Let me see if I've got this straight. Yesterday the government gave the banks about a trillion dollars to keep them from failing and wrecking the country's economy because they had encouraged and approved mortgages that they knew could not be repaid and then bundled, misrepresented and sold those toxic mortgages to unsuspecting investors. Today the government is planning to sue the banks because they encouraged and approved mortgages that they knew could not be repaid and then bundled, misrepresented and sold those mortgages to unsuspecting investors.
The proposed suit by the Federal Housing Finance Agency being filed on behalf of Fannie Mae and Freddie Mac may be the most classic example of the "pot calling the kettle black" in history. Both were warned as early as 2006 that these investments were risky. There may be many out there with the right to sue the banks, but the Fannies are certainly way down on the list. I have no quarrel with holding the banks responsible; rather it is the inconsistency of the government's position that troubles me. How can we give them scads of money one day to remedy their wrongdoing, and then sue them the next for the same wrongdoing?
Just think what might have been. If rather than giving the bail-out monies directly to the banks those same monies had been used to pay-off, reduce and modify the subprime mortgages, there would not be millions of foreclosures. Families would have been able to stay in their homes and not live in their cars. The banks would have received the same monies, and their and the economy's failure avoided. The mortgages now being foreclosed would be re-instated and payments resumed. Property values would improve. The value of the mortgage-based securities would increase, because they would all be current and income producing. But alas, the money went directly to the banks without strings, and the government having done so to save the banks and the economy, now seems intent upon wrecking it by suing the banks.
Those who should be sued are those who benefited from this boondoggle: the brokers who made commissions convincing customers to take out mortgages they could not afford; those who sold and assigned the mortgages; those who misrepresented their value; those who bundled and sold them as securities; those who received huge salaries and bonuses without thought to the homes that would be lost, the savings that would vanish and the lives that would be wrecked.
Maybe the individuals do not provide the deep pockets that the institutions do, but holding them responsible and throwing in a few criminal indictments might serve to end this corrupt and indifferent banking regime. Individuals and companies who have been harmed by what has occurred may have no place to look other than the banks for compensation for their losses, but the government would serve the country better by pursuing those truly responsible and not endangering the country's economy which it (and we) paid so dearly to protect.
Federal Regulators Sue Big Banks Over Mortgages
Banks alone are not to be blamed
The regulator who could block mortgage refi plan
Fannie Mae sells $2 billion in bills at lower rates
Fannie Mae Increases Maximum Allowable Foreclosure Fees
squandered it on things like large bonus packages for their CEO's...etc!
But of course the govt was in a better position at the time of the bailout to eg take equity position or force regulations - more likely that the govt was as scared as the banks.
I wonder how John MCain would have handled the banking and mortgage crises. I think he would have targeted the industry support through home owners, rather than directly giving tons of money to the banks, likely with a much better outcome. Also, uncertaintanty would have been removed from business thought processes, allowing for a much sooner, robuster economic recovery. Too bad we'll never know. At least we have hope and change.
Keating 5 ring a bell? - latimes.com
"Once upon a time, a politician took campaign contributions and favors from a friendly constituent who happened to run a savings and loan association. The contributions were generous: They came to about $200,000 in today's dollars, and on top of that there were several free vacations for the politician and his family, along with private jet trips and other perks. The politician voted repeatedly against congressional efforts to tighten regulation of S&Ls, and in 1987, when he learned that his constituent's S&L was the target of a federal investigation, he met with regulators in an effort to get them to back off.
That politician was John McCain, and his generous friend was Charles Keating, head of Lincoln Savings & Loan. While he was courting McCain and other senators and urging them to oppose tougher regulation of S&Ls, Keating was also investing his depositors' federally insured savings in risky ventures. When those lost money, Keating tried to hide the losses from regulators by inducing his customers to switch from insured accounts to uninsured (and worthless) bonds issued by Lincoln's near-bankrupt parent company. In 1989, it went belly up -- and more than 20,000 Lincoln customers saw their savings vanish..."
In my experience, a great deal of the time what they do makes no logical sense whatsoever, and brings to mind the old saying "The right hand, doesn't know what the left hand is doing".
Having said all of that, I don't believe the fundamental question in this instance is a question of law. It's a question of politics, and ethics, and the lack thereof.
The financial sector contributes millions to most members of Congress.
IMPO those that believe they are doing so from the goodness of their hearts, and that there are "no strings attached" are even more naive than I am, and that's saying a great deal.
