Why Let Banks Off the Hook for Mortgage Wrongdoing?

If anyone is looking for a clear example of how economic fears have the power to scare us out of a commitment to justice, look no further than the Obama administration's continued support for a quick settlement in the case against major U.S. banks accused of illegally foreclosing on people's mortgages.

The case began last fall, when attorneys general from all 50 states filed suits in response to reports that banks had used "robo-signers" to rapidly approve foreclosure documents without taking the time to evaluate whether a foreclosure was actually merited.

This is obviously only the latest in a long stream of exploitive practices from the mortgage industry, yet the settlement that is currently on the table would offer the banks full immunity from criminal prosecution in exchange for a flat financial penalty (recently estimated around $25 billion). Some reports suggest that the immunity could cover more than the foreclosure practices, possibly extending to future charges related to shady mortgage securitization.

New York State Attorney General has been waging a lonely battle to stop this settlement, and standing up to intense pressure from the Obama administration to just go along. In August, he received support from Americans for Financial Reform, which explained the stakes in the case:

Abuse, fraud, conflicts of interest, and lawlessness have been endemic at every stage of the mortgage origination, pooling, securitization, and servicing and foreclosure process. This chain of misconduct by many of the nations’ largest financial companies is at the root of the foreclosure avalanche, of the failure of existing programs to resolve the problem, and a fundamental cause of the broader economic crisis that has cost millions of jobs and is compounding the foreclosure problem now. In turn, failure to resolve the foreclosure crisis is worsening our economic situation, and making it harder to create jobs.

Not a single person has gone to jail for the wrong-doing that spurned the financial crisis, yet the banks stand to be excused from criminal prosecution for exactly the corrupt and exploitive scheming that initiated the recession. Moreover, it is precisely because of the immunity provisions that the Obama administration supports the settlement: by eliminating the possibility of future legal action, confidence can be restored to the banks' quivering shareholders, and some level of stability can be introduced to the housing market.

Does this sound like a bad deal to anyone else? Why would we want to grant broad legal cover to the banks in one of the most exploitive and costly financial schemes in U.S. history?

And yet commentators shrug their shoulders and say that, when it comes to the Big Banks, we have no choice but to give them a pass: writing for The Atlantic, Daniel Indiviglio argues that in order to stabilize the economy, "the government would have to take a vastly unpopular action for the sake of the very people who it will anger." If aggressive legal action is taken against the banks, "uncertainty" will strike the markets, making shareholders uncomfortable and shaky -- and this should be a central concern for us all.

This sounds like trickle-down nonsense. There are plenty of options for stabilizing the housing market that do not require us to give the banks a pass  for their extensive wrongdoing. Our excuse is that the fortunes of Main Street depend on the financial success of Wall Street; for better or worse, the principles of the market are non-negotiable. Funny, I thought the principles of justice worked the same way. 

Comments

[Greg]

Thankfully, the California Attorney General has followed New York's lead and pulled out of the discussions. In truth, the foreclosure fraud is just the tip of the iceberg when the damage Mortgage Electronic Recording Service (MERS) has done to every County Register of Deeds office in the United States. In truth, Communist Russia and Cuba destroyed public land records when they set up Communism in those countries and it appears the "big banks" (they're not to big to fail and should be broken up) would like to do the same thing to "we the people" of the USA. To see the real truth about MERS, google Dallas County, Tx vs MERS and read the complaint they filed. Hopefully more people come to their senses and understand the depth of the fraud and demand the Senate and Congress restore the Glass Steagall Act, which is currently being proposed in the House of Representatives.