There are two fundamental values that are essential to any working capitalist economy: accountability and the rule of law. The reported outlines of the proposed settlement of the robo-mortgage scandal (no official details have been released) by 46 state attorneys general working together shows how far we have diverged from the basic principles of egalitarian capitalism.
This proposed settlement has no place in a capitalist economy.
First, a successful housing recovery is essential to the ultimate recovery of the economy. So the implications of any settlement that potentially hurts the housing market are extraordinarily significant for the health of the nation. Second, it is based on principles that are unrecognizable in a nation built on capitalism and hence accountability and the rule of law.
Bank officials have testified in investigations of the robo-mortgage scandal that they submitted up to 10,000 false affidavits per month. Such testimony is effectively an admission of criminal guilt. These people admitted that, on behalf of their firms, they broke numerous criminal laws, most likely including conspiracy, fraud, and misleading the Court.
The banks have attempted to deflect their misdeeds by suggesting that these illegal acts did not harm anyone. The laws were related to process only. The answer to such claims is that they are irrelevant. The banks are acknowledging that they perpetrated victimless crimes on a massive scale. And, each year, I suspect thousands of American citizens go to jail for perpetrating victimless crimes on a far lesser scale.
Moreover, these illegal acts demonstrate disrespect for the mortgage process. This same disrespect for appropriate processes, although not proven to be similarly criminal, is a large part of how our current mortgage mess was created in the first place. The banks ignored many basic underwriting rules in a rush to profit from extending as many mortgages as possible.
At this moment, I suspect the individual state attorney generals have the power, through civil suits and penalties combined with criminal prosecutions, to destroy the banking institutions that are guilty of this illegal behavior. This is, perhaps, the ultimate bargaining leverage, and it should only be given up in return for a settlement that will clearly heal the housing market.
Here are the several reasons why the proposed 46-state settlement is such disastrous policy-making:
1. There is no overriding public interest in a settlement of the type proposed at this time. No one believes this settlement will fix the housing market. The state attorneys general are giving up leverage (which exists only through the banks' malfeasance) in return for what are minimal penalties to these giant financial institutions. As I previously pointed out, large monetary settlements have increasingly become a simple "cost of doing business" for financial
institutions that break the rules.
To date, the Obama administration has attempted a seemingly endless number of programs designed to prevent foreclosures and heal the housing market. Each has been introduced with great fanfare and as an innovation that will not suffer from the failures of the previous program. Each has then failed.
I fervently hope that the latest program proposed by the administration will succeed. Unfortunately, I do not believe it will. My analysis, which is shared by a number of professional housing economists, is that housing prices are headed substantially downward, by 20% or more, which will kick off a further weakening of the economy and a self
reinforcing system of foreclosures.
This past Sunday, Joe Nocera's column in The New York Times profiled the analysis of Laurie Goodman, who says we should anticipate that a "staggering" 10 million of the existing 55 million mortgages will ultimately default. The country could not be more ill served by a policy that weakens our ability to ultimately end this cycle of destruction.
2. Since the start of the crisis, my research has indicated that only a radical restructuring of homeowner debt, combined with innovations in housing finance, will end the crisis. Prior to the bailout, Obama had the opportunity to bring banks to the table to negotiate this necessarily, extraordinary change. The opportunity was missed. We bailed out the banks, but not homeowners.
Now a second opportunity exists. The state attorneys general have the ultimate leverage to demand a restructuring of the housing market without legislation. Right now we don't know what this should look like or what form it should take. But to give up this opportunity--until the statute of limitations is exhausted--would be inexcusable.
3. The banks (and even some government officials) assert that a settlement will spur a recovery of the housing market and the economy. This is absolute nonsense. In the words of MIT's Simon Johnson (emphasis added):
With roughly a quarter of all U.S.households with mortgages owing more on their loans than their homes are worth, it's no surprise that consumption, which accounts for 70 percent of gross domestic product, is restrained.The consequent lack of demand discourages business investment, which means job creation remains weak. People are afraid of losing their homes and that fear keeps spending down and thus prevents them -- and their neighbors -- from getting jobs.
