Banks too big to fail …

… Bankers too powerful to jail.

Beyond Money (January 25 2012)

According to the Associated Press, federal negotiators are close to concluding a deal with major banks that would essentially forgive them of crimes committed in connection with the mortgage crisis. You can read the story and a critique of the proposed settlement “Obama Is on the Brink of a Settlement With the Big Banks – and Progressives Are Furious” below.


Mortgage Settlement Between Banks, States ‘Close’

by Derek Kravitz, AP Business Writer

ABC News (January 19 2012)


A $25 billion settlement between the nation’s major banks and US states over deceptive foreclosure practices during the housing crisis is nearing completion.

Five major banks – Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC) – and US states are “very close”, Housing and Urban Development Secretary Shaun Donovan said Wednesday.

Separately, two officials briefed on internal discussions say a proposed deal could be announced within weeks. Negotiators are finalizing a draft of the agreement, which must be reviewed by state attorneys general. Under the deal, banks would pay states and the federal government, which would fund programs to compensate homeowners.

The two officials asked to remain anonymous because they were not authorized to speak publicly about the deal.

Talks have been dragging on for more than a year between major US banks and state attorneys general over fraudulent foreclosure practices that drove millions of Americans from their homes during the housing crisis.

In October 2010, major banks temporarily suspended foreclosures following revelations of widespread deceptive foreclosure practices by banks. That has backlogged millions of foreclosures that must be cleared before the housing market can fully recover.

The settlement would only apply to privately held mortgages, not those held by government-controlled Fannie Mae or Freddie Mac. Fannie and Freddie own about half of all US mortgages, roughly about 31 million US home loans.

Individual states can opt out of the proposed deal. Some have disagreed over what terms to offer the banks.

In September, California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year.

New York, Delaware, Nevada and Massachusetts, which sued five major banks earlier in December over deceptive foreclosure practices, have also argued that banks should not be protected from future civil liability.

And both sides have also fought over the amounts of money that should be placed in the reserve account for property owners who were improperly foreclosed upon. Many of the details of the deal, including a $25 billion cost for the banks, have been agreed upon, officials say.


Obama Is on the Brink of a Settlement With the Big Banks …

… and Progressives Are Furious

by George Zornick

The Nation (January 23 2012)


For months, a massive federal settlement with big Wall Street banks over their role in the mortgage crisis has been in the offing. The rumored details have always given progressives heartburn: civil immunity, no investigations, inadequate help for homeowners and a small penalty for the banks. Now, on the eve President Obama’s State of the Union address – in which he plans to further advance a populist message against big money and income inequality – the deal may be here, and it’s every bit as ugly as progressives feared.

The Associated Press reports that a proposed deal could be announced within weeks. Five banks – Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC) – would pay the federal government $25 billion. About $17 billion would be used to reduce the principal that some struggling homeowners owe, $5 billion more would be used for future federal and state programs and $3 billion would be used to help homeowners refinance at 5.25 percent. Civil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations.

There are several reasons why this is could be a terrible deal. For one, the dollar amount is inadequate in relation to both the tremendous loss of wealth via mortgage fraud and the hefty balance sheets of these massive companies. Furthermore, the banks might be allowed to use investor money instead of their own funds – this makes the penalty even lower. Beyond all that: it’s extremely hard to justify the absence of investigations and punishment for mortgage fraud that was so widespread and so damaging to people’s lives.

There are also many other, more serious problems besides a lack of punitive action. The small amount of money – and the federal government’s recent inability to truly help underwater mortgage holders, of which there are currently eleven million – means that the victims of mortgage fraud might not see enough relief. And perhaps most importantly, with no real punishment for widespread damaging fraud, what are the incentives on Wall Street not to engage in similarly destructive practices once again?

On a major conference call this morning, many leading progressive voices inside Washington and out blasted the deal.

Senator Sherrod Brown of Ohio characterized the rumored deal as “not much more than a slap on the wrist”, and added that while banks were always know to be too big to fail, they were now apparently “too big to jail”.

“When laws are broken there need to be full investigations”, Brown said. “Wall Street should not get another bailout”.

Brown urged Obama to reject the deal and order investigations into the banks’ practices immediately. Simon Johnson, an economist at MIT and well-known progressive voice, also called for no deal and immediate investigations.

“This is not just the right thing do, and not just good politics, it’s good economics”, Johnson said. “What’s at stake here is the rule of law”.

Robert Borosage, co-director of the Campaign for America’s Future, blasted the rumored deal as well and urged the administration to consider the political optics.

“No one who robbed a bank would be offered immunity, a modest fine, and no admission of guilt before there was an investigation”, Borosage said. “Americans are increasingly cynical with the ability of democracy to deal with special interests”.

“The president’s campaign will sensibly highlight his commitment to fairer rules”, he continued. “Needless to say, a sweetheart deal with the banks will contrast with that”.

As we noted last week, many progressive groups have begun a massive petition drive to push back against the settlement and demand fair investigations. Moreover, attorneys general in California, New York, Delaware, Nevada and Massachusetts have previously said they won’t be a part of any deal that offers civil immunity.

So the deal is far from done – but it’s certainly moving towards an undesirable conclusion. We’ll have plenty more in this space all week.

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