Lenders Now Have No Rights

This is hardly the way to get lenders to lend and provide the capital needed to get the economy moving.

The Short And Sweet On The Upcoming Foreclosure Ban: "Lenders Now Have No Rights"
Submitted by Tyler Durden

Yesterday it was announced that the government is taking the first step in a plan to virtually ban foreclosures - a step that can only be classified as capital markets suicide. Today, Rosenberg explains why.

In March 2008, I published a report titled “Capitalism Takes a Sabbatical.” If only that were the case. I really can’t believe what I just read on Bloomberg News (Obama May Prohibit Home Loan Foreclosures Without HAMP Review). In a nutshell, the White House is considering a tactic that would prevent banks from foreclosing on defaulted homeowners unless they have been screened and rejected by the government’s Home Affordable Modification Program (HAMP). George Orwell must be rolling over in his grave.

To think that the government is at the same time pressuring banks to start extending credit again, but the question is why bother when you have absolutely no recourse. We’ve reached a stage in this crisis where lenders have no rights. The long-run distortions from such a heavy handed interventionist approach are too long to list right now, but suffice it to say, this will do more to exacerbate and prolong the deleveraging cycle than solve it.

Of course, lender right abdication under the Obama administration became evident less than a year ago in the Chrysler fiasco. At this point it is a certainty that no matter where you stand in the capital structure of critical industries, such as housing, autos (we feel for Toyota, although it provides almost as good a spectacle as Bernanke grillings), and financials. Yet now that the government is forced to pick between banks and housing, it appears that the house of Dimon may be given the middle finger. Alternatively, if this whole "interventionist" plan succeeds, we can all resoundly say that communism is alive and well, despite the whole Soviet experiment.