Saturday, October 16, 2010

Kling More or Less Loses it on Foreclosures

Arnold Kling can barely contain himself: 
[T]toss around words like "shoddy" or "sloppy" or "fraud" is going rather far. If you want the record-keeping process to adhere perfectly to the traditional process, then you effectively eliminate securitization. I think that would be fine, but it would have been more helpful to have made that determination in 1968, before the government created GNMA, and before it created Freddie Mac in 1970.

It is safe to say that what is going on now is not helping "little people" against "the banks." It is an assault on a process that has done little or no actual harm to borrowers, and which supports the complex allocation of mortgage cash flows under today's securities.

In the end, the biggest losers will be the unemployed, because the assault on the foreclosure process is going to keep the housing market in limbo for years. That in turn is going to make economic recovery something that does not begin until well after President Palin takes office.
It's hard to know where to begin here but I can't for the life of me understand why insistence on effective record-keeping. would "effectively eliminate securitization."  It would have slowed it down, I suppose, but so what?  And is he saying that the very existence of securitization was the fault of some crack-brained government decision?  That the poor misled banks are just so many lemmings walking off a government cliff.

And I have to admit I fail to grasp the linkage between the bankers' serene indifference to facts and their horror at the possibility of mortgage writedowns.  Just for the record, I'm not that nuts about writedowns either (FWIW I'm with him also on bankrupting banks).  And I would assume that most of these borrowers do, in good conscience, owe something to somebody.  But I should think that minimum civility would require that they pay their creditor, not any guy in polyester who happens to show up at the sale.

Maybe what Arnold is thinking of is that bit from the AP Herbert story (in The Common Law) about the guy who was brought up on charges after a policeman fished him out of the canal.  The judge said (I quote from memory):
It's been my experience that most people who come to the attention of police have done something to deserve it and I don't see why it should be the policeman's fault if he can't come up with the charge.
 On second thought, I suspect Arnold probably wouldn't understand why that is funny.

[Going away thought: I suspect he is probably right when he says that the biggest losers will be "the unemployed" (by which I guess he means "the borrowers").  We'd agree that it certainly won't be the banks.  Oh, and by the way, I'm sure the thought of President Palin turns his small intestine to water just as much as it does mine.]

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