Arizona Real Estate Notebook

Well-known value investing guru Whitney Tilson thinks there may be a silver lining to ForeclosureGate.

Later Rather Than Sooner

I don’t see the economic incentive for the banks to play ball under Tilson’s scenario. If a bank modifies a loan now, they have to book the loss now. The current bank strategy is to “Delay and Pray,” that is, to foreclose as slowly as possible in order to book the loss as late as possible.

If we still had mark-to-market accounting rules for the banks then the banks would have already booked their losses and Tilson’s scenario would be feasible and probably inevitable.

But who’s going to bell the cat and force the too-big-to-fail banks to take their losses now rather than later?

Tilson’s scenario would mean, of course, that fewer of the bankers would get paid their million dollar bonuses now! Good luck with that silver lining, Whitney.