“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Tuesday, October 12, 2010

"The Politics of Foreclosure"

I borrowed this post's title from the Wall Street Journal's lead staff editorial this weekend. How appropriate it is.

With all the faux-shock and surprise attending the nearly-simultaneous announcements by the nation's largest commercial banks that they are halting foreclosures, it's useful to examine the essentials.

Specifically, as the Journal piece notes, nobody has argued that any of the foreclosures harmed borrowers who were actually paying their mortgages. No mistakes of that nature were made. The only issue is some quibbling over whether, as the editorial contends,

"The result is the same, but politicians understand the pain that results when the anonymous paper pusher who kicks you out of your home is not the anonymous paper pusher who is supposed to kick you out of your home. Welcome to Washington's financial crisis of the week."

If you haven't figured this out already, here's what is really going on. Chase, the first of the big banks to 'discover' this meaningless error, is headed by a liberal CEO, Jamie Dimon. He was among the most frequent business leader visitors to Wonderboy's White House in the first year or so. Even named by Wonderboy as a favored, leading banker.

US commercial banks are sitting on large numbers of foreclosed mortgages which, ordinarily, would be sold at distressed prices, to free up lending capital. But this is political suicide. Ever since the middle of 2008, during the last presidential election cycle, Democratic candidates competed with ever-more generous foreclosure halt demands. Continuing with foreclosures and disposals would drive home prices through the floor, probably dampen consumer confidence, and delay any nascent economic recovery.

Of course, the resulting recovery would be "real," and, for a change, smaller investors would get a chance to buy assets at fire sale prices. Just like the big hedge funds in late 2008.

But that's not going to happen. Because this administration doesn't believe in market dynamics, and the bankers who depended on the federal government for rescue capital dare not cross Wonderboy.

So a new reason has been found to stop the foreclosure clock. It's a paperwork foul-up. No end in sight. Egregious paper shuffling mistakes which must be stopped, investigated, corrected, etc.

It's a farce, of course, But looks good for the Democrats and serves to delay the inevitable correction of prices in the housing market.

It's just politics as usual....nothing more.

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