Matt Taibbi’s latest piece focuses on the Rocket Docket court set up in Jacksonville to expedite a backlog of foreclosure cases in the state of Florida. It’s a well-written, well-argued article, and you really should spend the half-hour it takes to read it because it helps explain the collapse of the housing market and who is primarily to blame. It also documents how the courts are laundering what the banks and mortgage originators did, often at the expense of innocent people. The only problem with Taibbi’s article is that he doesn’t really explore any alternatives to laundering these crimes. That’s a concern because anyone with the responsibility for cleaning up this mess must first do no further harm to the economy and to the employment situation in this country. They also have to use a realistic set of assumptions about what they can get Congress to do.
As infuriating as it is to let these people off the hook, there are good reasons for helping them avoid the consequences of their actions. Taibbi is aware of the problem:
You’ve heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can’t admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn’t be, but often are, closed.
He even spells the problem out in detail.
Why don’t the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them. According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued. Think about what that would do to Bank of America’s bottom line the next time you wonder why they’re trying so hard to rush these loans into someone else’s hands.
The problem is the same as what we faced in September 2008. For our economy to function, for companies to meet payroll, for new companies to start up, for people to buy homes and cars, we need banks that are willing and able to extend credit. The problem is that the banks ripped off their investors to such a massive degree that they can’t pay the money back all at once without going broke. We’ve been trying to unwind this mess for more than two years now, and the latest problem with the sloppy paperwork presents just as big of a systemic risk to the financial sector as the original problem with sagging housing values.
The rot is so pervasive that no one wants to face up to it because it would send the world economy teetering again and probably lead to more massive layoffs in an economy already laboring with unemployment rates north of nine percent.
In a sane world, Congress would do something comprehensive to fix the competing irrational incentives that are causing hundreds of thousands of people to lose homes they could probably afford if they could just get a loan modification. But Congress is incapable of taking that kind of action. All they care about is that some people aren’t paying their bills.
I think this is why the HAMP program isn’t working. And I don’t know what the administration can really do in a situation where Congress will not act. So, what’s Taibbi’s solution other than throwing half the country in prison where they belong? He doesn’t say. And that’s probably because he doesn’t know what to do either.