Hunting Good Will -- Ripple of Hope or Chaos Theory?

Banks have an opportunity to heal the global distrust in them and heal the economy. Sadly, they are viewed as the "evil enemy" with no requirement that they meet basic ethical standards.
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The Lawyer's Foreclosure Intervention Network (LFIN), the brainchild of the Federal Reserve Bank of New York and sponsored jointly with the New York City Bar Justice Center, is a volunteer program for attorneys to represent the most desperate homeowners facing foreclosure.

Along with the hundreds of lawyers who have volunteered for the program, I attended the mandatory two-day, eight-hour training session on October 21st and 22nd. Many more lawyers showed up on a "walk-in" basis. The room was so crowded that there were lawyers sitting on the floor.

Tom Baxter, General Counsel of the Federal Reserve Bank of New York, gave opening remarks to the volunteer attorneys. Several times, he invoked the famous "Ripple of Hope Speech" delivered by Robert F. Kennedy at the University of Capetown in Capetown, South Africa on June 6, 1966.

As General Counsel to the Federal Reserve Bank of New York, Mr. Baxter is very involved with the regulatory oversight of each of the nine institutions that were taken behind closed doors last week and "given" capital to keep them afloat . He is a life long employee of the Federal Reserve Bank and Assistant General Counsel to the Federal Open Market Committee.

"The credit crisis began in August of 2007 -- everyone agrees," Mr. Baxter said. This was a surprising comment as so many people in both government and the private sector have said they didn't see the economic crisis coming.

Mr. Baxter described the reasons mortgage defaults and the subsequent foreclosure actions have reached this horrible place. First, he explained, "there are the overextended borrowers, who have a lack of sophistication and literacy." Then, there are the "victims of fraud or trickery." Last, there are the "borrowers who can't meet payments due to financial circumstances." Though the following question was directed to the group, Mr. Baxter seemed to ask himself, "Is foreclosure a scourge or legal remedy?"

During Mr. Baxter's remarks, one could observe simultaneous pain and hope in his expression. His demeanor suggested a genuine desire to help and, perhaps, an internal conflict about how this crisis unfolded. He was a better man for standing in support of this effort.

Being asked by a regulator to volunteer to help clean up the mess that was created by the financial institutions he regulates was surely a strange place to be for those in the audience. As a member of the legal community, I felt compelled to help those in need from losing their homes - one home at a time. However, I also felt a certain level of resentment towards banks as my own savings has taken it on the chin and I left paid work behind to participate in this effort. Each foreclosure defense, it was explained, can take anywhere between 20 to 140 hours.

The goal of this program is to work out a deal with the banks to keep people in their homes and avoid litigation. So why can't this be done by the banks directly with the borrowers? I couldn't help myself from asking Mr. Baxter what the banks were doing to help the consumers struggling with their mortgages and facing foreclosure. He explained that the banks were being required, as part of participation in the capital program to consider restructuring mortgages. "We have the right to do loan modification," he said. At what point do the banks face their own moral imperative to act on behalf of Main Street?

However imperfect, the Federal Reserve Bank of New York and Mr. Baxter are to be congratulated for creating this program. While details of how to rescue the global economy are being crafted at a glacial pace, people are losing their homes in droves. This fact goes to the heart of what is driving the crisis of confidence that is so severely crippling the markets. The American people are angry, and rightfully so.

Could each small effort to stop the bleeding create the "Ripple of Hope" we so desperately need? There are a few thought leaders whose voices have been heard above those of their peers because they are making both business and moral sense. Sheila Baer, Chairman of the FDIC, whose calls to restructure subprime mortgages to keep people in their homes and keep the loans performing, is one of them. Illinois Attorney General Lisa Madigan, whose efforts have caused Countrywide to restructure $8.5 billion worth of subprime loans in 11 states, is another.

While volunteers are being solicited to help the most fragile members of society affected by this economic crisis, it would be restorative to know that the banks are following in lockstep.

Banks have an opportunity to heal the global distrust in them and, subsequently, heal the economy. Sadly, they are viewed as the "evil enemy" with no responsibility for the individual and no mandated requirement that they meet basic ethical standards.

Banks need to engage in collective efforts to regenerate good will amongst the American people by taking substantive and meaningful steps to change both the way they are reacting to this situation and how they do business. Those efforts should include more than staying afloat in turbulent markets.

Just as Robert Kennedy, in his "Ripple of Hope" speech, quoted the great Italian philosopher Niccolo Machiavelli, "There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things."

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