Bacon's Rebellion

Democracy Thrives in Sunlight

Foreclosure Fiascos

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by

James A. Bacon
in

A

common refrain on this blog that gains more currency as frustration with the anemic economic recovery grows is that regulation of business is somehow to blame.

That might suit the right-wingers but it is a fallacy. And just as the big financial institutions were allowed to run amok by federal and state regulators during the go-go mortgage years, a brand new financial problem has arisen: phony foreclosures.

As banks loaned mortgage money like crazy during the last decade, they quickly securitized those loans, meaning they packaged them into parts and sold them off to new owners. Traditionally, if you buy a house, there is a deed of sale and trust or whatever in your local courthouse that states who holds the loan, for how much, and so on. If the house is sold or foreclosed upon, this tried and true system keeps track of ownership and the loaned money.

Well, not no more it don’t. Federal regulators and Congress are finding that many banks, especially the big mortgage enchilada, Bank of America, apparently sold off mortgages without bothering to take the time to record the sales properly.

They often used ill-trained and sometimes semi-literate robo-signers who would sign hundreds of foreclosure papers every day without even examining them.

So, you have banks foreclosing on the homes of people even though they don’t own the loan.

This is insane. But it has happened on such a large scale that it might dip us into another financial crisis.

The reason for this is simple: greed. Banks could give a damn about people or propriety. They made big bucks granting questionable loans. And they made even more bucks securitizing loans and selling them off without messing with the paperwork.

And where were the regulators? Who knows? Probably the same place when banks were greatly leveraging their lending to equity ratios and making loans to people without incomes.

But if you pay attention to the Republicans and some of the people who write for this blog, it’s not the banks’ fault, it’s the fault of “regulation” that is hampering our “free market” system.

Guess what? How can there be a “free market” when someone is seizing your property and selling it off because you haven’t paid a loan that really is no longer due to that person or bank? What’s to keep some free market maven, such as Jim Bacon or Groveton, from showing up at my front door and ordering me out so they can resell my house?

I don’t owe Jim Bacon or Groveton any money.

Peter Galuszka

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33 responses to “Foreclosure Fiascos”

  1. Larry G Avatar
    Larry G

    Something I never understood is who actually owns the house if it has been securitized?

    If you went to the Courthouse to look up the lien holder what would it say?

    If you buy a foreclosed home who mortgage was securitized – who do you write the check to?

    anyone know?

  2. Gooze Views Avatar
    Gooze Views

    You make the check out to Jim Bacon or Groveton.

    Peter Galuszka

  3. RBV Avatar
    RBV

    "Who do you write the check to?"

    The process varies from state to state but in VA the process is handled by a Trustee, i.e. a lawyer, who takes over the process of foreclosure from the lender or servicer of the loan once it goes to foreclosure.

    Part of the problem banks are having is that they can't produce the original documents that buyers signed at closing. If they can't produce the original documents then they legally can't foreclose on property, although they have been doing so, apparently.

    Basically, you write the check to the Trustee, or to the auctioneer who has been appointed by the Trustee to sell the property, I think.

    Anything and everything you can think of can happen that may or may not cause this chain of events to happen but this is a basic scenario of how it goes down, I think.

    The 30-year mortgage is/was a financial instrument unique to modern finance in the USA…..in most countries you can't get a loan for that period of time.

    It created a market for commercial banks (backed by the government) where none existed before it was developed.

    Foreclosure rates were factored into the formula so that the risk was spread out among all borrowers/lenders. They new there would be some foreclosures but the mortgage market as a whole would still function if 99% of borrowers paid and property values rose over time.

    It worked fairly well until foreclosures spiked and property values dropped all at once……so, here we are.

    FYI…

    http://tiny.cc/rb018

    http://tiny.cc/diwsv

  4. James A. Bacon Avatar
    James A. Bacon

    Peter, Once again I must remind you that a belief in "free markets" does not equate to a belief in economic anarchy. Free markets and property rights require the rule of law to work. Free markets require some degree of regulation.

