Matt Taibbi has yet another must-read piece on the ongoing economic collapse. This time he focuses on foreclosures taking place in Florida’s rocket docket, which processes dozens of foreclosure cases an hour. As is always the case with Taibbi, the whole article needs to be read to be appreciated. But this passage stands out:

You’ve heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can’t admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn’t be, but often are, closed.

And that’s just the economic side of the story. The moral angle to the foreclosure crisis — and, of course, in capitalism we’re not supposed to be concerned with the moral stuff, but let’s mention it anyway — shows a culture that is slowly giving in to a futuristic nightmare ideology of computerized greed and unchecked financial violence. The monster in the foreclosure crisis has no face and no brain. The mortgages that are being foreclosed upon have no real owners. The lawyers bringing the cases to evict the humans have no real clients. It is complete and absolute legal and economic chaos. No single limb of this vast man- eating thing knows what the other is doing, which makes it nearly impossible to combat — and scary as hell to watch.

And:

What’s sad is that most Americans who have an opinion about the foreclosure crisis don’t give a shit about all the fraud involved. They don’t care that these mortgages wouldn’t have been available in the first place if the banks hadn’t found a way to sell oregano as weed to pension funds and insurance companies. They don’t care that the Countrywides of the world pushed borrowers who qualified for safer fixed- income loans into far more dangerous adjustable-rate loans, because their brokers got bigger commissions for doing so. They don’t care that in the rush to produce loans, people were sold houses that turned out to have flood damage or worse, and they certainly don’t care that people were sold houses with inflated appraisals, which left them almost immediately underwater once housing prices started falling.

The way the banks tell it, it doesn’t matter if they defrauded homeowners and investors and taxpayers alike to get these loans. All that matters is that a bunch of deadbeats aren’t paying their fucking bills. “If you didn’t pay your mortgage, you shouldn’t be in your house — period,” is how Walter Todd, portfolio manager at Greenwood Capital Associates, puts it. “People are getting upset about something that’s just procedural.”

Jamie Dimon, the CEO of JP Morgan, is even more succinct in dismissing the struggling homeowners that he and the other megabanks scammed before tossing out into the street. “We’re not evicting people who deserve to stay in their house,” Dimon says.

There are two things wrong with this argument. (Well, more than two, actually, but let’s just stick to the two big ones.)

The first reason is: It simply isn’t true. Many people who are being foreclosed on have actually paid their bills and followed all the instructions laid down by their banks. In some cases, a homeowner contacts the bank to say that he’s having trouble paying his bill, and the bank offers him loan modification. But the bank tells him that in order to qualify for modification, he must first be delinquent on his mortgage. “They actually tell people to stop paying their bills for three months,” says Parker.

The authorization gets recorded in what’s known as the bank’s “contact data base,” which records every phone call or other communication with a home owner. But no mention of it is entered into the bank’s “number history,” which records only the payment record. When the number history notes that the home owner has missed three payments in a row, it has no way of knowing that the homeowner was given permission to stop making payments. “One computer generates a default letter,” says Kowalski. “Another computer contacts the credit bureaus.” At no time is there a human being looking at the entire picture.

Which means that homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors, you name it. This inability of one limb of the foreclosure beast to know what the other limb is doing is responsible for many of the horrific stories befalling homeowners across the country. Patti Parker, a local attorney in Jacksonville, tells of a woman whose home was seized by Deutsche Bank two days before Christmas. Months later, Deutsche came back and admitted that they had made a mistake: They had repossessed the wrong property. In another case that made headlines in Orlando, an agent for JP Morgan mistakenly broke into a woman’s house that wasn’t even in foreclosure and tried to change the locks. Terrified, the woman locked herself in her bathroom and called 911. But in a profound expression of the state’s reflexive willingness to side with the bad guys, the police made no arrest in the case. Breaking and entering is not a crime, apparently, when it’s authorized by a bank.

The second reason the whole they still owe the fucking money thing is bogus has to do with the changed incentives in the mortgage game. In many cases, banks like JP Morgan are merely the servicers of all these home loans, charged with collecting your money every month and paying every penny of it into the trust, which is the real owner of your mortgage. If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

That’s what this foreclosure crisis is all about: fleeing the scene of the crime. Add into the equation the fact that some of these big banks were simultaneously betting big money against these mortgages — Goldman Sachs being the prime example — and you can see that there were heavy incentives across the board to push anyone in trouble over the cliff.

