Should Banks Be Left to Their Own Devices?

The litany of illegal and unethical practices by large banks is indeed a long one. cashnotes.jpg

These entities are the ones who drove the world economy into a tailspin with everything from marketing subprime mortgages to both borrowers and investors to the Mortgage Electronic Registrations Systems (MERS) debacle.

Miami foreclosures lawyers know that some of the more egregious offenses also include:

  • The imposition of illegal extra fees and costs to consumers;
  • The laundering of money from illegal enterprises;
  • The illegal or improper foreclosure of hundreds of thousands of homes;
  • The improper pushing of awful financial deals on cash-strapped cities, like Stockton, California (which is now in bankruptcy).

In the end, it all comes down to profit-driven greed. Even despite large fines levied against these companies for their wrondoings (case-in-point, the $25 billion settlement reached earlier this year to address questionable mortgage practices), it appears to have little impact because the penalties are minimal compared to the financial rewards of behaving badly.

All of this raises the question of whether we should, at some point, consider whether privatized banks are essentially too big to fail and should be socialized. That was the argument made recently by University of Massachusetts Economics Professor Richard D. Wolff in an essay appearing recently in The Guardian.

Although this initially sounds like a radical idea, consider that North Dakota has operated a state-owned bank for decades – and with great success. Plus, there are numerous examples in other countries where public and publicly-accountable banks perform better in terms of public interest than privately-run firms that are motivated by their own bottom line.

Alternatively, Wolff suggests, we might consider a re-organization of banks into worker enterprises, where employees and affected communities work together to direct and operate the banks.

Essentially, while no one bank has a monopoly, at this point, they are too big to be touched by the various government regulation and sanctions that have been meted out.

Of course, this possibility would surely be met with swift opposition from these corporations, who would undoubtedly spin it as an infringement on capitalism and economic freedom. But when we begin to have an honest discussion, we have to ask where that freedom has led us.

Look, for example, at what happened with MERS. This was a small company founded in 1995 by large, private banks (JP Morgan Chase and Bank of America) and housing finance firms Freddie Mac and Fannie Mae. The intention was to accelerate the processing of turning mortgages into mortgage-backed securities that could be bundled and sold to investors. This produced huge profits for the banks.

Previously, the patchwork of differing county and municipal laws had made this process arduous for the banks. With MERS, they had a fast-moving, centralized computer system that could register mortgage trades. It was quite successful during the housing boom from 1995 to 2007.

But when the boom went bust, the companies used MERS to foreclose on these properties, rather than going through the local, i.e., proper, procedures. This led to hundreds of thousands of improper foreclosures in Miami and across the country. Instead of simply facilitating the foreclosure, MERS acted as the representative for the lender – something it was not legally allowed to do.

This has led to massive foreclosure litigation throughout the country. The results have been contradictory. For example, a U.S. district judge in Florida favored MERS in dismissing a recording fee that was filed by the Clerk of the Circuit Court of Duval County, which had alleged fraud, civil conspiracy and unjust enrichment. But then in August, the Supreme Court of Washington State voted unanimously that MERS had improperly initiated thousands of foreclosures in that state, setting a precedent that may be followed by other states as well.

So now, we are facing a great deal of uncertainty with how to proceed.

This is where the discussion of socializing the banks comes in. We know that banks are, at the core, intended to be financial intermediaries. Wolff writes that the basic function is to connect those with money to save and lend with those seeking to borrow. They are in essence the trustees of peoples’ money. But they have failed at this colossally failed in this role.

When you start to consider these failures as a whole, it’s time to begin considering more drastic measures.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991.
Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

Additional Resources:
The Mers Mess, Oct. 1, 2012, By Richard D. Wolff, The Guardian
More Blog Entries:
South Florida Homeowners Beware: Banks Now Faking Debt Forgiveness, Oct. 1, 2012, Miami Foreclosure Lawyer Blog