Dean Baker: 'This isn’t going to be TARP II'
I was talking to the Center for Economic and Policy Research's Dean Baker about the foreclosure mess earlier today, and he was notably less concerned than some of the other voices I've featured on the blog. "The idea that it’ll bring wholesale collapse is far-fetched," he told me. "Some banks will be liable for lawsuits, and you could even see some people going to jail. They were signing documents saying they reviewed the paperwork when they clearly didn’t, and that can be criminal. But the idea that this would threaten the big banks? I have trouble seeing it."
Among the points he made was that if the underlying "note" on a home isn't valid, it doesn't mean the borrowers are free and clear. They still owe the bank for the amount of the loan. The bank just can't foreclose on them. In most cases, the homeowners will just continue to pay as much of their mortgage as they can. "The people still owe the money," Baker says. And over time, "it’ll be a pain for the banks to get the paperwork in order, but I imagine in 90 percent of the cases they’ll be able to do it."
As for whether lawsuits will force a trillion or so dollars of mortgages back onto bank balance sheets, Baker didn't buy it. "There might be some bank up to its neck in garbage," he says, "but it won’t be Bank of America. It'll be a small bank. This isn’t going to be TARP II."
Which isn't to say it won't register at all. Bank stocks are falling today, and credit derivative spreads are widening.
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