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It's official:Banks Don't Lend Money

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It's official:Banks Don't Lend Money

Post by landlubber on Fri Mar 10, 2017 7:55 pm

Yes, it's finally official Banks do not lend money, but you do give them promissory notes. Take a look and listen to what's going on in this short video published on Tuesday 7th March 2017.


https://youtu.be/YLqZTXJNY2o

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Re: It's official:Banks Don't Lend Money

Post by assassin on Sat Mar 11, 2017 2:00 am

Nice find LL, explains it very well.
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Re: It's official:Banks Don't Lend Money

Post by LionsShare on Tue Jun 06, 2017 4:33 pm

Found this  - Bank of England! admit banks do NOT lend money

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

top of page 3 (no, not tits!)

Commercial banks create money, in the form of bank deposits, by making new loans.  When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes.

Instead, it credits their bank account with a bank deposit of the size of the mortgage.  

At that moment, new money is created.


For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

Take out all words/sentances pertaining to loan/mortgage & re-read - as well as that great yt vid above there it is - cannot be refuted!

mortgage definition:

http://www.thefreedictionary.com/mortgage

1. A loan for the purchase of real property, secured by a lien on the property.
2. The document specifying the terms and conditions of the repayment of such a loan.
3. The repayment obligation associated with such a loan: a family who cannot afford their mortgage.
4. The right to payment associated with such a loan: a bank that buys mortgages from originators.
5. The lien on the property associated with such a loan.

Again take out words pertaining to loan & a mortgage is nothing other than a financial charge on a property - when you take out a "mortgage" you sign away something of value to you as a security that NO loan was ever made!
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Re: It's official:Banks Don't Lend Money

Post by Waffle on Tue Jun 06, 2017 10:14 pm

Nice addition lionshare.

I do have a question for you Very Happy.... Is it the property buyer (us) that takes out the mortgage or is it the lender (bank) who takes it out?

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Re: It's official:Banks Don't Lend Money

Post by assassin on Wed Jun 07, 2017 1:25 am

There is no mortgage, that's the bit they dont want you to know.
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Re: It's official:Banks Don't Lend Money

Post by LionsShare on Wed Jun 07, 2017 8:57 am

@Waffle wrote:Nice addition lionshare.

I do have a question for you Very Happy.... Is it the property buyer (us) that takes out the mortgage or is it the lender (bank) who takes it out?
mmmm very good question. Actually not too sure. At the end of the day it is us that sign the paper work (signiture creats reverse liability!) & most do go in & ask "I want to take a mortgage out".

All I wanted to do was emphasize banks dont lend money. I remember someone said in a yt vid "banks dont lend money" & its on the bank of england web site so decided to... & came up with this!
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Re: It's official:Banks Don't Lend Money

Post by Waffle on Fri Jun 09, 2017 11:05 pm

It comes from the creator

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Re: It's official:Banks Don't Lend Money

Post by Waffle on Sat Jun 10, 2017 6:30 pm

The judge ordered payment because the plaintiff is in a debtor creditor relationship, the plaintiff is in a contract that states he will repay the funds, I can't see the benefit of that argument,,,, apart from the learning about money creation for educational purposes. There are two parties to the suit, which one is in brach of contract, thats what it boils down to. Should they be making a defense case or a new claim?

And who gets a mortgage, because I don't think anyone applies for a mortgage from a bank!

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Re: It's official:Banks Don't Lend Money

Post by actinglikeabanker on Sat Jun 10, 2017 11:21 pm

Thanks the posting the doc, I have read it before but always good to read a second time with fresh eyes.

