Friday, October 15, 2010

Paul Krugman Presses for Rule of Law in Foreclosuregate

I never thought I would agree with the Nobel laureate on anything economics or finance.

Well, well. Never say never.

In the Op-Ed column in New York Times titled "The Mortgage Morass", Krugman writes:

"American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were “well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement.” By implication, these were things the Asians lacked but we had.

"We didn’t.

"The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

"...Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?

The response from the right is, however, even worse. Republicans in Congress are lying low, but conservative commentators like those at The Wall Street Journal’s editorial page have come out dismissing the lack of proper documents as a triviality. In effect, they’re saying that if a bank says it owns your house, we should just take its word. To me, this evokes the days when noblemen felt free to take whatever they wanted, knowing that peasants had no standing in the courts. But then, I suspect that some people regard those as the good old days."

Well, it was not just fly-by-night lenders. All major banks did.

And it is not just the Obama admin or conservatives. State attorney generals have started a joint investigation into this foreclosuregate, but I was disappointed to hear what one of them had to say on CNBC today. The attorney general of Texas told Larry Kudlow that he and his colleagues are confident that they can move very quickly to resolve [how?] problems regarding foreclosure documentation so that this doesn't interfere negatively with the financial systems and that the housing market doesn't suffer. [What "housing market"?] See the video for yourself, here.

The Texas attorney general is basically saying this investigation is nothing but token to appease small people (us), and he and his colleagues will do their best not to inconvenience the big banks and big investors and powerful lobbies (banking and real estate).

So what if the notice of default or the affidavit you received was signed by someone pretending to be working for a trustee but in fact he/she is working for some fly-by-night outfit whose job is to pretend he/she is a VP of Bank of America, Chase, Wells Fargo, all at once and sign away the documents?

But isn't it an outright fraud, to pretend to be someone that they are not, and sign a document that will take away the biggest investment that we ever have in our lives?

Clearly, an outright fraud means nothing to the political class (you can call them the ruling class, if you like).

State and federal governments doing their best to put the welfare of an industry before that of the citizens, and ignore the rule of law or arbitrarily apply it as they see fit - as Krugman says, America no longer has any moral standing to lecture any country.


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