December KCM 2010

Your best chance at a real Loan Modification – TILA Rescission

I wrote a post similar to this yesterday. It was a post on TILA rescission that referred to a married couple who rescinded their loan AFTER foreclosure was filed. They subsequently filed a Chapter 13 bankruptcy as well. The lender (Option One Mortgage Corp. – division of Wells Fargo) balked and refused to honor the rescission. The borrowers filed an Adversary Proceeding in bankruptcy court and won. CLICK HERE to read the full post.

This post is focused on alerting America’s homeowners who want to stay in their homes but cannot afford the payment anymore of the BEST REMEDY you may have. This is not for the proverbial “deadbeat” who just wants to cheat the system and live for free. However, there are much fewer of those kinds of people than those that can afford the payment might think. Millions of Americans are losing their jobs, being laid off, having their salary and overtime cut back while the costs of living have increased. The cost of living has been increasing (ie. inflation) for quite a while. From insurance costs to groceries to the costs of labor. Because of this cost of living increase, many fixed income families were forced to start living partly on credit cards. By the way, had this “credit” not been available in the first place, I don’t think we’d be where we are today. Supply and demand will keep the economy in check unless you can artificially fuel demand with borrowed money that someone can’t really afford to pay back.

Because of these extra credit payments and loss of income or a job, millions of families are on the verge of foreclosure or already there. If this is where you (or a friend/family member) is at, you MAY have one very powerful remedy to force the lender/servicer to work with you.

This remedy is called “TILA Rescission.” TILA stands for the “Truth in Lending Act.” It is the major piece of federal legislation that regulates lending practices of financial institutions. A borrower may have the “extended right to rescind” a loan for UP TO THREE YEARS FROM THE DATE OF CLOSING.

It is important to note that a loan can ONLY be rescinded when:

1. The loan is a refinance transaction;
2. Funded in the last three years
3. On the borrower’s primary residence;
4. When a “material disclosure violation” is found

The term “material disclosure violation” is a very important component. Many people (including self-proclaimed experts in loan auditing) think that “any” violation of the Truth in Lending Act gives someone the right to rescind.  That is patently wrong. The four conditions above must be true in order for the borrower to have the possible “extended right to rescind” the loan transaction. There are only 4 potential “material disclosure violations.”

Many homeowners don’t want to just “walk away.” They want to stay in their home. The bad news is that these lenders are run by criminals. Literally. They’re getting billions in bailout money. They’re getting millions to billions more in insurance payouts on defaulted debt. Homeowners who are trying to save their homes are running into the brick wall of GREED. Loss mitigation departments are being run by a bunch bungling fools who don’t even know how to answer a phone much less deal with a homeowner with dignity and respect. The corporate bottom-line is driving our country to the bottom.

So, if you’re like me, when you’re backed into a corner, you take the gloves off and you come out swinging. I think that Congress and corporate America really does underestimate the average American patriot. That’s their first and biggest mistake.

If you want to fight the battle to save your home… if you want to go on the offense, then TILA Rescission is one great weapon to fight with. You need to have an audit of your loan file done by someone who really knows what they’re doing. Most of the businesses and people out there claiming to know what they’re doing, don’t. Beware. If someone is trying to charge you over $750 for an audit, don’t just beware, don’t do it.

With a professional audit of your loan closing file, the auditor is investigating for material disclosure violations. If one is found, you have the right to rescind the loan – if the loan has been closed in the last three years and it was funded on your primary residence.

The loan is rescinded by sending a “rescission letter” to the servicer, the originator of the loan and any special servicer(s) that may need to be notified as well.

This puts the screws to the lender immediately and they end up in a real quagmire. TILA is meant to be a “self-enforcing” statute. This means that the lenders are supposed to enforce it on themselves. They are not allowed to sue a homeowner to get around the self-enforcing nature of the statute. Doing so is another violation. The only thing a lender can do is to “seek judicial guidance” in a TILA rescission claim.

In practice, when a homeowner rescinds the loan and IF they have a competent attorney well-versed in TILA, they are going to be asked by the lender or opposing counsel to submit a “proposal.” Folks, this is legal-speak for we’re willing to modify your loan, send us a proposal.

If you truly want a loan modification, a workout of your existing loan, a payment reduction plan, this is THE best and most powerful remedy one can have. Not all homeowners qualify and not all loans will have a material disclosure violation. I can tell you that I find material disclosure violations in greater than 50% of all loan packages I audit.

