Friday, October 15, 2010

Foreclose the banks

There is a big row in the US over foreclosure. It turns out that some banks have been over-eager in taking back properties from defaulting mortgage-holders, including one case where a house was seized from someone who didn't even have a mortgage.

The fascinating thing is how big finance is reacting. According to the Wall Street Journal, a typical view on Wall Street is as follows:

"Talk about a financial scandal," a Wall Street Journal editorial this weekend joked. "A consumer borrows money to buy a house, doesn't make the mortgage payments and then loses the house in foreclosure—only to learn that the wrong guy at the bank signed the foreclosure paperwork. Can you imagine?"
"The problem is they don't deserve to be in that place. They probably deserve to be there less than they used to," the source continued, referring to incomes lower now than they'd been when the loans were made in the first place. "You do need to foreclose, and you need to go back to people living in houses that are consistent with their income levels."

This is outrageous on so many levels.

First, who sold the mortgages to these consumers in the first place? Did prospective buyers have to twist the banks' arms to get them to finance purchases at ridiculous asking prices? Anyone who has bought a home in the UK or the US in the last decade knows that banks were throwing money at potential borrowers like there was no tomorrow. Other people's money. Let's remember what a financial institution does. It takes money from savers, and invests it in the hope it will grow and make a profit for both the bank and the investor. The money the banks lent out to homebuyers was not their money - it was money they were supposed to invest to make a profit for someone else. If the mortgage-holder defaults, then the bank has not done its job - it has cheated the investor. People will surely go back to living in houses consistent with their income levels if banks limit themselves to making realistic loans.

Second, hang on a second, didn't the banks come very close to their own foreclosure, before they were bailed out with $700 billion of TARP and an ocean of cheap money? How can they get high and mighty about what a defaulting mortgage-holder 'deserves', when they themselves would have been closed down two years ago but for a dose of state socialism? I'm sure most homeowners would have stood a better chance of staving off foreclosure had Ben Bernanke lent them money at 0% to tide them over hard times.

That'll do for now. But in case anyone was deluded into thinking the people who work in finance had any clue about what has happened to us since 2007, this should remind them that the oligarchs have no intention of saying sorry for anything.