The emerging media consensus on the foreclosure fraud scandal is that, well, the banks might have committed some ‘technical’ errors, but the homeowners weren’t paying their bills, so it all evens out. Those technical errors appear to include perjury and fraud.
In the middle of the worst recession in generations, media professionals feel free to talk as if being broke were the moral equivalent of breaking the law, as Diana Olick does in this CNBC video segment where she squares off with Barry Ritholtz:
Unfortunately for the finance industry, (and we’re playing the world’s tiniest violin just for them) the instability they’ve created for ordinary Americans is threatening to collapse real estate and investment markets again, potentially putting them on the hook for massive investor lawsuits:
… The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. …
As the article goes on to note, the banks didn’t pass either the discount or the information about bad mortgages in their investment pools on to shareholders. They pocketed the money and let investors believe that they were buying safe securities.
Meanwhile, many foreclosed homes are now in limbo, with prospective buyers unsure if they’d really own the title purchased from a bank that can’t come up with the original note as required by law. It’s a hard blow to a real estate market that already wasn’t doing well.
Which is to be expected. You can’t have a proper real estate market when it seems as though several large banks have stopped believing in property rights and senior members of the press are closing ranks to support them.