A SIMPLER, HORMONE-BASED EXPLANATION FOR BANK BEHAVIOR

Banks should do more to facilitate short sales rather than foreclosures -- it's good for struggling mortgagees, it's good for neighborhoods, and it recovers a little bit of the banks' money, so it's good for banks, too. It's win-win. And yet it doesn't happen. A commenter at Felix Salmon's blog thinks he knows why banks would refuse to do something that's clearly in their financial self-interest (which, according to Milton Friedman fans, should be the determining factor):

... Speeding this process would involve massive hiring. Since there aren't enough qualified people ... that means that there will be a substantial lag as staff is trained. Moreover, banks are both loath to hire staff for what they perceive to be a short-term problem, and reluctant to expand payroll at this moment in time. And it goes beyond hiring. Few banks view restructuring, short-selling, or foreclosure processing as core to their missions. These are unglamorous areas of the bank. The executives in charge rank low on the totem poll, and are poorly positioned to press for the necessary changes. Finally, there's outright denial. Executives are never interested in recognizing their own failures.... No one is going to make a performance-related bonus for completing transactions faster that cost the bank huge amounts of money -- even though that's precisely the sort of performance that the bank ought to reward, because it results in long-term relative savings.

I have a simpler explanation: To quote Denzel Washington in Mo' Better Blues, it's a dick thing.

The testosterone culture of finance involves two primal drives: making gain and inflicting pain. A foreclosure falls into the latter category. That's why letting people foreclose is preferable to bankers, the cost to themselves be damned.

What's involved in a short sale (or a loan modification, for that matter)? Negotiation. Compromise. Give-and-take. As Kathleen Parker might say, that's girly stuff. No primal warrior drive is involved -- just the opposite, in fact.

Salmon's commenter says of restructuring and short-selling, "These are unglamorous areas of the bank." A better way to put that is that they're wussy areas of the bank. Bank culture doesn't want to make this happen because in bank culture it's disgraceful to be a big fat wuss.