    While *some* laws and regulation are a necessity, there is also such a thing as poorly crafted laws and regulations that impose burdensome costs, encourage perverse behavior through skewed incentives and have all manner of unintended consequences. Surely you acknowledge that. Or do you believe that all laws and regulations ever passed have been benign?

    The trick is to strike the proper balance. I happen to think that our society has veered toward way too many laws and too many regulations. But the fact that I would like to dial back the balance to fewer laws and regulations does not make me an anarchist.

    So, once again, I ask you to stop making absurd characterizations of my viewpoint. While I often disagree with you, I make an effort to take issue with views that you actually believe, and not put into your mouth preposterous things you've never said or thought.

  5. Gooze Views Avatar
    Gooze Views

    Jim,
    You mean you aren't going to foreclose on my house? What about Groveton?

    Peter

  6. Larry G Avatar
    Larry G

    well.. it sounds like that some of these mortgage companies cannot get their hands on the original paperwork that people signed….and as a result cannot actually prove they are the owners.

    I think this perfectly illustrates what happens when private industry is not regulated.

    No self-respecting community bank would allow itself to not have in it's hands the paper that proves it's ownership of mortgaged properties

    but apparently when these yahoos went on their securitization binges – they could not figure out who was supposed to hold the paper.

    And now they are apparently trying to foreclose on people when they don't have the paper and don't even know how much money is owed.

    Now the question is – in this situation – can the Mortgage company use govt to evict the occupants without proof of ownership?

    Sounds like to me that somewhere there has to be "paper" for each house and that eventually it will be "found" but it also sounds like the people who have the paper may not be the people who think they are the owners of the mortgages.

    It would do my heart good to see some of these big investment houses … especially the ones that got bailed out and gave bonuses to get their clocks cleaned.

    I'm sure Darrell in HR/TW is giddy over this….

  7. Darrell Avatar
    Darrell

    I've been saying for a while that you ain't seen nothing yet about this crisis. But giddy isn't exactly the word I would use to describe it. Here are the issues.

    You have been paying on a house exactly the way you agreed. At the end of your payments, you are supposed to get title to that house free and clear. However how can a title be clean, if there is no way to prove ownership? That's why the title insurers are refusing to underwrite foreclosures. Except it is really any mortgage that has run through the sausage grinder of MBS.

    You have a home and decide to quit paying. If the banks can't foreclose then one of two things can happen. You get the house, or you are subject to an unsecured loan that is discharged through bankruptcy and you still keep the house. Which means that the risk for all those trillions of dollars being loaned out by investors has greatly increased because the underlying MBS bonds are not backed by anything.

    Then there are the lawsuits. Investors against banks, banks against government, owners against servicers, you name it. The litigation costs alone would make banks contemplate a new type of walking away. From foreclosures.

    We've seen what happened from the sub-prime mess, we are still living it. Now imagine what will happen if the entire 11 trillion dollar residential mortgage business collapses.

    Then throw in the 4 trillion commercial debt, and just about any muni pool and you should be able to see that robo-signers are the least of the problem.

    See, the issue now is what happens when Too Big To Fail banks fail?

  8. Hydra Avatar
    Hydra

    Peter is right. The stronger the property rights, the freer the market.

  9. Hydra Avatar
    Hydra

    I take out a mortgage. The originator sells the mortgage to Fannie may or a large bank. The bank makes a collection of a hundred or so. The bank then sells a contract which promises the proceeds from the collection. The bank still owns the loans themselves. A fund buys the contract, and as long as the mortgages are paid they get a fair return. Theoretically, each collection gets a rating which depends on area, demographics, and maturity. Larger funds may make a collection of contracts and securitize them. The bank still owns the mortgages and the funds own a bunch of promises. Insurance companies insure the promises. Normally it isn't a tough bet.

    The problem developed when the ratings agencies made fraudulent ratings. The vast majority of mortgages are still being paid. But without a valid rating the subsequent promises have no basis and the value of the promises plummeted.

    You buy a promise against a hundred loans figuring you will make 4% on your investment. The bank gets 80% of its loaned money back, sooner, so it can turn over more loans.

