I criticized some journalists the other day for perpetuating the silly bank spin that the foreclosure fraud scandal is a mere paperwork problem or ultimately borrowers’ fault for defaulting in such enormous numbers.
But Duff McDonald has about as pure an apology for the banks as we’ve seen yet. It’s a poorly reasoned argument. And it’s in Fortune, naturally.
We get a full dose of blame-the-borrowers big time—and in the lede:
Before we take the entire banking industry to task on the foreclosure mess, it bears reminding that the source of the problem is people who bought homes they couldn’t afford. Let’s blame them, too.
Then we get the ol’ misdirection from the matter at hand: Whether banks and servicers committed widespread fraud to kick people out of their homes without due process:
But I find it very hard to process the notion that the onslaught of foreclosures in this country does not have more to do with a failure of conservative financial planning than with some insidious criminality by lenders.
Well, I find it very hard to process the notion that revelations of mass-scale lender fraud leads to an unsupported attack on borrowers. Odder still, we have actual evidence of “insidious criminality” on the lender side. That’s why the feds are investigating.
Where, you have to wonder, is the parallel evidence of a spontaneous mass breakdown of Americans’ financial planning abilities sometime in the mid-2000s?
Then there’s this straw man:
That said, I’m amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can’t pay their debts.
I haven’t seen or heard the sentiment anywhere else, and McDonald, of course, links to no examples of it. So which “the country” is this? Weak sauce.
That’s immediately followed by this:
While I am much more inclined to believe that buyers of so-called securitized debt instruments might have been defrauded by their packagers…
You don’t say!
… I am at a loss to understand how so many individual homeowners signing loan documents for debt they could ultimately not afford were somehow the victims of a crime.
Interesting, isn’t it, how institutional investors are presumed to be victims, while civilian borrowers are irresponsible? At this point, one can only admire this faith in the U.S. mortgage industry.
Again, McDonald is arguing against a straw man. Not “every single borrower” was “somehow the (victim) of a crime.” But these things are not mutually exclusive. I can sign up for a mortgage I can’t afford and still be illegally foreclosed on by banks. There are laws for this kind of thing. Even the bankers have to follow them.
What’s more, it’s well established (though still not to our satisfaction in the press) that scads of borrowers were put into bad loans they didn’t understand by predatory lenders paid more to deceive them.
McDonald also brings on the technicality argument:
Three: I wrote a book about Jamie Dimon called Last Man Standing. In it, I praise him for a sense of ethics often found lacking in financial services CEOs. And yet this week, JPMorgan Chase (JPM) is taking the brunt of a populist firestorm that is shocked – shocked! – that the processing of millions of foreclosure documents may have taken on somewhat of a robotic quality. Again, I take no issue with the requirement that we all follow the law, and if JPMorgan Chase or others broke it, then they should pay the appropriate price. But the law also holds that people who default on their loans must forfeit the property pledged as security. It’s as simple as that, and Dimon agrees. “We’re not evicting people who deserve to stay in their house,” he told shareholders on Wednesday.
There are so many things wrong with this paragraph that I’m going to have put ordinals on them.
First: McDonald wrote a book saying Jamie Dimon has a “sense of ethics,” and that proves, what—that foreclosure-processing fraud at Chase is somehow excusable? Besides, even if you concede that Dimon’s Chase is some sort of a paragon, it’s only in relative terms: The best smelling pig in the barnyard.
Second, is JPMorgan really “taking the brunt” of the backlash? Bank of America, GMAC, and Wells seem to have taken their fair share.
Third, here’s your “somewhat of a robotic quality”:
Some employees of Florida’s largest “foreclosure mill” were given jewelry, cars and houses from the firm, in exchange for altering and forging key documents used to obtain foreclosures, according to a statement released today by the Florida Attorney General’s Office.
Fourth, “the law also holds that people who default on their loans must forfeit the property pledged as security.” Who says it doesn’t? But is it too much to ask someone to prove they own a property before taking it?
McDonald comes up with a jaw-dropping argument against that:
Forget about the oft-mentioned fact that we’re in the midst of destroying our long-held beliefs in the notion of property rights and contract law. Does anyone realize what a bunch of babies we must look like to the rest of the world?
So, concern about property rights and contract law makes us look like babies to… the Chinese et al?
What a mess.
Little guys getting thrown out on their ear without due process. Powerful interests running roughshod over the law. The industry that created the financial crisis and got trillions of dollars in bailouts while preventing real homeowner bailouts, screwing borrowers once again.
Nah, no story here.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.