What can be done to break this vicious circle? One suggestion from some officials ...-- and of course many banks-- is to accept a relatively small amount of money to settle the various robo-signing and other mortgage document cases that state attorneys general are pursuing. The claim is that this would put the banks back on their feet and spur lending. This is a complete illusion.
4. State attorneys general working in a coordinated action may sound positive. But in fact, it violates (at least in principle) the notion of federalism and state sovereignty that is a vital part of our Constitutional government. The federal government is the place for coordinated national action.
Many of the programs that ultimately formed successful aspects of the New Deal were first developed by FDR as Governor of New York. In effect, the states are laboratories for experiments, which can then be expanded in scope through the federal government. At a time when economic uncertainty is so high, we should not abandon the virtue of multiple experiments by individual states.
5. It is by no means clear that this settlement will have a meaningful impact banks' behavior. This behavior has been so egregious that even The Wall Street Journal has been forced to acknowledge it.
The idea of entitlement is anathema to a capitalist system. Yet the more we punish massive rule-breaking with the equivalent of a slap on the wrist, the more we create the impression--among the general citizenry and the elite--that we no longer have a fair capitalist society. As a consequence, the settlement has a strong chance of encouraging further misbehavior.
6. As economic inequality grows, political polarization increases and legislatures become paralyzed. This is one of the central conclusions of It Could Happen Here. Sadly, we are seeing this today.
In contrast, the robo-mortgage scandal provides an opportunity for action by courageous individuals (state prosecutors and attorneys general) that does not depend on a consensus, which would almost certainly prevent innovation. These individuals can make a difference in the lives of millions who suffer today--even as our Congress fails to act. I hope they do not shrink from this awesome responsibility, one that they may not have sought but nonetheless possess.
The New York Times reports that "a handful of state attorneys general became so troubled by the direction this deal was taking that they dropped out of the talks. Officials from Delaware, New York, Massachusetts and Nevada feared that the settlement would preclude further investigations, and would wind up being a gift to the banks." These attorneys general are to be commended, and the other states should follow their example. Hopefully, their stance will not weaken over time.
There is no reason to violate the capitalist ethos, which is built on accountability and the rule of law, by agreeing to a multi-state settlement. This ethos and the accompanying rules of behavior are what made us a great nation. The far wiser policy is to develop an understanding of what actions will heal the housing market and work toward implementing a policy that realizes them.
Next in this series: Confusing Creating Profits with Creating Societal Wealth
Follow Bruce Judson on Twitter: www.twitter.com/BruceJudson
Dylan Ratigan: Bought Justice and the Supreme Court
Arianna Huffington: Shakespeare, The Bible, and America's Shift Into a Punitive Society
Ted Kaufman: The Emperor Has No Clothes
Sen. Bernie Sanders: The Veil of Secrecy at the Fed Has Been Lifted, Now It's Time for Change
Get over it and get on with your life.
“Policy Makers: Bank and Wall Street Greed, Not “Irresponsible Homeowners”, Caused Our Crisis” by Abigail Caplovitz Field, at Reality Check on November 8, 2011
http://abigailcfield.com/?p=465
It is long past time that Main Street Americans demand action by state and federal legislators, appointees, courts and politicians to curtail Wall Street’s illegal activities in residential mortgages and foreclosures.
For the first part--"afford"--to happen we must get unemployment down to the 5%-6% range. Since building construction is moribund, the best way to get those in the building trades a job is through government investment in infrastructure repair, renovation and construction. I am a Conservative, but I am also in a profession related to real estate. You aren't going to suddenly train a roofer to process medical claims.
The second part is "qualify." If we let existing qualifications for getting a loan stand it will be ten years after the unemployment rate goes back to semi-normal before the housing market rebounds. That is because ten years is how long it takes for liens and judgments to fall off the title insurance (my profession) and credit report radar.
