Banks Bite

You see a hungry dog in the park. You call him over and offer him a corner of your sandwich. He swallows the whole sandwich and takes a piece of your hand with it.

That’s pretty much the current scenario on the national banking scene. We taxpayers bailed out banks to keep them in business. Now banks are ripping us a new one.

As the Christian Science Monitor reported, a lot of people who lost their homes through foreclosure are being sued by banks. Thought you couldn’t get blood from a stone? Banks can.

It’s called a “deficiency judgment.” Here’s how it works. Say you bought a house for $500,000 and you default on the payments. The bank forecloses and sells your house for $200,000. Then it goes to court and gets legal clearance to sue you for the $300,000 difference.

Worse, in a repeat of the mortgage-bundling scam that was largely to blame for getting us into the current economic mess, banks are taking their deficiency judgments, bundling them and selling them to investors -- companies from private-equtiy firms to collections agencies. Or, in some cases, banks are just selling their defaulted mortgages. Then the investors go to court to pursue judgments against the defaulters so they can sue.

It’s a lucrative business. The defaulted mortgages sell for just 2 cents on the dollar -- which leaves a lot of room for profit. (Don’t have the money now? That’s OK. The judgments are good for 20 years.)

Sharon Bock, clerk and comptroller of Palm Beach, Fla., where there are a lot of foreclosed homes, tells the Christian Science Monitor she predicts “a massive wave of these cases as banks start selling the judgments to debt collectors.”

We know. A lot of these defaulters never should have bought a house if they couldn’t afford it. But still, this story makes you kind of nauseous. In essence, the banking industry is profiting by weakening the economy. And, in an interesting twist, it’s credit unions and community banks that are most aggressive in this area. Big banks tend not to bother.

Occupy Wall Street? How about Main Street? More annoying behavior by “community” banks. A lot of them took the money available through the government’s Small Business Lending Fund and used it not to help small businesses but to pay back the bailout loans they got from the government under the Troubled Asset Relief Program. (Those bankers. Always something up their sleeve -- besides a $100,000 wristwatch.)

Small-biz employment drops again. The National Federation of Independent Business said recently that its latest jobs survey shows small-business employment fell again in September -- for the fourth straight month.

“There is no good news to report,” said NFIB chief economist Bill Dunkelberg. Until sales improve, until it becomes cost-effective to hire new workers, we cannot expect small-business owners to take advantage of new hiring tax credits and increase their employee rolls. And the numbers prove it.”

We like Dunkelberg. He seems like a stand-up fellow. You see him and you want to vote for him. And you can see more of him at the NFIB’s new video channel. In the latest installment, he explains what’s holding back job growth. (Besides bankers.)