning. What many people refuse to admit is that because of the so-called MERS paperless “system” many of the so-called mortgage backed security trusts do not actually hold the promissory notes which evidence the debts that are supposed to be backing the bonds purchased by these investors. The situation is reminiscent of The Great Olive Oil Scandal in the late 1800’s when banks were duped into investing millions of dollars into Olive Oil only to later discover that the tanks which were supposed to be holding millions of gallons of olive oil backing their investments were mostly empty.

This problem with the missing trust assets/promissory notes manifests itself each time MERS and/or the trustees for the bondholders brings a legal action to collect on a debt through foreclosure. Because neither MERS nor the bond holders or trustees are holding the notes and lack proof of standing to maintain their legal actions, thus the actions are subject to dismissal. Many foreclosure actions have been dismissed based upon lack of standing. This is a problem that it is a direct result of MERS “system”.

It appears that after MERS mortgage loans are flipped to the mortgage backed trusts the promissory notes are not actually delivered to the trustees. Nor are assignments of mortgages executed and delivered which evidence the fact the original lender has transferred the debt which is secured by the mortgage. This leaves the trusts with absolutely no paper evidence of ownership of the secured debt it purportedly owns.

One informed lawyer who represents homeowners in Florida, April Charney, had foreclosure proceedings against 300 clients dismissed or postponed in 2007 for lack of standing. She is quoted as saying that “80 percent of them involved lost-note affidavits”.

They raise the issue of whether the trusts own the loans at all,” Charney said. “Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.” Ms. Charney, started challenging MERS and it members lost note affidavits after becoming skeptical of that a lender could possibly lose hundreds of promissory notes.

At least two Florida judges shared Ms. Charney’s skepticism regarding the copious amounts of MERS lost note affidavits and they issued show cause orders, sua sponte, challenging MERS to show proof that it held and/or lost notes in numerous actions. After evidentiary hearings these two alert judges dismissed twenty nine (29) MERS actions to foreclose for lack of standing. One judge struck MERS pleadings as being a sham.

A South Carolina court dismissed a MERS action to foreclose for lack of standing even though MERS filed an affidavit wherein a person claiming to be an officer of MERS claimed that MERS was holding a promissory note. The South Carolina court vetted the MERS affidavit claim that it was the holder of the note after being apprised of the fact that MERS had previously told the Nebraska Court of Appeals that it never held promissory notes.

In late 2007 three Federal Court Judges in Ohio dismissed over fifty law suits brought by trustees of mortgage backed trusts where they could not produce the original promissory notes. Following these decisions the Bankruptcy Court in Los Angeles, California adopted a rule of practice which requires all foreclosing trustees or other plaintiffs to produce the original promissory note when bringing an action to foreclose a debt or face sanctions for not doing so. Several courts in New York have been routinely dismissing foreclosure actions brought by MERS or its members because they continually fail to produce promissory notes.

It is disturbing to know that National Banks are the trustees of thousands of trusts that may be missing millions of promissory notes. This might explain why, to date, not a single National Bank has publicly disclosed the fact that they are not actually holding what may be millions of promissory notes which evidence ownership of debts supposedly owned by their respective trusts.

An independent audit of these trusts would probably be quite revealing and this writer is also unaware of any such audits that have been performed to date.      These National Banks, as trustees, are accountable and therefore liable for missing trust property or the documents evidencing ownership.

As more borrowers, lawyers and judges learn that neither MERS nor these trustees are actually holding the promissory notes evidencing the debts they seek to collect through foreclosure, dismissals of these foreclosure actions for lack of standing will become routine, as it now has in New York, Ohio and Florida. This will also mean that bond holders from around the globe will be seeking to recover their losses from the National Bank trustees who never got around to obtaining the notes evidencing debts that were purportedly owned by these trusts.

A Review of problems with basic MERS paperless system:

The members of MERS had from the onset, three serious problems which would ultimately derail their high speed and high volume mortgage lending system. The first problem was finding millions of Americans who could qualify for a loan to purchase any home. The second problem was how to quickly endorse and deliver of millions of promissory notes from the originating lender to Secondary Market Players and then on to subsequent holders, like the trusts. The third problem was executing millions of assignments of mortgages and recording these assignments in the public land records, with each successive transfer of the promissory notes.

