This mortgage documentation issue has the potential to be a complete disaster. If the banks are forced to take back loans(that are in or close to foreclosure) this means 3 things off the top of my head -M2 will go down some more as the banks will have more foreclosures in their pipelines(I explained a while back the foreclosures put pressure on the broader money supply). Excess reserves will rise -They will take hits to capital and thus need to raise it either in the market or through a new TARP(Although I believe the FDIC has the authority to inject funds too, under the systemic risk rule). -They will cut on lending The fact the NYFed is endorsing this idea is curious to say the least. They might have to bailout the very guys they are suing
Its even more ironic that the guy running the NYFed is Dudley, which currently is one of the biggest doves and backers of more easy money. Yet this move is quite deflationary, financial CDSs are blowing out, bank stock prices diving. I'm not quite sure how this will play out but I have a hard time seeing the banks getting REALLY screwed because it would be like a LEH or FNM/FRE type failure which the government will try to avoid at all costs
The last time the government talked about the rule of law like this it was when the Treasury lawyers argued the link between the dollar and Lehman brothers was too small for Paulson to bail them out with the exchange stabilization fund... If the enforcing the rule of law means the collapse of the financial system and decimation of living standards then its not on the interest of society to follow it. We are not at the point yet as its only 1 bank but it seems to me that people will try to make a party of the situation by canceling foreclosures because 'there is no note', the legal rulling better be that one wont be needed or the banks will collapse and its 2008 all over again
The system didn't nearly collapse because of Lehman. Lehman may have been a triggering event, but it was the shenanigans of the previous couple of decades that caused the problem. This was unsustainable and a collapse was inevitable. Current attempts to prop up this corrupt and unsustainable system will also fail. FWIW, I believe that folks are making too big of a deal out of this PIMCO/Blackstone/NYFed lawsuit.
The shenanigans of the 2 decades means a lot of delevering and weak growth in my view, not a couple of quarters 1930's style depression
Some writers on Bloomberg picked on the irony http://noir.bloomberg.com/apps/news?pid=20601068&sid=a.VZv2VKWiBs
Here is an interesting study showing that part of the male-female wage gap isn't related to prejudice but to actual performance differences between the 2 http://www.voxeu.org/index.php?q=node/5697 But of course, the guys behind the study will probably be bashed and be called male pigs. I'd suspect similar results would come out of in study of the wage gap between white male workers and black male workers(though the reason would be education and things of that nature) Some people out there dont seem to understand that in competitive somewhat efficient markets, edges(in the form of lower costs) dont tend to be out there for too long before someone picks it up, sometimes this rule doesnt apply but most of the time it does. There is a reason most of the S&P500 has male CEOs and most of that time it is an economical one
You should've ended your post there. There was a huge amount of fear-mongering at the time, and whatever "collapses" had to occur should have. The chicken little, "world is going to end" collapse talk was simply justification for taxpayer-robbing stimulus, most-favored corporation saving (AKA, "too big to fail), etc. All we did was put off problems that are likely to be worse in the future.