There’s lots of talk about the pending deal between what used to be 50 state Attorneys General and the nation’s five largest banks around what started out around robosigning, but seems to have expanded to broadly include foreclosure fraud and securities fraud. It looks like the Obama administration is on the verge of announcing a deal with some number of state AGs, a handful of regulatory bodies, and the nation’s five largest banks. There’s a meeting today between HUD officials and an undisclosed number of Democratic AGs or their staffs. Liberal groups are pushing to make this as strong as possible, with lots of activity from New Bottom Line, Color of Change, MoveOn, Rebuild, and many blogs who have been covering this crisis for years. The expectation is that the Obama administration wants to announce this deal in connection to Tuesday’s State of the Union address.
A couple pieces worth highlighting are by Simon Johnson at Politico and Van Jones and George Goehl of NPA at Huffington Post. Johnson makes a strong case against a quick, small settlement (that is, what we are now looking at), noting that “If there is a settlement after all the facts are known, the amount involved would likely be far greater than what is now on the table for robo-signing. Jones and Goehl likewise outline the principles for what a deal would have to do to actually be helpful to homeowners.
But if you’re wondering what the reported terms of the deal actually mean and if this is something which should be supported by Democrats or liberals or anyone else, I highly recommend you read Yves Smith’s post from this morning at Naked Capitalism. There are lots of reasons in my mind to oppose the deal as it’s been reported, but perhaps none greater than this:
The story did not outline terms, but previous leaks have indicated that the bulk of the supposed settlement would come not in actual monies paid by the banks (the cash portion has been rumored at under $5 billion) but in credits given for mortgage modifications for principal modifications. There are numerous reasons why that stinks. The biggest is that servicers will be able to count modifying first mortgages that were securitized toward the total. Since one of the cardinal rules of finance is to use other people’s money rather than your own, this provision virtually guarantees that investor-owned mortgages will be the ones to be restructured. Why is this a bad idea? The banks are NOT required to write down the second mortgages that they have on their books. This reverses the contractual hierarchy that junior lienholders take losses before senior lenders. So this deal amounts to a transfer from pension funds and other fixed income investors to the banks, at the Administration’s instigation. [Emphasis original]
I’ve yet to see an explanation of why transferring money from public workers’ and retirees to major banks is a good idea. There are other large, constitutional issues at play regarding how this deal mandates the breaking of contracts (which again is OK, it seems, as long as it is to benefit major banks), which Smith outlines in her post.
Unless and until the banks are forced to pay legal, economic, social and political costs in connection to their foreclosure fraud and securities fraud schemes, there’s no reason to expect them to treat homeowners an better and there’s no reason to expect that a similar crisis will not happen again in a few years’ time. Of course, a deal like this being driven by the Obama administration clearly belies the notion that there would be any meaningful federal investigation by law enforcement with an eye towards criminal prosecution. The only hope for criminal prosecution is with a handful of Justice Democrat AGs (Eric Schneiderman in New York, Catherine Cortez Masto in Nevada, Martha Coakley in Massachusetts, Beau Biden in Delaware, and Kamala Harris in California, to name a few). These investigations become even more critical in the face of a deal that would dramatically curtail the banksters civil liabilities. If you can’t change their behavior by forcing a huge cost for their crimes, putting executives in jail becomes even more important as a means of stopping this from happening again in the future.
One can only hope that AGs continue to balk at the deal being pushed by the Obama administration to forestall them from moving it forward. We should know in the next 36 hours whether or not this will happen as described.