Tuesday, October 26, 2010

Foreclosuregate: playing with systemic fire?

Shiller points to how foreclosure-gate can erode the confidence in the financial system.  It's been 2 years since the banking crisis in 2008 and I still see people using ATMs.  However, Shiller still has some concerns and there are concerns form investor/institutions that purchase these assets.
But the latest twist in the United States' long-running housing crisis got special attention. Shiller said the danger of foreclosuregate -- the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt -- is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
"Foreclosuregate is probably not an earthshaking event but works in the direction of destroying trust in business and the system," said Shiller. "It works in the direction of reducing trust and people's willingness to spend."
I think what could be the fall out is the breaking up of the big banks, so if one of the big four goes under due to lack of competence, then it take the whole financial system with it.

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