Summary: After two years of reports about foreclosure fraud by banks, resulting in millions of families kicked onto the street, the issue finally gets attention from the news media, representatives, and law enforcement officials. The sparks have kindled a small fire, which might grow in ways difficult to foresee. This is a follow-up to Here’s an opportunity for the Tea Party: fighting foreclosure fraud by banks!
By now even the news media are on the financial fraud story, which slowly gathers momentum:
- Press release from California’s Attorney General: Brown Calls on Banks to Halt Foreclosures In California.
- Delaware’s AG requests foreclosures stop by Bank of America, JP Morgan Chase, and Ally Financial (formerly GMAC)
- Ohio’s Attorney General Cordray Files Lawsuit Against GMAC Mortgage
Let’s ignore the trivial details and focus on the significance of this stage in the financial crisis.
- The crisis began (ignition) in late 2007.
- It burned along, gathering momentum, without meaningful government treatment until the late 2008 global explosion.
- Months afterwards the governments of the developed nations began first aid. The equivalent of bandages and morphine. Simple, effective.
- This stabilized the economy, allowing treatment of the underlying problems. We squandered this opportunity, political paralysis resulting from an ignorant public plus short-sighted elites.
- Now the effects of the first aid slowly wear off, and the crisis moves into a new stage.
- The emerging foreclosure fraud scandals are nothing but small examples of our failure to grapple with the underlying problems.
- All of the systemic weaknesses that caused the crisis remain. A massive oversupply in US housing, high debt levels in the developed nations, aging populations, massive global imbalances in trade and capital flows, and minimal global economic coordination.
Reliably forecasting what comes next is impossible, for many reasons:
- We have no useful examples from economic history. Technology, globalization, and new financial structures make application of past lessons of little use.
- We’re beyond the bounds of current economic theory (esp in its treatment of high aggregate debt levels).
- The political situations in the major nations (EU, Japan, China, US) are all in flux.
- We can only guess at the magnitude and duration of the coming downturn (tiny-short to deep-long).
- The remedies to be tried have no good precedents. Such as quantitative easing 2. It might work, fail catastrophically, or have no effect. We can only guess.
The key variables to watch, none of which the news media will see.
- Social cohesion is the key to national survival. Class cohesion, such as that now waged in the US by the rich against the middle class, cripples a nation’s ability to respond effectively.
- Policy errors — such as those by President Hoover. Nature’s God does not give a damn about intentions. Grasping for easy solutions is natural, probably with disastrous consequences. Relying on the invisible hand (a misreading of Adam Smith) will work for us as well as the Ghost Dancers worked for Native Americans.
For more about these things see the FM reference page about the Financial Crisis.
Other reports about this campaign of lawlessness – and actions to stop it
- For a good summary see this post by Yves Smith at Naked Capitalism. And this update.
- This problem has been know since 2007! See the history at Calculated Risk (a bank-friendly version)
- For the best coverage of this problem see the archives of FireDogLake.
- “Challenges to Foreclosure Docs Reach a Fever Pitch“, American Banker, 18 June 2010
- “Fannie and Freddie’s Foreclosure Barons“, Andy Kroll, Mother Jones, 4 August 2010 — Be seated when you read this!
- Attorney General Bill McCollum has launched 3 investigations into allegations of unfair and deceptive actions by Florida law firms handling foreclosure cases, press release dated 10 August 2010
- Eye-opening letter by GMAC to its agents, instructing them to immediately halt foreclosures and sales of foreclosed homes in 23 States, posted to Scribd, 17 September 2010
- “GMAC Mortgage Halts Home Evictions in 23 States“, Bloomberg, 20 September 2010
- GMAC press release about this action, some vague sort of denial, 20 September 2010
- “Ally Says GMAC Mortgage Mishandled Affidavits on Foreclosures“, Bloomberg, 21 September 2010
- “At Elizabeth Warren’s debut, a spotlight on incomprehensible mortgage disclosures“, Slate, 21 September 2010
- “JPMorgan Based Home Foreclosures on Faulty Court Documents, Lawyers Claim“, Bloomberg, 26 September 2010