Stephen Lerner goes to The Nation to respond to the attacks Glenn Beck has launched on him:

What did I say that led Beck to spend two nights attacking me and defending big banks and Wall Street CEOs?

I think I may have found part of the answer in what disgraced former Wall Street stock analyst Henry Blodget admitted when he echoed Beck’s wild theories on Business Insider. Describing my remarks, he wrote, “Many Americans will undoubtedly sympathize with and support them.”

So that was it: Beck, right-wingers and Wall Street sympathizers went ballistic because they knew the ideas I talked about are far from being a secret leftist conspiracy; in fact, they’re in sync with the thinking of most Americans. In my talk, I raised a very simple yet powerful idea: that homeowners, students, citizens and workers should make the same practical decisions Wall Street and corporate CEOs make every day—they should reject bad financial deals.

Beck and Wall Street are terrified that regular Americans will begin to challenge the double standard that allows one set of rules for the rich and another for the rest of us. They are petrified of the growing understanding, among people of diverse political backgrounds, that our country isn’t broke; that the tiny elite at the top has manipulated the economic crisis it created to grow even richer and more powerful while the rest of us suffer the consequences; and that Wall Street and corporations, sitting on record profits, are holding the country hostage, essentially threatening a capital strike if they don’t get further tax and regulatory breaks.

As long as Wall Street and the superrich feel secure and confident, they have no reason to negotiate a fair deal with the rest of us. Only by creating uncertainty and instability for them—by disrupting unfair business as usual—can we build the strength to challenge their stranglehold on our economy and our democracy.

Last week I took a guess and wrote “meaningful principle modifications could run $800-900 billion plus.” That was a shot in the dark, but recent reporting by Shahien Nasiripour at Huffington Post shows that I was likely a good ways off the mark, at least in so far as how the CFPB has estimated the number of underwater homeowners and what it will take to get them to a reasonable level of equity in their homes.

The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.

If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.
…
The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then “mandate” three million permanent modifications.

Getting to 5% equity for 3 million homeowners would be $135 billion, but getting to 5% equity for all 12 million underwater homeowners would be $540 billion. That’s a ways off from what I’d suggested, but it’s still many times bigger than any number that’s actually being discussed for a settlement.

Yves Smith is skeptical about the validity of the numbers being put out being justified.

But arguing over a pretty much made-up figure misses the critical point: the money the servicers saved is not even remotely the right basis for thinking about the appropriate settlement level. Settlements are based on potential liability. For instance, in 1998 the tobacco settlement, the tobacco companies agreed to pay a minimum of $206 billion over 25 years to be released from liability on Medicare lawsuits on health care costs plus private tort liability.

The saved costs bear no relationship to the banks’ legal liability for servicer-driven foreclosures, nor to the damage they have done to homeowners or broader society through their actions. It’s like basing the penalties in a robbery on the unpaid parking fees and rental costs of the car used to make the heist.

This resorting to completely irrelevant metrics results from the problem we have harped on from the onset of the settlement talks: the lack of investigations. You can’t settle what you haven’t investigated.

What’s most troubling is Smith’s conclusions:

This document looks to be rooted in Jean Baptiste Colbert’s saying: “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing”. Any number that was within hailing distance of the real damage done by foreclosure (which father of securitization Lew Ranieri was astonished to learn in 2008 was standard practice), rather than by doing mods for viable borrowers, would be a multiple of the levels under discussion here; and the servicer-driven foreclosure aspect pushes the figure higher still. This document bears the hallmarks of looking to rationalize a figure that would sound big enough to impress the public as being punitive, yet not hurt the banks at all (as page 4 demonstrates). But having a settlement designed around not damaging predators is certain to perpetuate their destructive conduct.

I actually don’t think that’s right. Already this number of $20-30billion has been under massive attack from the banks’ representatives in Washington: the Republican Party. They’re pitching a fit and will be certain to continue to do that. The political fight is a way for banks to ensure that even a number like this is viewed as too big and too putative. They are rejecting the opening bid and they’re able to do this knowing the number will be reduced. But yes, whatever comes from this, I don’t see it deterring banks from continuing “their destructive conduct.”