If your credit score is below the 700 range, you will either not get a loan or the interest rate will be extortionate. Many people had perfect credit until they lost their job or had a health crisis. The only way to help those people is by federal law which effectively indemnifies both the banks and credit reporting agencies. We must legally require those liens be disregarded for people who had good credit before the downturn.
NO SETTLEMENTS. JAIL THE SOBs.
True. I've been waiting to hear something about this from the Justice Dept for quite some time now.
Where's Eric Holder?
Oh, that's right...he's busy running guns across the Mexican border.
But, there is an even bigger situation brewing for these banks, the misrepresentation of mortgages to investors. In that situation, there were indeed victims. And the victims were defrauded of hundreds of billions of dollars. This is not a matter for states, it is a federal matter.
Simon Johnson has proposed an across the board principle reduction for all mortgages initiated within a particular time frame, and only certain types of mortgages. There is no attempt in his proposal to adjudicate fairness on a case-by-case basis. As crass as that sounds, it would actually be fair to mortgage holders not effected by it. Plus, there is something more important than fairness to individuals at stake here - getting the economy back on a sound footing.
Back when Johnson published the proposal (Sep or Oct) he was also thinking that the state attorneys general should use their leverage to get it. Perhaps he, and Bruce Judson, need to instead look at the various federal agencies that will be able to apply pressure over the investor fraud.
Period
Okay, maybe it's expensive. Maybe it costs $50 million dollars paid in secret to every Member of Congress. Maybe it costs $100 million paid to each Justice of the Supreme Court. Maybe the SEC is requiring $175 million. Who cares. It's all just money ... and "just money" is all they want.
The settlement will forever vanquish the rights of any and every plaintiff in every state to file any lawsuit of their own, and in exchange for this forfeiture they will receive ... nothing.
But (and please listen to me and don't just mash "reject comment") ... the plaintiffs are the ninety-nine percent, and not only the bankers, but also the Congressmen and the Senators, the Commissioners and the Judges and the Justices and the President, are the one-percent. Laws do not apply to these people; all they do for a living is to enact them (or in the case of the Court, simply pronounce them). If you're able and willing to pay enough cash, laws (whatever they may be) don't apply to you, either.
This =is= the reality at the present time.
If only we'd remember the thirty-one words that are Article 2 Section 4 of our supposedly-cherished Constitution. "The Impeachment clause," you should be able to quote it by heart. "All civil officers shall be removed from office for Bribery." Wow. What a concept.
Take a minute to go to the CREDO action website, review their talking points and make a call to the White House and have your call reported:
“Call President Obama: Stop the bad bank settlement deal.”
http://act.credoaction.com/call/report/index.html?cp_id=156&tg=31
Then, take it a step further and email or write a letter to the White House to reinforce the message:
Contact the White House
http://www.whitehouse.gov/contact
You can also call or write to the President:
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Please include your e-mail address
Attorney's General Schneiderman, Biden, Harris, Masto, Coakley, Swanson and Conway for your responsible action in effectively using the power of your office to seek answers and accountability.
"Outstanding" MSNBC "Dylan Ratigan Show" segment with Attorney General Musto in which she describes this critical effort to hold out against those who would give up so much to get so little:
http://www.msnbc.msn.com/id/3096434/
In Mexico in the mid-'90s Wall Street engineered a currency coup that tripled the debt owed by small businesses and family farms and also allowed for them to be massively ratejacked on top of it. Mexicans consequently formed the "el Barzon" movement and pushed back Wall Street and deposed their ruling party of 60+ years. In this country YouTube phenom Ann Minch declared the debtors' revolt and began going after them, with others joining in.
If you've been pushed under, you can read every other page of my book for free: http://www.scribd.com/doc/25443175/Debt-Hope-Down-and-Dirty-Survival-Strategies-Evaluation-Version-Complete