You have to be very careful to ensure that the “chain of custody” of your loan documents is protected. This is one main area a lender’s attorney will try to attack in an attempt to discredit the claim by saying that the documents could have been lost or altered because the homeowner, auditor and/or attorney for the homeowner were careless in preserving the integrity of the original loan copy package they received from the closing agent.  A good attorney and auditor should have procedures and systems in place to combat this potential attack and preserve integrity of the documents.

If you have any questions about the loan audit process or would like to inquire about a professional mortgage loan audit, fill out the Contact Form below.

NOTE: WordPress users who are logged in simply need to fill out the text box with your question or inquiry and press “Submit.”

DISCLOSURE: I am not an attorney and nothing in this post should be construed as legal advice. Seek out an attorney for any questions pertaining to legal matters. I audit loan files for violations and have education and training in this area of practice. I work with competent consumer-based attorneys who handle legal matters for clients and provide audit report services for consumers and a select group of attorneys.

Name(required)

Email(required)

Website

Message

Stimulating our Country to Rock Bottom

Rep. Ron Paul (R-TX) writes: “According to many politicians, we got here by not spending enough, not consuming enough, and not regulating enough. Now government, like some mythical white knight, is going to ride in to save the day by blanketing the economy with dollars, hiring an army of new bureaucrats, creating make-work jobs, and sending everyone some form of a bailout check. The debate seems to focus on whether this will cost enough to save the economy, or if this is just a “down payment” with much more government spending to come. Talk like that would be comical, if the results weren’t going to be so tragic.

The results will be worsening economic woes until we learn our lesson. But instead Congress is behaving like drug addicts who must hit rock bottom before they are ready to face reality. They are playing foolish games with the economy now because they are thinking only of political expedience.”
[END]

I couldn’t agree more. Since when does spending more help a broke person? Folks, our country is broke. We just don’t want to say it and accept it. A business is broke when it can’t fund operations any more because bills/expenses outpace revenue, month after month, year after year. At some point that business owner has to face the music and “hang it up.” This usually happens when the business is unable to continue borrowing to float. At some point, the banks or investors look at that business and say, “you’re not viable and lending to you anymore is way too risky.” At that point, it’s over.

It’s the same with the American family. If you’re spending more than you make, any responsible person would say that you’re being irresponsible and you need to reign in your spending. We should spend no more than 90% of what we make/have. If you spend 110% of what you make you won’t last long.

Our government has been spending more than it has for decades. We as Americans have known it too. We commonly refer to it as the “federal deficit.” Our government is on drugs folks. Really, they’re addicted to a spending drug. We spend more than we have. Period. The only reason the government can do it when a family can’t is because the government can print more money to neutralize it’s irresponsible, addict behavior. The government has fostered this “consumerism” and “materialistic” society we live in today. Everyone of us enjoyed the “high” of 2004-2007.” We are all collectively guilty. We must all take responsibility. We should do it now. The worst thing we can do is keep spending.

But that is exactly what our government is doing. We all know it deep down… this bailout stuff is more than wrong. It’s grossly irresponsible and selfish. We are damaging our country that may go to the level of being irreparable. Our kids and grandkids are really in trouble.

The American taxpayer has become the “bank” for our government. We are literally lending our money to Congress and they are spending it irresponsibly. What power we would all have collectively if millions of Americans and businesses decided on one common day that we would no longer fund this government. There’s our vote and the power of it. Remember folks, they work for us, not the other way around but the roles have been switched because we’ve been lulled into a materialistic high. Because it “feels so good” we haven’t done anything.

The crisis isn’t bad enough yet. We’re still pointing fingers. Some think that they’re not respsonsible… Some still think that printing money and letting corrupt politicians who are “on the take” with big corporate America have a blank check will actually rescue our economy.

I predict that we will wake up, as a country, WHEN the crisis becomes dire. Our biggest threat isn’t terrorism. It’s complacency on the home front. Our biggest threat is our own government. We are killing ourselves.
I’m a patriot and I love this country. I love what America is about – traditionally that is. I believe in the convictions of our Founding Fathers. I believe deeply in freedom – freedom of speech, the right to bear arms, etc. I truly believe that the majority of you reading this feel almost exactly the same.

