Arnold Kling  

My Essay on the Foreclosure Scandal

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In The Washington Times.


What has emerged in recent weeks as "the foreclosure scandal" represents the collision of this 21st-century computerized, global financial system with an 18th-century legal process for obtaining ownership rights to buildings and land. Indeed, the United States has one of the most backward land-title systems in the industrial world.


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COMMENTS (9 to date)
Thomas Esmond Knox writes:

The State of Queensland, Australia has had a computer-based Land Title system for many years.

Joe in Morgantown writes:

I enjoyed the article, thanks.

It is not clear that MBS have a future in any case. It is now clear that purchasers of the Trust need to "trust" the packager[1]. The big banks have shown themselves unworthy of that trust. When the Fed stops buying MBSs[2], we are likely back to banks (and agencies) holding the mortgages. And, you know, that works just fine.

As for the lawyers, well, when people ignore the law, they end up in a legal mess. I am pleased (and slightly surprised) to see that also apply to powerful banks. I'm not pleased with the mess itself, of course, but pleased to see rule of law apply even against the powerful.


[1] I'm thinking in particular of the NP-hardness proof--- the trust holders really do need to trust the packager, as there is no way to verify after the fact.
[2] The Fed doesn't need to trust because it doesn't care about losing money and might even wish to overpay.

Rebecca Burlingame writes:

It's not easy to say this ought to be done nationally or locally, because incentives for greed at both levels have made it difficult for properties to be sold or maintained, albeit in different ways. Perhaps eventually there will be ways to compromise with a balance of legal framework between local areas and the national level.

K Ackermann writes:

In the process of committing one of the most heinous crimes (that of depriving people of life, liberty, and the pursuit of happiness), the banks also committed a string of crimes against the court.

These are the same banks that ruined the economy, and then held what was left of it hostage unless they got trillions of dollars in aid.

Equal justice for all must prevail. If it doesn't, then I feel empowered to do whatever I want in society, and whatever I want to the banks.

Lauren writes:

K Ackermann wrote

In the process of committing one of the most heinous crimes (that of depriving people of life, liberty, and the pursuit of happiness), the banks also committed a string of crimes....

Exaggeration behooves no cause. Banks in the United States never deprived anyone of life.

No one from a U.S. bank has with any government authority ever entered someone's home or put a gun to that person's head, nor commited rape in the household, nor peremptorily removed that person forcibly from his household without notice supplied for months in advance. That kind of deprivation of life or liberty has happened in other countries and governments--e.g., the now-defunct USSR or the current Somalia, or many other foreign countries whose citizens have in fact fled to the United States as refugees and immigrants to escape the horrors of deprivation of life and even the most minimal hope for liberty and preservation of life.

To say it happens similarly in America is to disrespect the horrors experienced by people who actually experience the deprivation of life.

The behavior of the U.S. Federal Reserve system has encroached on a lot of specific liberties, but deprivation of life is not one of them. Neither does the U.S. banking system deprive people of liberties or the pursuits of happiness such as even the ability to bank elsewhere in one's community, in other states, or even in other countries.

Equal justice is a good and desirable goal under the law. Getting your facts straight before you feel "empowered to do whatever I want in society, and whatever I want to the banks" is part of what justice is about.

Shayne Cook writes:

I, for one, am more than happy to see the Judicial branches finally being given an opportunity to weigh in on this housing mess. That should have happened more than 2 years ago - in lieu of TARP.

AlanDownunder writes:

Not just Queensland, Australia - every state in Australian. But the US is way too planning-averse and government-averse to exhibit rational organisation.

Not that a computerised Torrens title system would have stopped this train wreck. An utterly perverse web of incentives guaranteed it.

Komori writes:

@Lauren

"Do you understand anything I'm saying?" shouted Moist. "You can't just go around killing people!"
"Why Not? You Do." The golem lowered his arm.
"What?" Moist. "I do not! Who told you that?"
"I Worked It Out. You Have Killed Two Point Three Three Eight People," said the golem calmly.
"I have never laid a finger on anyone in my life, Mr. Pump. I may be -- all the tings you know I am, but I am not a killer! I have never so much as drawn a sword!"
"No, You Have Not. But You Have Stolen, Embezzled, Defrauded, And Swindled Without Discrimination, Mr. Lipvig. You Have Ruined Businesses And Destroyed Jobs. When Banks Fail, It Is Seldom Bankers Who Starve. Your Actions Have Taken Money From Those Who Had Little Enough To Begin With. In A Myriad Small Ways You Have Hastened The Deaths Of Many. You Did Not Know Them. You Did Not See Them Bleed. But You Snatched Bread From Their Mouths And Tore Clothes From Their Backs. For Sport, Mr. Lipvig. For Sport. For The Joy Of The Game."
-- "Going Postal" - Terry Pratchett

[The above quote is evidently from the mass-market paperback novel, Going postal: a novel of Discworld, by Terry Pratchett, 2004.--Econlib Ed]

Two Things writes:

What you want is a Torrens title system crossbred with modern geolocation technology.

I want that too.

The bloodsucking parasites we call "title insurers" don't want that, and they provide a perfect illustration of "rent seeking" in a world of "public choice economics." They simply use some of their unearned increment to pay off politicians to keep their racket going.

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