The Kroog Versus Foreclosuregate

Finally, Paul Krugman weighs in on the robo-signing, foreclosure milling, wrong-house repossessing, document-forging disaster that has been the housing market over the last several years.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t.

Beyond that, if trusts can’t produce proof that they actually own the mortgages against which they have been selling claims, the sponsors of these trusts will face lawsuits from investors who bought these claims — claims that are now, in many cases, worth only a small fraction of their face value.

And who are these sponsors? Major financial institutions — the same institutions supposedly rescued by government programs last year. So the mortgage mess threatens to produce another financial crisis. 

Obama doesn't want to do anything, Krugman goes on to say, and the Village econ division seems to think the bank doesn't need any stinking paperwork.   It's going to get a lot worse before it gets better, mainly because the people who have solutions are once again being ignored in favor of hand-wringing over the banks, or trying to sweep the measure under the rug completely.

The pushback by the Village on this has been impressive.  they're acting like this is a minor inconvenience because the Masters of the Universe don't need paperwork.  They create their own reality.  Jim Cramer is not just drinking the Kool-Aid, he's made of it, like some sort of cursed elemental made of conventional wisdom and sugar. 

"This is a remarkable moment where the bears who have seized control of the media have created an atmosphere where it seems like no one believes anything could go higher," Cramer said. "While those in control of stock buying see silver linings and glasses half full everywhere, which is why we didn't go down nearly as hard as I thought we would."

Foreclosuregate is all in your head, folks.  It's too complex for anyone to understand, so just trust the banks!

Awesome.  Just like last time!