Lenders are still getting away with highway robbery, according to Nobel Prize winning economist and New York Times Op/Ed columnist, Paul Krugman.
Krugman eviscerates the banking industry and the wealthy class with a powerful reminder that although an economic recovery is under way, there has yet to be a final reckoning. More than a moralistic call for lender atonement, Krugman adroitly identifies the phenomenal role reversal that has taken place between the accused and their accusers. He reveals how the banking industry has managed to demonize those who seek to prosecute them for their abuses. In the past it was real estate brokers and appraisers; now it is others.
Rather than cheering-on the attorneys general (AGs) as they pursue lenders for restitution via a recently proposed settlement, congressmen, the press and of course lenders themselves, are branding the settlement as “extortion,” and a “shakedown” that will threaten the economic recovery. Such rhetoric is brazenly employed against the AGs who have repeatedly exposed the gross improprieties of lenders.
Big Banks have been accused by the AGs of luring distressed homeowners into their loan modification programs under false pretenses. Loan modification programs, known as extend-and-pretend modifications, were designed to squeeze as many mortgage payments as possible out of distressed homeowners, as well as extend the amount of time lenders had before reporting losses to their investors and government regulators. The delay essentially allows lenders to drag their collective feet while simultaneously bilking homeowners. As is now common knowledge, thousands of homeowners were foreclosed on while awaiting a loan modification — modification lenders knew would never come. [For more information on extend-and-pretend mortgage modification programs, see the April 2010 first tuesday article, Surge in loan modification defaults.]
Lenders have been asked to offer loan modifications that are beneficial to both homeowners as well as the lenders themselves. Although a principal reduction is a necessary aspect of the equation, the reduction will still provide a greater net present value (NPV) than foreclosure for the lender. That is, should the lender offer the modification, the asset will retain a greater value as an occupied home with a reduced principal than it would if the lender chose to foreclose.
Is it possible that these modest cramdowns, which are logically and fiscally beneficial to lenders, would result in widespread lender insolvency and cause another financial crisis? Absolutely not, says Krugman. Even if such cramdowns were offered, the financial status of lenders is not the cause of this lengthy plateau recovery.
Rather, it is the immense household debt consumers have built-up with lenders over the past 20 years due to a lack of savings, coupled with the persistent stagnancy of the real estate market that threatens the economic recovery. If lenders would either foreclose or cram down the massive amounts of mortgage debt consumers are currently collapsing under, the economic recovery will begin to grow legs. [For first tuesday’s proposal on how lenders should go about cleaning up mortgage debts, see the January 2010 first tuesday article, Cramdowns, cramdowns, cramdowns.]
However, as is evident from lenders’ reception of the settlement proposed by the United States AGs, the political machinery operated by the bankers is too powerful to be vanquished by even the top law enforcement officers in the land. While politicians and pundits squawk about banks that are too big to fail and condemn homeowners for being financially irresponsible, lenders continue to defraud homeowners without any fear of consequence — and California’s real estate market is left to smother in stagnation on all fronts.
first tuesday take: We could not say it any better ourselves.
Re: “Another inside job” from the New York Times
The BIG banks are committing Foreclosure Fraud, onwtrihg people out of their homes by forging the documents. DEMAND that your bank produce YOUR ORIGINAL mortgage note with your wet ink signature (a copy is insufficient, just like a copy of a dollar bill is not a dollar). If the bank cannot produce YOUR original signed note, they can be sued for the mortgage amount +3 times the amt. They may give you the house rather than pay 4X. Do not refinance They get a new signature. FORGING.
These “banks” a.k.a. fraudsters have financed the repeal of the regulations safeguarding public and taxpayers. They said they were going to “supervise themselves” and then melted down the economy, collected bonuses and now are hard at obstructing justice. Our very government is complicit, it is evident in the way SEC and Justice Department are p us sy-footing around the fat cats. The very fabric of our governance has been destroyed and more, bigger financial disasters await in the wings, unless we see to it that the justice is served.
“I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.” – Thomas Jefferson once said. How fitting, how prophetic! How alarming that we failed to accomplish that!
At http://www.WallStreetClassAction.com we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone.
We realize that our own government is effectively a captured entity, so no criminal indictments will be forthcoming. But WE THE PEOPLE will hold the fraudsters accountable. United we stand.
I had a good laugh when I ran across this:
“Lenders have been asked to offer loan modifications that are beneficial to both homeowners as well as the lenders themselves.”
These are mutually exclusive.
If a bank made a loan to an individual to buy a house for $250,000 – that means that the bank gave the original seller $250,000 for selling the house. This means if the loan goes into default, the bank is out $250,000 minus whatever payments were made and inflation which is running far higher than 1% or 2% – unless the bank can sell the home for $250,000 minutes those expenses – and that’s just to break even and it ignores the cost of the financial transaction.
This isn’t rocket science.
Having the government demand that a financial institution lose money, isn’t going to happen.
The banks should just be left to go bankrupt, then prosecute the newly impoverished bank owners who have their assets seized. Pretty simple to do.
The main problem we have today is a corporate shield. This allows corporations to violate laws and only the corporation can be found at fault, not the PEOPLE that violated the laws.
The country is just going to implode. These pretend fixes aren’t going to fix anything, meanwhile the government is doing it’s own financial shenanigans – does anybody really think we’re going to pay off a 14 trillion dollars debt, EVER? No, of course we’re not. Congress is fighting over a 33 billion dollar cut in expenditures in a 3 trillion dollar budget – that’s about 1% and it gets worse, 33 billion dollars out of 14 trillion dollars of debt, that’s like a cup of water poured into a 10 gallon drum. You don’t even notice it – it is nothing.