    But if 5% of the loans go bad, the funds 4% turns into negative 1%. If that happens 15 or 20 times, your fund is out of business.

    Normally, if it happened once you would sell the promise at a discount reflecting its true cash flow and cut your losses. But with all of them suddenly on the market, the price of promises collapsed.

    The mortgage brokers were suddenly unemployed and defaulted on their mortgages and it was downhill from there.

    Even though the vast majority of mortgages are still being paid.

  10. Larry G Avatar
    Larry G

    On TV today – a lady got a letter demanding payment. She sent the money and asked for a statement of account.

    The response of the mortgage company was to institute foreclosure proceedings.

    She sued. They could not produce the contract she signed.

    The lawyer said that they had no intention to try to work out a settlement with her apparently even though she was current.

    That's they were intent on foreclosing – and apparently believed that she was too scared to challenge them.

    Well.. now.. it turns out they have bad paper and she has a good lawyer and things aren't looking too good for the other side.

    ….and that's fine IMHO…

    I always thought the mortgage loan business was infested with barracudas to start with….

  11. Hydra Avatar
    Hydra

    The response of the mortgage company was to institute foreclosure proceedings.

    =================================

    Why is this happening if the housing market is in terminal collapse? If that is the case any rational company would rather hve the payments now than take over a house that will fall in value.

    Because the mortgage companies know that is not the case, they can try to foreclose on a bunch of properties they hope to resell for more.

    The big homeowner association management companies are doing the same thing.

    As you point out, it is all about having secure property rights, or not.

  12. Larry G Avatar
    Larry G

    well the same thing happened during the Depression. Many homes and farms were lost to foreclosure.

    not rocket science.

    if you get the property for next to nothing.. and hold on to it – you get huge profits later on.

    These folks are predators – financial predators but they don't get charged or go to jail or what they do – they get rich instead ….

    People that already have money – can buy homes at bargain prices from those who are in financial distress and don't know what to do or what their rights are.

  13. Groveton Avatar
    Groveton

    I am on my way to Chesterfield County with a foreclosure notice and some guns. Is your house nice Peter

  14. Lloyd the Idiot Avatar
    Lloyd the Idiot

    This foreclosure fiasco is so overblown it's mind-boggling. No one is being thrown out of their homes if they are making the payments. No one is foreclosing on a home unless they have the right to do so – whether they can find the paperwork or not. The robosigner bit is a thinly veiled attempt to allow people to stay in their homes without paying for them.

    As for who owns the house if the loan has been securitized, that's easy – the homeowner. The securitization trust owns the loan and different investors own different shares of it (e.g., parts of the interest or the principal in the aggregate).

    Also, it sure as heck wasn't the existence of the 30 year mortgage that caused the mortgage crisis. That's been around since after the Great Depression. If anything, it was the credit rating agencies that mis-rated pools of loans where the borrowers' income was never verified. The originating lenders just gave Wall Street what it ordered.

  15. Larry G Avatar
    Larry G

    what I have read is that because the loans are securitized – it's unclear who the owner of record is and that in more than a few cases – the legal record shows a different owner than the person holding the paper who cannot prove they legally own the property.

    I think this is a direct consequence of the securitization process myself.

    When people make mortgage payments even though they get sent to one place – after that it's not clear where the money goes and who is accounting or the principle and interest.

    This is what happened.

    A couple made a "catch-up" payment and then asked for an accounting to see how much they owed and the accounting said they still owed the same amount.

    When they refused to make any more payments until they received an accounting showing their debt had been reduced by the amount they paid – the mortgage company foreclosed.

    Then the lawyers got involved and asked for the paperwork and lo and behold.. it was not "in order".

    Then they realized that paperwork was probably not in order for many other securitized mortgages and the fund began.

    The news characterized it as 'sloppy accounting'.

    Now.. remember.. securitization is supposed to be a very sophisticated financial instrument – one that requires precise handling… and we now find out that the process was "sloppy"?

    I'v said before that walking away from a legitimate debt is wrong in my view.

