1
Weekly Wrap: The foreclosure settlement
Reviewing the week's headlines on Wall Street.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
FT's Cardiff Garcia and Reuter's Felix Salmon wrap up the week's big news: The $25 billion settlement between the government and big banks.
On the details of the deal, and whether it will help the housing industry:
Felix Salmon: As part of the deal, no one can sue these banks for robo-signing. And that means that this big multi-billion contingent liability -- the amount of money that they could lose if they got sued -- has been lifted from them. At the same time, they actually want to do principal reductions on the bunch of people who owe much more than their homes are worth because that's going to make those people more likely to repay their loans. But by waiting until the deal was signed, they get to have their cake and eat it. They get to do the principal reductions they were going to do anyway and they get the immunity from prosecution.
Cardiff Garcia: I actually mostly agree with Felix's take on it. It was a pretty good deal. It was time to put this behind us. It was unclear exactly how much more the government could have gotten, so rather than let it drag out, you just get it done. In terms of its overall impact, though, I guess I would still emphasize that so much more could be done for the housing market. In terms of its macroeconomic impact, this is still pretty small. My sort of hope is that what doesn't get lost here is how much could be done.
For more analysis, listen to the audio above.
I should think this would be an insult to homeowners, as well as yet another gift to high finance, and a betrayal of Americans by their government(s). States coming together to give banks protection against civil liability is a way of saying, “We’re done.” Sure, individual homeowners can continue to pursue legal redress against banks for their losses; and I can start an airline if I want to. To say that “Well, this isn’t a great deal, but it’s a step in the right direction” sounds a lot like the rationale used to “fix” health care: “We really wanted a public option in the proposal, but carving out a mandatory market for a monopoly of private insurers is a step in the right direction, isn’t it?” No, it isn’t. It’s a step in the wrong direction. Likewise, “Well, we really want to rein in the ‘originate to distribute’ securitization process and protect homeowners from any further abuses owing to rampant Wall Street speculation, but handing those who have lost their homes a couple of thousand bucks while maintaining our faith in market fundamentals so we can get back to business as usual is a step in the right direction, isn’t it?” No. It isn’t. Crime that pays is crime that stays.
