Monday, October 18, 2010

Political Fallout from the Foreclosure Mess

As far as I can tell, so far there hasn't been any.

On a personal level, our political classes don't have a dog in the fight. They may be collectively regretting the purchase of that vacation condo back in 2005, but they are current on the mortgage of their principal residence (except for that California representative).

On an professional level, the foreclosure mess is as much a problem as it is an opportunity. It lies awkwardly on top of a construct created by various spin meisters at a great expenditure of time, effort and treasure, to paint in the darkest colors a collection of deadbeat borrowers who took out liar loans to speculate in homes they never should have been allowed to buy, then, to top it off, ruthlessly defaulted. Now, to use Ron Zeigler's words from his time as Nixon's press secretary, those facts are no longer operative.

Now, in Congressional district by Congressional district, media outlet after media outlet develop endless heart rending stories of incredible abuses. Well, in the context of millions of foreclosures, if you have thousands of horror stories, that's a rate of one in a thousand. As long as those stories sell newspapers, atttract eyeballs or goose the ratings, that vein will be mined. So it's reasonable to expect the stories to continue, at least through the midterms.

Inside the Beltway, the political leadership is doing what comes natural to it. Congress will grandstand with hearings. Those may not help homeowners or shed much light on the situation, but they'll put the heat on the mortgage servicers and provide some entertainment. If they have anyeffect, it will be to jell public opinion and (more importantly) the political calculus against any legislative accommodation of the financial services sector on this one.

And within the agencies and executive branch, those politicians are doing what comes naturally to them when tossed a hot potato. They're handing the hot potato off to the professionals. Of course, in this case the professionals will be teams from enforcement, compliance, regulatory oversight, and perhaps the criminal division of DOJ (in a liaison capacity, at first). That's already happening. Those mills grind slowly and implacably and are pretty hard to turn off, once fired up.

So there, the process is at work. But as far as political fallout in the run up to the midterm elections, nothing has developed so far. Maybe, given the timing of all this, the problem has to be a post-election issue.

Which brings us back to the bigger question of what kind of construct to put on foreclosure-gate. Is it a story of modern innovative and creative financial institutions who've developed new and better ways of making the American Dream possible being tripped up by a few ancient legal technicalities in a few backwards state jurisdictions? Is it a crisis threatening the integrity of our largest securities market and most important financial institutions that requires a federal fix to a patchwork of outmoded state real property laws? Or it is an arrogant, out-of-control Wall Street, not satisfied with destroying the retirement savings of millions, not satiated by shipping the jobs of more millions off to China, launching a criminal attack on the American Dream of home ownership?

My gut tells me that the first choice is so ludicrous at this juncture that even the toadies and lackies still mouthing it will be told by their masters to shush. So the alternatives likely come down to some blend of the second and the third. The problem with the second choice is that the card has already been played once in the last couple of years, and I sense that the political classes feel betrayed in the aftermath by the financial elite. The problem with the third choice is that it sounds like so much tea party dementia and drivel.

I suppose an ideal outcome would be to cloth the policies implicit in the third in the phraseology of the second. That'll happen when pigs fly.

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