Too Big to Fail was the slogan that allowed Hank Paulsen and Tim Geithner to scare Congress into providing TARP funding with NO STRINGS ATTACHED. The phrase was music to banksters’ ears. And I suspect that this week they will be dusting it off in a series of phone calls to the Fed, The Comptroller of the Currency, FDIC and other bank regulators.
Because the recent revelations that bankster record keeping is SOOOOO horrendous that it is unlikely that they can prove that they own the mortgages they have been trying to foreclose have serious implications. Not only has it already caused several large banks to suspend foreclosure operations pending internal review of their lousy paperwork, but such doubt about their ownership of these assets, or their ability to prove ownership, will trigger certain capitalization requirements under the banking laws.
A new phrase has emerged that should strike fear in the hearts of bank CEO’s, Too Big to be Rescued. Switzerland has just notified its two biggest banks that they need to increase their capital reserves by 10% because they are TBTBR.
Understand, Congress gave trillions to banks in TARP money to deal with the toxic securities on their books that were backed by these bad mortgages. Treasury told the banks to modify the mortgages and even set up a [crappy] program, HAMP, as an example, but banks were free to and encouraged to do their own much more aggressive programs.
Instead, the banks refused to admit their own fault and tried to blame and then punish the homeowners. The banks squandered their chance to modify the loans BEFORE everyone found out that they paperwork for them was missing and/or bogus and the loans might be uncollectable. The magnitude of this problem may be much bigger than the size of TARP.
The failure to take advantage of the breathing room and liquidity that Paulson and Geithner provided to the banks, may mean that that banks have moved from TBTF to TBTBR. If true, and I would need some time with bank balance sheets to know that, it’s very sad, because it means that we are all headed for a world wide depression that was completely avoidable.
This is not to paint Paulson and Geithner as the heroes of 2008. They made a fatal error by not getting sufficient concession up front from the banksters in exchange for TARP. They socialized the debt and the liability, without socializing the control and the ability to fix the problem. Had they temporarily nationalized the banks, they could have modified the loans, cleaned up the record keeping mess, instituted realistic due diligence and lending standards and then re-privatized the banks. Of course, this happened on Bush’s watch, so no way anything like that was going to be allowed.
[More reporting on mortgage issues and foreclosures on the Firedoglake Foreclosure Fraud Page]