When the crisis reaches the tipping point, our journey as a country, back to greatness will begin. But, as Ron Paul said, we will have to hit the proverbial bottom first; and we ‘aint there yet. Unfortunately.

TILA Rescission Case – Bankruptcy Judge Finds in Favor of Borrower

The Little Guy (David) vs. the Big Guy (Goliath). These classic battles are being waged in the “War on the Home Front” every single day. The subject of this post is a case that goes to the win column for the Little Guy. We are fighting for our freedom, our country, democracy… we are fighting against corporate and political corruption. I hope you are fighting too. This is a war for our rights and our homes and our American way of life. It’s all under siege folks. Don’t be fooled into complacency.

This is one of the most powerful cases I have read in a long time. CLICK HERE to read the actual case order from the Judge in the Adversary Proceeding. The borrower in this case rescinded the loan transaction because an audit of their closing documents revealed a “material disclosure” violation as is defined in 15 U.S.C. §§ 1601 et seq. (“TILA”) and its implementing regulations at 12 C.F.R. § 226 et seq. (“Reg. Z”).

Once the Consumer rescinds, the security interest arising by operation of law becomes void automatically. The promissory note is also voided since it is part of the same “transaction.”

The borrower in this case had foreclosure filed against them. After retaining an attorney for the foreclosure, the attorney advised them to have an audit of their loan closing file which revealed a material disclosure violation. It is important to note that a loan can ONLY be rescinded when:

1. The loan is a refinance transaction;
2. Funded in the last three years
3. On the borrower’s primary residence;
4. When a “material disclosure violation” is found

The term “material disclosure violation” is a very important component. Many people (including self-proclaimed experts in loan auditing) think that “any” violation of the Truth in Lending Act gives someone the right to rescind.  That is patently wrong. The four conditions above must be true in order for the borrower to have the possible “extended right to rescind” the loan transaction. There are only 4 potential “material disclosure violations.”

The borrower in this case was given an insufficient amount of the Notice of Right to Cancel. A borrower should receive two (2) copies of the Notice.

If a married couple is identifiable on a Universal Residential Application, then each consumer is entitled to rescind and must be given a copy of the TILA Disclosure Statement with all material information accurately and correctly disclosed, 15 U.S.C. § 1602(u); Reg. Z § 226.23(a)(3) n.48, and two (2) copies each of the rescission notice, 15 U.S.C. § 1635(a); Reg. Z § 226.23(b), irrespective of whether both are obligated on the note (or either, for that matter).

 

In this case, the borrowers were married and received only 2 copies total. Material disclosure violation. Thus they rescinded. The lender Option One obviously contested the matter.

 

Once the Consumer rescinds, the security interest arising by operation of law becomes void automatically.  The promissory note is also voided since it is part of the same “transaction,” see i.e., 15 U.S.C. § 1635(b) and Reg. Z § 226.23(d)(1).]

 

This is powerful folks. This is a complete remedy to foreclosure. The mortgage is the security interest and it is the mortgage (and the mortgage only) that gives the lender the right to foreclose. In a rescission, the lender must void the mortgage within 20 days. If it does not, it is another violation of TILA.

 

After rescinding the loan the borrowers also filed a Chapter 13 bankruptcy. The lender refused to rescind the loan. The borrowers filed an Adversary Proceeding in the Bankruptcy Court. Bottom line: The judge heard all arguments from both Plaintiff (borrower) and the Defendant (Option One). The judge found in favor of the borrower/plaintiff and determined that they had the right to rescind. Victory number one.

 

But a BIG ruling in this case was that since they had rescinded the loan, the loan became an “unsecured” debt since the mortgage was automatically voided as per TILA. Since the debt became “unsecured” it was able to be discharged through bankruptcy like any other type of unsecured debt such as a credit card debt.

 

The moral of the story: TILA Rescission is the most powerful remedy to foreclosure if/when the borrower has this remedy afforded to them. The key is to obtain a loan audit by a real expert. Call/email me if this is something you want to do. I encourage you to read the Adversary Proceeding case. It is highly enlightening.

