Is the foreclosure crisis a case of systemic fraud?
TEXT OF INTERVIEW
Kai Ryssdal: Add the Securities and Exchange Commission to the list of regulators trying to untangle the foreclosure mess. The SEC is said to have launched a probe into the signing and or transferring of mortgages among lenders. Who actually owns the mortgages in question is a big deal not only in the foreclosure crisis, but also in the world of mortgage-backed securities, those toxic assets that were at the heart of the financial crisis two and a half years ago.
Congressman Alan Grayson of Florida wants criminal investigations into what the banks have been doing, too. Congressman, welcome to the program.
Alan Grayson: Thanks for having me with you.
Ryssdal: On a scale of one to 10, with 10 being housing-Armageddon and one being, you know a momentary hiccup, where does this foreclosure mess lie on a scale of systemic risk?
Grayson: We don’t know, and that’s the way it is with systemic risk. It’s often coming from a place you never expected, but it is possible that we’re going to be at a 10. It’s possible with this scenario. Thanks to the privatization of property ownership records in this country in the past five years, we’re now at a point where we’re not sure who owns what. For centuries going back to Common Law under English times, if you had an interest in property you had to record it physically by filing a paper in the courthouse and paying your stamp tax. In the last five years, the mortgage industry in the United States has taken it upon itself to try to avoid those stamp tax fees by deciding among themselves who owns what and establishing sloppy electronic records in place of the paper records in courthouses.
Ryssdal: You have said, Congressman, that you believe that this is deliberate systemic fraud. The banks on the other hand say, “You know what? We got a couple of pieces of paper wrong out of millions of transactions.” What are we, the news consuming public, to believe?
Grayson: Well, what we know already is that they have taken away from the states and localities any ability to reconstruct at this point who owns what, and done things that are already public record like backdating documents, forging signatures. It’s fraud, it’s perjury. If anybody but a bank were doing it, it would be clear that person should be in prison.
Ryssdal: A friend of mine said to me the other day, “You know what’s going to happen on this one, Kai? Congress is going to get involved. They’re going to find some way to make this right with the paperwork, with the banks. They’re going to maybe have the banks pay a nominal fee and then the taxpayers are going wind up on the hook for whatever the actual solution turns out to be.”
Grayson: No, I don’t think so. I think what’s actually going to happen is that the Federal Reserve is going to become involved. And the Federal Reserve is going to wave its magic wand by buying these assets of questionable value or validity. And once the Fed has them then the Fed will be able to absorb the losses because the Fed can print money. That’s what I think is likely to happen. And I think it’s a shame because while that may not use tax dollars to take care of a problem created by private interest and a problem that should be borne by private interest, it does cheapen the value of every dollar in your pocket and your savings and the value of every asset that you own.
Ryssdal: You sit on the House Financial Services Committee. I’m sure could call up Chairman Frank and say, “Listen Barney, we need to do something about this.” When are you guys going to have hearings?
Grayson: Well, obviously we’re a little preoccupied right now. I’m a little preoccupied; I’m the first Democrat to represent my district in 34 years, and I won by 4 percent of the vote in 2008. So I have a couple of other things on my mind right now apart from this. But not withstanding that I think we have accomplished a lot already. For instance, flagging this as a potential systemic risk.
Ryssdal: So, after the election then we could perhaps have some hearings?
Grayson: I’m on the Oversight and Investigations Subcommittee of the Financial Services Committee. After the election we will ask the powers that be for permission to have such a hearing. I’m hoping that we get it because we’re talking about trillion and trillions of dollars worth of value.
Ryssdal: Alan Grayson, Democrat of Florida on the foreclosure mess. Congressman, thanks very much for your time.
Grayson: Thank you, too.
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