One of the more clever ideas from the movie Fight Club is the idea that terrorism could originate from nefarious actions involving economic warfare. This means actions that could affect the value of our currency, the value of our future investments, repayment of our debts, etc.

Here’s a brief quote:

[Narrator turns himself into the police and lets them know of Project Mayhem next terrorist attack to blow up the headquarters of credit card companies and the TRW building.]

Detective Stern: Why these buildings? Why credit card companies?

Narrator: If you erase the debt record, we all go back to zero. It’ll create total chaos.

Not entirely accurate since mortgage debt, home equity debt, auto loan debt, and a few other types of debt weren’t included in the quote, but hey, who am I to nitpick at one of the best psychological thrillers ever made.

But, if we’ve learned anything since the 2008 stock market crash, it’s that be-all and end-all version of capitalism that we westerners believe is the best system in the world is, in reality, quite fragile once the sh*t hits the fan and the dark side of humanity’s animal spirits is engaged.

So why the stroll down late 1990s movie history?

Real Life Project Mayhem

Recent Congressional testimony regarding residential real estate, robo-signers and outright mortgage fraud that got me thinking: perhaps Tyler Durden’s Project Mayhem plan to cause chaos by destroying trillions of dollars of the debt record — via the real estate bubble and mortgage backed securities — is no longer fiction, but a reality.

From Congressional testimony:

The chain of title problems [missing "wet ink" promissory notes from mortgage backed securities] are highly technical, but they pose a potential systemic risk to the US economy.

If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever. The chain of title concerns stem from transactions that make assumptions about the resolution of unsettled law.

If those legal issues are resolved differently, then there would be a failure of the transfer of mortgages into securitization trusts, which would cloud title to nearly every property in the United States and would create contract rescission/putback liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions.

At best they present problems of fraud on the court, clouded title to properties coming out of foreclosure, and delay in foreclosures that will increase the shadow housing inventory and drive down home prices.

At worst, they represent a systemic risk that would bring the US financial system back to the dark days of the fall of 2008.

– Professor Adam J. Levitin, Georgetown Law

Sounds eerily similar to a plan cooked up by our fictitious friend Tyler. No?

Source:
Written Testimony of Adam J. Levitin
Associate Professor of Law
Georgetown University Law Center
Before the House Financial Services Committee
Subcommittee on Housing and Community Opportunity
“Robo-Singing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing”
November 18, 2010