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Mortgage Putbacks vs “Stability”

Posted By Barry Ritholtz On December 10, 2012 @ 8:34 pm In Bailouts,Legal | Comments Disabled

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 [1]:

“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 . . .


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[1] NYT: http://www.nytimes.com/2012/12/10/business/banks-face-a-huge-reckoning-in-the-mortgage-mess.html

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