Matt Taibbi’s latest piece focuses on the Rocket Docket court set up in Jacksonville to expedite a backlog of foreclosure cases in the state of Florida. It’s a well-written, well-argued article, and you really should spend the half-hour it takes to read it because it helps explain the collapse of the housing market and who is primarily to blame. It also documents how the courts are laundering what the banks and mortgage originators did, often at the expense of innocent people. The only problem with Taibbi’s article is that he doesn’t really explore any alternatives to laundering these crimes. That’s a concern because anyone with the responsibility for cleaning up this mess must first do no further harm to the economy and to the employment situation in this country. They also have to use a realistic set of assumptions about what they can get Congress to do.
As infuriating as it is to let these people off the hook, there are good reasons for helping them avoid the consequences of their actions. Taibbi is aware of the problem:
You’ve heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can’t admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn’t be, but often are, closed.
He even spells the problem out in detail.
Why don’t the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them. According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued. Think about what that would do to Bank of America’s bottom line the next time you wonder why they’re trying so hard to rush these loans into someone else’s hands.
The problem is the same as what we faced in September 2008. For our economy to function, for companies to meet payroll, for new companies to start up, for people to buy homes and cars, we need banks that are willing and able to extend credit. The problem is that the banks ripped off their investors to such a massive degree that they can’t pay the money back all at once without going broke. We’ve been trying to unwind this mess for more than two years now, and the latest problem with the sloppy paperwork presents just as big of a systemic risk to the financial sector as the original problem with sagging housing values.
The rot is so pervasive that no one wants to face up to it because it would send the world economy teetering again and probably lead to more massive layoffs in an economy already laboring with unemployment rates north of nine percent.
In a sane world, Congress would do something comprehensive to fix the competing irrational incentives that are causing hundreds of thousands of people to lose homes they could probably afford if they could just get a loan modification. But Congress is incapable of taking that kind of action. All they care about is that some people aren’t paying their bills.
I think this is why the HAMP program isn’t working. And I don’t know what the administration can really do in a situation where Congress will not act. So, what’s Taibbi’s solution other than throwing half the country in prison where they belong? He doesn’t say. And that’s probably because he doesn’t know what to do either.
Liquidation of big banks sounds better every day.
If the mortgage got separated from the note, a loan modification wouldn’t do anything.
There are still those Righties who are blaming the sub prime borrowers. They are too stupid to figure out that in no way can a bunch of borrows bring the kind of massive havoc that the financial sector has to the US and other countries.
The Congress critters have large salaries and benefits. What do they care?
“I think this is why the HAMP program isn’t working.”
HAMP is working exactly as it was supposed to. It was never meant to help homeowners modify mortgages. It was meant to give the Banks a way to slow down some of the foreclosures until they could afford to get to you and your house while keeping you in there and paying them some money.
Keeping these criminal zombies alive is only making them more powerful and us poorer. (And by us, I mean every single citizen and not just the victims of these frauds.)
The ethical and sane solution is to pump money into the small banks that were not involved in the fraud and CDS (Credit Default Swindles) and let the zombies die before they do even more damage than they have already done.
As I prep right now for tomorrow’s Thanksgiving meal at our house, I am listening to Elizabeth Warren speaking in 2004 and 2008 giving her very prescient views of what was coming down the pike and what was staring us in the face at the time relative to mortgage crisis. It is still as applicable today as it was at then.
Hell………..somebody should give her a job in the cabinet or something. Who could argue with that, huh??? She hit it out of the ballpark every time on this issue.
Maybe that’s why the GOP is screaming about “lack of transparency” in her development of the Consumer Finance Protection Bureau.
Boo:
You know what moral hazard is, right? And I see where you are coming from, but taking the present course just leads up to mimic Japan for the last 20 years. They played “extend and pretend” with their banks. And what has it gotten them? If you don’t purge the rotten mess from the system, you are just kicking the can down the road. The system will slowly collapse on itself. You can either have a pretty painful but quicker resolution, or you can have death by a thousand paper cuts. What would you prefer?
There is one very concrete thing the Obama administration and Congress could do to help many home sellers and home buyers: create an alternative market for home sales in a single stroke.