William Greider in The Nation:

A better name for the Justice Department’s softened policy might be “too big to prosecute.” Just as the Federal Reserve used the “too big to fail” doctrine to rescue big financial institutions from their mistakes, Justice has created an express lane for businesses and banks to avoid the uglier consequences of their illegal behavior. As a practical matter, the option is reserved for the larger companies represented by the leading law firms. They have the skill and clout to negotiate a tolerable settlement.

The piece is a great look at how corporations, specifically Wall Street banks, have avoided any punishment for their crimes. Usually banks escape with minimal fines that in no way hinder the ability to continue to operate, let alone be deterred from illegal behavior in the future.

“Crime is defined as price rather than punishment,” Greenfield notes. In the new normal, “corporations can say, ‘Well, is the crime worth the price, discounted by the probability of getting caught?’ Because you can’t make a corporation go to prison. They have no morality, no human personality or sense of morals, other than the morality of the market that reduces everything to money. If the only way to punish companies is with money, then the fine sets the price for crime.”

Restoring a corporate death penalty would be a hell of a way to punish corporations who break the law. Of course the odds of that in today’s political environment strike me as just about zero. Greider’s article floats a number of lesser penalties that could be used to rein in corporate malfeasance. He makes a good point towards the end about how we should be thinking about punishing corporations for illegal behavior:

Business failure gets punished unsentimentally. Criminal behavior should be clearly defined as business failure.

Greider’s closing point is that the best way to ensure that there starts to be accountability for corporate criminal behavior is to stay on the course we are on and change nothing. The next collapse will happen and it will likely be caused, at least in part, by criminal behavior at the corporate helm. At that point, the level of outrage will provide sufficient drive towards meaningful reform. Or at least that’s Greider’s expectation. That it requires massive economic pain to become a possibility is obviously a discouraging point. People organizing around this issue would do well to try their best to get change now before there are literally pitchforks and torches coming to get the banksters. This was largely President Obama’s argument in early 2009, that he’s the one standing between banks and the angry masses. Greider’s piece should be a reminder to the President and to corporate leaders that when the next collapse comes, the level of anger will be orders of magnitude greater than it is now. Rather than get to that point, I think it would behoove corporate leaders to come to the table now and take actions that would help avoid another financial collapse.

Krugman is shrill today:

In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.

David Dayen continues his stretch of incredible reporting on the foreclosure crisis with a comprehensive update on developments in the state attorneys general settlement around foreclosure fraud. Of note, two different groups of attorneys generals – 4 Republicans and an uncertain number of Democrats – have voiced opposition to the term sheet floated by Iowa AG Tom Miller. It’s not clear how hard the Republican opposition will be nor if there is a critical mass to stop a global settlement. What is clear is that the process seems to be muddled and disconnected from what a serious investigation and search for resolution would look like.

“The angle of this being politically expedient, that appalls me,” said Ira Rheingold of the National Association of Consumer Advocates. He saw the settlement as a kind of substitute for HAMP, the program that the Administration created in the first place to deal with the foreclosure crisis, which hasn’t come close to succeeding. “They’re saying, we’ll hold the banks accountable and now let’s move on. But the part of the speed factor I do like is that every day we wait, people are losing their homes. So this settlement should not be done quickly for political expediency, it should be done well. But it should be done quickly, because the longer we wait people are unjustly losing their homes. So there’s a tension there.”

This tension became very clear in discussions with the AGs who would have to implement and honor this settlement. The prospect of saving millions of homes from foreclosure is appealing, but the potential for having to waive consumer protection statutes in their states is certainly not. Troublingly, there’s been very little indication from Miller and the AG working group on what they would have to give up in this exchange. That raises the spectre of a final agreement that legally indemnifies the banks while providing too little support to homeowners, just enough to make a big press conference full of back-patting about helping the little guy. But in the aftermath, states with strong consumer protection laws could be potentially unable to bring a lawsuit for servicer fraud or abuse.

There are so many avenues for investigation, it’s really hard to believe this group of state attorneys general haven’t started. Speed is only a virtue to the extent that homeowners are in crisis now and being kicked out of their homes now. Perhaps a moratorium on foreclosure while an investigation would take place, but I think odds of this are basically nil.

