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Foreclose on the Banks: How to Give America Its Best Christmas Ever

Ted Rall

 by Ted Rall

NEW YORK - Citibank is suspending foreclosures and evictions for 30 days, until after the holidays.

Mighty white of them.

Who knew bankers could be so amusing? In an interview, Citi mortgage czar Sanjiv Das acknowledged that "moratoriums are not permanent solutions" and said his company was looking for "some long-term fundamental alternatives" to throwing people out of their homes because they've fallen behind on their payments. But he didn't offer a specific example.

Here, allow me. There's one "long-term fundamental alternative" that's righteous, makes sense, and legal: Let's foreclose on the banks. It's time for the U.S. government to show Mr. Das and his buddies down at the country club who is the boss.

Seriously. Yes we can.

But first, let's go back to February 2009. Ah, February: a new president, hope and change in the air. Especially for bankers.

President Obama's TARP program doled out hundreds of billions of federal taxdollars to gangster capitalists like Citibank and Bank of America, which get off on charging $4 for using ATMs and 29.99 percent interest in credit cards.

The big banks were supposed to use TARP cash to buy back "toxic assets" backed by home loans to distressed homeowners, thus loosening the mortgage credit market. In fact, The Los Angeles Times reported a few days ago, "The fund has done little to address that problem directly." Instead, the feds bought bank stock at over-market prices.

In exchange for those bailouts, the banks were expected to free up credit.

They didn't. They haven't. Instead, they gave obscene raises to their already overpaid executives. They remodeled their plush offices. Now their loan officers are sitting on their hands, laughing all the way to their own banks.

There's still money in the U.S. economy. But it's not moving around--and extreme lack of liquidity is the definition of a Depression with no end in sight. As anyone who runs a small business can attest, the same dirtbag bankers who were lending to anyone and everyone two years ago have suddenly become tightwad tight-asses. Consumers with high credit ratings have seen their credit limits slashed. Banks are even refusing to refinance high-interest home loans at today's rates, reasoning that lower property values have reduced the value of their collateral--thus ensuring still more foreclosures in 2010.

Because the Obama Administration didn't pressure them, the banks stonewalled the president's $75 billion loan modification program, which was supposed to reduce payments for the approximately ten million Americans who face foreclosure.

JPMorganChase, for example, blew off or rejected 85 percent of homeowners who asked them for help. That's better than Citibank, which enrolled 100,000 distressed homeowners in the program but only managed to actually modify loans to 270. And it's a lot better than Bank of America, bringing up the rear with a pathetic whopping 98 modifications out of the 160,000 borrowers who signed up as of the end of November.

More lowlights:

∑ One out of seven American homeowners will probably lose their homes by the end of 2010.
∑ Only 4.7 percent of distressed homeowners who enrolled in the modification plan have gotten any help.
∑ Out of Obama's $75 billion program, only $2.3 million has been spent--or 0.03 percent.

Obama's performance on the foreclosure crisis--along with unemployment, the biggest problem America faces--makes Bush's laissez faire approach to Hurricane Katrina look caring and loving in comparison. If ever there were a cause for impeachment, look no further.

No doubt recognizing political peril, Obama is now attempting to jawbone the banks into doing the right thing, even calling banking CEOs "fat cats" on "60 Minutes." Whatever.

"America's banks received extraordinary assistance from American taxpayers to rebuild their industry," Obama said after meeting with banking executives. "Now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy." But there were no teeth in his demand--just a polite pretty-please with a trillion-dollar-plus bailout on top.

But that's Obama's choice. If he wanted, he could foreclose on the banks--and personally give millions of desperate homeowners the best Christmas ever.     

Here's how.

True, the Treasury Department didn't receive any written assurances from the banks that they would start lending again when they collected their bailout loot back in February. But as Obama recalled in the above quote, it was widely understood at the time that the federal government expected looser credit markets in exchange for the bailout. There were thousands of reports in the media to this effect, hundreds of statements by government officials, and--no doubt--dozens of discussions between government and bank lawyers to this effect. No one was confused. Everyone got it at the time.

Obviously Obama should have gotten it in writing. But the bailout-for-credit quid pro quo was a widely witnessed oral contract. And oral contracts are just as legally binding as written ones.     

The classic example of an oral contract is two roommates who agree to share an apartment. The lease may be in the name of one person, but the non-leaseholder may not skip out on the rent. But the stakes can be bigger. Pennzoil made a handshake deal--no contract--to buy Getty Oil in 1984 but then reneged in favor of another suitor, Texaco. Pennzoil sued and won $11.1 billion in damages.

The United States government could, and should, sue Citibank, Bank of America, JPMorganChase and other defaulting miscreants for breach of contract. With one out of seven Americans having been foreclosed upon by one of these institutions, it would be difficult to imagine any jury finding them not guilty. Mercy, after all, wasn't something these banks showed their victims.

Since damages would likely exceed the defendants' ability to pay, the U.S. could then seize the banks. The newly nationalized banks, owned by we the people, could reduce or cancel outstanding mortgages to the unemployed, sick and other worthies. They could increase credit lines and start making loans again--you know, do what they promised to do. It wouldn't necessarily get us out of the Depression. But it would be a beginning.

Foreclose on the banks! It's fair. It's smart. And it's long overdue.

©2021Ted Rall

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