By now everyone knows that almost all of the big banks (except Wells Fargo) have admitted that there may be issues with the documentary evidence submitted in court by servicers when seeking mortgage foreclosures. Some banks have instituted 50-state moratoriums on foreclosures while they “review” their documents and procedures.

Ally Financial said Tuesday that its GMAC mortgage unit has hired legal and accounting firms to conduct independent reviews of its foreclosure procedures in all 50 states.

We know that the phony litigation documents were created to cover up the fact that the banks don’t really know what they own and the failure to properly transfer the documents into the trusts underlying Mortgage Backed Securities (RMBS).

That’s not a problem one can “fix." The banks understand this and have been communicating this to their investors during analyst conference calls. Why go through the sham of a review that will only tell them what they already know?

Two possibilities come to mind:

1)  The reviewers will issue some bogus report indicating that most of the foreclosures are good and there have just been some sporadic errors. Nothing to see here, move along; the cover up would continue.

2) More likely, the banks will actually confess at the end of the review that their documentation is a mess. They do what Goldman Sachs did with Frabrice Tourre; they’ll state this is not the fault of the chief executives and other Masters of the Universe but the fault of the quants and lower level, young, over-compensated whiz kid financial engineers who designed and implemented the RMBS.

It’s likely the banksters at the very top are setting up their Sarbanes-Oxley-style defense; viz, the crime was committed by lower level employees despite the proper level of oversight and internal controls by the company management.

Such an announcement would likely lead to a huge market crash.

If the banks were to announce this right before election day, President Obama will be caught flat footed — which might lead one to wonder if the White House is being "blackmailed."