I really don’t know what the best outcome with the state AGs is. If there’s not going to be real investigation to find out how deep the bank abuses go, I don’t know that urgency necessitates settlement, especially for a small financial fund for principle modifications and a commitment to follow already-existing rules. Moreover, the measures in the leaked term sheet that would essentially point towards improved consumer functions (dedicated representative, online document tracking, etc) are improvements that should happen no matter what and not come as a trade for cessation of cases against banks.

Reingold of NACA has more, which really resonates with me:

Rheingold has an idea of how this should proceed. “The AGs went into this thinking, we have these complaints, before we do investigation that would take months, can we sit down and work with the federal folks and come up with a plan that we think will work,” he said. “What the AGs need to do, is say to the banks, here’s our offer, take it or we will investigate you and you know what we’ll find. The threat has to be, you don’t take this deal, all bets are off.” Just looking at the Federal Reserve denying Bank of America a larger dividend payment, in large part because they cannot even calculate the risk to their mortgage portfolio, shows you that there’s a tremendous amount of potential liability here, especially if coupled with a full investigation.

“There are a lot of snakes under those rocks,” Rheingold concluded. “The banks know full well that it will get ugly for them.”

I get the potential “take it or leave it” negotiation tactic, but only if the “it” is still a legitimate settlement. That is, if $20 billion is what we’re hearing now and meaningful principle modifications could run $800-900 billion plus, then a legitimate settlement would be a lot closer to a trillion dollars than the number currently floated. But until elected officials, both state attorneys general and people in DC, are willing to start turning over rocks, I doubt any floated number will rise towards something that’s both genuinely helpful and reasonable based on what the banks have done.

Matt Stoller has yet another must-read post at Naked Capitalism, this time covering the role the slow trickle of information coming out about the choices made to bail out Wall Street during the collapse of 2008 as a means for priming the pump for more meaningful reform and the establishment of transparent structures in the future. Stoller writes:

As emergency lending information is released, one can almost hear the laughter from big banks executives.  They won, or so they think.  Yet, the reputational damage from the crisis to Wall Street is at this point enormous, both within banks and among the public at large.  The specific documents released over Bear Stearns will probably show what we already know – excessive deference to banking interests.

The situation right now feels depressing.  Wall Street mega-banks, and the Federal Reserve officials in charge during the collapse, are more powerful than ever.  Ultimately, the consent of the governed does actually matter.  Markets do not work when there is effectively no rule of law, or rigged rules.  That is what we may be seeing in housing, with cultural shifts away from home-buying.  The next crisis, and it is coming, will see wholesale reform of the Federal Reserve and the banking system.  The public has noticed that the arguments from big banks are both untrue and self-serving, and that the Federal Reserve’s vaunted independence is simply more of the same.

The Fed and the concentrated banking interests took advantage of a deference to authority and a reservoir of trust that the public had in the system.  That trust was key to achieving what they needed.  But it is now tapped out.  And the next time that consent is necessary, it just won’t be there.

There’s actually a contradiction here. If Wall Street has walked away from 2007-2008 with more power than ever — and they have — then the chances that more dramatic reforms will emerge out of the next financial crisis seem diminished. There are two threads at play here. On the one hand, I think Stoller is right and there is tremendous skepticism from the public about big banks and their demands on the rest of us. Protests against austerity measures at the state level, including union busting, are a testament to that, as is the growing US Uncut movement. But Wall Street has not only grown larger, with bigger bonuses and bigger profits, but they’ve demonstrated an ever-increasing degree of political and regulatory capture. In the next crisis the tension between public skepticism of the current financial system and bank-sympathetic elites in DC will come to a head. I don’t know which side will win out. While I hope that “the consent of the governed does actually matter,” it’s not clear to me that it has over the last three years. But as more information comes out from the financial collapse and the public continues to gain awareness of how we were fleeced, there’s an opportunity for organizing for real reform. The obvious question is, “Who will lead this organizing? Will it be elected officials? Unions? Or grassroots community organizations?”

Yves Smith on the proposed mortgage modification program floated by the Obama administration. It’s very long, but very thoughtful and worth a read. It’s also a good starting point for people who haven’t been following this closely, as Smith gives a lot of background analysis before getting to the meat of this new proposal.