Here’s the nightmare scenario for banks — more homeowners start to challenge the ownership of their mortgage, and choose to stop paying in the interim, destroying bank profits and balance sheets while they wait for resolution from Congress or the courts. Could get ugly. Quickly.
How in Hank Paulson’s lost paradise of hell do you sell TARP 2.0 to an already bailout-loathing public, when the need for the new rescue is precipitated by bank losses from foreclosure fraud! You don’t.
If you’re Obama, you can’t even look at the door to the room that has the desk where you would sit, and come to the table with this death-wish. Geithner would hasten his departure to Goldman, so you’d be alone. Buh-bye 2012.
Won’t happen. Chances are zilch, less than ZIRP even. The result of which would create a new solvency crisis for banks, and this time it could very possibly be for real, given that no politician outside of Paul Kanjorski and Judd Gregg would even entertain bailout euthanasia. And there would be no more FASB rule-change Hail Mary to save their insolvent balance sheets.
Oh, and one more thing. Has anyone stopped to consider whether a similar practice might exist with securitized commercial real estate foreclosures. That will be for tomorrow. It could be the unanticipated Black Swan event of 2010-11. And this bird will be pissed off.