It all really comes down to "We have the best Government money can buy" and it shows.
The financial sector has the most money of any special interest group in America, and with enough money, justice is just another word in the dictionary, it has little real meaning in the USA of today.
The fall of any great society begins with corruption at the top. I believe we are witnessing the turning point in America, from what once was a great nation, into just another fallen empire.
Other things which should be thrown into the mix of any discussion of FHFA are the fact that DeMarco is a Bush holdover. His motivations are really unclear. He has refused to cooperate in a program to offer modifications.
Finally, FHFA was under a statute of limitations. So file the suits. What the end game is we just don't know. Maybe it's simply intimidation tof force the banks to deal in the other global settlements. How it will relate to other settlements, for example the $8.5B settlement with Bof A, is unknown.
Not up to par with the author's other posts, most of which have been admirable.
AND nobody was ever "blamed" either.
However, the CONSEQUENCES of what Wall Street, banks, and complicit politicians did has done too much damage on Main Street and the recession is bad and getting worse.
The politicians are getting desperate, the 2012 elections are coming up, and SOMEBODY has to take the blame for what happened to the economy.
"SOMEBODY" has to be sacrificed.......
However, NOBODY figured the economic meltdown of 2008 and resulting recession would last so long.
Well, last so long and get worse on Main Street.
The politicians are obviously bought and paid for by big corporations, Wall Street, banks.....and they delivered a lot of help in 2008.
The politicians also let the Wall Street and bank miscreants get away with it.
Not only were most of the big boys on Wall Street and banks not indicted but most kept their jobs or retired with a huge golden parachute.
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2008 is long gone.
While the voting public has a short memory....the recession is still bad and getting worse on Main Street.
Also the government can use some money too.
So.....to appease the voters for the 2012 elections and make some money....the politicians have decided that the banksters and Wall Streeters need to be "sacrificed" a bit.
How much they will be "sacrificed" remains to be seen.
Right now, banks and Wall Street are being (for them) lightly hit.
Probably big fines that they will have no problems paying.
BUT if the recession lingers.....all bets are off.
The politicians will be FORCED to start really "sacrificing" Wall Streeters and banksters....indictments, arrests, and more.
Stay tuned......
I want to see me some perp walks and I want to see them now!
Failure to uphold the Rule of Law can be used by some for anything from vigilante justice to a military coup d'etat.
There's already been a financial military coup d'etat.
These bank bailouts were loans rather money being "given" and have since been largely repaid by the big banks with interest. Huffington covered the repayments back in 2009 see: "Goldman Sachs, Morgan Stanley apply to repay TARP"
(http://www.huffingtonpost.com/2009/05/19/goldman-sachs-morgan-stan_1_n_205008.html)
or a more detailed article in the New York Times: "JPMorgan and 9 Other Banks Repay TARP Money" (http://dealbook.nytimes.com/2009/06/17/jpmorgan-repays-treasury-as-tarp-exits-continue/). The government is running huge deficits and doesn't have billions for "giving". The government borrowed the TARP money; loaned some it to the banks and got their money back at a profit. If the government had just "given" this money to the subprime defaulters; then it would have ended up with the banks rather than being returned to the government.
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
http://www.businessinsider.com/american-bankers-do-not-deserve-22-trillion-in-pay-and-bonuses-2011-9
So, to forestall public outrage, the government will sue them and settle for less than 1% of what they stole this month. This will then be hailed as a great victory.
Congress sat back and allowed Banks to issue so much debt their failure actually threatened the U.S. Economy. Even Dogs and Cats were getting Pre Approved Credit Cards from the Mailing List of Vets.
Now who allows this to happen if it is not a planned event. The effects of long term changes to laws have to be discussed and understood by Congress unless they are just doing what they are paid to do.
Maybe they didn't know how MUCH fraud was going on before the bailouts, not to mention that the banking sector tools were swept into the administration.
The government funding for regulatory agencies is outrageously inadequate and business likes it that way. You are a judge, you should know that, and I venture that you do.
http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html
William K. Black: The Two Documents Everyone Should Read to Better Understand the Crisis
"As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.1 When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a "criminogenic environment" (Big Money Crime. Calavita, Pontell & Tillman 1997.)
The FBI correctly identified the epidemic of mortgage control fraud at such an early point that the financial crisis could have been averted had the Bush administration acted with even minimal competence. To understand the crisis we have to focus on how the mortgage fraud epidemic produced widespread accounting fraud..."
I find most of what our pay-to-play government does to be a bit ironic.