Bank of America to get Billions in US Aid

Everyday, I read the headlines and half of me can’t believe what’s happening… and it keeps happening; the other half completely believes this madness. Our government officials are out of control. They’ve lost it… I mean completely lost their marbles but we’re to blame because we’ve elected these looney tunes to office and we continue to do so. The average American is being fleeced. We are going to get taxed beyond comprehension. Mark my words. It’s coming. It will come in all sorts of nasty realities. We’re on the hook for $700 Billion. $350 Billion has just been slammed through the system. Gone. And what do we have as a result? More foreclosures, more write-downs, more people losing their homes, their jobs.

And today, I get the word… us taxpayers are going to fund some more acquisitions. The M&A Departments are singing all the way to the bank – oh, excuse me, they are the bank… Bank of America was going to buy Merrill Lynch BUT they got cold feet. The bank, already the recipient of $25 billion in committed federal rescue funds, said that it was unlikely to complete its Jan. 1 purchase of the ailing Wall Street securities firm because of Merrill’s larger-than-expected losses in the fourth quarter, according to a person familiar with the talks.

So our good friend and consumer advocate, Hank Paulson, is coming to the rescue. “We can’t let this happen! Bank of America needs more! $25 Billion isn’t enough. The US economy will crash if Merrill Lynch fails and B of A doesn’t complete this M&A! Get ‘em more… get ‘em more!”

Since when did it become OK for the US taxpayer to fund a private company’s buyout of another private company? Excuse me? I don’t give you permission to use my tax dollar to do this! I sure hope someone out there has something to say about this. Write your US Senator… Write your Congressman/woman… Let them all know that they are going to  lose their seat if they continue to back this craziness. We’ve got to send strong messages. We’ve got to get out of our comfort zones of being too busy to get involved and start the barrage of emails and phone calls. Folks, this is the only way. It’s going to take a concerted effort from the masses. YOU have to do your part and hold your friends, family, neighbors and co-workers accountable to the same.

For more on the latest B of A news… read this article from the Wall Street Journal.

Wednesday, January 14, 2009
WASHINGTON — The U.S. government is close to finalizing a deal that would give billions in additional aid to Bank of America Corp. to help it close its acquisition of Merrill Lynch & Co., according to people familiar with the situation.

Discussions over these funds began in mid-December when Bank of America approached the Treasury Department. The bank, already the recipient of $25 billion in committed federal rescue funds, said that it was unlikely to complete its Jan. 1 purchase of the ailing Wall Street securities firm because of Merrill’s larger-than-expected losses in the fourth quarter, according to a person familiar with the talks.

Treasury, concerned the deal’s failure could affect the stability of U.S. financial markets, agreed to work with the Charlotte, N.C., lender on the “formulation of a plan” that includes new capital from the $700 billion Troubled Asset Relief Program, according to the person familiar with the talks. The amount and terms are still being finalized, this person said. Details are expected to be announced with Bank of America’s fourth-quarter earnings, due out Tuesday.

Any possible arrangement might protect Bank of America from losses on Merrill’s bad assets. There would be a cap on the amount of losses the bank would have to absorb, with the federal government being on the hook for the remainder, said one person familiar with the matter.

Both the Federal Reserve and the Federal Deposit Insurance Corp., alongside the Treasury, are involved in the negotiations, say people familiar with them. That suggests that the aid could take a similar form to the hand extended to Citigroup Inc. late last year.

The commitment of funds is further evidence of the banking system’s delicate condition and its hunger for more capital, despite billions of dollars already invested in financial institutions by the government. So far, the U.S. has already injected $25 billion into Bank of America, which includes $10 billion that Merrill Lynch would have received if the sale to Bank of America had not closed.

The talks with Bank of America were driven by Treasury Secretary Henry Paulson, people familiar with the matter said, because he was concerned that without help the deal wouldn’t close, leaving Merrill adrift. When the merger closed at the beginning of this year, it was with the understanding the two sides would hammer out a plan afterwards, said a person familiar with the talks.

The Treasury has committed the entire first half of its TARP funds, although some of it remains unspent. Earlier this week, President George W. Bush formally notified Congress that he was seeking access to the second half of the funds on behalf of President-elect Barack Obama. Congress has yet to release the money.

One person familiar with the matter said Bank of America would receive TARP funds, making use of the difference between the money committed and spent. In essence, as it did with aid to Detroit, the Bush administration is spending funds not yet approved by Congress that would otherwise go to an Obama Treasury.

Lawmakers, who are widely unhappy with how the TARP program has been run, have spent the week discussing what kinds of new conditions they would like to impose on recipients of funds in the second tranche. They would like to see more spending on aid for homeowners. Obama officials have expressed their desire to gain access to the additional funds quickly. A key vote in the Senate could come Thursday or Friday.

Federal Reserve Board Chairman Ben Bernanke said Tuesday that he’d like to see much of the second half spent to support the financial system, where continuing weakness is causing alarm among policymakers.

In the end, investors and financial institutions could face as much as $2 trillion of losses from bad U.S. loans and bonds, far more than anybody thought even a few months ago. A sustained recovery for markets and the economy is unlikely until the hole is filled. Bank stocks are falling sharply as investors come to grips with the worsening outlook for loan losses.

Analysts at Goldman Sachs were the latest to raise estimates of potential U.S. loan losses. In a report released late Tuesday night, Goldman economists estimated that losses from delinquent U.S. residential mortgages alone would hit $1.1 trillion as home prices sink, up from an earlier estimate of $780 billion.

Add in losses from commercial real estate, credit cards, auto debt and business debt, and Goldman’s loan-loss estimate hits $2.1 trillion. Only half of those losses have yet been recognized. Many will be borne by investors and banks overseas. The estimate doesn’t count losses that U.S. institutions will take on bad overseas loans that they hold.

Bank of America is expected by some analysts to report a loss for the fourth quarter, or at least a smaller profit than expected. It is not known exactly how much Merrill lost in the same time period. Merrill’s problems largely stem from the deterioration of assets on its books and trading losses, said a person familiar with the matter.

Bank of America’s heft and diversity helped buffer it through the early stages of this financial crisis. But the U.S. bank is now broadly exposed to the nation’s economic ills. With its recent acquisitions of troubled California mortgage lender Countrywide Financial Corp. and Merrill, the bank is now a major player in every corner of the battered U.S. financial system. It has its hand in credit cards, home mortgages, underwriting, merger advice and wealth management, all areas that are under stress during one of the deepest recessions since World War II.

The deal between Bank of America and Merrill was forged during the hectic weekend last September that saw Lehman Brothers Holdings Inc. collapse and giant insurer American International Group Inc. start to unravel. Merrill Chief Executive John Thain, worried his firm would be next, pressed for a quick deal.

In the aftermath of Bank of America’s acquisition of Merrill — valued at $50 billion when it was announced and worth $19.36 billion when it closed — its chief executive, Kenneth D. Lewis, was viewed as a savior of the financial-services industry, having rescued both Merrill and Countrywide without government assistance. Mr. Lewis had also argued that Bank of America didn’t need the first round of federal rescue funds that the Treasury offered last fall.

“These were funds we did not need and did not seek,” Mr. Lewis told employees late in 2008.

The request for additional funds may feed criticism that Mr. Lewis overreached during a time of crisis to expand his operation. Mr. Lewis “has hit a stumbling block here — the economy,” said Nancy Bush, a banking analyst with NAB Research LLC in Annandale, N.J. “I think he will have to stop doing deals.”

Analysts, worried about rising unemployment and a pullback by U.S. consumers, have been slashing Bank of America’s estimates for the fourth quarter. Some are predicting a loss and arguing that Bank of America will be forced to cut its dividend once again as a way of shoring up capital.

Jeffrey Harte of Sandler O’Neill & Partners revised his fourth-quarter forecast this week to a loss, citing capital-markets losses and rising credit costs. He predicted $2.3 billion in write-downs associated with collateralized debt obligations and subprime-mortgage-backed securities. Citigroup Inc. analyst Keith Horowitz said the bank might record a $3.6 billion fourth-quarter loss.

Bank of America is also reeling from two high-level Merrill departures within a week and concerns about cultural tensions between the two firms.

Mr. Lewis has already recommended his board not award top executives bonuses for 2008, warning that performance would be below expectations. Having received billions in federal aid, he faces pressure to show the bank is grappling with its problems — beyond the 30,000 to 35,000 job cuts it has already announced — and is making significant contributions to a U.S. recovery.

To that end, the bank intends to break out new loan originations made during the fourth quarter, a first-time disclosure it hopes will mitigate concerns about new lending.

TARP Bailout Funds Being Used to Buy Other Banks, Not Lend to Consumers

Well, here’s just another outrageous aspect of the “bailout.”

The Bailout Funds (ie. TARP Funds) were to be used to help “struggling” banks get a cash infusion so that they would continue to lend money to consumers to keep the economy going. At least this is what our pal “Hank” Henry Paulson said to us American citizens and Congress to sell this craziness to us. You know, it was an emergency and in order for the US economy to survive, we gotta get these banks liquid so that they’ll continue to lend. All that…

So here’s the real deal… US Banks are using the money alright but they’re stingier than ever when it comes to lending. Less people are getting approved right now, today than were 6 months ago. FACT. Oh, and the money, you know, the $350 BILLION TAX PAYER DOLLARS that has already been spent… where has that gone. Well, it seems that Congress didn’t see fit to actually mandate how that money could be spent so guess what banks are doing with the money? Buying other banks. Oh yeah, us taxpayers are helping, no not helping, funding banks to buy other banks. Oh, and it also seems that some pretty neat little language was slipped into that bailout bill by our friend Hank that allows any bank which buys another bank to WRITE OFF ALL OF THEIR BAD DEBT. A yeah, they can just take all that bad debt and get a tax write off for it.

Folks, this is beyond criminal. I’m sorry but this just gets me steamin mad and I hope it does the same to you! We have got to put an end to this. We are collectively being  used by government and special interests to make the rich richer. We are being hosed and lied to on a regular basis.

If you want some proof of this, read on. I welcome all comments.

TARP Funds Fueling Global Buyouts, Not Lending (CLICK HERE to link to story)

Bank of American Corp. (BAC), which is getting $15 billion from the U.S. government as part of the Treasury Department’s $250 billion “recapitalization” effort, is doubling its stake in state-owned China Construction Bank Corp., and will hold a 20% stake worth $24 billion in China’s second-largest lender when that deal is finalized.

PNC Financial Services Group Inc. (PNC), which will get $7.7 billion from Treasury’s Troubled Assets Relief Program (TARP), is using that cash infusion to help finance its $5.2 billion buyout of embattled National City Corp. (NCC).

And U.S. Bancorp (USB), which received a $6.6 billion capital infusion from that same rescue package, has acquired two California lenders – Downey Savings & Loan Association, F.A., a subsidiary of Downey Financial Corp. (DSL), and PFF Bank & Trust, a subsidiary of PFF Bancorp Inc. (OTC: PFFB). U.S. Bank agreed to assume the first $1.6 billion in losses from the two, but says anything beyond that amount is subject to a loss-sharing deal it struck with the Federal Deposit Insurance Corp. (FDIC).

While the Treasury Department’s investment of more than $250 billion in U.S. financial institutions has been billed as a strategy that will bolster the health of the banking system and also jump-start lending, buyout deals such as these three show that the recapitalization plan has actually had a much different result – one that’s left whipsawed U.S. investors and lawmakers alike feeling burned, an ongoing Money Morning investigation continues to show.

Those billions have touched off a banking-sector version of “Let’s Make a Deal,” in which the biggest U.S. banks are using government money to get even bigger. While that’s admittedly removing the smaller, weaker banks from the market – a possible benefit to consumers and taxpayers alike – this trend is also having a detrimental effect: It’s reducing the competition that’s benefited consumers and kept the explosion in banking fees from being far worse than it already is.

This all happens without any of the economic benefits that an actual increase in lending would have had. And it does nothing to address the billions worth of illiquid securities that remain on (or off) banks’ balance sheets – as the recent Citigroup Inc. (C) imbroglio demonstrates.

In fact, Treasury’s TARP program has even managed to create a potentially illegal tax loophole that grants banks a tax-break windfall of as much as $140 billion. Lawmakers are furious – but possibly powerless, afraid that a full-scale assault on the tax change could cause already-done deals to unravel, in turn causing investor confidence to do the same.

One could even argue that since this first bailout (the $700 billion TARP initiative) has fueled takeovers – and not lending – the government had no choice but to roll out the more-recent $800 billion stimulus plan that was aimed at helping consumers and small businesses – a move that may spur lending and spending, but that still adds more debt to the already-sagging federal government balance sheet.

At the end of the day, these buyout deals are bad ones no matter how you evaluate them, says R. Shah Gilani, a retired hedge fund manager and expert on the U.S. credit crisis who is the editor of the Trigger Event Strategist, which identifies trading opportunities emanating from such financial-crisis “aftershocks” as this buyout binge.