    But I'm going to lose that battle as more and more people recognize what's going on in the mortgage business.

    I'd be curious to know if we are still securitizing loans and insuring them with credit default swaps.

    I bet not.

  16. Lloyd the Idiot Avatar
    Lloyd the Idiot

    the private loan securitzation market is dead.

    It's not that hard to figure out who the lender is MERS, which has gotten a lot of heat lately, is just the nominee used to simply multiple sales of the loan until it is finally securitized. It is an effective and intelligent way of hanlding loan sales – as opposed to recording each sale in a county recorder's office that may take months before it finally gets around to entering it into the county's official records

  17. Larry G Avatar
    Larry G

    " the private loan securitzation market is dead.
    ….

    It is an effective and intelligent way of hanlding loan sales "

    I'm sure this was not your intent or if it was… what happened ?

    it's hard to believe that thousands of people and hundreds of businesses all made the same "sloppy" mistakes…

    there must have been something inherently and fundamentally flawed about the process in general….

  18. Groveton Avatar
    Groveton

    I am sure there are plenty of mistakes. First, garbage in – garbage out. Isn't a foreclosure based on information in the original loan documents (to some extent)? Back in the "go – go" days of 2004 – 2007 that process was pretty crazed. I know plenty of people who worked as loan originators who I wouldn't hire to empty the wastebaskets at most banks. I am sure there were plenty of good loan people but, as the level of lending grew, more and more hacks showed up.

    Second, the securitization process was out of hand. A bubble in loan-making was accompanied by a bubble in securitizing loans. Some loans were sold to Fannie Mae and Freddie Mac. They both are still in federal receivership. Loans too big to sell to Fannie or Freddie (especially Alt-A) were sold, by Countrywide for example, to IndyMac. IndyMac is now bankrupt.

    Finally, the housing collapse is like a pig traveling through a python. The lump starts at the front of the snake but has to move through the whole animal before "exiting". It is now in the foreclosure part of the snake.

    Foreclosures are coming fast and furious. The process is complicated. Mistakes are being made. Did you ever know anybody who rented a simple condo to a person who turned out to be a dead-beat? I do. The legal process to evict someone for failing to pay rent (month after month) is complex and slow. I imagine that the process for foreclosure is complex too. And I imagine that the people running the process are making plenty of mistakes as they are overwhelmed by the sheer volume of foreclosures.

    However, what percentage of these "false foreclosures" are real mistakes where the homeowner has been paying the mortgage and is now being foreclosed vs. technical mistakes where the forms are incorrectly completed? I suspect a very low percentage of really false foreclosures.

    In a down market with loans upside down banks don't benefit from foreclosures. The bank misses getting payments, has to pay to foreclose and then ultimately sells the property at a loss. So, why would banks try to foreclose on performing home loans? They aren't. They are foreclosing on non-performing loans in a pretty inept way. Unfortunately for our economy however, the loans are not performing and the foreclosures are usually legitimate.

    Darrell's point about commercial loans is an excellent one. I think that pig is still at the front of the python. Lloyd's defense of MERS while predicting the end of the private securitization industry is also well taken. Sloppy information gathering seems to be more of teh mistake than bad software or processing … hence the MERS defense. However, the big "elephant on the table" is the lack of acumen at assessinga and managing the risk of mortgage loan bundles. Hence Lloyd's prediction of the demise of the private securitization industry. Assuming my understanding is correct, I agree with both points.

  19. Larry G Avatar
    Larry G

    good narrative. So one question.

    Did this happen because there was too much or not enough regulation or regulation had nothing to do with it at all?

    Bonus Question –

    Did Fannie/Freddie/govt cause this?

  20. James A. Bacon Avatar
    James A. Bacon

    One explanation for the fiasco is that the banking industry and the legal system were overwhelmed by the unprecedented volume of foreclosures — far more than the system had been designed to accommodate. In that respect, it wasn't anyone's "fault," any more than FEMA and/ir the insurance industry alike would be unprepared to handle a catastrophic meteor strike.

