Defending Mortgage Fraud

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Paul Krugman, after pointing out that bankers and their conservative allies are busily insisting that a proposed settlement over fraud charges in the mortgage servicing industry is a “shakedown,” explains why the settlement would be good for the economy, not a threat to the health of the banking industry:

First, the proposed settlement only calls for loan modifications that would produce a greater “net present value” than foreclosure — that is, for offering deals that are in the interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue to extract fees. How could ending this highway robbery be bad for the economy?

Second, the biggest obstacle to recovery isn’t the financial condition of major banks, which were bailed out once and are now profiting from the widespread perception that they’ll be bailed out again if anything goes wrong. It is, instead, the overhang of household debt combined with paralysis in the housing market. Getting banks to clear up mortgage debts — instead of stringing families along to extract a few more dollars — would help, not hurt, the economy.

Remarkable, no? The level of shady dealing in the mortgage industry during the great housing bubble of the aughts was legendary. But even a rather moderate settlement like this one is simply unacceptable to mainstream conservative opinion. It’s almost as if they don’t care about anything other than the interests of rich people and big corporations.

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