“Why in the name of capitalism are taxpayers being fleeced by banks that are being given our money to grow their businesses with the further backstop of more of our money having to be thrown to the FDIC when they fail?” Gilani asked. “Consolidation does not mean that bad loans and illiquid securities are somehow merged out of existence. It means that they are being acquired under the premise that a larger, more consolidated depositor base will better be able to bear the weight of those bad assets. What in heaven’s name prevents depositors from exiting when the merged banks continue to experience massive losses and write-downs? The answer to that question would be … nothing.”

Lining Up for Deal Money

In launching TARP, U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. said the government’s goal was to restore public confidence in the U.S. financial services sector – especially banks – so private investors would be willing to advance money to banks and banks, in turn, would be willing to lend.

“Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, the capital,” Paulson said.

Whatever Treasury’s actual intent, the reality is that banks are already sniffing out buyout targets, while snuffing out lending – and the TARP money is the reason for both.

Fueled by this taxpayer-supplied capital, the wave of consolidation deals is “absolutely” going to accelerate, says Louis Basenese, a mergers-and-acquisitions expert who is also the editor of The Takeover Trader newsletter. “When it comes to M&A, there’s always a pronounced ‘domino effect.’ Consolidation breeds more consolidation as industry leaders conclude they have to keep acquiring in order to remain competitive.”

Indeed, banking executives have been quite open about their expansionist plans during media interviews, or during conference calls related to quarterly earnings.

Take BB&T Corp. (BBT). During a conference call that dealt with the bank’s third-quarter results, Chief Executive Officer John A. Allison IV said the Winston-Salem, N.C.-based bank “will probably participate” in the government program. Allison didn’t say whether the federal money would induce BB&T to boost its lending. But he did say the bank would likely accept the money in order to finance its expansion plans, The Wall Street Journal said.

“We think that there are going to be some acquisition opportunities – either now or in the near future – and this is a relatively inexpensive way to raise capital [to pay the buyout bill],” Allison said during the conference call.

And BB&T is hardly alone. Zions Bancorporation (ZION), a Salt Lake City-based bank that’s been squeezed by some bad real-estate loans, recently said it would be getting $1.4 billion in federal money. CEO Harris H. Simmons said the infusion would enable Zions to boost “prudent” lending and keep paying its dividend – albeit at a reduced rate.

Sounds good, right? Not so fast. During a conference call about earnings, Zions Chief Financial Officer Doyle L. Arnold said any lending increase wouldn’t be dramatic. Besides, Arnold said, Zions will also use the money “to take advantage of what we would expect will be some acquisition opportunities, including some very low risk FDIC-assisted transactions in the next several quarters.”

Buyouts Already Accelerating

With all the liquidity the world’s governments and central banks have injected into the global financial system, the pace of worldwide deal making is already accelerating. Global deal volume for the year has already passed the $3 trillion level – only the fifth time that’s happened, although it took about three months longer for that to happen this year than it did a year ago.

At a time when the global financial crisis – and the accompanying drop-off in available deal capital (either equity or credit) – has caused about $150 billion in already-announced deals to be yanked off the table since Sept. 1, liquidity from the U.S. and U.K. governments has ignited record levels of financial-sector deal making.

According to Dealogic, government investments in financial institutions has reached $76 billion this year – eight times as much as in all of 2007, which was the previous record year. And that total doesn’t include the $250 billion in TARP money, or other deals that Paulson & Co. are helping engineer – JPMorgan Chase & Co.’s (JPM) buyouts of The Bear Stearns Cos. and Washington Mutual Inc. (WAMUQ), for instance.

If You Can’t Beat ‘em… Buy ‘em?

When it comes to identifying possible buyout targets, M&A experts such as Basenese say there are some very clear frontrunners.

“I’d put regional banks with solid footprints in the Southeast high on the list, and for two reasons,” Basenese said. “First, demographics point to stronger growth [in this region] as retirees migrate to warmer climates – and bring their assets along for the trip. Plus, the Southeast is largely un-penetrated by large national banks. An acquisition of a regional bank like SunTrust Banks Inc. (STI) would provide a distinct competitive advantage.

There’s a very good reason that smaller players may be next: Big banks and small banks have the easiest times – relatively speaking, of course – of raising capital. It’s toughest for the regional players. Big banks can tap into the global financial markets for cash, while the very small – and typically, highly local – banks can raise money from local investors.