  21. Groveton Avatar
    Groveton

    Here's my take …

    The biggest factor in causing the original housing bubble was incompetence and arrogance at the Federal Reserve. All subsequent problems caused by this "first domino" follow from that.

    Interest rates are the price of money. "Fixing" the price of money is no different than "fixing" the price of anything…eventually something bad happens.

    The Federal Reserve is the ultimate regulator. As the US central bank the Fed has power that Congress can only dream of possessing. While some of its functions are necessary its power and willingness to abuse that power should frighten every American.

    The Fed power most open to abuse by the Fed is the setting of artificially high or low interest rates.

    In the run up to the housing fiasco the Fed "fixed" the price of money by following a conscious program of keeping interest rates artificially low. The architect of this program was Republican – sponsored Fed chief Alan Greenspan. Like almost all bureaucrats Greenspan's disastrous results were the product of good intentions.

    Greenspan felt that a combination of things (too numerous to mention in a comment) had created an environment where central bankers had almost complete control over inflation. Greenspan knew that the Fed had historically used its power to artificially raise interest rates as a brake on inflation. This was done despite the fact that artificially high interest rates retard economic growth. Past Fed boards had decided that runaway inflation was generally a bigger worry than stagnant economic growth.

    However, as Greenspan saw it, if interest rates were no longer an issue than why not artificially lower interest rates in order to simulate economic growth – permanently?

    This is just what Greenspan, the Fed, Congress and the White House did. The liberals and Democrats went along. Only a very few free market economists had any qualms about this policy.

    The artificially cheap river of capital flowed artificially deep and fast. People loaded up on personal debt because capital was artificially cheap. People "traded up" their houses because they could refinance at a much better rate. People speculated in housing because there is a ready market for highly leveraged investments in only one thing for the average person – housing.

    The housing bubble was blown by the Fed's interest rate policy. When it popped everything went to hell in a handbag.

    I see the Federal Reserve Bank as the ultimate opaque government regulator. And I see the housing bubble as being caused more by the Fed than by anything else. Everything else follows from that.

  22. Gooze Views Avatar
    Gooze Views

    Groveton,
    My house is OK but the land is nicer. Come by and see what you think. As for firearms, I was told by a patriot at the Tea Party Convenmtion in Richmond that he was toting a .45 cal auto because they have more stopping power than a 9 mm.

    Bacon,
    Give me a break with these stupid excuses for the mortgage lenders. They weren't ready? Baloney. They just want the fast buck.
    Get out of your basement or I'll send Groveton over.

    Peter Galuszka

  23. Larry G Avatar
    Larry G

    well.. it as a lot of "stopping" power if you are dead on accurate… if not.. a Mac 10 or a short barrel 12 gage will send most intelligent bad guy packing.. and the non-intelligent ones? – Darwin comes into play.

    Anyone who thinks the mortgage guys just made some honest mistakes in their securitization mania – either is an apologists for raw capitalism run amok or took a hard hit on his noggin in his/her childhood.

    The same guys who caused the first depression – caused this one – just sons and daughters of the first ones.. but same approach to making money.

    the question not answered – is this something the govt should be regulating or not?

    Apparently most Republicans are of the opinion that it should not be regulated – that boys will be boys…. naughty naughty and all that rot…

    Anyone who thinks the Republicans are going to put us on a good track this Nov has a very short memory …..

  24. James A. Bacon Avatar
    James A. Bacon

    Larry, there is an alternative to regulation. It's called the tort system. If corporations were negligent, they should be held liable — and the victims compensated.

    You got a problem with that?

  25. Larry G Avatar
    Larry G

    Jim – if you pay for health insurance for 30 years and then get sick and they dump you – is that something you can sue the company for?

    No private company has to sell you health insurance and without any regulation they could all get rid of you at any time.

    If you have a family member with a "pre-existing" condition – there is no health insurance to the auto insurance equivalent of assigned risk.

    I'm totally open to whatever reforms that would get the job done but at some point – you need to admit that the standard Republican approach is basically opposed to govt involvement and insists that left alone – that the market will offer insurance – and we know that is just not the case.

