Foreclosure Crisis

I haven't heard Cenk talk about the foreclosure fraud mess that is becoming more worrying everyday.  I imagine this topic is coming soon and I have already seen the direction Cenk is going to take on it.  

Basically the underlying problem is that some financial institutions have turned into foreclosure mills.  They process mass amounts of foreclosures using computer programs and low-paid employees.  This has lead to corner cutting and outright fraud.

Another problem is that banks may have violated their contracts with those who bought mortgage backed securities.

Here is a quote from David Indiviglio at the Atlantic:

The investors who hold that MBS might be able to claim that the bonds they hold were not created properly, contracts were breached, and the bank that originated the mortgages needs to buy back the bonds. This, of course, would require many billions of dollars in capital in excess of that banks have lying around. And remember these aren't pretty bonds. They are mostly toxic and full of losses. Those losses would then be passed on to the banks.

Rosner imagines this leading to a Lehman-type weekend, where the financial industry again nears collapse. That might be a little melodramatic, but it isn't impossible. If these investors have the legal standing that Rosner thinks, they would be sort of crazy not to force banks to take back these bad deals. After all, it's better for the investors that they force these losses back to the banks who wrote the mortgages.

If this problem turns out to be real, and the worst-case scenario that Rosner imagines come to be, then it's hard to see how the government could fix it simply without tramping over contract law. Instead, more aggressive approached would be required.

It was Geithner during the AIG-bank bonus scandal who argued vigorously that the government could not and should not step on the sanctity of contracts.  Contracts underpin all that is holy about the free market system.
My guess is that now Geithner's advise will now be different.  Contracts-schmontract s, you can't make banks buy these things back!  They don't have the money!

Another thing to think about:  Who owns these mortgage backed securities now?  The answer is mainly Frannie, Freddie, and the Federal Reserve.  Do you think that the US government is going to ask for it's money back from the banks?

HahahhHAHAHahahaha.

The reason we won't make the banks buy back these assets is pretty simply though.  These government institutions knew they were toxic assets when they bought them.  We were trying to get them off of the banks' books.  To come back now and force the banks to buy them back because of a technicality seems absurd to me.

That said I don't know that much about this topic.  I'm eagerly awaiting Cenk's take on it.