Page two in doc,

‘Money in the modern economy: an introduction’, a
companion piece to this article, provides an overview of what
is meant by money and the different types of money that exist
in a modern economy, briefly touching upon how each type of
money is created. This article explores money creation in the
modern economy in more detail.

https://poseidon01.ssrn.com/delivery.php?ID=443120004027031093008027000124072010019034072064048062031086095088085121011005029065035021040118024059039026108125089075027004039034047048077002103064068116122029057039033092109117119067030067080119012089119027006067120006072090031108122018083086126&EXT=pdf

There is a video also,

"Money in the modern economy: an introduction - Quarterly Bulletin article"



That said, the answer to how mortgages are created is in the first doc page 3,

[url=http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreat wrote:Commercial banks create money, in the form of bank deposits,
by making new loans. When a bank makes a loan, for example
to someone taking out a mortgage to buy a house, it does not
typically do so by giving them thousands of pounds worth of
banknotes. Instead, it credits their bank account with a bank
deposit of the size of the mortgage. At that moment, new
money is created. For this reason, some economists have
referred to bank deposits as ‘fountain pen money’, created at
the stroke of bankers’ pens when they approve loans.(1)

Using a combo of both doc's,

[/url]
Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money.



Banks can create new money because bank deposits are
just IOUs of the bank; banks’ ability to create IOUs is no
different to anyone else in the economy. When the bank
makes a loan, the borrower has also created an IOU of their
own to the bank. The only difference is that for the reasons
discussed earlier, the bank’s IOU (the deposit) is widely
accepted as a medium of exchange — it is money.



bank deposits — an IOU from commercial banks to
consumers.(6)

(6) The definition of broad money used by the Bank of England, M4ex, also includes a
wider range of bank liabilities than regular deposits; see Burgess and Janssen (2007)
for more details. For simplicity, this article describes all of these liabilities as deposits.



If a
person takes out a mortgage, they acquire the obligation to
pay their bank a sum of money over time — a liability — and
the bank acquires the right to receive those payments — an
asset of the same size. (2)

(2) Note that the sum the mortgagor has to pay back over time will typically be greater
than the amount they originally borrowed. That is because borrowers will usually
have to pay interest on their liabilities, to compensate the lender for the
inconvenience of holding an IOU that will only be repaid at a later date.


As a bank 'asset' the IOU (sometimes called prom note) security can be grouped and sold under many different agreements such as,  
Repurchase Agreements, Reverse Repurchase Agreements, etc etc 'REPURCHASE AND
REVERSE REPURCHASE AGREEMENTS' :
https://core.ac.uk/download/pdf/6917488.pdf

In the US, these securities were packaged as 'Residential Mortgage-Backed Security (RMBS)' and sold as having sound securities backing them, when they were actually made up of defaulted, defaulting, over inflated valuations property etc. 'United States Sues Barclays Bank to Recover Civil Penalties for Fraud in the Sale of Residential Mortgage-Backed Securities' : https://www.justice.gov/opa/pr/united-states-sues-barclays-bank-recover-civil-penalties-fraud-sale-residential-mortgage

Not the first time securities fraud has taken place : May 7, 1985, 'NEW SECURITIES FRAUD CASE' : http://www.nytimes.com/1985/05/07/business/new-securities-fraud-case.html


Mr. Warren said that Mr. Herbert was astonished at how easy it was to conduct fraudulent transactions. ''He could do these repos from thin air. None of the customers even asked for their collateral,'' he said. ''In fact, earlier on, one school district was sent its collateral, and they sent it back, saying they didn't want it.'' Mr. Warren added, ''He did all this entirely by himself.''


The 'collateral' referred to above is the lien in some parts of the US and as the mortgage agreement, trust deed or deed of trust in other parts, these are used to pledge the property in case you default on the loan. Once the final payment has been made to 'balance the ledger' then, in the US (some parts) a lien release is required to remove any financial claims against your property. Proof of this can be a copy of the "Paid Note" (e.g. the IOU, Prom Note) which should be returned to you upon final payment :
https://www.fdic.gov/bank/individual/failed/lien/index.html.

In the UK there is a similar process to remove charges against the title with forms DS1 and End1 : https://www.gov.uk/government/publications/discharge-of-charges/practice-guide-31-discharges-of-charges

This is normally done by the creditor < Laughing but is occasionally overlooked : http://www.independent.co.uk/money/mortgages/the-mortgage-is-over-whys-your-bank-hanging-around-398088.html

I can understand the contention with the court in the post above. It is unfortunate that neither of the 'plaintiff's' were fully versed in not just 'money creation' but also Securitisation, residential mortgage-backed security (RMBS), Risk Transfer, Capital Relief, Capital Markets Union, Balance Sheet transactions, Arbitrage Transactions etc etc etc etc.  

