Foreclosure fraud is just the tip of the problems facing securitizers. Real Estate Backed Mortgage Securities are governed by a contract that imposes a wide array of rights and duties on each participant in the process. The process of working out the implications of those rights and duties will take a long time and a lot of judicial resources.

The question is, which impending catastrophe is going to be least bad for the American people? And which catastrophe best preserves the rule of law and property — the bedrocks of our country? Do we enter this catastrophe on the banksters’ terms, or on more equalized terms?

In courtrooms across the country, judges are foreclosing on homes based on improperly prepared documentation, some of which may even be fraudulent. At the heart of the problem are entities like Mortgage Electronic Registration System (MERS), which itself is owned by many of the largest financial institutions in the U.S. If MERS and other similar firms acting as foreclosing entity were required to show legal proof of mortgage assignment, the documentation offered could reveal a lack of capitalization that would make the bank bailout look like lunch money. Courts should pay much closer attention to the fact that the signatories are pretending to work for the GRANTOR — the original lender or someone in the chain.

I don’t understand it. Why would they do it? Oh, I know that Goldman Sachs made a lot of money working both sides of the deal selling short on a synthetic CDO that it created with direct input of the customer who wanted to take the short position (bet against the CDO).