How about the consent decrees with their wholly captured regulator, the Office of the Comptroller of the Currency, that promised an end to robosigning/document fraud? Journalists willing to actually look at public records have easily documented that the banks’ document fraud continues, despite the consent decrees. The banks’ bad faith shows up on the microscale too; individual homeowners can’t trust that banks say what they mean. For starters, homeowners can’t trust the banks when they say “don’t worry about the foreclosure notices, we’re considering you for a modification…” But homeowners also can’t trust banks when they sign formal settlement agreements either.
In short, everyone should see the banks have no credibility; any settlement they sign is likely not to be worth the paper it’s written on. Unless such settlement has teeth unlike anything proffered to date, negotiations are a waste of time. And yet the negotiations continue, and the reports about them continue to take the negotiations far more seriously than they should.
Remember the late August “news” about the “50” state attorneys general negotiations with big banks? The Obama Administration, as reported by the New York Times and Wall Street Journal, viewed Attorney General Eric Schneiderman as the only major obstacle to a hush money deal, and was leaning on him hard. The Wall Street Journal tried hardest to spin the situation that way, perhaps a reflection of Murdoch’s ownership of the paper. If you read the article closely, eventually you realize Schneiderman is opposing the liability waiver that’s on the table because he thinks it will shut his investor-related investigation down. Deal proponents, according to the Journal, said it wouldn’t.
Well, the latest—as ever, ably deconstructed by Yves Smith—shows Schneiderman was right: “…state prosecutors have proposed settlement language in the “robosigning” case that also might release the companies from legal liability for wrongful securitization practices.” Schneiderman’s not the only balking as a result: “Some state officials have expressed concern that they have offered the banks far too broad a release from liability.”
This part is a joke: “Others say the broad language was perhaps inadvertently crafted and will be tightened as negotiations continue.” Does anyone think any language getting submitted to the other side on one of the key deal points under discussion was a mistake? Especially when the evidence of mistake is that the language was so favorable to the banks? The whole concept of the hush money deal is grotesquely favorable to the banks. The banks are willing to pay big, if they really buy law enforcement’s silence. (Note “pay big” is only true in the Goldman Sachs/SEC settlement sense; big compared to other fines, trivial compared to the company’s cash flows.) No way was the draft liability release language an accident. A trial balloon, maybe, but not an accident.
The banks want a deal that stops investigations in their tracks and prevents others from getting started and grants blanket immunity for wrongdoing known and as yet undiscovered. For that get out of jail free card, the banks will pay a fine that bears no relation to the harms done and may not even be as large as advertised. The price tag can’t be pegged to the wrong doing because we don’t know the extent of it. Worse, the arbitrary numbers being floated are perhaps not even meaningful, as reports have suggested that banks could offset the penalty with credit for completed mortgage modifications. Finally, the requirements the hush money deal would impose on the banks—beyond the payment—would address only servicing and document fraud. Get that? The banks want one payment for all bad acts, only some of which are fixed going forward and none of which will be investigated thoroughly. Hush money, that’s all the banks want to pay.
A proper settlement would have terms that would fix the wrongdoing triggering each type of liability being waived, and the lump sum payment would have two components: a civil penalty, and restitution for victims. Without an investigation how do you get a handle on restitution or the size of penalty needed? Or what measures would be necessary to effectively address the problems?
The headline I’m looking for is one that says: The States’ Attorneys General Decide Negotiations with the Big Banks Are a Waste of Time and Resources; Prosecutions Imminent. Following a headline like that, backed up by prosecutions, the AGs may find chastened banks willing to negotiate. But for now, there’s nothing to talk about.