Trying to present a sound legal argument based upon a paragraph in a pdf is pretty weak, especially when that argument is essentially asking the Judiciary to award (potentially in their eyes) unfair enrichment. A judge without Act's to act upon will resort to Maxims.

Moving on, lets talk about the innocent IOU, Synthetic Securitisation & True-Sale Securitisation : https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000436817/Synthetic_securitisation%3A_Making_a_silent_comeback.pdf,


In short, securitisation is the transformation of income-yielding assets (typically
loans) on bank balance sheets into tradable securities. In its simplest form, the
originator, usually a bank, bundles a pool of loan exposures to pass them to the
capital markets. There are two main securitisation types, differing in terms of
how the credit risk is transferred to the capital markets. In a true-sale
securitisation, the originator passes the ownership of loans to another financial
entity, a special-purpose vehicle (SPV).
In doing so, the loans are removed from
the originator’s balance sheet and the SPV becomes entitled to their cash flows.
Usually, SPVs finance the takeover by issuing bonds. Depending on the
underlying loans, there are subcategories of true-sale securitisations, such as
mortgage-backed securities (MBS) or asset-backed securities (ABS), which are
backed by auto loans, consumer loans, etc.2
In a synthetic securitisation, the originator transfers the credit risk of the
bundled loans via credit derivatives or guarantees to the capital markets. The
loans themselves remain on the originator’s balance sheet. This is called a
balance sheet synthetic securitisation transaction
(see diagram 2). In its
simplest form, this securitisation functions as a hedge against a loan default. If
there are defaults in the underlying loan portfolio, the seller of the credit
protection (i.e. of the credit default swap (CDS)) reimburses the originator for the
loss. For the loan portfolio protection, the originator pays a periodical fee (i.e.
CDS premium). Unlike a true-sale securitisation, the originator does not obtain
any funding or liquidity in such a transaction. There are also transactions where
the originator does not even own the underlying loans and holds the credit
protection only for arbitrage opportunities. This type is called arbitrage synthetic
securitisation.
For issuers, having another credit risk management tool and being able to
release capital is the central benefit of a balance sheet synthetic securitisation.
Of course, this could be achieved via a true-sale securitisation as well. That
said, synthetic securitisation is in two ways more advantageous than true-sale
securitisation: 1) It avoids many of true-sale securitisation’s administrative and
legal steps. These include the sale and insolvency-proof transfer of the
underlying loans and any associated collateral to the SPV; corporate
administration agreements between bank and SPV, e.g. to collect receivables of
loan portfolios; and encryption of personal data related to the loan etc.3 2)
Synthetic securitisation grants greater flexibility regarding the underlying loan
portfolio and is usually less costly from a legal and operational point of view.
Some loan segments contain clauses preventing a true, legal sale of the loan.
Both of these features, 1) and 2), allow synthetic originators to securitise a
greater spectrum of loans more efficiently and free up lending more quickly. This
is especially relevant for the securitisation of SME loans. By and large, these
loans have stricter ownership requirements (banks are often not allowed to sell
them) and are usually too tailor-made to be bundled and passed on to SPVs.



So what is an SPV?... Page 9 :
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb070304.pdf


In a conventional (‘true sale’) securitisation, the MFI creates
a special purpose vehicle (SPV), to which it transfers a
portfolio of assets: these may be residential mortgages,
credit card loans, corporate loans, or more exotic assets
(Diagram A). The SPV issues bonds or notes to investors,
which are linked to the reference pool of assets, and passes
on the cash raised to the originating MFI. This achieves a
maturity transformation for the MFI, replacing some
illiquid assets with cash, as well as reducing its market risk
and entitling it to regulatory capital relief.


Step 1, 'MFI (originator)'  < bank,  creates SpeacialPurposeVehicle SPV.      < separate legal entity
Step 2, 'MFI (originator)'  < bank sells pool of 'assets' (IOU's) to the SPV.
Step 3, SPV has no money to buy 'assets' so 'MFI (originator)'  < bank makes temporary loan (IOU ) to SPV.
Step 4, SPV "issues securities which are bought by investors. These are linked to the underlying pool of securitised assets held by the SPV."