    But in 16 years – the Republicans have opportunities to do "something" – even to do something prophylactically to immunize against a future Obama_Care type initiative – to head it off before it every saw the light of day.

    But they did not.

    Why …anyone thinks they would do something now … strains credulity – ESPECIALLY since there is NO Republican Alternative much less a CBO-scored (or equivalent) alternative.

    They simply are not serious about any meaningful reforms.

    That's the track record – not my opinion.

    I am NOT for socialized care.

    I do NOT think that others should pay for HC for those are able to prepare for the future but do not.

    The reason we have SS, Medicare and EMTALA is, in large measure, because people will not set aside for their future and since we have decided we won't let them die in the streets – we have two choices.

    Even don't make them set aside for the future and taxpayers will pick up the tab – like we do right now for ER care

    OR…

    institute a system where we force people to set aside for the future – minimally.

    That's not a welfare state or a socialist approach – both of which assume that no money will be set aside by the individual but taxpayers will pick up the pieces anyhow.

    Now.. if we had a TRUE Capitalistic system – we WOULD let mom and dad and their kids die in the streets – deservingly so if they did not prepare for the day when they would need help.

    Insurance – if you think about it – is a socialist concept – isn't it?

    It means that you do not believe that you'll be totally self-reliant no matter the future so you basically pay money to BET that you'll probably need help.

    Otherwise – you'd not want or need insurance at all – you'd "self insure" – right?

    In a true capitalistic market – insurance companies could choose who to sell insurance to and who not to.

  26. Larry G Avatar
    Larry G

    people might find this interesting:

    http://www.tooconservative.com/?p=7723

    or alternatively GOOGLE "chain of title" and securitization.

    The reason the credit market froze – was that those companies holding MBS realized that "chain of title" was a ticking bomb… and the question was when it went off not if.

  27. Larry G Avatar
    Larry G

    And again – I must ask the question.

    Is this an example of what happens in an unfettered, unregulated market ?

    and it really is mostly a rhetorical question.

    Do we want the fortunes of this country, it's people and our economy vulnerable to this kind of threat?

    Who voted against regulations to deal with this?

  28. Larry G Avatar
    Larry G

    'This is the biggest fraud in the history of the capital markets'

    http://voices.washingtonpost.com/ezra-klein/2010/10/this_is_the_biggest_fraud_in_t.html

    How can an ENTIRE INDUSTRY get "sloppy"?

    Surely there must have been at least one company that did MBS securities the "right" way.

    Who is that company?

  29. James A. Bacon Avatar
    James A. Bacon

    Larry, thank you so much for linking to the Janet Tavoli interview. The woman makes a lot of sense. Some key excerpts:

    "Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one. …

    "We poured TARP money into a pit and meanwhile the banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism. In capitalism, the shareholders who took the risk would be wiped out and the debt holders would take a discount but banking would go on."

    If fraud was committed on a massive scale, then it should be prosecuted as fraud either civilly or criminally. Passing more laws and instituting more regulations does not sound like the solution. Indeed, if you believe Tavoli, Congress and the regulators were part of the problem!

  30. Larry G Avatar
    Larry G

    Jim – what is the regulatory penalty for "sloppy practices" with MBS?

    And what would people sue for?

    fraud? How would the regulators or the mortgage holders that "sloppy practices" were going on?

    How would regulators today stop "sloppy practices" with ordinary mortgages that could suffer from the same chain of title problems.

    The difference is FDIC which ordinary banks participate in (not mandatory) and investor banks not only do not participate in … lobby to keep from having to follow the same FDIC rules and virtually every Republican voted against.

    Same old. Same old.

    The Republicans oppose and gut regulations and then when a lack of good regulation is cited – the Republicans say " see..this PROVES that regulation does not work".

    It's a self fulfilling prophesy.

    and this ultimately does not come down to a political philosophy issue because we KNOW that regulation – proper and correct regulation is needed or a whole bunch of people are hurt way beyond the companies that need to be regulated.

