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Op-Ed Columnist - The Mortgage Morass - Paul Krugman - NYTimes.com
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.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 04:35:39 PM EST
[ Parent ]
Mortgage Mess May Costs Big Banks Billions - NYTimes.com
"I don't see how it can be cleared up in a short period of time," said Richard X. Bove, an analyst with Rochdale Securities. "The moratorium won't last that long but the problem will last at least four or five years, maybe a decade." In the short term, he said, "it could easily cost $1.5 billion per quarter."

Meanwhile, the foreclosure machinery in many states has ground to a halt... As a result, foreclosed homes will remain on the bank's books while racking up thousands of dollars a month in extra costs.
...
Inside the investment houses, several traders said nerves were frazzled further by worries that banks could face much bigger mortgage related losses, not from foreclosures, but because of questions about how the money was lent in the first place. If it turns out that mortgages were bundled together and sold improperly, more holders could sue the banks and force them to buy back tens of billions in mortgage-backed securities.

An alarming report on Bank of America, compiled by Branch Hill Capital, a San Francisco hedge fund, circulated widely on Wall Street on Thursday. Branch Hill suggested that the bank, the nation's largest, could be facing more than $70 billion in losses from mortgage securities that it may have to repurchase from Fannie Mae and Freddie Mac, as well as private investors.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 04:47:50 PM EST
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Strong words:
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.

What should be happening? The excesses of the bubble years have created a legal morass, in which property rights are ill defined because nobody has proper documentation. And where no clear property rights exist, it's the government's job to create them.



By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Fri Oct 15th, 2010 at 04:50:27 PM EST
[ Parent ]
How the Banks Hid Bad Mortgages - NYTimes.com
The conventional wisdom has it that the Financial Crisis Inquiry Commission -- the bipartisan group of wise men and women charged with uncovering what caused our recent economic meltdown and telling us what should be done to prevent a recurrence -- is woefully out-of-touch and out-of-date. A Times article last month suggested that "an exodus of senior employees" from the commission and "internal disagreements" among those remaining could hamper efforts to produce a meaningful and useful report, which is due to be published in December.

But the conventional wisdom is often wrong, and this time will be no exception. I predict that not only will the commission's report -- and accompanying documents -- reveal numerous causes of the crisis that others have overlooked, but also that it will have a significant impact on the regulations that still must be written by the Securities and Exchange Commission and the Treasury as part of the implementation on the Dodd-Frank financial reform law. In fact, the inquiry commission may have already played an essential role in beginning to bring fraudsters to justice.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 04:53:39 PM EST
[ Parent ]
How the Banks Hid Bad Mortgages - NYTimes.com
Of the 911,039 mortgages Clayton examined for its Wall Street clients -- a sample of about 10 percent of the total mortgages that the banks intended to package into securities -- only 54 percent were found to meet the underwriting guidelines. Standards deteriorated over time, with only 47 percent of the mortgages Clayton examined meeting the guidelines by the second quarter of 2007.

So, did Wall Street throw all those mortgages back into the pond as being too risky for securities they were going to sell to clients? Of course not -- many were packaged right into their product...

In fact, the banks probably weren't disappointed at all by the shaky status of many of these loans: in part because they could use the information that some of the mortgages were rotten to get a discount from the mortgage originators on the price paid for the entire portfolio... But the amazing revelation of the Sacramento hearing was that the investment banks did not pass this very valuable information on to their customers.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 04:57:45 PM EST
[ Parent ]
Mortgage Damage Spreads - WSJ.com
In essence, fast-paced modern finance is colliding with the much slower machinery of the U.S. legal system. While finance aims for efficiency and maximized profits, the courts demand due process. And that's becoming a growing issue as lenders come under attack for taking short cuts to oust homeowners who haven't mailed in a mortgage check for months.
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The financial system and legal system have been on a collision course for some time in residential real estate. Both the lower standards for loans and the lax controls involving foreclosures were based on the premise that home prices would never fall, making it unlikely that many loans would go bad at once. Once that premise fell apart, the flaws in the system became obvious, and the long-term challenge now facing lenders is to rebuild the mortgage system on more solid footing.

