Imagine that a group of arsonists was terrorizing your town. First they'd buy insurance on a stranger's home, then they'd show up with a blowtorch and a tanker truck filled with gasoline and burn the place down. Imagine that they've burned down a thousand homes this way, ruining the lives of the homeowners -- and everyone else's, too, as real estate values plunged and the local economy collapsed.
Now let's imagine that the Mayor, the DA, and the Chief of Police said they've come up with a great "settlement": The arsonists will pay a small fine, and they'll never be prosecuted for arson. Plus, if they're asked very nicely, they'll also agree to provide a little help to 27 out of the 1,000 families they made homeless -- although they'd control the 'help' process and the town might wind up footing the bill anyway.
And one more thing: They get to keep the gasoline truck and the blowtorch.
Substitute "country" for "town" and "banker" for "arsonist," and that pretty much sums up the mortgage fraud settlement that the administration and some attorneys general keep trying to impose on the nation. It's a sweetheart arrangement that asks for pennies on the dollar, would only help a tiny fraction of those harmed, and would allow the wrongdoers to keep the tools of their criminal trade -- making future crimes all but irresistible to the feloniously inclined.
Here are four reasons why California Attorney General Kamala Harris and her colleagues must reject this proposal:
1. Crime must be punished
The bankers' crimes during the mortgage crisis have included perjury, forgery, and investor fraud. These aren't the baseless accusations of some wild-eyed radicals. They're well-documented in the "consent orders" that the banks signed with the Treasury Department, most of which resemble the one executed with JPMorgan Chase. It's the kind of deal that's all too common these days: The bank "neither confirms nor denies" it did anything wrong.
Then it promises to stop.
The crimes described in the document include: lying in affidavits that were filed state and Federal courts; the filing of court documents which hadn't been notarized, but which the banks falsely asserted had been; foreclosing on homes when the bank didn't have proof that it even owned the note; and "failing to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services." (That last item refers to the illegal behavior of law firms and foreclosure specialists hired by the banks -- often continuing even after their lawbreaking had been widely publicized.)
The actions describes suggest a widespread pattern of criminal activity that includes perjury; suborning perjury; and forgery. There's also a good case to be made for criminal solicitation in the repeated use of those law firms and foreclosure servicers. In addition, most of the major banks have also settled charges of investor fraud connected with the bundling and re-selling of mortgage-backed securities.
That's a pretty hefty bunch of criminal charges to be waved away just because somebody whipped out their checkbook, isn't it? Especially since other people (the banks' shareholders) are going to pay the check.
2. The punishment doesn't fit the crime
However you look at it, $20 billion is a tiny price to pay for the damage that's been done. There are 11.1 million underwater mortgages, and they hold $750 billion in non-existent equity -- loan money that they're still paying back to the banks, even though their homes have lost that value.
Remember, a few years ago bankers were spending millions of dollars in advertising to convince homeowners that their home values will go up forever, and encouraging them to borrow against those homes. The banks knew better -- or should have -- but the homeowners have been stuck with the bill. $20 billion is roughly 1/38th of the amount these homeowners owe for disappeared real estate property. That's hardly fair.
3. Helping a few when many were harmed
Wisely, three attorneys general have refused to sign on to this shameful deal, despite the intense pressure placed upon them by the Administration, the banks, and the other AGs. Eric Schneiderman of New York was the first refusenik, followed by Beau Biden in Maryland and Kamala Harris in California. Now the AGs in Nevada, Massachusetts, Kentucky and Minnesota are holding back, too. Schneiderman and Harris are particularly important players, given the pivotal role their states played in the crisis.
Now they're trying to lure Harris back by sweetening the deal, but they're using a tiny, homeopathic dosage of sweetener. Stories planted this weekend said that Iowa Attorney General Tom Miller, who's serving as a bank shill in this process, had a new offer: Banks would throw in $5 billion to "refinance the mortgages of as many as 300,000 underwater U.S. homeowners." (Emphasis ours.)
Banks immediately countered this non-offer (it's not worth anything without Harris and Schneiderman) by offering $2 billion for 150,000 homeowners. In return, Californians would lose their right to challenge mortgages that were fraudulently issued -- and, of course, the bank criminals would still go free.
It's not even clear exactly what's being offered -- the banks would offer $5 billion to refinance these mortgates, but they would still expect to collect their principal, so it's not a big sacrifice. But the key facts are these: $5 billion to refinance these homes does not include any reduction in principal. And 300,000 homeowners (that's the highest figure; don't forget the "as many") is only 1/37th of the total number of people out there. It's absurdly trivial.
4. Gimme back my blowtorch, pal
At the heart of the mortgage crisis lies MERS, the artificial corporation and electronic database that served as the engine of the banks' mortgage scheme. They used MERS to circumvent local taxes, and to avoid meeting their legal obligations to provide a clear chain of title for ownership of a mortgage. They also used it to buy, bundle, and sell mortgages at light speed. (More on MERS here.)
It would have been impossible to do all of the trading that drove the housing bubble, or to create the financial instruments that led to the financial crisis, without using MERS. The banks could not have engaged in their massive criminal behavior surrounding the foreclosure process without MERS. And the banks would have been required to provide full legal documentation for their activities without MERS.
The arsonists who burned down the real estate economy used MERS as the blowtorch. Schneiderman, Harris, and Biden should refuse to join any settlement that doesn't either shut down MERS or require massive changes in its design, legal structure, and ownership.
Conclusion: It's a fire sale for arsonists
Kamala Harris would be doing her constituents a grave disservice by considering this offer. We trust that the holdout AGs will remain holdouts once they've had a chance to review this puncture-filled trial balloon.
The banks shattered the economy, costing the world economy at least seven trillion dollars in lost wealth. They made billions by artificially pumping up the real estate market, and they made billions more when it blew up. For three years they've benefited from government and Federal Reserve loans at fire sale prices - after they started the fire.
The AGs need to hold firm on this settlement, which is still a shameful cave-in to the big banks. No principal reduction? No deal. No dismantling of the criminals' toolbox? No deal. No jail time for bank crime? No deal.
The bankers are bitching about the deal, but since the alternatives include criminal prosecution they'll eventually sign it gladly. And when they do, they won't even bother washing the stink of gasoline and ashes from their clothing. These arsonists don't deserve another fire sale.