There’s still so much to come in the story of the housing bubble bursting. There will be millions of foreclosures, sending families onto the streets. There is rampant fraud. There is the lack of documentation by banks of who owns which note and for how long. When all is said and done, there’s a very high likelihood that we’re not all said and done with the impacts of the housing and financial bubbles bursting in 2008. The real consequences of turning the US residential mortgage market into the prime craps table for Wall Street bankers have not yet been fully felt. Unfortunately we’re now reaching the stage in the process where pain will be felt not by the size of the Dow, but by the numbers of families living on the streets, in foreclosure, or with underwater homes. It will extend to pensions and local governments who moved their money from safe investment onto the craps table at the urging of Wall Street brokers and then the pain will be felt doubly by working Americans. And as of yet, there is no accountability for the banksters. No criminal charges. No cram down. No stricter regulations than were in place two years ago. It’s as if we’re just waiting for long enough to pass for those of us who know to forget what actually happened and for those who are still in denial to successfully avoid any news coverage of the fraud.

The level of fraud, theft, and

Thomas Cox has a heartbreaking post at Naked Capitalism about KeyBank foreclosing on a property where they were the second mortgage holder. They likely ended up losing at least $14,000 by doing this. So, not only did a homeowner who had a job and wanted to pay off as much of their mortgages as they could lose their home, but the bank didn’t even have a bottom-line imperative to foreclose.

After spending over $4,000 on foreclosure costs and legal fees, it purchased my client’s interest in the property at its foreclosure sale (there were no other bidders for this worthless second interest) and it did evict this woman from her home at the beginning of October. She is now living in the basement of her daughter’s house. Since the interest in this home that it purchased was still subject to the outstanding first mortgage, it then paid $50,000 to the first mortgage holder so that it could own full title to the property as it made plans to re-sell it. Thus, at this point it had over $54,000 invested in gaining full title to this property. Last week, KeyBank listed this property for sale for $44,000. It will surely net no more than $40,000, if it can sell it at all. This will leave the bank with a real cash loss of over $14,000, a woman living in her daughter’s basement who was willing to pay at least some level on her second mortgage, her community with an empty and devalued property in its midst, and a very sour taste for all of us who try to help these people.

Looking only at this loan and the personal situation of its borrower, KeyBank’s actions make no sense at all. However, along with all of the other major lenders and loan servicers in this foreclosure crisis, it does not look at these loans from a personal perspective. Everything is driven by “the numbers.” Those numbers tell financial institutions like KeyBank that it makes economic sense to avoid the costs of evaluating these loans on an individual basis. The numbers tell them not spend the money to pay employees to make individual decisions on whether a situation such as the one described here makes sense or whether ways can be found to work with the homeowner. KeyBank and the other large financial institutions and loan servicers do not care if they needlessly ruin the lives of some of their customers, as long as they can minimize the expense of dealing with their individual situations. The only “quality and integrity” that these institutions care about is the quality and integrity of their bottom lines.

KeyBank doesn’t pay for employees to look at renegotiating their loans; obviously that costs more than the $14,000 loss they are likely taking here. KeyBank still sees profits in losses that come from unnecessary foreclosures.

Of course, the problem of taking losses on foreclosures and REO sales is only going to get worse, as people stop trusting buying REO sales and the housing market stays flooded with unsold, unoccupied homes.

While on vacation last week, I read Matt Taibbi’s new book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America. It’s pretty brilliant and righteous in directing anger towards banks, but also the politicians who are helping them steal from America. There’s a passage in it on the housing crisis and the bailouts, which was previously highlighted by Tristero, that I think is worth drawing out.

…Almost everyone who touched that mountain turned out to be a crook of some kind. The mortgage brokers systematically falsified information on loan applications in order to secure bigger loans and hawked explosive option-ARM mortgages to people who either didn’t understand them or, worse, did understand them and simply never intended to pay. The loan originators cranked out massive volumes of loans with plainly doctored applications, not giving a shit about whether or not the borrowers could pay, in a desperate search for short-term rebates and fees. The securitizers used harebrained math to turn crap mortgages into AAA-rated investments; the ratings agencies slgned off on that harebrained math and handed out those AAA ratings in order to keep the fees coming in and the bonuses for their executives high. But even the ratings agencies were blindsided by scammers who advertised and sold, openly, help in rigging FICO scores to make broke and busted borrowers look like good credit risks. The corrupt ratings agencies were undone by ratings corrupters!

