Every time I bump into a colleague who worked with Tim Geithner during the crisis, we always seem to get into a good natured argument over the bailouts.

He insisted that what was done HAD to be done for stability’s sake; I insist that there were other better options to take — but even if you were going to bailout the banks, it could have been done on much more advantageous terms for the taxpayers (read: less generous to the banks). A haircut for bond holders, some more dilution to equity holders, and no reason to create as much moral hazard as was effected by the generous giveaways.

But that was way back in 2008. The system is arguably stable now. Which makes the latest bank snafu — mortgage putbacks from the likes of MBIA, FNM & FRE and other players — quite fascinating.

Here is the NYT:

“Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation. Depending on the final price tag, the costs could lower profits and slow the economic recovery by weakening the banks’ ability to lend just as the housing market is showing signs of life.

The banks are battling on three fronts: with prosecutors who accuse them of fraud, with regulators who claim that they duped investors into buying bad mortgage securities, and with investors seeking to force them to buy back the soured loans.”

With the system no longer in crisis, we will soon see which of the corporate toadies will be arguing for yet another generous deal with the bankers, all in the name of stability . . .

Category: Bailouts, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “Mortgage Putbacks vs “Stability””

  1. Petey Wheatstraw says:

    The story now is the same as the story then:

    The banks should have been taken over and turned into public utilities, the results of their chicanery and criminality unwound (with appropriate losses to all who took the risk of investing in them), and the bankers themselves (along with their attendant co-conspirators – loan originators, appraisers, and ratings agencies), prosecuted to the fullest extent of the law (with bankrupting and unrepayable fines AND serious, harsh jail time).

    We created a moral hazard. We knew it at the time, and we did it anyway. We will continue to live with the consequences. For what it’s worth, it’s stable.

    We are Rome after the fall of the Republic. A crunchy exterior of power surrounding a creamy center of corruption.

  2. ezrasfund says:

    The fact that GS was moved to change their status from investment bank to commercial bank says a lot about just how generous the bailout was.

  3. louis says:

    What they did was treason.

    Stable ? http://www.youtube.com/watch?v=uVw1Dugu7ys

  4. rd says:

    Morsi issued his decrees in Egypt in order to promote “stability”. “Stability” without a rule of law is the hallmark of totalitarian and fascist regimes.

    If the courts end up deciding that there is even a small percentage of the $300B that should be classified as fraudulent transactions, then the biggest crime will be if nobody is charged with a crime. The worst possible outcome in that scenario is if the investors take it on the chin while the eecutives who proagated, aided, and abetted the frauds walk away with their pay packages intact and no indictments. That will just inform the other exectuives in the financial secotr that fraud does pay.

    The biggest single stability factor of the Western democracies is rule of law. If that is shown to be weak, then nobody knows what the potential outcomes of transactions will be and uncertainty and risk balloon without offsetting benefits.

  5. Petey Wheatstraw says:

    rd:

    You know there were fraudulent transactions and I know there were fraudulent transactions. Everybody knows there were fraudulent transactions.

    We already gave it away. The courts will support the status quo. That’s how fascism works – the PTB stick together.

  6. 873450 says:

    ” … we will soon see which of the corporate toadies will be arguing for yet another generous deal with the bankers, all in the name of stability … ”

    Maybe that’s why they’re hyping up the most recent faux “housing recovery” so much.

  7. louis says:

    They are doing it right now, listen to what BR and Whalen are saying. Remember what happened in 08 , not a single rock or shot was fired, of course they are going to FU again. It’s all they know how to do.

  8. M says:

    US authorities won’t indict HSBC ” concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system”.

    http://ftalphaville.ft.com/2012/12/11/1304562/the-6am-cut-london-184/

  9. Greg0658 says:

    I didn’t see Save the OpSys but prosecute* the top tier managers .. ‘ haircut for bond holders, some more dilution to equity holders ‘ .. these institutions hold the paper #s that makes the pension systems .. thats what money is for -ie storage of wealth for the future when you are no longer a laborer ..
    ‘ Everybody knows’ – the Boards, and stock/bond holders are only junior grade vampire squids

    * prosecute** – yhgtbFk (you have got to be F’g kidding) – thats why I support a world without corporate stocks – just cash money … well ok something else – if this OpSys doesn’t blow us up into the stone age – maybe in 2300+ we’ll have an evolved ID creation

    ** reward disaster kickback capitalism – yhgtbFk

  10. Orange14 says:

    Meanwhile back on the “venture capital” front, the USG seems to have made a pretty nice profit on AIG as they prepare to sell the remaining shares! :-)

  11. Orange14 says:

    @Greg0658 – yhgtbFk, what a great password for website accounts!!!

