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March 13, 2011
Another Inside Job
ByPAUL KRUGMAN
Count me among those who were glad to see the documentary “Inside Job” win anOscar. The film reminded us that the financial crisis of 2008, whose aftereffects arestill blighting the lives of millions of Americans, didn’t just happen it was madepossible by bad behavior on the part of bankers, regulators and, yes, economists.What the film didn’t point out, however, is that the crisis has spawned a whole new set of abuses, many of them illegal as well as immoral. And leading political figuresare, at long last, showing some outrage. Unfortunately, this outrage is directed, notat banking abuses, but at those trying to hold banks accountable for these abuses.The immediate flashpoint is a proposed settlement between state attorneys generaland the mortgage servicing industry. That settlement is a “shakedown,” says SenatorRichard Shelby of Alabama. The money banks would be required to allot to mortgagemodification would be “extorted,” declares The Wall Street Journal. And the bankersthemselves warn that any action against them would place economic recovery at risk.All of which goes to confirm that the rich are different from you and me: when they break the law, it’s the prosecutors who find themselves on trial.To get an idea of what we’re talking about here, look at the complaint filed by Nevada’s attorney general against Bank of America. The complaint charges the bank with luring families into its loan-modification program supposedly to help themkeep their homes under false pretenses; with giving false information about theprogram’s requirements (for example, telling them that they had to default on theirmortgages before receiving a modification); with stringing families along withpromises of action, then “sending foreclosure notices, scheduling auction dates, andeven selling consumers’ homes while they waited for decisions”; and, in general, withexploiting the program to enrich itself at those families’ expense.The end result, the complaint charges, was that “many Nevada consumers continued
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to make mortgage payments they could not afford, running through their savings,their retirement funds, or their children’s education funds. Additionally, due to Bank of America’s misleading assurances, consumers deferred short-sales and passed onother attempts to mitigate their losses. And they waited anxiously, month aftermonth, calling Bank of America and submitting their paperwork again and again, notknowing whether or when they would lose their homes.”Still, things like this only happen to losers who can’t keep up their mortgagepayments, right? Wrong. Recently Dana Milbank, the Washington Post columnist,wrote about his own experience: a routine mortgage refinance with Citibank somehow turned into a nightmare of misquoted rates, improper interest charges,and frozen bank accounts. And all the evidence suggests that Mr. Milbank’sexperience wasn’t unusual.Notice, by the way, that we’re not talking about the business practices of fly-by-nightoperators; we’re talking about two of our three largest financial companies, withroughly $2 trillion each in assets. Yet politicians would have you believe that any attempt to get these abusive banking giants to make modest restitution is a“shakedown.” The only real question is whether the proposed settlement lets themoff far too lightly.What about the argument that placing any demand on the banks would endanger therecovery? There’s a lot to be said about that argument, none of it good. But let meemphasize two points.First, the proposed settlement only calls for loan modifications that would produce agreater “net present value” than foreclosure that is, for offering deals that are inthe interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue toextract fees. How could ending this highway robbery be bad for the economy?Second, the biggest obstacle to recovery isn’t the financial condition of major banks,which were bailed out once and are now profiting from the widespread perceptionthat they’ll be bailed out again if anything goes wrong. It is, instead, the overhang of household debt combined with paralysis in the housing market. Getting banks toclear up mortgage debts instead of stringing families along to extract a few moredollars would help, not hurt, the economy.In the days and weeks ahead, we’ll see pro-banker politicians denounce the proposed
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11-03-13 Paul Krugman Re- The Banking Crisis - Another Inside Job - "A system where the bankers can cheat and defraud without consequences..."_ NYTimes
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Another Inside Job - NYTimes.com
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