Old timers like me remember the ’50s, ’60s, and ’70s when banks were at times very tight with mortgages. Many states at that time either by statute or by court ruling held that the boilerplate “due on sale” clause in bank mortgages was an illegal restraint in trade. What this meant in practical terms is that a seller could sell his house to a buyer for whatever price he could get, and continue paying the monthly mortgage to the bank while receiving monthly payments directly from his buyer. In many states (such as Oregon, where I first encountered this) the result was an ALTERNATIVE market for home sales.
It was so effective, in fact, that during the Reagan years Congress enacted a federal override of all such state laws. The law “preempted” state statutes and court rulings that previously had rendered “due-on-sale” clauses unenforceable. That law is U.S. Title 12, Chapter 13, § 1701j-3 — commonly known as the “due on sale preemption.”
http://www.law.cornell.edu/uscode/12/usc_sec_12_00001701—j003-.html
Solely because of that federal statute, “due on sale” clauses in bank mortgages became enforceable again and the individual “contract sale” market died. Banks today assuredly will oppose repeal of the federal due on sale preemption, of course, because it means re-creating an alternative financing market for sellers and buyers.
I suppose the banks would rather have a stranglehold on the presently dysfunctional market than allow individuals to create an alternative market that works. But if a few congressmen with integrity were to push it, anyway, it might serve to expose the hypocrisy of the rest of them.
As an aside, if the Tea Baggers and the yokels they elected had any serious commitment to their professed principles of a “smaller” federal government, more “local control,” and broader individual freedom,they would leap on this idea for ending the banksters’ monopoly and returning us to an earlier system where both bank-originated mortgages and individual contract sales coexisted successfully.
someone mentioned “moral hazard”.
i would say your piece is morally bankrupt.
The problem, Brendan, is if you’re number one priority is to keep people employed and protect their savings, there is no correct moral position to take. You provide justice over here, and a bunch of innocent people get bankrupted over there. The problem is that the whole edifice rotted and we still depend on the edifice.
they are rioting in europe right now over letting the bankers off the hook.
good. let’s see what it gets them.
see, my problem with your take on thsis is that you essentially throw up your hands and say “well, what canya do. There go those rich people, destroying everything again, with no consequence. It’s not fair, but that’s just the way it goes. Too bad.”
That, to me, is deeply deeply offensive position to take. This year, PA is going to cut back more on funding for adult ed, for food banks, and for the homeless. Philly’s domestic violence funds just took a huge hit.
It’s not that there’s nothing that can be done, it’s that there has been no political will to do what needs to be done, which is to punish those responsible and to re-regulate the system. Atrios and other have mentioned setting up something akin to FDR’s HOLC, doing something about HAMP, etc. What they’re not suggesting is that there’s nothing we can do.
Funny how you always tell me I’m the negative one, while you’re saying there’s nothing that can be done about the ongoing fleecing of ordinary people.
These are the policy ideas we need. Thanks for sharing this:
What makes this work is no additional action by, a bought and paid for, congress:
Your passion is not wasted when you bring these types of policy ideas to our Thanksgiving table.
Just sayin.
I’m okay with brainstorming on what can be done. That’s great. I’m all for it.
But what I am saying is that to a certain degree we can’t punish these fucks without punishing ourselves. That’s the thorny problem.
I had some enjoyable political debate tonight about the mortgage crisis with family and extended family, and these are smart folks. And they still see this as mainly a problem of dim bulbs making dipshit decisions and borrowing money they couldn’t afford to repay. See, the biggest sin you can make is to be stupid enough to get ripped off. And if one person was greedy, that impugns hundreds that were merely gullible or too trusting.
That’s the overwhelming attitude out there, even among a lot of people who are fairly solid Democrats.
So, there is no political will to stand up to the banks because the people already agree with the banks. This is the same thing Taibbi is saying. And he has no solutions to offer. I support finding solutions. But you can’t find them by enacting legislation. Not anymore. And not really before, either.
you’re being incoherent.
what you’re saying here is that, because the people believe a false narrative (that it’s the borrowers who are at fault, not the corrupt lenders) that it’s just too much to push back on. so we all have to deal with the fact that the banks are corrupt and that property rights everywhere in the US are now endangered. Oh well, that’s life! The narrative is set, and you can’t push back.
But in your front-pager “eight year olds” you argue that there SHOULD be strong pushback when he GOP starts pushing THEIR false narratives, and you even use the banks as your example! “Ask your bank if they can find your mortgage note. If these thugs can’t even prove that they own your house, how can you expect them to prove John Boehner isn’t a pederast?”
you’re not for brainstorming, every time this comes up, your go-to position is “what’s done is done, we have to let the banks get away with their crimes.”
that’s not no part of nothing. all that does is normalize crime, just like that shitty FISA bill and the refusal to prosecute torture and war crimes. is rthat what you stand for?