  12. Jim67545 says:

    This was the subject of my contribution yesterday about uncertainty vs. risk. Instability here impacts one or a group of banks. Before it gets to that point these activities, justified though they may be, will put a major chill on the type of lending involved. Do we really want a post 2008 type mortgage loan freeze up? Who would that hurt?

    Above are various suggestions on who to take out and shoot – bond holders, stock holders, etc. Where a pattern of illegal or fraudulent practice existed, imposing money fines only penalizes current stockholders and the corporation’s employees in general (with some of the “little people” getting the axe in downsizing.) The board and executives who actually directed the corporation when the activity occurred skate along unaffected. In fact, they might get a monetary ataboy for handling the bank’s defense. That should change. I would vote that the penalties be levied on those individuals who had or shared the authority but who instead chose the dark side.

  13. Tarkus says:

    What they did was save the Big Banks (and their executives), but they sacrificed the Banking System. The Banking System is now broken, and the Big Banks are just parasitic and a drain and destructive force on the economy.

  14. DeDude says:

    The only reason Paulson and Bush could get the bailout through congress (remember it first failed, before it passed) was that there was an actual real financial crisis with money freezing up even for good businesses. A long drawn out loss of a mere 300 billion is not going to precipitate any financial crisis. We now have legislation in place to wind down dying banks in an orderly fashion, so we may get lost stock values, but not a financial crisis.

    I hope they lose all the lawsuits and some of them go under in the process. That is the only hope left to cure some of the moral hazard left over from the Paulson/Bush bailouts.

  15. wally says:

    Does anybody really believe that the banks “ability to lend” would be weakened by anything other than lower demand? That notion seems absurd.

  16. wally says:

    Does anybody really believe that the banks “ability to lend” would be weakened by anything other than lower demand? That notion seems absurd.

  17. theexpertisin says:

    Since the Supreme Court decided that corporations should be treated as people, is it not reasonable to expect government to give free stuff to all?

  18. Glen says:

    I still think it would have been much more advantageous for the economy that the rest of us live in to let the FDIC wind down Citibank, keep the investment banks out of the Fed trough and take out all the top management of any bank which used any of Mr. Geitner’s numerous bank bailouts. Every effort should have been made to reward those banks which were financially sound while forcing the shareholders, bondholders and officers of the insolvent institutions to pay the price for their failures.

    Anybody who can still believe that the decisions made during the bailouts were fair and impartial or for the benefit of society at large has to be smoking crack. This post over at NC as applied to financial system as a whole is the best explanation:

    http://www.nakedcapitalism.com/2012/12/former-president-of-the-central-bank-of-belgium-on-why-the-money-system-is-a-taboo-topic.html

    In the long run, it would have been better to have bit the bullet and quickly made substantial and real corrections to the financial system during the 2008 crisis rather than kick the can down the road, and set the world up for an even larger crisis. Those same people and banks which caused the last crisis are now larger and wield even more political power than in 2008.

    There are those who perhaps correctly argue that the crisis could have been much worse, but it is as equally true that it is hard to imagine how it could have turned out any better for those who caused it.

  19. ToNYC says:

    The take-away from all this is that when the Big Banks have plenty of money, there is Stability, and vice versa. Our elected representatives and other first-responders’ first requirement is to maintain or restore Stability. This is of course a corollary of the hard science that Like dissolves Like, and vice-versa.

  20. BuildingCom says:

    “just as the housing market is showing signs of life.”

    Ummm…. The housing market is showing signs of life as a result of massive government price supports and price rigging.

    Question: Will the price supports be removed?

    Answer: Eventually. And you don’t want to be in housing when it happens.