Proponents of the rule of law were cheered last week by the Massachusetts Supreme Court's decision that banks had to prove they held a mortgage to foreclose on it, one of the niceties that has seemed to have gone by the wayside in the housing crisis.
Never fear, banksters, the Third Way has jumped in with a proposal [pdf] in response to the US Bank v. Ibanez decision in Massachusetts. Yves Smith takes a comprehensive look at the proposal.
Their proposal, not surprisingly, is yet another bailout.
The big difference between the original and the new, improved version of the bailout model is that the payouts to the banks were at least in part visible the first time around. This is an effort yet again to spare the banks any pain, not only at the cost of the rule of law but also of investor rights.
This proposal guts state control of their own real estate law when the Supreme Court has repeatedly found that "dirt law" is not a Federal matter. It strips homeowners of their right to their day in court to preserve their contractual rights, namely, that only the proven mortgagee, and not a gangster, or in this case, bankster, can take possession of their home.
This sort of protection is fundamental to the operation of capitalism, so it’s astonishing to see neoliberals so willing to throw it under the bus to preserve the balance sheets of the TBTF banks. Readers may recall how we came to have this sort of legal protection in the first place. England learned the hard way in the 17th century what happens with low documentation requirements: abuse of court procedures, perjury and corruption become the norm. Parliament enacted the 1677 Statute of Fraudsto establish higher standards for contracts, such as witnessing by a third party, to stop the widespread theft of property that was underway.
The memo completely ignores the harm to investors from the bank mistakes and lacks any provisions for damage to investors to be remedied. Moreover, denying borrower rights removes their leverage to obtain deep principal mortgage modifications, which for viable borrowers produces lower losses than costly foreclosures and sales of distressed property. Thus this shredding of contractual protections in mortgages not only hurts borrowers but also harms investors.
So to save the banks from their own, colossal abuses of contracts that they devised, the Third Way document advocates Congressional intervention into well established, well functioning state law. This is a case where these matters can and should be left to the courts and ultimately state AGs to coordinate the template of a more broadbased solution.
But this proposal is this memo is a direct result of the banks losing in court and the fear that they will continue to lose. The Massachusetts Supreme Judicial Court Ibanez decision is clearly the trigger for the release of this plan. The SJC said its decision was merely articulating well established law. Consistent application of these principles will mean more losses for the banks. This memo is clearly an attempt to stop this as soon as possible. The real message of this document is clear: we can’t permit justice to prevail if it will hurt bank profits and balance sheets.
Why worry about what a bunch of wankers at Third Way propose? Because those wankers have emerged, particularly now with Third Way board of trustees member Bill Daley on his way to the White House (once he sells his $7.6 million worth of JP Morgan Chase stock). Yves writes, "These people sit at the nexus of politics and finance, and are conduits for big bank friendly information flow into the administration and Congress." When it comes to economic policy, they are frighteningly influential.
And as Marcy convincingly argues, they think there should not be any consequences for the banksters who have been illegally seizing people's homes. For the Third Way, the rule of law just doesn't apply to everybody.