I just can’t see another fix that lets the big toxic banks off the hook. They got their bailouts, they got their fictional accounting, and they got two years, and they haven’t unwound a damned thing. Yes, letting them die will cause chaos, and probably more hardship for people who absolutely do not deserve it. But the alternative is worse.
Let’s say that all of this gets resolved by taxpayers throwing more money at it and with a wave of the Congressional wand that keeps the onus on mortgage payers and investors. What then? It’s not just the moral hazard of rewarding people and private institutions that screwed everyone and got to keep their money. It would represent a full surrender of our national sovereignty. We would belong to them forever more.
The small and mid-sized banks did not indulge in this kind of behavior. They practiced the same good old Republican conservatism they always have, and got screwed along with the rest of us. Let us instead capitalize them, and let the mortgage servicers, the big banks, the mortgage payers and the investors fight this out in court, and let those chips fall where they may. Remember that the stated reason we needed to bail these bastards out was to restore liquidity. Has anyone seen any liquidity from them for the past two years?
I agree with your outrage, but the truth is that we have seen liquidity from them in the past two years. If we hadn’t, we’d have 20 or 30% unemployment. If we invalidated every MBS-trade for the last decade, we’d be right back where we started. No one likes being held by the short and curlies. But that’s where we are.
“We have seen liquidity from them in the past two years.” That is the exact opposite of what 100% of business owners of all sizes have been telling me for the past two years, and I ask all of them who come through the office. And of course, we do have 20% unemployment; it’s only about 10% in the nominal sense.
As to invalidating every MBS transaction, the courts will take decades to unwind this shit, especially when the originators, servicers, ratings agencies, underwriters and investors all get their high-powered attorneys involved. It will be a fall, but a slow fall, as the courts try to figure out who’s first in line, who’s liable for what, who gets what back, who eats what, etc.
Low-interest Federal loans to small and mid-sized banks who aren’t carrying all of the enormous bags of legal, accounting and financial shit around on their backs is the answer. They would only make money when they lend, and only get paid back when their customers proved credit-worthy. That way, we get to keep our country, move the economy – which is still dead in the water – and reward the kind of conservatives worthy of reward.
Fraud should be a case in which investigators can use subpoenas to pierce the corporate “veil” and determine individual liability and accountability. And bring those individuals to trial without measurably harming the financial position of the banks.
It is individuals who should receive harsh sentences for their actions while hiding behind the veil of limited liability.
The playahs on Wall Street need to grasp that murdering an economy is a crime.
This is the way to go. Individuals made decisions in these banks, and most knew exactly what they were doing… and knew that they’d profit from the right result. They should be made to pay that back.
I thought we didn’t negotiate with terrorists?
More seriously, I think there’s failure of imagination here Booman. You’re saying the 6 banks which own the economy have to get everything they want, laws, truth, and justice be damned, or we’re screwed. I don’t think that’s a situation we want or have to be in. One simple point is that these rapid and legally marginal foreclosures don’t seem to be actually helping the economy. They’re only helping the megabanks cover up their crimes while they continue to loot the public with impunity. Plus what happens if there is intractable and widespread litigation between all these securitizers? Simply blessing the rocket docket or looking the other way is unlikely to fix anything in the long run.
Who’da thunk that the best economic investigative reporting would be coming from the Rolling Stone and a little non-profit site, ProPublica.
As a Florida resident, and as a former legal aid lawyer who has fought foreclosures, I don’t think Taibbi understands what is going on very well. The gold standard for understanding the mortgage foreclosure problems remains tanta’s two year old article at calculatedrisk. I highly recommend it: Tanta wrote brilliantly about all of this years before it happened
To live in Florida at this time is to live among foreclosed houses. I know people here that have lived in their House without paying rent for 18 months.
It is really starting to piss people off. Why should I pay my mortgage when people are staying in their houses for months without paying thiers. Moreover, I can’t move because until these houses hit the market no one knows what a house in Florida is worth.
This won’t sound very liberal of me, but I will say it. Most of the people in these cases damn well know they owe the money, and in 2006 and 2007 they used their house like an atm. Money was easy, and Florida real estate seemed like a cash machine that would never run out.
