Category: Government Failure

What I’m Beginning To Suspect About The Mortgage Fiasco?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

At the moment, the mortgage crisis occupies a considerable amount of space on the web and the regular news, both popular and financial. I have been observing problems in the process for a long time.

The first thing that I observed was that banks were almost never re-negotiating their mortgages which struck me as extremely odd. Since the homes were priced during the housing bubble, the bank made much, much more money extending the loan then they did foreclosing, when they could only resell the house at its current market value.

The second thing was a constant drumbeat of stories where the banks were making foolish mistakes, foreclosing homes they didn’t own, or re-negotiating home mortgages and having done so, then foreclosing the house. Pretty strange stuff to see from well financed and lawyered up organizations.

As the crisis began to develop, I noticed that the high speed processing involved lying to judges perhaps several million times with false affidavits. I pointed out in postings that it would be hard to get lawyers to sign off on these things, Judges being the way they are. Then, of course, we found that they had hired every kind of person to sign off on these documents. Why would you want to do that?

I recognized that speed increased profits but you can get speed without incompetence. Considering the threat of later lawsuits and the chances of getting caught, we’re back to the question, “Why would you want to do that?”

One of the background issues that has been reported on a good number of times is that a high proportion of these mortgages were created at the height of Wall Street speculation in mortgage based securities. It was pointed out that in some of the reported cases, when challenged for the actual documents showing ownership, the banks have on occasion, been unable to do so.

Look guys, only a very small proportion of mortgages have been challenged in court. If you’re getting hits in those few cases (you’re finding properties without actual ownership documents), you are looking at the very tip top of the iceberg.

My suspicion is that the banks don’t have proof of ownership not in dozens, or hundreds or thousands of cases but in the tens of thousands. I am beginning to believe that all these bank assurances that the process would not have been any different if they had done their work is PR staving off inquiries as long as possible.

I believe the banks are desperate to get these matters settled before the deluge, to get as many foreclosures out of the way as possible so that when the eventual revelation occurs they can claim that the damage to the larger economy does not merit prosecution.

I suspect we are about to go into a second banking crisis similar to the one in 2008.

I hope I am just over suspicious and jaded.

If my scenario is accurate, we and the economy are in for a rough ride.

James Pilant

The Human Touch

On By southwerkIn business ethics, Capitalism, Government Failure, Philosophy of Business, White Collar Crime

The word, home, has powerful meanings for Americans. Who can forget, Dorothy in the Wizard of Oz, saying over and over, “There’s no place like home.” How many of us “want to go home?” How many of us when overseas, look back at the U.S. and think about going “home.”

Home is a human concept life love, caring, kindness,.. those kinds of things.

It’s hard to quantify.

For most of American history, homes were very simple, often one room, generally little more than shacks. But as time went by and with urbanization, homes became larger and more complex … and more expensive.

For most Americans, purchasing a home all at once became impossible. A market for mortgages developed and people bought their homes over time.

Banks were small and deeply embedded into the fabric of the community. Social fabric is a fancy word for multiple relationships. A local bank with small resources depended heavily on the success of its loans, even the smallest, for its continued success. So, the bank exploited its connections, it knew a great deal about a creditor, may have known him personally, probably his family as well. They knew what he did for a living, not in the sense of the job title on the application, they knew what he did.

The bank was also well known. It’s officials were church goers, customers, friends, etc. The locals knew the bank by its continuously developing reputation.

Thus, there was social pressure both ways. For the homeowner, it was a disgrace to fall behind on payments. For the bank, it was dangerous to its moral authority to foreclose without consideration of many factors. Generally, speaking there was a great deal of pressure, rightfully so, to work out the problem rather than seize the home.

That’s gone. Beginning roughly in 1999, banks began selling their loans as assignments to investment banks to be bundled into “securities” to be sold to the foolish and the more foolish.

There is no knowledge of the community or the borrower beyond the thinnest veneer of computer data. The bank might as well be orbiting Pluto for all the effect of public opinion.

Human and business are both relegated to key strokes.

This limited knowledge is probably entirely adequate for “World for Warcraft.”

Taking a process developed from a community developed series of relationships has been disastrous. Banks were given the benefit of the doubt because as community citizens they could be trusted. This made the process of mortgage foreclosure easier for the banks, streamlining a difficult problem in the community to be as painless as possible.

