My favorite lines from Karl Rove’s op-ed in yesterday’s Wall Street Journal, on the government’s proposed $20 billion “robo-signing” settlement with the banks, are these:
It is fundamentally unfair, even devious, to fleece banks out of billions, ignore victims of "robo-signing" who were wrongly evicted, and then hand out cash to cronies. The $20 billion bank stick-up is a transparent attempt to pay some voters a thinly disguised election year bribe, while pretending the money didn't come from millions of middle-class families with a checking account, loan or credit card at an affected bank.
That’s exactly right. What the Justice Department and the state attorneys general have in mind for the banks is essentially an extortionfest. For all the hand-wringing over the robo-signing “scandal,” I have yet to read of a single family—there’s probably one or two somewhere, but no reporter seems to have found them—that was current on its mortgage but wrongly evicted by some evil bank, anyway. That would be a scandal. But it didn’t happen. Which is to say, there are no true victims here. The problem, to the extent there was one, involved paperwork and record-keeping. The government and the banks have already reached an agreement to revise the banks’ (admittedly out-of-date) mortgage servicing practices. Case closed. Or, at least, it should be.
Yet the DoJ and the AGs want the banks to cough up $20 billion, anyway. (That would be $20 billion don’t forget, that might otherwise be lent to, say, individuals and small business.) And for what? To compensate delinquent borrowers who were evicted after getting to live in their homes for 18 months or more rent-free? What sense does that make? Certainly the $20 billion wouldn’t be enough to help heal the housing market. Delinquencies there run in the trillions. Instead, most states will likely use the proceeds to distribute to politically favored groups. It will be a boondoggle endowment, in other words.
Worst of all, all the DoJ’s and AG’s shakedown efforts are doing is stalling the one process, that of repossessing and disposing of foreclosed homes, that will end the housing crunch one and for all. The government is freezing that process in place, instead. That’s bad. As long as bank inventory hangs over the home market, prices can’t recover. If the government were really interested in a solution, it would step back and let the disposition process run its course.
What do you think? Let me know!