As I read the facts, the latest foreclosure crisis is bureaucratic in nature, not economic. Described by The Wall Street Journal, “the wrong guy at the bank signed the foreclosure paperwork. … The affidavit was supposed to be signed by the nameless, faceless employee in the back office who reviewed the file, not the other nameless, faceless employee who sits in the front.”
The reality has not changed. We’re still talking about the same “consumer who borrow[ed] money to buy a house, [didn’t] make the mortgage payments, and then [lost] the house in foreclosure.”
Except that now 100,000 people get to keep homes for which they haven’t paid. Because bureaucracy runs the economy, the process of cleansing the housing market of these toxic acquisitions will be halted and gummed up even more so than before.
A major culprit is “GMAC Mortgage, whose parent Ally Financial is majority-owned by the U.S. government.”
Well, of course.
Every parasitical official seeking to renew or secure his sinecure on the public teat is demanding a halt to what looks to have been perfectly legitimate foreclosures on delinquent homeowners: state attorneys general, the Attorney General (Eric Holder), and assorted politicians, all interfering in local state affairs.
As the WSJ notes (rather meekly), “freezing activity in a $2.8 trillion financial market is the last thing this economy needs and is in no way proportional to the problems reported so far.”
The WSJ concludes on a stronger note:
“If evidence emerges of policies or actions that wrongly threw people out of their homes, by all means investigate and prosecute violations of law. But allowing people to live in homes without paying for them is not cost-free. That cost will be borne directly by investors in mortgage-backed securities and mortgage servicing companies, and ultimately by American taxpayers, who now stand behind 90% of new mortgages, thanks to guarantees by Fannie Mae, Freddie Mac and the Federal Housing Administration.
The bigger damage here is to the housing market, which desperately needs to find a bottom by clearing excess inventory and working through foreclosures as rapidly as possible. The moratoriums further politicize the housing market and further delay a housing recovery. In an economy and a financial system engulfed in Washington-created uncertainty, the political class has decided to create still more.”
Justice in the food-stamps nation …
UPDATE I (Oct. 11): It is clear that the above constitute “technicalities, not miscarriages of justice.” In “A Foreclosure Tightrope for Democrats,” the NYT suggests that the “White House shares those concerns, and it has tried to defuse the issue by arguing that problems can be addressed without imposing a moratorium.”
“‘There are, in fact, valid foreclosures that probably should go forward,’ David Axelrod, a senior White House adviser, said Sunday on CBS.”
The industry has argued in response that problems should be addressed without halting all foreclosures, because a moratorium would damage the economy. “It must be recognized that the mortgage market, investors and the health of the economy are all interrelated,” Tim Ryan, president of the Securities Industry and Financial Markets Association, said Monday.
Is the prospect of an election forcing some economic enlightenment at the White House?
UPDATE II (Oct. 12): It must be obvious to readers of this site that I would strongly disagree with the case my colleague Vox Day makes against the strict rule of law and for grand-conspiracy:
The idea that the foreclosure fraud is simply a little clerical error and that homeowners are attempting to capitalize on a minor issue of missing paperwork is a blatant and shameless lie. The mere fact of their focus on the borrowing parties rather than the banks is proof that they are intentionally evading the real issue. Karl Denninger, who has been on this for three years now, explains it more succinctly than anyone. “The issue is not about which paper-pusher signed documents. The issue is whether the origination and securitization of this paper in the first instance was fraudulent, and whether we now we have a Watergate-style coverup of what a gang of brigands did to steal literal trillions of dollars!” As he further elucidates, there are three primary parts to the problem; notice that the latter two have absolutely nothing to do with the borrowers that the Republican Cantor declares must “take responsibility for themselves”. But if a poor Hispanic family living in an overpriced house have to take responsibility for themselves, why don’t the bankers who are holding Cantor’s leash have to do likewise?
Similar opinions were expressed on BAB when we discussed “Strategic Defaulters.” There, John Danforth wrote:
What caused the drop in nominal property value? The inevitable collapse of prices that were superheated by banks puffing up fractional reserves with derivatives of the superheated asset prices. …No matter how debased the morality of the strategic defaulters, the banks are not any better.
Distilled, the argument for all-out sweetness and love for the foreclosed upon is that, because the banks are embroiled in the fractional reserve system, they should suffer the worst of fates.
That’s like saying that because the legal system is generally corrupt, murderers should go free; or because an owner who sells a parcel of land partakes in the property tax theft, the buyer should not have to pay him. Or because businesses often act like exuberant idiots during a phase of the business cycle—some as offenders; others as victims—their customers need not pay them. And on and on.
This is chaos theory; create chaos, and out of it, something good may come. And never mind that not all bankers are crooks; that not all of them understand the theoretical aspects of the system in which they are embroiled; and that not nearly enough bad things are said about the defaulters.
As to Vox’s point, it does not follow from “the mere fact of their focus on the borrowing parties rather than the banks,” that this “is proof that they are intentionally evading the real issue.”
Not in logic, at least.
Finally, the laws of economics are natural laws. Whoever is involved, it is categorically good that responsible buyers get to pick up foreclosed properties, and that the mortgage miasma is cleared and cleansed away.