The SPV issues credit-linked notes or bonds,
and the risk transfer from the MFI to the SPV is carried out
using credit derivatives, usually a credit default swap.(2)
The SPV may place the proceeds from the issuance of the
credit-linked notes on deposit with the MFI, thus affecting
M4 directly. That deposit may be used to pay the SPV's
liabilities to the holders of the notes as they fall due.


This sounds like a blast, I can create a new company and call it, for arguments sakes a SPV, then I can, for the ledgers sake, create an IOU so my new company can buy my debt'assets' from me, my new company will then sell bonds on a already securitized IOU < Laughing and my new company will also be able to deposit money made from said bonds on to my ballance sheet ergo enhancing my ability to create yet more money.

Is it legal? :
https://www.true-sale-international.de/fileadmin/tsi_downloads/TSI_kompakt/Synthetische_Verbriefungen_english__Final_17.09.2015_.pdf

There appear to be some potential concerns,


In true sale securitisations, in addition to the credit risk of the securitised receivables
portfolio, all further legal, economic and operational risks which result from the purchase and
administration of the portfolio lie, in the first place, with the SPV (and thus indirectly with the
investor). These risks include the risk that (1) the securitised receivables are invalid or not enforceable (validity risk), (2) the purchase of the receivables is invalid or not insolvency
proof (transfer and clawback risk), (3) the receivables are extinguished by set-off against a
claim of the debtor against the originator (set-off risk), (4) monies collected by the servicer
are not paid on to the SPV (commingling risk), (5) losses resulting from the improper
servicing of the receivables (servicing risk), (6) in an insolvency of the originator, where the
originator is acting as servicer, the servicing is interrupted or deteriorates (servicer
replacement risk), and (7) in an insolvency of the originator, where the originator is acting as
swap counterparty, there is no substitute hedge for the mismatch between interest income
and liabilities (swap counterparty replacement risk). While the contracts between the SPV
and its various counterparties provide for an indemnification of the SPV if these risks
materialize, the recoverability of such indemnification is subject to legal, litigation and
insolvency risks. The complexity and diversity of these risks, in addition to the
abovementioned complexity of the legal structure and documentation, have an adverse effect
on the transparency of true sale securitisations.
In synthetic transactions the investor carries two clearly identifiable risks: (1) the credit risk of
the securitised receivables and (2) either, in the case of unsecured guarantee notes, the
credit risk of the bank issuing the guarantee notes or, in the case of secured guarantee
notes, the credit risk of the collateral (i.e. Pfandbriefe, KfW debt etc.). The investor does not
carry the additional risks of a true sale securitisation described above. The reason for this is
that, on the one hand, some of these risks do not arise in the first place due to the structure
of the transaction (e.g. transfer and clawback risk, commingling risk, set-off risk, servicer
replacement risk, swap counterparty replacement risk). On the other hand, under a
guarantee note the investor primarily has a claim for the full payment of principal and
interest. The outstanding principal amount of the guarantee note may only be reduced by the
amount of a realised loss in respect of a receivable if and to the extent that (1) such loss is
not due to risks that are to be carried by the bank and (2) this is confirmed by an independent
auditor. Hence the outstanding principal amount of a guarantee note may not be reduced
because of losses caused by inadequate servicing or any breach of the agreed eligibility
criteria in respect of the securitized receivables. Therefore, apart from the greater structural
transparency of guarantee notes, the risks which they present to investors are also more
transparent than those in corresponding true sale transactions. 5.3 Risk profile of secured guarantee notes
In all 68 synthetic securitisations where KfW acted as intermediary, the guarantee notes
have been secured by KfW debt obligations and in the majority of all other synthetic balance
sheet securitisations, at least in Germany, the guarantee notes have been secured by AAA
rated covered bonds. Where the guarantee notes are secured by high quality collateral, there
is considerably less risk for the investor arising out of the transaction structure than in
corresponding true sale transactions. As described in 5.2, true sale transactions give rise to a
range of undesired legal and operational risks which mainly materialise in an insolvency of
the originator (validity risk, transfer and clawback risk, set-off risk, commingling risk, servicing
risk, servicer replacement risk and swap counterparty replacement risk). These risks do not
arise in secured guarantee note transactions. Losses may not be deducted from the principal
amount of the guarantee notes to the extent that an independent audit reveals (in hindsight,
which is particularly safe for investors) that the losses are due to a breach of any eligibility
criteria, servicing standards or other contractual requirements for the allocation of such losses.
Furthermore, in the case of an insolvency of the originator, the bonds become due
and are redeemed from the relevant collateral.12

