by flory
I'm a bit more optimistic than Atrios that the banksters won't steamroll the entire judicial system by foreclosing on homes to which they don't have clear legal title. Even a wingnut heavy judiciary is going to be pretty protective of due process requirements.
But having to go back and clean up the documentation tracking legal ownership on the mortgage notes is really the minor issue here, as Nocera points out in the linked article. The real danger lies in the pooling agreements the banks signed onto when they sold off and securitzed the underlying mortgages:
they are saying that Bank of America was servicing loans in these bonds that the bank knew violated the underwriting standards that the investors had been led to believe the bank was conforming to. What’s more, they said, the bank had never come clean about all the bad loans, as it was required to do. Therefore, say the investors, the bank has a contractual obligation to buy back the bad loans.
In other words, the banks lied through their teeth, assuring the investors that these were properly underwritten loans, when they knew exactly what kind of toxic shit they were selling. Chances are good the banks are going to lose these lawsuits. Not only are they pretty obviously wrong from a legal standpoint, but they're not fighting against Joe and Jane Homeowner. They're fighting the New York Fed and the biggest bond funds in the country.
Unfortunately, winning can also mean losing:
If the foreclosure lawyers start winning a lot of cases, if judges halt foreclosures on a widespread basis, if investors start to extract billions upon billions of dollars from the banks — and if banks become seriously weakened as a result — we’ll be right back where we were two years ago. The banks will need to be saved for the good of the economy. The taxpayers will have to come to the rescue. That’s an appalling prospect too.
TARP II anyone?
The question is, will the tone-deaf Obama administration try to pass another trillion dollar bank bailout without some pretty heavy regulatory trade-offs? A majority of the country already thinks TARP I was an Obama bailout, rather than Chimpy's. Passing a TARP II without really sticking it to the banksters would be political suicide. Especially since all of this would likely be playing out right about the 2012 campaign season.
Anyway you look at it, the worst of the bankster-created economic problems may very well be ahead of us. I wish I had more faith that Helicopter Ben, Little Timmy Geithner and the rest of the Obama economic team will be willing to put the interests of the taxpayers, and the future of the country, ahead of the interests of their bankster buddies.