Meanwhile, investment banks tried to stick pensioners and insurance companies with their toxic investments, or else they held on to their toxic investments and tried to rip off idiots like [AIG sleazeball] Joe Cassano by sticking him with the liability of default. But they were undone by the fact that Joe Cassano probably never even intended to pay off, just like the thousands of homeowners who bought too-big houses with optionARM mortgages and never intended to pay. And at the tail end of all this frantic lying, cheating, and scamming on all sides, during which time no good jobs were created and nothing except a few now-empty houses (good for nothing except depressing future home prices) got built, the final result is that we all ended up picking up the tab, subsidizing all this crime and dishonesty and pessimism as a matter of national policy.

We paid for this instead of a generation of health insurance, or an alternative energy grid, or a brand-new system of roads and highways. With the $13-plus trillion we are estimated to ultimately spend on the bailouts, We could not only have bought and paid off every single subprime mortgage in the country (that would only have cost $1.4 trillion), we could have paid off every remaining mortgage of any kind in this country-and still have had enough money left over to buy a new house for every American who does not already have one.

But we didn’t do that, and we didn’t spend the money on anything else useful, either. Why? For a very good reason. Because we’re no good anymore at building bridges and highways or coming up with brilliant innovations in energy or medicine. We’re shit now at finishing massive public works projects or launching brilliant fairy-tale public policy ventures like the moon landing.

What are we good at? Robbing what’s left. When it comes to that, we Americans have no peer. And when it came time to design the bailouts, a monster collective project spanning two presidential administrations that was every bit as vast and far-reaching (only not into the future but the past)) as Kennedy’s trip to the moon, we showed It. [Emphasis added]

There’s a lot in there, but when it comes to a question of how most of the country ends up thinking about the 2008 financial collapse, the bailouts of Wall Street banks, the government subsidy of the buyouts of Bear Stearns and Merrill Lynch, the bailouts of the GSEs and AIG, and TARP, I find it hard not to think that the bolded paragraph above is not going to be the thing that gets people most pissed off.

We paid for this instead of a generation of health insurance, or an alternative energy grid, or a brand-new system of roads and highways. With the $13-plus trillion we are estimated to ultimately spend on the bailouts, We could not only have bought and paid off every single subprime mortgage in the country (that would only have cost $1.4 trillion), we could have paid off every remaining mortgage of any kind in this country-and still have had enough money left over to buy a new house for every American who does not already have one.

But we didn’t do that, and we didn’t spend the money on anything else useful, either.

When Americans look around and see their roads crumbling, their pensions gone, and their medical bills putting them into bankruptcy about as quickly as they’re getting foreclosed upon, and see the fact that they could have had their home and their pension and healthcare too instead, well, I wouldn’t want to be serving in an electoral office when that moment comes. And trust me, it will come.

Paul Krugman:

Former Senator Alan Simpson is a Very Serious Person. He must be — after all, President Obama appointed him as co-chairman of a special commission on deficit reduction.

So here’s what the very serious Mr. Simpson said on Friday: “I can’t wait for the blood bath in April. … When debt limit time comes, they’re going to look around and say, ‘What in the hell do we do now? We’ve got guys who will not approve the debt limit extension unless we give ’em a piece of meat, real meat,’ ” meaning spending cuts. “And boy, the blood bath will be extraordinary,” he continued.

Think of Mr. Simpson’s blood lust as one more piece of evidence that our nation is in much worse shape, much closer to a political breakdown, than most people realize.
…
The fact is that one of our two great political parties has made it clear that it has no interest in making America governable, unless it’s doing the governing. And that party now controls one house of Congress, which means that the country will not, in fact, be governable without that party’s cooperation — cooperation that won’t be forthcoming.

I think Krugman is really right to highlight the danger in Simpson’s comments, as well as the commitment of Republicans to block any chance of the Obama administration successfully running the government. The Republican Party needs to be made to bear the consequences of whatever obstructionism they deploy for political purposes. But the question is, can that happen? Will anyone notice, especially if it is left to the Krugmans of the world to make this case? After all, Krugman is Very Shrill and having a Nobel prize in economics does not make him Serious at all.

The larger problem is that when you have people like Simpson publicly touting their erections brought on by the thought of inflicting pain on working class American families, you know our country is at a precipice. These are not sane things to long for. This is sociopathic at best and, well, it’s hard to properly capture what it is at its worst, other than to say it’s an unrepentant call to destroy the social structure of America. And this is from an allegedly Reasonable and Serious Republican. Just wait until you get the Glenn Becks and Sarah Palins of the world chiming in with any regularity.

I wish I had a strong sense that the leadership of the Democratic Party grasped how dangerous the GOP is today and how hard they will have to work to defeat these efforts to steal wealth from working American families and give it to billionaires.

