Sunday, October 24, 2010

More on the Great Mortgage Foreclosure Fraud in the US

From a post by Thomas Levenson on his blog The Inverse Square Blog:
Everyone, and I mean everyone you ought to be reading, has been working through the mechanics and the meaning of the foreclosure fraud being performed on the nation by our biggest banks. For a quick overview, head on over to Rortybomb, just read your way down, and check out Naked Capitalism as well. I promise you, once you start down the trail of links, you’ll have days of infuriating study ahead of you.

But for all the justified outrage at the simple disdain for the concept of property rights and the rule of law* there’s something else being missed here, something that astute observers have commented on, but that seems to be a bit obscured as we all, understandably, rubberneck in horror at the trainwreck that the major banks have made of the foreclosure process.

And that is that the entire foreclosure endeavor is in fact a huge imposed cost on American homeowners and our economy; it almost certainly runs against the long-term interests of the financial system as whole, whatever the incentives may be for individual companies (and it may well be a long term fail for many of the short-term beneficiaries as well). Foreclosure as it is being practiced now is likely to be a net negative for homeowners now, to the point that subsidizing in some way those who got into trouble is economically rational, even if it might be galling to those who’ve paid up and gone about their business.


Expand your view to the country as a whole and you see that over the last decade, the banks lent recklessly, leveraged insanely, and then resorted to a range of unsavory-to-illegal manouvers to limit exposure to the consequences of decisions that, taken altogether, effectively bankrupted the US and much of the world’s financial system.

They have received enormous sums to prevent an overt bankruptcy, and in response have pursued tactics that do untold harm to thousands, perhaps millions of American citizens as they foreclose on the properties they recklessly exposed themselves to over the last several years. As they pursue those foreclosures, those banks have both deceitfully tripped some homeowners into default (see Kirk, above) while performing multiple frauds and failures to proceed in a legal fashion in a sequence of actions that looks suspiciously like a fee-maximizing game of delay.
Here is the asterisked footnote that really should be read to appreciate the anger:
*One of the weirdest things about the whole housing mess to me has been the wholesale abandonment by the alleged “conservatives” among us of any commitment to — or even basic understanding of — the idea of property rights, contract law, and the roles and duties of parties to contracts governing real property. We have McArdle outraged that folks who got their sums wrong walk away from mortgages — as if the banks did not have a full, contractually specified recourse, to take possession of property they were supposed to have exercised proper caution in evaluating. We have the Wall St. Journal dismissing as mere sloppy paperwork sustained, widespread and long-lasting fraud by the major banks in their attempt to pursue contractual remedies to which they are not entitled. It seems to me that there is nothing more likely to produce a long-term threat to the American real estate market than confirming the belief that one of the biggest risks in home purchasing is that your lending will f**k you over. Yet the Wall St. Journal thinks it appropriate to dismiss criminal conspiracies by banks as mere high spirits. Astonishing — but worth remembering the next time that paper opines on the sanctity and infallibility of “free” markets.
What slays me is the fact that Obama came into office and saw no need to enforce law or ethics on the mad bank crowd that destroyed the economy. Instead, he has put Main Street and the unemployed under a water torture of slow pain as years will pass before the economy finds its feet again. Meanwhile, 2009 was a "record year" for bonuses on Wall Street banks and 2010 promises to outdo that with an even bigger "record year" for bonuses for the scum and fraudsters who destroyed the US economy (and took down most of the rest of the world as well).

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