12
Even if, other than in previous synthetic balance sheet securitisations, the terms of the guarantee notes were
to foresee that in the insolvency of the originator
the guarantee notes are not redeemed and the credit
protection remains in place, the performance of the guarantee notes would not be affected by any disruption of
or decline in the servicing resulting from the insolvency, as payments on the notes are made from the
collateral (and not the portfolio income) and any non-compliance with applicable servicing standards would
prevent the deduction of losses from the note principal.



6. High-quality synthetic securitisations
Currently, synthetic balance sheet securitisations entered into to free up regulatory capital
and thus the scope for lending, are generally done on a bilateral basis without an external
rating. This has, amongst others, the following implications: (1) usually there is no external
rating for cost reasons, (2) the originator uses a supervisory formula approach (SFA) as
proof of significant risk transfer, (3) the protection seller or investor is generally not a bank or
insurance company but rather a specialised credit fund or other investor with less or no
regulatory restrictions, (4) the market is relatively small measured by the number of
participants and, for those not directly involved, not transparent, (5) on the side of the
protection seller, the market is quite highly concentrated, (6) on the side of originators
seeking capital relief, access to the market is difficult or impossible where originators have
little or no familiarity with the instrument and are too small to be approached by protection
sellers, (7) there are no apparent starting points to convert the market back to a more open
and more widely diversified market in the medium- or long-term as long as the regulatory
treatment of synthetic balance sheet securitisations remains unchanged.

This situation could be solved by an appropriate standardisation of transaction structures, the
introduction of specific criteria that synthetic securitisations need to fulfil and finally the
qualification of synthetic balance sheet securitisations as “High Quality Securitisations” and
the creation of an adequate regulatory framework. Due to their excellent historic performance
and their structural simplicity, transparency and security, synthetic balance sheet
securitisations should for these purposes be treated at least on an equal footing with
equivalent true sale securitisations. Following these adjustments, synthetic balance sheet
securitisations could make a valuable contribution to the successful implementation of the
European Capital Markets Union.


Ohh, you naughty banks, surely this couldnt end in tears.....again?, 'Northern Rock - 2005' Page 4 :
https://www.true-sale-international.de/fileadmin/tsi_downloads/TSI_kompakt/Synthetische_Verbriefungen_english__Final_17.09.2015_.pdf

Shock, shock horror : https://www.publications.parliament.uk/pa/cm200708/cmselect/cmtreasy/56/5605.htm

"2  Northern Rock's business model"

16. Another funding strategy introduced by Northern Rock in 2004 was the use of 'covered bonds'.[60] The Bank of England provided the following explanation of a covered bond:


In recent years, UK banks and building societies have increasingly chosen to use limited liability partnerships (LLPs) for funding and risk transfer of assets. The main difference between securitisations through SPVs [special purpose vehicles] and LLPs is that, in the latter structure, the banks themselves (rather than the SPVs) continue to hold the assets and issue the so-called covered bonds which are secured against them. The LLP effectively only comes into operation in case the issuing bank defaults, thereby providing additional security to investors in the bonds.[61]


Risk Transfer

Northern Rock in £3bn bail-out from taxpayer

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2794277/Northern-Rock-in-3bn-bail-out-from-taxpayer.html
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Re: It's official:Banks Don't Lend Money

Post by landlubber on Sun Jun 11, 2017 1:43 pm

(2) Note that the sum the mortgagor has to pay back over time will typically be greater
than the amount they originally borrowed. That is because borrowers will usually
have to pay interest on their liabilities, to compensate the lender for the
inconvenience of holding an IOU that will only be repaid at a later date.

