This is one of the most insightful articles I have read on the housing crises. I do want to make it clear I think in this country we all have a problem living on credit. I am also a Big Red State type capitalist guy. But what is going on in banking and finance is not capitalism.
(With apologies for length)
Willie Sutton, the famed bank robber of the 1930’s and 40’s once made the statement, "Go where the money is...and go there often," and though his lifetime take was said to be as much as $2 million, Sutton was a mere amateur. His crimes are dwarfed by those of today’s gangsters who, during the past decade, were committing the greatest bank robbery of all time; only this time the banks were the larcenists.
A quick look at how the big banks fared following the “financial meltdown” shows that it’s not their wealth or the contents of their vaults that are significant, it’s the power they wield over our financial and political systems. Banks have learned where the big money is and how to tap that source whenever necessary; and unfortunately for the average American, their source is the U.S. taxpayer. With help from powerful allies in congress, banks developed creative ways to fleece consumers and then to force those same consumers to cover their losses whenever the banks’ investments went sour.
One of the tools used by banks was the revolving door system that placed former banking officials into top positions in every recent administration, allowing banks to commit the greatest bank robbery of all time, one that continues to fleece U.S. tax payers out of hundreds of billions of dollars. With oversight carefully orchestrated by bureaucrats and retiring politicians who routinely wind up in lucrative positions as lobbyists, the country’s banks aren’t too big to fail, they’re too connected.
And while we all understand that businesses must profit if they are to survive, the big banks chase for profits created monsters, entities so hideous that they appear willing to do whatever is necessary to insure their survival. But it’s much worse than just the attempts of lenders to create profit opportunities; some of the banks are willfully wrecking lives and altering the lending will be conducted in the future.
Here are a few more recent offenses:
● Banks created mortgages that they knew were doomed to failure, and then reaped huge profits when those toxic loans were packaged and sold to investors.
● Banks guided some borrowers into costly, sub-prime loan products when less risky and less costly options were the more appropriate and prudent choice for the borrower.
● When the economy collapsed and many of those borrowers were unable to make their mortgage payments, banks incorrectly advised them to fall behind on those payments in order to qualify for a loan modification, a statement in direct conflict with the government guidelines. Then, after deliberately missing payments per their bank’s guidance, the homeowners credit ratings were harmed because of the missed payments.
● Some owners lost their homes as a direct result of their bank’s practices and sometimes usurious fees and charges. Many of those who applied for modification, after complying with the suggestion to miss payments, were later denied modification and ordered to bring all payments current, including what some judges have described as exorbitant fees and late charges, or face immediate foreclosure.
● It has been reported that banks intentionally misapplied payments, forcing homeowners into default.
● A significant number of homes in modification appear to have been foreclosed upon without providing a denial of modification or notice of pending foreclosure.
● Homes with an approved short sale in progress were foreclosed upon.
During the collapse of the housing market, banks have made an effort to blame borrowers and have convinced much of the public that the housing crisis was caused by nothing more than reckless spending and borrowing. By protesting that they could not have predicted that home prices would not increase forever, banks have tried to shift the blame for their irresponsible lending practices upon an unsuspecting public; and to add insult to injury, banks have asked taxpayers pick up the tab for their losses.
However, it was always the banks’ responsibility to verify a borrowers’ ability to repay; doing less is to abrogate their responsibility as a lender. Borrowers did not create “liar loans.” Borrowers did not demand loans in excess of a home’s value. Borrowers did not seek out appraisers who would confirm the fictitious values of the homes they were purchasing. Borrowers did not devise elaborate and confusing derivatives or CDOs, some of which were intended to fail.
With more than 6 million homes lost to foreclosure and with millions more facing that end, it’s time for our leaders to demand participation from the banks. Banks were complicit in the collapse of the housing market and must share in the pain and help to stabilize the economy. Yet, while consumers were suffering job loss, foreclosure, and bankruptcy; many of the big banks—with much help from taxpayers—reaped billions in profits and paid out hundreds of millions in bonuses. I see their actions as nothing more than sanctioned “bank robbery,” one of staggering proportions—only this time the victim has been the American public.
The first step to resolution is to stop blaming borrowers for the banks’ avarice and incompetence. Not only did lenders offer loan products that put their own investors at risk, they sometimes pushed those products to borrowers who relied on the “superior knowledge” of lenders to help them make financially sound decisions. Some might say banks were just negligent; the truth is they were devious, in some cases, criminally so.
It seems to me that banks have violated their fiduciary duty to both their customers and their investors by creating loan products that were obviously “toxic” and for their lack of due diligence when making loans.
In the past, when examining fiduciary responsibility, courts have taken a dim view of transactions by which a dominant individual obtains advantage or reaps profits at the expense of a party under his or her influence. Such transactions, when undue influence of the fiduciary is established, can be nullified by the court.
Perhaps banks need to be reminded of their duty to their customers, and perhaps the courts will take that into consideration when analyzing the millions of transactions from which banks attempted to reap great profits while putting borrowers at great risk.
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