The last two would require significant administrative time and expense. MERS and its members didn’t want to be bogged down by trivial administrative details. They wanted to make big money fast by making millions of loans with other people’s money and making those loans at lightning speed. Their attitude was “Damn the torpedoes full speed ahead” rather than finding people who could actually qualify for loans, meaning pay it back.

MERS members simply lowered the qualification bar by creating all kinds of “creative loans”, including two which they called “No Doc” and “Sub-Prime loans”. No Doc (no documentation) loans would be made to borrowers who had good credit scores but would not require verification of actual income of the borrowers. Sometimes relying on income as stated by the borrower and sometimes putting in fictional numbers. These loans would later become known as liar loans.

Sub Prime loans would be made to borrowers who had less than stellar credit history or no credit history at all. Many people from minority groups and newly arrived immigrants became targets for these loans. Both No Doc and Sub Prime loans carried higher interest rates than regular mortgage loans. By lowering home loan qualification bar these greedy geniuses had invented a larger market of residential home purchasers.

Swarms of previously unqualified borrowers could now be swooned by real estate agents, mortgage brokers into buying a house by borrowing money, not from a bank or savings and loan, but from investors who were at best, two times removed from the closing table.

This expanded market of previously unqualified home buyers and/or investors created a real estate bonanza on the street level for realtors, mortgage brokers, and home builders. Prices for homes rose dramatically as this new demand by buyers who really were not qualified out-stripped the supply of homes. The high foreclosure rates in the Las Vegas, Miami, California and rust belt areas as no relationship to geography. But clear relationships with the ease of No Doc and Sub Prime loan acceptance.

Rather than actually delivering millions of endorsed promissory notes to the Secondary Market Makers and then on to the bondholder’s trusts, which is the only way a debt evidenced by a negotiable instrument is legally transferred to a new owner, the promissory notes were either not delivered at all, or were simply delivered to the original loan servicer, weeks and/or months after the originating lender had sold the debt. Thus in many cases the “mortgage backed security” trusts may not actually be holding millions of promissory notes which evidences the ownership of the debt that these mortgage backed loan pools supposedly own or hold.

To make matters worse many of the original mortgage lenders and large loan servicing companies have filed for bankruptcy or just gone out of business and decreasing the trusts likelihood of ever locating, much less obtaining possession of what could be hundreds of thousand if not millions of missing promissory notes.

Rather than actually delivering bona fide (real) assignments of each mortgage to the Secondary Mortgage Makers and then causing each mortgagee’s interest to be re-assigned to each mortgage backed investment pool, along the high speed mortgage gravy train route, they simply invented the MERS “paperless” system.

The founders of MERS knew that MERS was merely a “a facade” they would employ to expedite the number of loans that could be originated, packaged and sold as mortgage backed securities. They felt they could “eliminate” such paperwork as promissory notes and mortgage assignments, even though commercial law requires such sundry items as promissory notes and mortgage assignments. The MERS founders seem to think they could ignore and/or circumvent the law as if the “the ends justified the means” as long as they would make big money.

Rather than record millions of mortgages and multiple millions of assignments in local land records, the founders of MERS decided that it would be named the “Mortgagee” in place of the original lender. By creating (inventing) this new entity, MERS declared that it was some sort of agent for each and every mortgagee or mortgagee assignee and could then act as a “mortgagee” in the public land records.

Through this clever legal sleight of hand MERS founders believed they could eliminate the commercial lending practices of having to endorse and deliver each promissory note to the new owner/holder and eliminate the execution of each assignment of mortgage by the mortgage lender for each secured note that was sold to a Secondary Market Maker, together with incidental recording of each assignment of mortgage by the Secondary Mortgage Maker or its assigns.

MERS founders and members went about foisting their so-called “paperless” system on the American economy and indirectly upon the global economy. MERS studiously avoided seeking any legislative changes of long standing commercial laws relating to promissory notes, mortgages and public recording of assignments in any of the 50 states that it would ultimately be operating. It is possible that this blatant abuse, of the UCC and state recording laws might have passed itself off as the new way of doing business in our computer age.