Maintaining that level of trust in bank integrity has been disastrous in an age where banking has become more a world of bonus obsessed, financial buccaneers than respectable community bankers.

The human recipients of the mortgages have suffered terribly. They have very often expected that their loans could be modified as since they were making what in the past were reasonable offers only to be tossed from “the gates of the temple.” What was reasonable no longer mattered. What was the best decision no longer mattered.

The only thing that mattered was the process. Humans need not apply.

We can no longer pretend that banks are reasonable, that they will act intelligently, or that they have the interest of the community or their nation in mind, when they make decisions.

James Pilant

Just For Fun – Rich Whitey On Ballot In Illinois!

On By southwerkIn Government Failure

From the Chicago Sun-Times –

The last name of Green Party gubernatorial candidate Rich Whitney is misspelled as “Whitey” on electronic-voting machines in nearly two dozen wards — about half in predominantly African-American areas — and election officials said Wednesday the problem cannot be corrected by Election Day.

The misspelling turned up on touch-screen machines in 23 wards overall. Whitney’s name is spelled correctly on the machines’ initial screens showing all of the candidates’ names, but it is misspelled on review screens that later show a voter his or her choices, said Jim Allen, spokesman for the Chicago Board of Elections.

This is the actual “Rich Whitney.”

This is a serious problem. The misspelling could endanger his chances of winning the election. However, since he is polling currently at 2%, the danger may be small.

(It might knock him down to 1.8% in the general election, a true landslide.)

James Pilant

Does History Repeat Itself – The Stock Market Crash?

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure, White Collar Crime

“The past is prologue?” Are we in the same place that America was in during the first years of the Depression? I worry that this economic downturn is just the beginning of long term destabilization of the economy.

(You should probably avoid my blog if you want to put a happy face on the economic situations because I find it hard to find things just to be content about.)

I found a wonderful set of history films about the early days of the Great Depression. They provide a lot of insight into how people thought and reacted to the events as they unfolded day by day. We look at what people were saying, what they were reading, what music they were listening to. We can wonder if we wouldn’t have done the same things. It’s a better way to understand history than the summaries in textbooks.

If you listen to the incredible confidence that the moneyed and political class had in the economy and the sureness they had in an immediate recovery, you have to wonder about those in out system today, who say we’ve turned the corner.

We have not.

Part 1 –

Part 2 –

Part 3 –


Part 4 –

Part 5 –

I want to be wrong about all this. I want the economy to thrive, everyone to have a job, and as much as possible for people to become prosperous.

We’ll see.

James Pilant

President Obama Is Lagging Behind Public Opinion

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business, White Collar Crime

I’ve been saying this for several days. The public, the states, the courts, are all moving toward a consensus that a foreclosure freeze is necessary. The President does not think so and he has sent his minions to be sure we understand his position.

Andrew Leonard writing in Salon, an article entitled “Obama’s foreclosure nightmare,” describes the situation in terms very similar to mine.

Once again, the President lines up with the financial industry and the banks against the interest of middle class Americans.

Drawing on Leonard’s article and adding my own spin, the situation is like this. Now, generally speaking, I do not waste my time on the Wall Street Journal Editorial Page, but have heard a rumor that their take on this situation is that all this stuff about not having the proper documents is just a matter of procedure and is really not something to get that excited about.

This is the United States. In this country you cannot transfer any land whatsoever without a written contract, that’s LAW 101, the statute of frauds. If you can’t produce your paperwork, you don’t get the property. Why? Because in Western Civilization, land has been considered the primary measure of wealth and status for hundreds of years. Therefore, the law was made to protect those interests.

How come the banks don’t have good records of who owns the property? Well, that has to do with the enormous speculation(casino capitalism) of the latter part of this decade. The great wall street investment houses were buying and packaging mortgages into packages of securities. But if they followed careful procedures they wouldn’t have had as much as they wanted. So, they “cut some corners,” “skipped a few steps,” “overlooked a rule here or there,” to get those mortgages as quickly as possible. What was the result? Incomplete paperwork, missing documents, and general confusion were the result of that speculative era. So, the banks had a problem with foreclosures. If they followed proper procedures they were hit with a double whammy. First, there was no way they could process the number of mortgages they wanted foreclosed without hiring a lot more staff and spending a lot more time doing the work right. Second, if they examined the documents carefully they would run across all the problems bequeathed them by the previous financial speculators. So, they solved both problems. They processed the mortgages without looking at them. It was an elegant solution. It was thrifty, cost effective almost beyond belief, and not legal.