    A lack of regulation or the on-purpose CF Republican version of it – does not work.

    FDIC was a direct outcome of the great depression – and because it has been designed correctly and Republicans have been unsuccessful at changing it – it has worked well for 65 years.

    Had we had FDIC-like regs on the MBS industries – I doubt seriously that we would have seen an Industry-wide "sloppy" practice.

    Regulation – regulation that works and is not corrupted by industry lobbyists – is necessary – for the economic safety of the country.

    We are letting an industry essentially gravely damage our economy – so severely that we are looking at huge deficits that will take decades to overcome.

    The basic Republican philosophy that regulation is bad – is wrong.

    Proven to be so – over and over and over.

    Unfettered capitalism not only harms people it harms economies and countries – and the world.

  31. Larry G Avatar
    Larry G

    …. " EK: It sounds almost like you’re saying we still need to go through the end of our financial crisis.

    JT: Yes, but I wouldn’t say crisis. This can be done with a resolution trust corporation, the way we cleaned up the S&Ls. The system got back on its feet faster because we grappled with the problems."

    So the lady is advocating that the GOVT deal with this – not be kept out of it.

    Why is it that you guys who are opposed to the Govt regulating… want the Govt to rescue when bad stuff happens because regulation was not in force?

    Like many of the Conservative philosophies – it is not self-consistent.

    You don't want the govt to regulate but you expect the govt to fix the disasters.. in fact, you want the govt to fix these disasters according to the same flawed philosophies that caused them to start with.

    Who is going to SUE these companies for fraud – and if they succeed in the lawsuits but those who are sued are broke – then what?

    How do you "fix" these problems when the perpetrators are bankrupt and the individuals who benefited are long gone?

    In fact, until the laws were changed – it was (and remains) a common practice for the company to pay enormous salaries to the folks operating the enterprise and then declare bankruptcy.

    How did that "sue the bad guys" work out for those who sued Maddof?

    10 cents on the dollar?

  32. James A. Bacon Avatar
    James A. Bacon

    In LarryLand, regulators are omniscient, wise and prescient. They fix all things, cure all ills.

    In the real world, regulators can't see systemic risk or bubbles any better than the private sector. In the real world, regulators rubber stamp the worst excesses. In the real world, regulators are often captured by the industry they regulate, and they follow the herd like everyone else.

    In the real world, regulations are used by the dominant players among the regulated to fix the rules in their favor and create an unlevel playing field that puts competitors at disadvantage. In the real world, regulations discourage innovation.

    Yes, some regulations are needed. I am *not* an anarchist. But it is foolhardy to regard regulations as the knee-jerk solution to every problem. Far better to let an honest tort system (not one perverted by trial lawyers) mete out punishment to those and dispense recompense to those who deserve it.

  33. Larry G Avatar
    Larry G

    "Larryland" recognizes the shortcomings that Jim has pointed out and does not believe that regulations are the answers to all the worlds ills.

    He actually subscribes to the same views that Bacon hold when he says "some are needed".

    regulations do screw up the marketplace… picking winners and losers and perverting a well-functioning competitive market.

    want more?

    there is plenty more to say in opposition to regulations.

    but on the other side – we know what happens if companies – and individuals learn how to defraud others and escape with the money such than TORTs are a joke.

    and it's doubly funny – because "tort reform" comes from the very same people who oppose regulation… right?

    So.. turn about is fair play.

    In "Bacon-land" if someone or some company screws you – then you're supposed to sue – unless of course we also have "tort reform" that prevents "frivolous" lawsuits.

    So we can't have regulations against the Bernie Maddoffs… you're supposed to sue – but of course not until after you've been defrauded and the money is gone…then you can sue ..and get 10 cents on the dollar – after you pay the lawyers.

    Jim – when you pull up to a stop light – you are being regulated.

    Without that stop light – you could indeed sue the pants off the scum that totaled your car and put you in the hospital – until you found out he's been sued before and is totally broke …

    Take that bankrupt scofflaw and put him in the business of securitizing mortgages and now he's a businessman who is being regulated to death… right?

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