But MERS member companies, under clear instructions from their leaders, guaranteed disaster by pumping up and then dumping these shaky loans onto investors through trust they set up for this purpose. These investor/bond holders are just now discovering that they were duped. They just don’t know how badly they were duped.

Perhaps this is what the global economy is really all about. Seeing who can dupe international banks and governments out of trillions of dollars depositor and taxpayer money and do so with complete impunity. Yet, to my knowledge, after learning that they invested trillions of dollars into these questionable loan pools, aka cesspools, not a single National Bank has ordered an audit of these cesspools or trusts to determine the actual contents and the value.

As a matter of sound public policy our courts should not allow MERS or its so-called “members” to circumvent and/or violate long standing laws of commerce, simply because some greedy mortgage executives thought they could shoe-horn their so-called “paperless system” into the framework of our current system of commerce. Our system still requires such sundry instruments as promissory notes to be used to evidence debts and also requires that these instruments change hands when sold or transferred to a new owner.

Our system also requires a new holder of a promissory note to record an assignment of security interest or mortgage in order to enforce a lien which secures the debt evidenced by the promissory note. No one should be able to simply ignore these long standing laws just so they can reap billions of dollars in illicit bonuses by quickly originating and then flipping loans without the attendant delivery of notes and assignments of mortgages. Our system of commerce does not operate this way. This is because we have laws of commerce including the UCC which regulates our system of commerce.

The MERS paperless system simply provided an expedient way for MERS and its members to fleece investors on a global basis, by loaning money to people who couldn’t or wouldn’t pay the money back and then flipping trillions of dollars of these bogus loans to third party investors. The MERS system does not comply with our current laws of commerce.

While the computer age has admittedly changed how business is transacted it has not eliminated or replaced the legal requirement for such things as promissory notes, mortgages and assignments of mortgages, when a loan is made, a mortgage is given and the loan is subsequently sold and/or resold. This is precisely why a competent and prudent lender who makes a loan to a qualified borrower takes back a promissory note and if the loan is to be secured the borrower executed a mortgage or security agreement naming the lender as the mortgagee or secured party. The lender must then record or file its mortgage or security agreement to prefect its lien.

If the lender decides to sell the debt it is owed to a third party it must endorse and deliver the promissory note to the third party, and in order for the third party to enforce either a mortgage lien or security interest, the original lender must execute an assignment of mortgage or security interest, which must then be recorded or filed by the third party to give evidence and public notice of its status as assignee of the lien securing the debt it had purchased. Only the holder of the promissory note is entitled to enforce the note and/or any lien which secured the debt.

Given the extremely close relationship that MERS and its many corporate members have with the politicians who run our state and federal governments, it is not surprising that MERS and it members were able to pull off this gigantic global financial scheme without raising the brow of a State or Federal law enforcement or regulators. Only now are a few politicians and regulators paying lip service to what they refer to as the “Mortgage Meltdown”.

What no politician or regulator ever seems to mention is that a millions of the mortgages that “melted down” have the name Mortgage Electronic Registration System Inc. on them. American courts should no longer tolerate or close a blind eye to the fact that the MERS has no standing to commence any legal actions relating to peoples properties because they do not hold any legal or equitable interest in the debt or in the properties.

The Court’s must protect the integrity of our court system by enforcing our laws of commerce as they have existed and not allow parties to come into our courts and commence actions relating to debts that they do not own and/or have no proof of ownership.

The MERS “paperless system” is the same kind of scheme that is hatched in some internet boiler room in Nigeria, not in the boardrooms of our once prestigious American financial institutions and this gigantic scheme has completely ignored long standing laws of commerce. The effect of the system has already had a catastrophic effects on both the American and global economy.

Yet many of the investment “trusts” which supposedly hold thousands of original promissory notes are hard pressed to produce them when legally required to do so. MERS admittedly does not hold any promissory notes. A party must have possession of a promissory note in order to have standing to enforce and/or otherwise collect a debt that is owed to another party.

Given these facts how will these investors ever recoup their investments if the debt they were supposed to own cannot be legally enforce or collected? What will be the status of title to properties that were purportedly foreclosed by MERS where MERS admittedly had no legal right to foreclose or otherwise collect debt which are evidenced by promissory notes held by someone else?

 

 

 

 

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