I am outraged. I’m not the only one. The general public is only at the edge of this issue. It’s only been running hot in the media for almost two weeks. This issue has built up power in a politically brief period of time. But it’s not hard to tell the direction that public opinion is going. On one side we have banks refusing to obey the rules, while on the other we have story after story of homeowners tossed from their homes without legal justification. How do you think it’s going to go? If this were a Western, who’s wearing the black hats and bushwhacking their enemies?

The President should declare a moratorium on mortgage foreclosures. It does not have to be a blanket ban. He could ban the ones where it is known that there have been problems with a provision to extend it to other firms if similar wrongdoing is found. That would be adequate. In my opinion, a full blanket ban is the smarter move politically but that’s really not important.

I know the President is worried that this will stall the recovery. Of course, if you follow my blog, you know that I believe this is a lull before more serious problems appear and not a recovery at all.

To the President I would say, “This nation can handle a steeper economic downturn better than the continued wrong doing by some of the most important and most influential people in the financial industry. At some point, justice has to take priority over economics.”

I might add.

“Mr. President, I can feel the anger out there. How much more can people take? The basic facts appear to be out. The financial industry breaks the rules and knows that nothing will be done. The money will continue to flow. Their stock will go up. The bonuses will get bigger. The great mass of American citizens do not believe that if they did these things that they would be handled so gently and rewarded so thoroughly.”

“So, what’s it gonna’ be. Are you going to confirm to the great majority of Americans that there are two kinds of law, one for them and another for the foreclosure industry?”

“At what point, will you decide to enforce the law, seek out the guilty and bring them to justice?”

James Pilant

Mark Thoma – The Lessons Of The Economic Crisis Of 2008

On By southwerkIn business ethics, Capitalism, Government Failure, Teaching

Mark Thoma is a distinguished academic. His take on the vital lessons the banking collapse and the poorly executed bailout are similar to my own.

The overarching lesson in all of this is that getting government out of the way isn’t always the best path to prosperity. The crisis should have taught us that government has an essential role to play in preventing problems from occurring in the economy, and in correcting problems when they occur despite our attempts to prevent them. But, unfortunately, due to poorly executed policy, political posturing, obstructionism in Congress, and ineffective rebuttal from the administration, that’s not the lesson that has been learned.

He maintains a largely academic web page, which is worth a read. He also has a Facebook page which I recommend you join.

This is an example of his rhetoric.

This man has full sized lectures available on You Tube. He is an expert on econometrics, but don’t worry he is not always that high on academic difficulty when he speaks or writes.

Attorney General, Beau Biden, Of Delaware Calls For Foreclosure Stop

On By southwerkIn business ethics, ethics, Government Failure, Philosophy of Business, White Collar Crime

This is a Fox News item. Biden explains that as an Attorney General, his job is not to consider the economic impact of taking action against the mortgage foreclosure industry. His job is to make sure the banks follow the rules.

We’re not hearing this much. There is a duty on the part of public officials to enforce the law. These companies have failed to follow the rules for more than two years and they have caused real harm. They have abused the legal process and lied to the courts.

Here’s the video – I warn you that the Fox News people keep trying to get him to talk about the economic impact of taking on the banks. It becomes annoying after a while. To his credit Biden doesn’t give any ground.

Watch –

James Pilant

Mayor Of Lansing, Michigan Came Out For Moratorium In 2009!

On By southwerkIn business ethics, ethics, Government Failure, Philosophy of Business, White Collar Crime

On the Ed Show, the Mayor of Lansing, Michigan explains why he favors a foreclosure freeze. Well, fortune favors the brave. The mayor knew something was wrong and called it like he saw it. Kudos to the citizens of Lansing for electing a fighter!

He’s calling for a two year freeze!

Should President Obama Enforce The Law Against The Great Mortgage Companies?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

The banks will suffer if a moratorium is declared on foreclosures and this will cause economic problems that will filter down into the rest of the country making our recession worse. This is probably true.

