Democrats call for broader investigation into banks’ foreclosure processes
Meanwhile, Maryland Democrat Elijah Cummings, ranking member of the House Oversight and Government Reform Committee, sent a letter to Chairman Darrell Issa (R-Calif.) asking him to bring high-ranking executives from the nation’s biggest mortgage banks to Capitol Hill testify about foreclosure abuses.
“Rather than using its substantial investigative powers to protect American consumers from the abuses of banks, the committee has focused instead on attacking the new agency created by Congress to protect these same consumers,” Cummings wrote.
Miller said the settlement won’t likely include enough relief for those who are underwater on their mortgages. He and Brown said they don’t yet know what mortgages are subject to the settlement because negotiations are ongoing.
But markets don’t “fail.” They respond rationally, quickly and often brutally to conditions as they find them. If they see a shortage of supply or an excess of demand, they’ll drive prices higher. Conversely, excess supply or falling demand drives prices lower. If you’re looking for villains, examine why supply is constricted or inflated or why demand is stifled or encouraged. But don’t blame the markets for responding accordingly.
Politicians, on the other hand, do.
For example, the onset of the financial crisis three or four years ago was largely due in the US and the UK to excessive demand for mortgages from people who couldn’t afford them. In the US, this was driven by government mandates to Fannie Mae and Freddie Mac to do just that – pump up demand for housing. In the UK, tight restrictions on construction limited supply to a market that quite rationally came to believe home ownership was a sound substitute for more productive investment.
In both cases, the bankers’ cost of funding was distorted by deliberately low official interest-rate policies, the implicit knowledge they wouldn’t be allowed to fail and lax competition enforcement that led to the likes of Royal Bank of Scotland swallowing up competitors. The logical response by the markets was to divert money to housing, just as the politicians wanted.
How could anyone think government is going to solve this, or any other economic mess, when the government created the mess in the first place.