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Wednesday, January 13, 2010

I Ain't Pay'n Bupkis!

If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem. - Jean Paul Getty
Items of Interest:

Peter Atwood / Minyanville:
Why Vilifying the Banks Matters -- For as long as banks have existed, the industry has suffered from a perception problem. From the money changers in the temples to Mr. Potter in It’s a Wonderful Life, banks and bankers have been reviled. To me, it's inherent to the business. A borrower’s current gratification, pardon the pun, is mortgaged for the future. The moment a loan is made, an obligation is born.

But of late, what has always been a tenuous relationship between the general public and the financial services industry has turned particularly ugly. From “reprehensible” subprime lending activities to “obscene” post bailout earnings, the current perception is that our banks have unduly profited from the customers and the nation these firms supposedly serve.

At its core, it's a violation of public trust.

Unfortunately, it's this same public trust that serves as the foundation for our banking industry. As inherent middlemen, banks must trust a borrower’s willingness to repay a loan as much as depositors must trust the banks. Failure in either direction creates catastrophe.

In the 1930s, it was the breakdown in depositor confidence that led to bank runs, and ultimately the creation of the FDIC*.

In contrast, what appears to be happening in this crisis is a breakdown in borrowers’ willingness to repay loans. In increasing numbers, those who can are opting for “strategic default” or bankruptcy...
Robert Lowenstein / NY Times:
Walk Away From Your Mortgage! -- No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth....
John Robb:
The double standard on debt defaults. The aggressive behavior of corporations and high net worth individuals relative to debt and contracts will be copied by the rest of society. Get over it, game theory dictates this. The result a legalism so intense (since basic norms of behavior can't be assumed, they must be spelled out with excruciating detail and enforced through lengthy and exhaustive monitoring) that the overhead expenses of running our economic system become unsustainable. Why? This behavioral roll-out converts the economic returns on societal complexity already in place (systems we built to solve past problems) from marginally positive returns (I'm being generous) into deeply negative drags on all economic and social activity.
Diana Olick / CNBC Realty Check blog:
Walkaways, Pay Option ARMS Hit Banks Bad -- A lot of reports out today collectively gave me a very bad feeling about the state of our current housing recovery.

First, Amherst Securities Group took a look at Pay Option ARMs. These are the adjustable rate loans so popular in 2006 that allowed you to choose your monthly mortgage payment, while tacking what you don't spend on to the principal of your loan. Only 9 percent of these loans had full documentation from the borrower and 76 percent were originated in California, Florida, Arizona and Nevada, our four disaster states for housing. It should therefore come as no shock that they are suddenly approaching subprime in their delinquency status. So while we all sit around saying that the subprime loans have already worked their way through the system, they're fast being replaced by POA's. "For 2006 securitized issuance, 61% of subprime loans have defaulted, as have 49% of the option ARMs," according to the Amherst report...
Galveston County News:
Lawsuit accuses bank of seizing wrong house -- GALVESTON — A West End property owner is suing Bank of America Corp., asserting its agents mistakenly seized a vacation house he owns free and clear, then changed the locks and shut the power off, resulting in the smelly spoiling of about 75 pounds of salmon and halibut from an Alaska fishing trip and other damages...
NY Times:
For Bankers, Saying ‘Sorry’ Has Its Perils -- As America recovers from the worst financial crisis since the Depression, some of the nation’s chief executives are offering that rarest of statements — an apology.

But often, their words are so carefully parsed, scrubbed by lawyers or picked over by public relations professionals that it is unclear just how much mea is in their culpa...
Henry Blodget / The Business Insider: YEAH, BABY! Massive Taxpayer-Sponsored Wall Street Bonuses! -- Thank you, Tim Geithner! Thank you, Ben Bernanke! Thank you, Hank Paulson! Thank you, Larry Summers! Thank you, Barack Obama!

Thank you, AMERICA, for making this yet another absolutely great year to work on Wall Street!