STOCK MARKET WATCH -- Monday, 13 February 2012

[Demeter]

11. The big banks win again

http://www.salon.com/2012/02/10/banks_get_off_easy_in_mortgage_settlement_deal/singleton/

Foreclosure victims get little help in a mortgage-settlement plan that only benefits the banks' bottom line

On Thursday, a group of well-connected and powerful men announced that the federal government and state attorneys general had agreed to a multibillion-dollar settlement of claims relating to falsified foreclosure documents. The image of former corporate lawyer-turned-Attorney General Eric Holder and Iowa official Tom Miller complimenting each other on their courage and bravery was a stark reminder of how little power foreclosure victims have in Washington. The terms of the settlement were still secret, but we saw hints of what is to come: The website set up to inform the public noted that homeowners may not know for up to three years whether they are eligible for help.

Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations. So what, exactly, is that framework? It is, as Damon Silvers of the Congressional Oversight Panel, which monitored the bailouts, once put it, to preserve the capital structures of the largest banks. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said Silvers in October, 2010. “We can’t do both.” Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.

This policy framework isn’t obvious, because it isn’t admissible in polite company. Nonetheless, it occasionally gets out. Back in August 2010, at an “on background” briefing of financial bloggers, Treasury officials admitted that the point of its housing programs were to space out foreclosures so that banks could absorb smaller shocks to their balance sheets. This is consistent with the president’s own words a few months later.

In October 2010, Obama publicly revealed how he sees the mortgage debt crisis. “This is a multitrillion-dollar market and a multitrillion-dollar problem,” he said, “and we’ve only got so much gravel...We can’t magically sort of fix a decline in home values that’s so severe in some markets that people are $100,000 to $150,000 underwater,” he continued. “What we can do is to try to create sort of essentially bridge programs that help people stabilize, refinance where they can, and in some cases not just get pummeled if they decide that they want to move.”


TEH STUPID, IT BURNS!


...A more realistic solution to the problem was actually debated within the administration during the transition, in debates revealed by economist Laura Tyson at the Financial Times’ View from the Top Conference in 2011. She noted that top officials had to decide whether to engage in mass write-downs of debt similar to FDR’s programs in the 1930s by using tools such as judicial modification, or whether to allow millions of foreclosures to go forward. They chose the latter. The current foreclosure epidemic, in other words, is partially a policy choice...

AND IT GETS EVEN WORSE...A MUST READ (BUT BEFORE EATING)