In the ongoing story that is the US housing debacle we noted on the weekend that the banking analysts have decided the best outcome for everyone is to decriminalise any crimes that the banks or their agents may perpetrated.
There is also a persistent concern that the crisis could cast a pall over the fragile housing market, derailing any recovery and damaging the broader economy, still struggling to emerge from the worst recession since the 1930s.
The KBW Banks index was down two per cent in early afternoon trading on Friday, after falling 2.6 per cent on Thursday.
Attorneys general in all 50 US states are looking at allegations that for years banks failed to review documents properly or submitted false statements in support of foreclosure applications.
Credit Suisse analysts said demands by investors for banks to repurchase loans was likely to remain elevated and lead to continuing high costs, but they expected Washington to step in to resolve the documentation issues.
“We find it difficult to believe that after all of the costs and efforts that have been brought to bear to help stabilise the housing market that there would not be action by the administration or Congress to ‘fix’ a procedural issue,” they said in a note to investors.
Hmmm.. And let’s not forget who is wearing all those costs? Who bailed out the banks when they almost destroyed the economy? And guess who is going to have to do it again because the government made deals with an industry that decides it doesn’t have to care about the law if it is getting in the way of making money. The US should just pass a law to let them do what they want, because creating dodgy laws for moral hazards sounds like a great outcome.
However that is not the real problem, this is a point of law and therefore a point of trust. Imagine what sort of legal precedent you are setting if you signed away the legal right of someone to challenge a contract. Who would ever trust one again?
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