Tales from the Trail

Curses are like young chicken: they always come home to roost, to quote the title page of Robert Southey’s poem The Curse of Kehama, published in 1810.

The controversy over the handling of home foreclosures came back to hurt the nation’s biggest banks with a vengeance today. There may not be a lot of sympathy on Wall Street for people who missed their mortgage payments, but then again, there probably isn’t much sympathy on Main Street for the practice of “robo-signers” to approve home seizures, especially since banks probably shouldn’t have extended many of the defaulting mortgages in the first place.

Investors have no room for sentiment either way. They dumped bank stocks on fears a prolonged investigation into potentially shoddy foreclosures, one of the biggest legal probes of the mortgage industry in decades, will eat into profits. The fear: it will delay sales of bank-owned properties, draw fines from regulators, and spawn lawsuits from both homeowners and investors in mortgage-backed securities. Jamie Dimon of JP Morgan admitted it could slow down the recovery in the housing market, but said “we’re hoping it won’t kill it.”

On election watch, an interesting story on why the Afghan war is just not an issue for most voters, and another from Ohio about Democrats’ efforts to substitute organization for enthusiasm. Democratic strategist Chris Kofnis underlined what he called “the brutal reality” for his party. “Either we close the so-called enthusiasm gap before election day, or its going to be a really bad election day.”

There wasn’t much enthusiasm, though, when President Barack Obama held a televised “conversation” with an audience of young people. The brutal reality? We all know Obama’s ratings have fallen, but it was still striking how all that energy around “hope” and “change” had dissipated.

It’s official. Moratoriums are out (as are moratoria if you prefer the Latin plural). On the day the White House rejected calls for a nationwide moratorium on home foreclosures, it also lifted its own moratorium on deepwater drilling for oil and gas. Some Democrats, especially those like Harry Reid facing tough election races in November, had been calling for a foreclosure ban. But President Barack Obama, who doesn’t face voters directly for a couple more years, has accepted the longer-term argument that a broad halt to evictions would slow a recovery in the housing market and the economy.

Nevertheless, the scandal over how banks and other companies processed foreclosure documents and the uncertainty surrounding it is going to hang over the market, especially with 40 state attorneys general (many of whom are up for re-election) expected to announce their own investigation into the issue.

Obama, of course, rejected a similar economic argument when he imposed the deepwater drilling ban back in May, this time for the greater environmental good. Now, the White House says it can lift the ban on drilling because stricter rules are in place to prevent a repeat of BP’s massive spill in the Gulf of Mexico. Again, even without the ban, the drilling business will be slow to bounce back as companies adapt to the new safeguards.

If you’re among those upset that your taxpayer dollars may be spent in volume to rescue people who — for whatever reason — can’t make their mortgage payments, Federal Financial Analytics analyst Karen Shaw Petrou recommends thinking about it this way:

“Preventing foreclosures has a lot in common with treating syphilis. In both cases, you help some who are undeserving, but – in an economic collapse or a public-health emergency – one acts nonetheless. ”

Just as in an serious epidemic, you’d take care of the problem and leave moral judgements to others, the right course of action is to take action to halt the housing crisis and leave the debate about moral hazard to economists, she wrote in a note to clients on Friday.

MESA, Ariz. – Memo to U.S. homeowners who bought places they couldn’t really afford: don’t expect assistance from President Barack Obama.  

 Obama unveiled a housing plan on Wednesday that aims to stem home foreclosures and draw a line under a problem that sparked the nation’s financial crisis. 

But the assistance the president outlined had a caveat – only “responsible” homeowners need apply.