Friday, October 15, 2010

The Mortgage Crisis...

I have a folder on my desktop labelled Mortgage Mess and it keeps getting thicker and thicker.   I promise not to share all the items with you, but a couple will give you an idea of what I’ve collected. 

Paul Krugman’s Friday column entitled “The Mortgage Morass” started my day. 
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. 
Krugman goes on to explain what we are all beginning to understand, viz. that we are in what he calls: 
... 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. 
Yes, but will this particular “government” step up to the plate?

David Dayen (dday) at Firedoglake skewers Wall Street in an essay titled “Banksters Lash Out As Wall Street Comes to Realization About Their Exposure.”  [Here]  He includes a video of a Parker/Spitzer interview in which Spitzer states flatly as a former NY Attorney General that major mortgage bond fraud has occurred.  
Dayen quotes University of Missouri-Kansas City Economics professor L. Randall Wray who labels this as “is the biggest scandal in human history.”   This description is a bit over the top, perhaps, but Wray has some interesting proposals to get us through this crisis/morass/mess.  [Here] Among the suggestions is a bank holiday to examine the largest banks for fraudulent mortgages and a suspension all forclosures until clear chain-of-titles can be established.  
Wray’s list is long and interesting, but whether this administration has the backbone to confront this issue directly and dramatically is very questionable, particularly in these weeks before the November elections.
On the other side in a state of utter tranquility and denial is John Carney, the Senior Editor of CNBC,  who is totally confident that during its lame duck session, Congress will: [Here]
...pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.
Yes, I know--from his mouth to Obama’s ear.
  
I’m going to stop here.  My folder groweth by the hour.  Wouldn’t it be nice if White House wisdom and leadership abilities would grow as fast as my folder?  How this morass/crisis/mess/fraud will play out we do not yet know.
But we soon shall...

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