The afore-mentioned stealthy shift in the U.S. Tax Code actually gives big U.S. banks a potential windfall of as much as $140 billion, says Gilani, the credit crisis expert and Trigger Event Strategist editor. What does this tax-change do? By acquiring a failed bank whose only real value is the losses on its books, the successful suitor would basically then be able to use the acquired bank’s losses to offset its own gains and thus avoid paying taxes.

“While everyone was panicking, the Treasury Department slipped through a ruling that allows banks who acquire other banks to fully write-off all the acquired bank’s bad debts,” Gilani says. “For 22 years, the law was such that if you were to buy a company that had losses, say, of $1 billion, you couldn’t just take that loss against your own $1 billion profit and tell Uncle Sam, ‘Gee, now my loss offsets my profit, so I don’t have any profit, and I don’t owe you any tax.’ It was a recipe for tax evasion that demanded an appropriate law that only allows limited write-offs over an extended period of years.”

Given these incentives, who will be doing the buying? Clearly, the biggest U.S.-based banks will be the main hunters. But The Takeover Trader’s Basenese says that even foreign banks will be on the prowl for cheap U.S. banking assets.

Basenese also believes that Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) will be “big spenders.” Each will use TARP funds to help accelerate its transformation from an investment bank into a bank holding company. The changeover will require each company to build up a big base of deposits. And the best way to do that is to buy other banks, Basenese says.

“One thing [the wave of deals] does is to restore confidence in the sector,” Basenese said. “It will go a long way in convincing CEOs that it’s safe to use excess capital to fund acquisitions, and to grow, instead of using it to defend against a proverbial run on the bank.”

Not everyone agrees with that assessment. Investors who play the merger game correctly will do well. But the game itself won’t necessarily whip the industry into championship form, Gilani says.

“While consolidation, instead of outright collapses, in the banking industry may serve to relieve the FDIC of its burden to make good on failed banks, it in no way guarantees fewer failures,” he said. “In fact, it may only serve to guarantee, in some cases, even larger failures.”

Baltimore Mayor Dixon is Indicted on 12 Counts

We are witnessing a complete moral failure of our political leadership in this country. No level of government is exempt. We’ve digressed to the point that the only thing considered “corrupt” is breaking the law and getting caught doing it. A leader isn’t corrupt if they don’t get caught… they’re not corrupt if they misrepresent facts to the American public, etc. etc. etc. Here’s just one more headline story…

By BRAD HAYNES

A Maryland grand jury on Friday indicted Baltimore Mayor Sheila Dixon on 12 criminal counts, including theft and perjury, for alleged official misconduct beginning when she was a councilwoman.

A number of the charges relate to gifts that prosecutors say Ms. Dixon received from developers, including her former boyfriend, Ronald Lipscomb, and didn’t properly disclose. Mr. Lipscomb isn’t named in the indictment but was charged with bribery this week in Baltimore. His lawyer has said he is innocent.

In addition, the Maryland prosecutor’s office charged that for four years Ms. Dixon misused holiday gift cards that were intended to be distributed to needy families. Prosecutors say she gave them to members of her staff and used them to buy herself electronics and clothing.

Mayor Sheila Dixon listens during a news conference on Friday. Earlier, a grand jury indicted Ms. Dixon on 12 counts.

Ms. Dixon said in a statement that she had been unfairly accused, adding: “I am confident that I will be found innocent of these charges.” She said she wouldn’t step down as mayor.

“I will not let these charges deter me from keeping Baltimore on the path that we have set, or from carrying forward the significant progress we have made thus far,” she said.

The indictment comes just as the city is witnessing a tenuous turnaround. Baltimore’s murder rate fell 17% in 2008 from the year before. Many credit Ms. Dixon, who brought in a new police commissioner and directed the force to shift focus to the most-violent repeat offenders and away from petty crimes.

The city recently registered a small population increase for the first time in four decades, and its middle schools reported improved test scores last year.

Ms. Dixon served on the City Council from 1988 to 2007, including seven years as council president. Under state law, she became mayor in January 2007 when fellow Democrat Martin O’Malley vacated the office to become Maryland governor.

The state prosecutor, Robert Rohrbaugh, a Republican, has been building the case against Ms. Dixon since 2006, after a federal investigation into the matter ended without charges.