Central to the Tea Party revolt was a fierce reaction against the bailout of the big banks.
Will the Republican Congress now spit that sentiment in the eye and push through another bailout, this time by overturning centuries of property law and nationalizing what has always been governed by state law?
Will the power of their donors overwhelm the power of their voters and the platitudes of their ideology?
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The Third Way, one of a gaggle of outlets for the corporate wing of the Democratic Party, has just published a paper “Fixing Foreclosure-gate” urging that Congress take over and overturn state laws on mortgages and property. Increasingly local courts are choking on the reality that the banks trampled all property law in their rush to market mortgage backed securities. Now as they try to foreclose on millions of homeowners, they can’t establish who has the right to foreclose because they haven’t kept the records required by law. The bank position is “nevermind,” let us foreclose anyway.
That’s essentially what the Third Way is saying. Only problem is without clarity about the title and who has the right to foreclose, the courts — at least those that aren’t bought and sold — can’t force someone out of their home.
Get ready for a brutal battle. Both the Bush and the Obama administrations and the Fed have done whatever they could to rescue the big banks without reforming them, throwing trillions into the effort. Now the administration and Congress will be asked to trash the law — retroactively — in the same cause. Will Rs stand up for established property law? Will Ds battle to force a deal — with mortgages getting written down to current value as price of cleaning up the mess? Or will the big banks, what Simon Johnson dubs the six most dangerous government sponsored establishments, have their way? Stay tuned.