James Galbraith has a must-read piece in Mother Jones on the attack on the middle class. He provides a stirring defense for Social Security, Medicare, and the importance of unions for the growth of the middle class. It’s really worth a read.

Yesterday economist Brad DeLong put up an account of a conversation he had last week with a group of Tea Party supporters in California about the economic crisis facing American and how it could be fixed. Here’s a hefty excerpt:

But they question is what to do now with the economy. The idea is not to go to socialism—not to nationalize large chunks of the economy and have everybody work for the government—but to conduct strategic interventions in financial markets. Relieve the excess demand for safe high-quality assets and you remove the pressure on people to spend less than they earn as they try to build up their stocks of safe assets, and you get a virtuous circle of strong recovery.

So, I said, the right thing to do is the Bagehot rule: lend freely at a penalty rate. The government should throw huge amounts of money at the financial markets and in the process take a large chunk of the upside in equities and options.

SOCIALISM, they said. We don’t want SOCIALISM.

But it’s not socialism, I said. It’s an attempt to avoid socialism—it’s an attempt to conduct a strategic intervention into the market economy so that it can rebalance itself.

SOCIALISM, they said.

Well, I said, how about lending freely to the financial sector but forget Bagehot’s “penalty rate” stuff?

BAILOUT, they said. BAILOUT OF CORRUPT FINANCIERS WITH WASHINGTON CONNECTIONS, they said. WE LIKE THAT EVEN LESS.

Well, I said, how about pushing off taxes into the future, bringing forward infrastructure spending we know that we will want to do, and financing it by issuing more government debt? The spending should put some people to work, and the extra government bonds we print up will increase the supply of safe assets, decrease the excess demand, and so remove some of the downward pressure that is inducing people to spend less than they earn/

DEFICIT, they said. DEFICIT BAD. MUST REDUCE THE DEFICIT. GOVERNMENT MUST LIVE WITHIN ITS MEANS.

But, I said, the U.S. government now can borrow at unbelievable terms. If you could borrow at such terms, you would bust out the top of your house and add a second story immediately.

GOVERNMENT MUST LIVE WITHIN ITS MEANS.

OK, I said. How about having the federal government aid the states. We want to keep our police and our fire and our road maintenance and our schools running at their efficient levels, don’t we? It’s stupid to cut back on the long-term foundations of our economy and its growth because of recession, isn’t it. How about a large program of federal aid to the states so that teachers, sewer workers, police officers, and firefighters can keep their jobs, keep protecting us—and keep spending and so provide employment for the rest of us?

ARE YOU KIDDING? THEY HAVE KEPT THEIR UNIONS. WE HAVE LOST OUR UNIONS. WE HAVE LOST OUR JOBS. THEY HAVE GONE TO CHINA. THEY HAVE VANISHED. WE ARE UNEMPLOYED. IF WE ARE EMPLOYED WE HAVE NO BARGAINING POWER WITH OUR BOSSES. IT IS NOT FAIR FOR STATE WORKERS TO NOT ONLY HAVE UNIONS, BARGAINING POWER, AND PENSIONS, BUT FOR THEM TO HAVE THEIR JOBS TOO. SINCE WE ARE LOSING OUR JOBS THEY SHOULD LOSE THEIR JOBS TOO. IT IS NOT FAIR.

Oh.

EVERYTHING YOU PROPOSE TAKES OUR HARD-EARNED MONEY, TAXES IT AWAY FROM US, AND GIVES IT TO SOMEBODY ELSE.

Oh.

BERKELEY SOCIALIST.

So what do you think we should do?

GET US JOBS!

But you have just rejected every idea I have for boosting employment—short of nationalizing the means of production and employing everybody by the government, that is. What are your ideas?

CUT TAXES. ABOLISH THE EPA. REPEAL HEALTH CARE REFORM. KEEP GOVERNMENT’S HANDS OFF OF MEDICARE. RAISE SOCIAL SECURITY PAYMENTS. CUT THE DEFICIT.

This is a truly horrifying conversation, yet it’s not too far off what the national dialogue is when it comes to how to fix the economy, protect consumers, create jobs, and build a better system that makes this sort of crisis less likely to happen again.

Barry Ritholtz has a post that does more to explain the implications of the foreclosure fraud revelations which have been coming out over the last couple of weeks. While the impact is something that people who don’t closely follow financial news and understand how the system works can be hard to understand, Ritholtz does a superb job presenting his case in an accessible way. When it’s all said and done, Ritholtz sees what’s happened in the mortgage market at the hands of real estate and structured finance industries potentially as illegal racketeering.

As I often say, the whole post is worth reading.