Paul Jackson’s Largely Irrelevant Responses to Mortgage Securitization Critics’ Case

By Yves Smith

When I worked for Goldman, and later McKinsey, professionals at each firm would joke about presentations that passed the weight test. That tag line referred to documents heavy enough to land on a client desk with an impressive “thunk” so as to seem intimidating even before opening them. The implication was that length could and did serve to finesse substance.

Paul Jackson’s nearly 2600 word post endeavoring to address our previous critique of his analysis appears to be a similar weight test exercise. I do not mean to suggest that Jackson is seeking to deceive; rather, as I posited before, his main sources continue to be unnamed attorneys who are come from the securitization industry, given how closely his arguments hew to American Securitization Forum party line. A journalist is only as good as his sources, and it appears that Jackson has made at most only token efforts to reach out beyond his circle of usual suspects. It ins’t much of a stretch to imagine that some, perhaps quite a few, of his sources have exposure to liability based on securities law opinions they have provided and hence would be particularly eager to muddy the water on these issues to deter investor lawsuits.

While Jackson also claims to have invested “weeks” of research into this topic, this pales compared to the career-spanning efforts of legal authorities like New York trust law experts Professor Ira Bloom and Professor Adam Levitin, who are in complete opposition to the Jackson assertions (and remember that Jackson is not even an attorney).

Despite his claims of speaking to “trust attorneys in New York”, his analysis he presents on that issue is such a gloss as to call into question either the expertise and/or objectivity of the individuals he conferred with. As we indicated, the other three top New York trust law experts concur with the Bloom/Levitin reading (they are if anything more forceful in their position). Why did Jackson not call Levitin, who is accessible, if he really wanted to give a fair treatment of this topic? Sadly, the caliber of this post strongly suggests that Jackson’s readings come directly or indirectly from securitization industry sources, rather than resulting from a bona fide effort to get to the bottom of these issues.

Despite its length, Jackson’s post effectively makes only two points, and we will address each in due course. But from an argumentation standpoint, it fails for two reasons:

1. In many cases, the rebuttals offered are simply irrelevant to the arguments at hand.

2. The post engages in considerable misrepresentation and straw-manning of the analysis we and others have made concerning the problems with mortgage securitizations

Jackson frames his entire post around this straw man: “issues surrounding securitization trust validity.” And he fails even in his effort to refute that issue effectively.

Note we have never treated the question of whether the trust were void (a possibility under New York law if no assets were conveyed to it as of closing) as the basis for our argument. It has always been an aside, a passing mention of a worst case scenario. The securitizations have serious problems, both under New York trust law (which governs virtually all mortgage securitizations) and the laws of many states, without considering this extreme scenario.

So the entire piece is effectively an effort to divert attention from the real argument, which continues to be that the attempt to transfer collateral was inadequate as it relates to the collateral. Thus the trust is unable to establish that is has standing to foreclose in its name. This means, to use Adam Levitin’s turn of phrase, that they may be “non-mortgage-backed securities”, effectively unsecured consumer paper, when they were sold as something with far better credit protection. Now clearly, banks are still able to foreclose in many cases, but the more borrowers and judges wise up to the problems that the securitization industry itself created, the more often foreclosures will be contested successfully.

Jackson’s irrelevant rebuttal focuses on one leg of the standard two-leg spurious rejoinder: the securitization document is valid (his focus) and and the mortgage is valid. Neither point is in dispute.

One can only conclude that Jackson and his sources do not understand the argument or do not want to address it.

But let’s have some fun and shred Jackson’s diversionary discussion anyhow.

Now head on over to Naked Capitalism to read how Yves “shreds” Jackson by clicking here…