Why on earth should a bank need to be compensated, when the bank has suffered no financial losses as it can create money from thin air?

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Re: It's official:Banks Don't Lend Money

Post by landlubber on Sun Jun 11, 2017 1:51 pm

In, Risk Transfer, it is clearly stated, that the bank is unlikely to repay we tax payers for their bail out. Then in corporate law on contracts, the bank has become bankrupt. If we mere mortals can be made bankrupt in almost any debt one can consider, then how is it that a bank cannot also be treated in the same way?

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Re: It's official:Banks Don't Lend Money

Post by LionsShare on Sun Jun 11, 2017 5:06 pm

I know I state the obvious but lets face it, "they" want to remain "top dog", so all in all we sign thier paperwork & get shafted, there is no way I can see that all banks can be allowed to fail. If they did imagine the chaos that would follow.

I am certainly NOT an expert but, look on ytube at all those vids on Promissory Notes & put in your own t&c(s).

To the affect: If the note is traded the bank (or whom ever) must notify in writing that such has taken place & this negates your obligation to pay it back!

Certainly in some of those vids it looks like that has happened.
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Re: It's official:Banks Don't Lend Money

Post by handle on Sun Jun 11, 2017 7:20 pm

Brilliant thread. Mark Charney once stated that economics students were not taught money creation and that it was about lending. The professor above is spot on. The securities are rated with credit default swaps. The quality of the security is rated by the credit rating. Credit cards and unsecured loans are governed by cca 1974. That is really there to protect the investor in such securities. Mortages use your power of attorney over you and rhe charged asset. The securities are insured many times over to protect investors.

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Re: It's official:Banks Don't Lend Money

Post by assassin on Mon Jun 12, 2017 2:25 am

Lions Share, you are correct, but if you look back in history everything fails, but commerce is a constant. Countries have come and gone, politicians and Governments have come and gone, but commerce is the one true constant and a constant indoctrinated solely by using money as the control mechanism.
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Re: It's official:Banks Don't Lend Money

Post by iamani on Tue Jun 13, 2017 2:27 am

Hi all

....but commerce IS war - and vice versa.

Cheers!

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Re: It's official:Banks Don't Lend Money

Post by iamani on Tue Jun 13, 2017 2:31 am

Hi all

Oh, and the one and only true constant is NOW...

Cheers!

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Re: It's official:Banks Don't Lend Money

Post by LionsShare on Tue Jun 13, 2017 4:46 pm

If people are having difficulties with mortgages, could this be of interest or even better actual use:

Secret the banks dont want you to know; Show me the note!!!

https://www.youtube.com/watch?v=M9jJ2vj7PSw

Essentially based in the US but with some limited reference to "old english law", if the plaintiff is unable to show the promissory note that was signed even if they have the "mortgage" then forecloseure cannot be enforced, No6 in the vid: "mortgage is not personal property but real property". This may be of some help to others who will need better clarification than what is presented here.

For those readers/contributers on the old site "Mr. fibble"'s avatar - statism would be appropriate for this thread!
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Re: It's official:Banks Don't Lend Money

Post by actinglikeabanker on Tue Jun 13, 2017 5:32 pm

Yes lionsShare that is for the US and in the US it can vary by state on what the requirements of producing the note are.

With regards to the UK, one needs to find out what special purpose vehicle (SPV) it has been packaged and securitised in, this will then allow a number of different approaches to be taken. For example if it is a 'true-sale' then the bank would not be the holder of the note anymore the SPV would be, and then investors buy bonds/notes in the SPV which contains the note.

Page 9 of this doc has a diagram of how an SPV would work 'In a conventional (‘true sale’) securitisation' http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb070304.pdf

This ties in with the point 6 you refer to.

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Re: It's official:Banks Don't Lend Money

Post by LionsShare on Wed Jun 14, 2017 8:42 am

In the video that started this thread, the phrase (to the effect) "when you sign the paperwork a promissory note is created".

Maybe that is the way forward - your own promissory note not their's?
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