The banks lost billions, and the people that can’t pay should lose their house.
If an attorney stands before a judge a knowingly lies, he should see the inside of a jail. He has violated an Ethical Cannon, and should pay for it. But right now I hear people talking about whether they should stop paying thier mortgages, and the anger is on the verge of exploding. As a result, these courts are more popular than Taibbi realizes.
fladem,”…Tanta wrote brilliantly about all of this years before it happened…”
I hit your link to Tanta, “…all this…” that Tanta wrote about consists of just one story of a conman, Lents, who is obviously attempting a ripoff by refusing to pay his mortgage.
So you’re telling me that “all this” by Tranta should lead me to believe Taibbi doesn’t understand the issue very well.
I’d say Taibbi has an excellent understanding of “all this”, especially as his article rings true with regards to the numerous articles on this issue at http://www.nakedcapitalism.com.
I’ve actually read this article of Taibbi’s as well as his recently published Griftopia, which I highly recommend.
Have you read either?
Nice try at promoting the banksters’ “deadbeat” mantra!
Yves Smith and Barry Ritholtz have both been spectacular on this issue.
No, excuse me, but Tanta and you have it wrong. (And, just for the record, I’m a Bitter Renter<sup>TM</sup> who’d be well-served by all these foreclosures hitting the market.) This is a complete breakdown in the mechanisms that protect people’s property rights.
It is legally impossible to foreclose on people who do not have mortgages. And, no, contrary to the ramblings of bankster apologists on CNBC, it’s not as rare as you think.
It is also legally impossible for two banks to foreclose on the same house. Again, not as rare as you think.
The only way these things happen is if there is systemic fraud. Period.
There’s a reason you’re required to have the note, fladem. There’s a reason the note must go to the trust. Otherwise we have no idea who really owns the properties, and we get more systemic fraud in the courts as the DocXes of the world try to cover up for the mistakes of the lenders and servicers.
How do you know these copies are legitimate if they haven’t been properly examined and didn’t come from the trust? It’s 2010. You can make up documentation easily. That’s why we have the recorders with their little fees and the trusts who hold original notes — to protect you and everybody else who transfers property.
This is much, much more than deadbeats not paying there mortgages.
Hell, DocX had a fucking price list for making up documentation!
What has really gotten folks’ attention is the cases in which people have been evicted from a house they have paid off or never had a mortgage, equity loan, or lien on. Judges making decisions on foreclosure with papers that have not been signed by third parties that have no legal claim in the foreclosure and who sign on behalf of different institutions with them being notarized without appearance.
There is serious fraud going on in the system as a result of the large number of foreclosures, a chain reaction of foreclosures triggering unemployment triggering other foreclosures.
The situation has gone way beyond what Tanta described and what you were dealing with.
MERS is a mess. There is not proper chains of title. Title insurance agencies are refusing to insure titles.
It’s not originating banks coming after the owners but one or more of the folks that the banks sold those mortgages to.
This is not a straightforward moral issue, it is a major case of criminal fraud occurring after the original mortgage crisis.
I guess being made homeless as a punishment for not paying your mortgage (regardless of the reason you didn’t pay) is fine in Florida — nice weather possibilities for setting up tents and so on. But go much north of that and moral outrage can wind up killing people who are made homeless.
If you are employed, still have the income stream you had in 2007, and can wait out the crisis, it probably seems much ado about nothing but irresponsible borrowers. It’s not that simple.
I think that the question should be turned on its head. What value do the banks provide in lieu of there ability to use the Federal Reserve System at all. At one time they were in the business of lending depositors money and were good about risk assignment. Now they don’t. All the illquid banks should be shut down via the FDIC. I know that structurally the FDIC would need a small army of people to just shutdown Citibank. But, they should and can by hiring existing bank employees as they take over operations.
The point being the banks don’t provide an services that the Fed just can’t do on its own. How about a Fed credit card and loans direct to them, who needs the middle men.
bille
This isn’t 2008 all over again. This is probably much worse, in my opinion. And every time you kick over another stone, there are six or seven more hornets’ nests.
The hilarious thing is that MERS was set up to save the banks from the trouble of going to the court house and paying the recorders’ fees. In essence, they saved a billion dollars in a tax avoidance scheme and blew a trillion-of-dollars hole in their balance sheets.