Mortgage Putbacks vs. ‘Stability

Every time I bump into a colleague who worked with Tim Geithner during the crisis, we always seem to get into a good natured argument over the bailouts.

He insisted that what was done HAD to be done for stability’s sake; I insist that there were other better options to take — but even if you were going to bailout the banks, it could have been done on much more advantageous terms for the taxpayers (read: less generous to the banks). A haircut for bond holders, some more dilution to equity holders, and no reason to create as much moral hazard as was effected by the generous giveaways.

But that was way back in 2008. The system is arguably stable now. Which makes the latest bank snafu — mortgage putbacks from the likes of MBIA, FNM & FRE and other players — quite fascinating.

Here is the NYT:

“Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation. Depending on the final price tag, the costs could lower profits and slow the economic recovery by weakening the banks’ ability to lend just as the housing market is showing signs of life.

The banks are battling on three fronts: with prosecutors who accuse them of fraud, with regulators who claim that they duped investors into buying bad mortgage securities, and with investors seeking to force them to buy back the soured loans.”

With the system no longer in crisis, we will soon see which of the corporate toadies will be arguing for yet another generous deal with the bankers, all in the name of stability . . .

This piece is cross-posted from The Big Picture with permission.

2 Responses to "Mortgage Putbacks vs. ‘Stability"

  1. benleet   December 13, 2012 at 3:26 pm

    When 'Mark-to-Market' was suspended the banks were saved from bankruptcy. Has the Mark-to-Market accounting principal been restored? If is has not, and it were, would the banks be solvent? If not, how can one say "The system is arguably stable now." Housing values are still about 30% below their peak, and probably a large percentage of mortgages are over-valued. Aggregate Income is not growing, it's shrinking for the majority, and unemployment still has 25 years of growth at the rate of the last 2 years before it recovers its 2007 status. ??? Stable?

  2. sierra7   December 18, 2012 at 2:07 pm

    The suspension of Mark to Market rules is hardly talked about……if M to M rules still applied, most "banks" would be in the garbage heap.