Friday, November 12, 2010

It can't really be *that* bad... can it?

Well, yes, apparently it can. Matt Taibbi at Rolling Stone has a blistering expose about the foreclosure mess. It's long, but worth reading all the way through. It's really quite shocking, and not just because of the magnitude of the problem. The entire system seems to be breaking down in ways that would have been completely unimaginable twenty years ago. If what Taibbi reports is true (and I see no reason to doubt it) it would not be hyperbolic to say that the banking system in the United States has become an organized crime organization, aided and abetted by the government.

7 comments:

Miles said...

I'll reserve final judgment until I've read the full article, but Rolling Stone is known for their distorted and biased articles. Hopefully this isn't one of them.

Don Geddis said...

The banks creating false documents by fraud are a bad thing, yes.

But, just to be fair, this fraud is merely covering up sloppiness. There really was a real mortgage, the homeowners really did agree to pay, and the homeowners subsequently were unable to pay. Foreclosure is the proper outcome of that situation.

Because the securitization of mortgages, and some sloppy bank recordkeeping, and some obscure laws, it may be the case that some of the mortgages are legally unable to be foreclosed. And that is leading to the fraud.

But you shouldn't forget the overall point, which is that the loans being foreclosed on, really ought to be foreclosed. This is very different from ordinary organized crime, where innocent bystanders get hurt.

Ron said...

"Merely" covering up sloppiness?!? What do you think the financial services industry actually *does*? The whole *point* of having a financial services industry is to provide reliable record keeping. That confidence is the *only* thing that makes those little green pieces of paper in your wallet worth more than the paper they're printed on. The "sloppiness" that this fraud is "merely covering up" *is*, potentially, the end of the U.S. economy. The financial industry "merely covering up sloppiness" is like the auto industry "merely covering up" the fact that their cars blow up at random.

> There really was a real mortgage, the homeowners really did agree to pay, and the homeowners subsequently were unable to pay.

Says you. How do you know that there really was a mortgage? How do you know the homeowners really agreed to pay? How do you know they didn't?

Did you actually read the article?

"...homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors, you name it. This inability of one limb of the foreclosure beast to know what the other limb is doing is responsible for many of the horrific stories befalling homeowners across the country. Patti Parker, a local attorney in Jacksonville, tells of a woman whose home was seized by Deutsche Bank two days before Christmas. Months later, Deutsche came back and admitted that they had made a mistake: They had repossessed the wrong property. In another case that made headlines in Orlando, an agent for JP Morgan mistakenly broke into a woman's house that wasn't even in foreclosure and tried to change the locks. Terrified, the woman locked herself in her bathroom and called 911. But in a profound expression of the state's reflexive willingness to side with the bad guys, the police made no arrest in the case."

Don Geddis said...

How do you know that there really was a mortgage? How do you know the homeowners really agreed to pay? How do you know they didn't? ...homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors

Mistakes happen, yes. You can find isolated examples of such things, in any industry.

But this isn't the widespread, systemic failure that is causing all the recent uproar. The "failure of the US economy" isn't about misplaced checks. It isn't about whether there really was a mortgage, or whether the homeowner really paid. (These things happen, rarely, but no more so now than in the past.)

The new twist is whether the banks that are foreclosing, actually have legal standing to foreclose. You can read more details in, e.g., this article.

The concern is not about legitimate mistakes, where people who have in fact been paying their mortgages are foreclosed on in error. The concern is about all the people who haven't been paying their bills, and what happened to their mortgage note, and whether anybody knows who really has standing to foreclose on them.

But the question is not whether they should be foreclosed on. Yes, there might be some fraud in your cases too, but that's not what is causing fear in the banks. The fear of bank collapse is about all the mortgages which do deserve to be foreclosed on, but where the legal standing is murky. And fraud is being used to provide a plausible legal standing.

And yes, a few legitimate mortgage holders might get caught in the fraud too, by accident.

Ron said...

> The "failure of the US economy" isn't about misplaced checks.

That's right.

> The new twist is whether the banks that are foreclosing, actually have legal standing to foreclose.

That's right too.

> The fear of bank collapse is about all the mortgages which do deserve to be foreclosed on, but where the legal standing is murky. And fraud is being used to provide a plausible legal standing.

Three for three.

One of us is missing something. It seems to me that the current situation presents us with the choice of, essentially, allowing the banks (and hence the economy) to collapse or abandoning the rule of law, with the latter option apparently being selected. I find that very disturbing. Don't you?

Don Geddis said...

Three for three.

:-)

...collapse or abandoning the rule of law ... I find that very disturbing. Don't you?

Oh, sorry: yes, indeed. The situation is a real problem.

The only reason I made the original comment was to note: when just reading the headlines of this issue, it seems like banks might be lying in order to throw people out of their homes who have been making all their mortgage payments. And articles like this always find that rare example, where the bank makes a mistake, and people get foreclosed on who shouldn't. So the impression is left that this is the common case. But it isn't.

The common case is one where the homeowners really do default on their mortgage, and thus ought (?) to be foreclosed on. But the problem is: who has legal standing to foreclose on them?

I agree with you: that's a serious Rule of Law problem. It's not quite as bad, as the popular theme of evil corporations grinding ordinary citizens under their boot heels.

(Quick contrast: rescission in health care insurance, where people pay up their premiums for years, and then get really sick, and then at the most vulnerable time the insurance company "suddenly" discovers an error in the original application, and drops the patient from coverage right when they need it most. That's evil. This mortgage problem isn't at that level.)

Ron said...

> It's not quite as bad, as the popular theme of evil corporations grinding ordinary citizens under their boot heels.

I think this is much, much worse. At least when a corporation grinds ordinary citizens under their boot heels, the remedy is usually clear, if not always achievable. Here the cost of restoring the rule of law and a fair and independent judiciary would seem to be a complete collapse of the economy. It really is 1932 all over again, except that this time we are Germany and the transition to fascism is happening so quietly that no one is even noticing.