If we penalize, punish these huge financial organizations for their violations of the law, we will also have economic problems very similar to those associated with a moratorium. Mortgage companies will have to slow down foreclosures reducing bank profits across the nation. If there are prosecutions, key players who understand the system and have repeatedly proved themselves moneymakers would be out of play and their vital skills unavailable to maintain bank profits at the current high level.

It is said that while the violations of the law were especially cruel to the occasional mortgage holder, generally speaking the process is sound and few were actually harmed. Their are no statistics bearing this out because mortgage companies did not look at (in fact, ignored) the records before they foreclosed. Nevertheless this is a common belief. And common beliefs are often true.

And while the courts were directly lied to on hundreds of thousands of occasions, these were purely procedural matters. In the vast majority of cases, nothing would have changed, the foreclosures would have taken place. Should we penalize the great financiers upon which this nation’s prosperity depends on for what is really a purely procedural violation? While obviously there is some moral failing in filing cases without any actual knowledge of the facts, the facts were generally routine.

Further, no large organizations were harmed. Without any large corporations or other large economic players damaged the recovery can proceed. Does it really matter that there were procedural irregularities in which only small economic units were harmed? Can this really be really worth actual prosecutions costing time and money? Can we afford to damage the reputations of the top figures in American finance during this period of slow growth and economic uncertainty?

Is it not reasonable to pass over this unpleasant episode with as little fanfare as possible, of course, having some review of some mortgages that have gone wrong? There was no intent to defraud these individuals. The only reason documents were processed without examination was to speed the process. Looking at the documents would not have allowed the firms to foreclose on tens of thousands of homes a month. Let me ask you, really, how can a mortgage company compete with other companies doing as little process as possible? Following the law would have cost billions of dollars and threatened the very existence of companies in compliance. Have some compassion! These companies employ tens of thousands of individuals whose salaries and expenditures go to support this economy.

Be reasonable. The law is merely a tool, sometimes to be raised (perhaps when there a bank robbery, you know a violent crime) but at other times to be laid aside. Sometimes the harm of enforcement is greater than that of justice.

Reasonable! When did that word become a tool for those contemptuous of the law.


When did threatening our economy with ruin become a successful strategy to avoid prosecution?

When did lying to the court become a routine matter? When did taking peoples’ home become so routine that when we don’t know whether they should have been taken or not, no one is supposed to care?

When did the importance of competition become so important that it overrode the needs of the nation’s people and simple justice?

Where is justice? Can it be found? Does it exist?

Here, listen to this fellow and his thoughts on the law –

Let reverence for the laws, be breathed by every American mother, to the lisping babe, that prattles on her lap — let it be taught in schools, in seminaries, and in colleges; let it be written in Primers, spelling books, and in Almanacs; — let it be preached from the pulpit, proclaimed in legislative halls, and enforced in courts of justice. And, in short, let it become the political religion of the nation; and let the old and the young, the rich and the poor, the grave and the gay, of all sexes and tongues, and colors and conditions, sacrifice unceasingly upon its altars.
–January 27, 1838 Lyceum Address

Let every American, every lover of liberty, every well wisher to his posterity, swear by the blood of the Revolution, never to violate in the least particular, the laws of the country; and never to tolerate their violation by others.
–January 27, 1838 Lyceum Address

That was Lincoln.

And then there was this guy –

“If the people cannot trust their government to do the job for which it exists – to protect them and to promote their common welfare – all else is lost.”

“In the absence of sound oversight,responsible businesses are forced to compete against unscrupulous and underhanded businesses, who are unencumbered by any restrictions on activities that might harm the environment, or take advantage of middle-class families, or threaten to bring down the entire financial system.”

We didn’t become the most prosperous country in the world just by rewarding greed and recklessness. We didn’t come this far by letting the special interests run wild. We didn’t do it just by gambling and chasing paper profits on Wall Street. We built this country by making things, by producing goods we could sell.

That guy was Barack Obama.

Where’s justice?

James Pilant

Kansas City Mayor Calls For Foreclosure Moratorium

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

I’m sorry you have to watch a commercial before it gets going, but it’s good of coverage. The local news station’s take on these is different from the national media. The beltway bloviators are usually out of touch with public sentiment.

James Pilant