Jeff Neal for C.U.R.E. - Certain Unalienable Rights Endowment

Let’s SUE somebody for something, that’ll feel good!

In Opinion on December 7, 2011 at 6:21 pm

And, it will score BIG political points too!

The attorney general of Massachusetts is suing 5 banks for their role in the financial melt-down of 2008.  She makes her political (as opposed to legal) case on HuffingtonPost.

Martha Coakley: A Stronger Voice for Accountability.

Does Ms. Coakley really believe that banks made loans they “knew were destined to fail” and then “sold them for billions in profits”?

That line has been used so many times that people have started to take it for granted; it’s become like saying the sun rose today.

I wonder though…..How could that actually happen?  Would YOU make a loan to someone you knew wouldn’t pay it back?  And if you did, who would buy that loan from you at a profit?

It is true that some people over-borrowed; and it follows that some banks lent too much.  But to suggest that banks did so with the (criminal?­) intent and knowledge that they were not going to get paid back is nonsense.  The banks did over-lend, but it was because Fannie/Fre­ddie told them (with the blessing of Congress, hello BarneyFran­k) that they would buy all of their sub-prime loans just as fast as they could place them, securitize and package them into BIG portfolios.  As long as they got a rating agency to do all the risk assessment and then say they’re “AAA” credits then, voila, it’s a money machine fueled by the explicit guarantee that the government would fix it if anything went wrong.

Where is the illegality­?  The actions of the banks were not illegal.  The banks most certainly exercised some poor business judgment, but that’s not illegal.  And as for the foreclosur­e tactics . . . maybe they’re somehow a technical breach of the law, but they should not give rise to a homeowner getting the ability to pay back only part of the loan he took out to buy the house, should they?
The mortgage and housing bubble did burst, but very few people can claim that they made no contribution to it.  I elaborate on the point in this post (Earlier C.U.R.E. Post on the Financial Markets) and in the longer piece embedded therein.
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