The foreclosures are only a symptom. The real core of the scandal are the mortgage-backed securities, many of them fraudulent, as the same mortgages were pledged as collateral into multiple offerings.
In a way, the MBS fraud is not unlike the Mel Brooks movie “The Producers” in which the producers intentionally choose what they think is a terrible script, “Springtime for Hitler”, which they hope will close the first night. The producers then sell 1000% of the show to unwary investors. 100% is spent producing the show, with the other 900% to be pocketed after the show fails and the investors, unaware of the extra shares in the show, accept their losses and leave.
But like the fraud behind “The Producers”, the MBS scheme only works if the investment is caused to fail, ending demands for repayment by investors. That means foreclosing the over-sold mortgages to erase the criminal trail. Where foreclosure does not work, the fraudulent Mortgage-Backed Securities must be bought back. That is what TARP did. Congress, many of them personally invested in the financial companies that bought the fraudulent mortgage-backed securities, voted through TARP against overwhelming public opposition. The phrase “Toxic assets” is Congress-speak for the bad paper Wall Street has been selling since 2006; paper to be redeemed at taxpayer expense to keep the bankers out of jail!
If we are to allow bankers, for the sake of expediency, to press foreclosure without absolute proof they hold the note (wet ink) and have standing, then property rights in this country are at an end.
Steve Schwarzman would not stand for it, Carl Icahn would not stand for it, Warren Buffet would not stand for it, and no judge would disagree with them – a homeowner behind on payments is no different just because his lawyer costs less than a billionaire’s; these are fundamental principles that set us apart from the Middle Ages.
Banks cannot turn upside down the entire reason for our existence as a society and 800 years of progress from the Magna Carta forward – there is no ‘Grand Compromise’ that smooths out the minor detail of not holding the note.
Otherwise, a lawyer could claim a skid-row bum in NYC for a client and sue in Florida to foreclose on a Palm Beach mansion in arrears; the bum would have as much standing as anyone else, including any neighbor to the home-owner in Palm Beach.
If the banks persist in this, we just as well replace the 50 stars on Old Glory with a banana and then hold yearly auctions for licensing rights between Chiquita, Dole and Del Monte – that would fit nicely with selling signage to the highest bidder on the side of the SCOTUS building; wasted space begging for a use.
DealBook Debate: Are Foreclosure Ills Overblown?