Banks argue that these problems will be repaired swiftly, and they'll soon be running the foreclosure machinery at full speed again. But analysts say the problems could expand into a legal crisis if banks can't prove that they are following standard property-law procedures.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sat Oct 16th, 2010 at 05:32:16 AM EST
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Regulations were undermined by appointing anti-regulators to head the agencies; laws were repealed and the only remaining check, the personal probity of those involved, was hosed away by a torrent of profits obtained by competitors whose probity was for rent. Gresham's Law prevailed and all that was left were fraudsters and rent-a-fools.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 15th, 2010 at 04:57:21 PM EST
[ Parent ]
FT.com / Comment / Editorial - Wall Street's bad behaviour redux
The growing scandal over the improper, and perhaps fraudulent, foreclosures on homes by US banks is becoming both a financial and a political hot potato. Wall Street is being forced to admit to yet more unsavoury practices linked to mortgage bonds and President Barack Obama has been dragged into the affair.
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The banks and their defenders mutter that this is all a bureaucratic technicality and much ado about nothing...

They are wrong, and the fact that they regard court proceedings to repossess homes so lightly is a worrying reflection on Wall Street's ethical standards, or lack of them. At worst, the banks may have been lying to courts over a vital safeguard in property law - the sanctity of documents.

This scandal is a mirror image of the lax and often improper lending practices that grew up in the years before the 2008 financial crisis as Wall Street raced to extend mortgages in order to have fodder for asset-backed securities. They never took seriously the importance of lending soundly and thoughtfully to homeowners.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Oct 15th, 2010 at 05:08:02 PM EST
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Why didn't the feckless, poor and foreign house buyers force the banks to manage their paperwork properly?

If it hadn't been for their frankly slipshod attitude to contract law we wouldn't be in this mess.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Oct 15th, 2010 at 05:20:13 PM EST
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apologies to those august, venerable institutions are in order...

the proles forget their place.

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Sat Oct 16th, 2010 at 08:47:52 AM EST
[ Parent ]
Your Money - Avoid the Foreclosure Market Until the Dust Settles - NYTimes.com
Todd Phelps and Paul Whitehead didn't think they were last month when they were the winning bidders in a foreclosure auction on the steps of the main Riverside, Calif., county courthouse. They thought they had won the lottery.

For years, they had been living in a rent-controlled apartment in Santa Monica and waiting out the housing bubble in hopes of buying a weekend getaway in the Palm Springs area. And on Sept. 10, they thought they had finally done it, getting a house for $137,000.

Several days later, however, they realized that what they had really bought was a second mortgage from Wachovia on a house that still had an enormous, unpaid primary loan. In other words, they did not own the home free and clear, and the auction company wouldn't give back their $137,000 check.



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sat Oct 16th, 2010 at 05:46:40 AM EST
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The Foreclosure Fiasco and Wall Street's Shrug | The New York Observer
"The first thing that needs to happen, I think, is to get these people out of their homes," a man wearing a bespoke blue-striped shirt, a Hermés tie patterned with elephants and Ferragamo loafers said recently.
...
In order to understand Wall Street's shrug during this foreclosure crisis, which as many as 40 attorneys general are expected to announce an investigation into this week, the key is to appreciate just how deeply connected the gesture is to Wall Street's view of who's to blame for the financial crisis.

The feeling, the idea at the bottom of all the others, is that even if Wall Street aggravated the crisis by bundling and betting on mortgage-backed securities that turned out not to live up to high ratings, it was not a matter of, as Citi chairman Richard D. Parsons told The Observer this summer, "bad people trying to do bad things." The loans wouldn't have been there in the first place if American home buyers, driven by what The Weekly Standard calls immediate gratification without personal responsibility, hadn't overstepped their bounds.

Hat tip Paul Krugman

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Sat Oct 16th, 2010 at 06:33:34 AM EST
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it was not a matter of..... bad people trying to do bad things." The loans wouldn't have been there in the first place if American home buyers, driven by what The Weekly Standard calls immediate gratification without personal responsibility, hadn't overstepped their bounds.

the narrative of blaming the poor is well established and is being put out as much as possible. just like the banking crisis two years back, it may not have been a case of bad people doing bad things, but it was definitely a case of incredibly greedy morally challenged people finding themselves encouraged to do things that should have been illegal

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Sat Oct 16th, 2010 at 06:42:37 AM EST
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