Top Five Banks Pay $25 Billion for Legal Immunity from Foreclosure Fraud

**Correction** · 2012-01-23 19:07

http://www.thenation.com/blog/165806...es-are-furious

Obama Is on the Brink of a Settlement With the Big Banks—and Progressives Are Furious
George Zornick on January 23, 2012 - 1:07pm ET

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 11 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.

Change!

**Cantih** · 2012-01-23 19:48

Where's that epic FFFFUUUU with the speed lines and whatnot when you need it
Oh well

**archibaldcrane** · 2012-01-23 19:48

$25 billion isn't a paltry sum - maybe 1/3rd or 1/2 of the yearly profits of those 5 banks combined or so?

**Cantih** · 2012-01-23 19:53

I'm guessing he means paltry compared to the crisis scale. Isn't the whole recession in the trillions order of magnitude?

**archibaldcrane** · 2012-01-23 20:08

Sure, but foreclosure fraud is only a small part of the entire recession.

**archibaldcrane** · 2012-01-23 20:09

Does this encompass robosigning and other aspects of mortgage fraud, or just foreclosures?

**Cantih** · 2012-01-23 20:16

Unclear from the article, but given the past few years, I'd assume they get off scott free for damn everything.

**Correction** · 2012-01-23 20:18

Originally Posted by archibaldcrane

Does this encompass robosigning and other aspects of mortgage fraud, or just foreclosures?

Only foreclosures are mentioned, but it's likely they're off the hook since investigating the robosigners might be interpreted as an investigation into foreclosure fraud.

And whether or not the sum is truly 'paltry' anybody should be disgusted that CEOs can basically write a check to make legal problems go away without a single admission of guilt. The Pharma industry has been doing it for decades and this is just another example of it happening for bankers. There's no excuse for this to happen under Obama's nose, either. The man is a fucking fraud.

**archibaldcrane** · 2012-01-23 20:23

Originally Posted by Cantih

Unclear from the article, but given the past few years, I'd assume they get off scott free for damn everything.

well except for the 25 billion dollar loss

**Cantih** · 2012-01-23 20:25

I'll admit, I'd rather have investigations and prosecutions instead of the money, no matter the amount.

**Correction** · 2012-01-23 20:26

Originally Posted by archibaldcrane

well except for the 25 billion dollar loss

A small sum when it completely shields you from investigations. It hollows out any call for reforms to prevent such behavior in the future. Banks won huge for a one-time lump payment.

**archibaldcrane** · 2012-01-23 20:27

My point is that it was largely legal activities that collapsed the economy. Robosigning and some aspects of securities fraud/illegal foreclosures took place, but most of what occurred was, while somewhat unethical, legal.

I'm not discounting the possibility that this is more corporate/political gladhanding bullshit - in some ways it probably is - but decreased regulation resulting in the merging of insurance+finance industries set up this chain reaction of economic failure, not rampant lawbreaking.

**archibaldcrane** · 2012-01-23 20:28

And believe me you really can't bullshit your way into a mortgage right now. Back in the boom you could lie about your income, present false paperwork, etc. etc. and banks gleefully looked the other way.

Nowadays if you don't have all your ducks in a row to the nth degree you won't get a loan. The rules have changed.

**Kuya** · 2012-01-23 20:29

I think the thing i most hate about Obama is how he at times seems to be cynically balancing out policy that he perceives is left wing enough to satisfy left-liberals and then does something really shitty (right-wing) and hopes he can offset it with something liberal again. It just seems like he's trying to please everyone without standing for much of anything.

**archibaldcrane** · 2012-01-23 20:30

He sounds like a politician!

**Kuya** · 2012-01-23 20:33

Originally Posted by archibaldcrane

He sounds like a politician!

Ah.

**archibaldcrane** · 2012-01-23 20:34

I guess that since I never expected anyone to go to jail for this I'm not outraged now, and $25 billion sounds like a significantly higher settlement than I thought would come from this.

**Drex** · 2012-01-23 20:46

Originally Posted by archibaldcrane

well except for the 25 billion dollar loss

and the fact that most of the big banks lost like 90% of their share value over this and have barely even started to recover 4.5 years later. considering most of their executives and employees have over 3/4ths their wealth tied up in company stock (by design, so they can't jump ship to competitors or start their own), that's a pretty hefty deterrent and punishment in and of itself.

**archibaldcrane** · 2012-01-23 20:47

It is bullshit that they aren't investigating specific instances of securities fraud though, although that should've happened 5+ years ago.

**djzombie** · 2012-01-23 20:54

record profits is barely recovering eh?

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