The Foreclosure Mess

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.

I haven’t been blogging about the foreclosure debacle in detail, so here’s a quickie catch-up on what it could all mean:

Beyond sloppy documents, the foreclosure debacle has exposed one of Wall Street’s little-known practices: For more than a decade, big lenders sold millions of mortgages around the globe at lightning speed without properly transferring the physical documents that prove who legally owned the loans.

Now, some of the pension systems, hedge funds and other investors that took big losses on the loans are seeking to use this flaw to force banks to compensate them or even invalidate the mortgage trades themselves. Their collective actions, if successful, could blow a hole through the balance sheets of big banks and raise fundamental questions about the financial system, financial analysts and a lawmaker said.

….Local laws in most states dictate that each time a mortgage changes hands, the transaction needs to be recorded in courts or county offices. But the speed with which the loans were being generated during the housing boom and then pooled together and passed around Wall Street meant that big financial firms took shortcuts, consumer lawyers said.

Italics mine. I was at dinner last night with a longtime reader, and we naturally ended up talking a bit about the economy. My biggest worry, I said, continues to be an “event.” Maybe China crashes. Or Iran decides to embargo oil for some reason. Or Ireland collapses, sending the Euro into a tailspin. Or maybe something like this foreclosure mess, which blows a hole in bank balance sheets yet again and turns into a replay of September 2008. I don’t know how likely this is, but the fact that Geithner & Co. are so obviously eager to keep the foreclosure machinery humming suggests to me that they have similar worries.

Now, maybe I’m just a worrywart. If I start hawking gold on the blog, that’ll be a sign that weird economic conspiracies have finally seized hold of my mind and I can be safely ignored. But a “lost decade” of slow growth and stagnant income, bad as it is, isn’t the worst thing that could happen to us. My sense is that although banks are much stronger now than they were two years ago, they’re still not strong enough. Another meltdown is still possible given the right event to set it off.

UPDATE: Details of the worst case scenario here.

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate