This thing hasn’t improved with age, but there is some more detailed and thoughtful commentary that I think is worth highlighting. The first is by Professor Adam Levitin, who scores it as a victory for the banks. He cites the small size as a major part of the settlement’s weakness:
The formal price tag for the settlement is $25 billion, although it is projected to accomplish up to $40 billion in relief. Only $5 billion of that is hard cash contributed by the banks. Let me repeat that. The five banks involved in the settlement, which have a combined market capitalization of over $500 billion, are putting in only $5 billion. That’s less than 1% of their net worth. And they are admitting no wrongdoing. To call that accountability is laughable.
But let’s get to the bigger problem. Whether this is a $25 billion or $40 billion settlement is really beside the point. It’s a drop in the bucket relative to the scale of the problem. There is approximately $700 billion in negative equity nationwide weighing down the housing market and the economy. Add to that legions of homeowners dealing with unemployment or underemployment and we’ve got a problem that absolutely dwarfs the settlement numbers. It’s Pollyannism to think that this settlement will have any impact on the national housing market. At best it makes some incremental improvements and helps a small number of homeowners. But at worst, it lets the banks off the hook for the largest financial crime in history.
Levitin then looks at the average payouts for principle reduction, which are so small as to ensure no real impact in the housing market.
What’s interesting, though, is Levitin’s contextualization of the settlement in the political context.
The settlement doesn’t fix the housing market. It doesn’t create accountability for the financial crisis. It doesn’t even create incentives against future wrong-doing. But it provides the Obama Administration (and those attorney generals who just jumped in for the settlement at the last minute) with a fig leaf of political cover. It galls me is that the Obama Administration is going to trumpet this settlement as evidence that it is serious about prosecuting the crimes behind the financial crisis and helping homeowners. It was heartening to hear Obama talk about protecting the middle class in his State of the Union address. It was the right message, but the President is simply not a credible messenger. If Obama wants to run as the champion of Main Street against Romney, the Captain of Wall Street, he’s going to need to do something a lot more credible than this settlement.
If you doubt that the President (and, to a lesser extent, the AGs) are going to use this as a political victory, notice the headline on the national mortgage settlement: “Landmark Settlement, Landmark Relief.” That is a political statement, as it is clearly not grounded in the terms of the deal.
Turning to Matt Stoller’s excellent piece in Salon, he makes an important point about the way in which this settlement represents a very important policy choice about our national priorities.
Rather than settling anything, this agreement is simply a continuation of the policy framework of both the Bush and the Obama administrations. So what, exactly, is that framework? It is, as Damon Silvers of the Congressional Oversight Panel, which monitored the bailouts, once put it, to preserve the capital structures of the largest banks. “We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said Silvers in October, 2010. “We can’t do both.” Writing down debt that cannot be paid back — the approach Franklin Roosevelt took — is off the table, as it would jeopardize the equity keeping those banks afloat.
Note that this is similar to the point both Robert Kuttner and I made in terms of having a rebooted banking system when all is said and done. Stoller makes clear that the choice to not aid homeowners at the expense of the banks and instead aid banks at the expense of homeowners is a deliberate and conscious policy held by the Obama administration.
Stoller concludes with a sobering look at the housing landscape and the need for a response which actually helps solve the problems we’re facing:
Settlement or no, the housing crisis isn’t going away. The entire mortgage market at this point is backstopped by the government, and even so, housing prices are sliding. The roughly $1 trillion of underwater mortgages and the destruction of the rule of law in the private mortgage market need to be dealt with, one way or another. And they will be, whether through a restoration of a healthy housing market, or through the end of broad homeownership as part of the American experience.