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America's Biggest Banks: Poor, Poor Pitiful Us

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The settlement talks still aren't settled. For about 16 months, we have been hearing that the settlement talks are just about to close, but once again another day goes by, and the settlement talks still aren't settled. In the past, there have been lots of reasons this was the case, including bankers who wanted the moon, Attorneys General with a wide range of concerns, and us irritating folk in the progressive community raising hell. But news accounts make it obvious that the major holdup now is bankers crying themselves a river, weeping, moaning, and gnashing their teeth. The issue at hand is New York Attorney General Eric Schneiderman's lawsuit filed against Bank of America, JP Morgan Chase, Wells Fargo, and the infamous MERS, the wholly-owned bank subsidiary which has helped these and other major banks with their securitization and robo-signing sins. These banks are demanding that Schneiderman drop his lawsuit before they will settle, and Schneiderman is holding fast. It seems clear that he has drawn his line in the sand, and will not cross it, no matter how much the bankers whine.

The mysterious thing in all this is the administration's role in all this. I have been assured multiple times by multiple people, and it has been reported by several journalists, that the administration had signed off on giving "no release on legal liability surrounding MERS." This would certainly suggest that the administration was strongly in Schneiderman's camp on this MERS issue, and the fact that the release news came out on Jan. 27 would indicate that the bankers should have figured out several days back that lawsuits like Schneiderman's were going to be allowed. And I am certain that Schneiderman would have informed the administration of his plans to sue MERS and the banks several days before he filed it, so it isn't like there should be any surprises here. Some news reports seem to imply, though, that certain administration officials haven't been backing Schneiderman to the hilt on his right to file this lawsuit, which would be disturbing to say the least given the "no release on legal liability surrounding MERS" language that was reported on the Jan. 27. I am hoping I am reading the wrong things into these news reports, and that the administration is standing shoulder to shoulder with Schneiderman on this issue.

If the banks want to walk away from this settlement, so be it. The new financial fraud task force appointed by the president and co-chaired by Schneiderman can just add all the robo-signing perjury and other abuses of mortgage holders to their list of things to dig deeper on and keep investigating. That would be the perfect solution to all this as far as I was concerned, because once the subpoenas and depositions started flying, who knows what kind of emails and documents we might find in the files, like the outrageous one Gretchen Morgenson found in the files of Fannie Mae. If the settlement does end up happening because the banks fold, though, I think that between the Schneiderman lawsuit, a (hopefully) very narrow release of claims, and the new fraud task force (as long as it is adequately staffed), those of us who want a big mortgage write down and for some bankers to finally be held accountable may end up fairly happy. In that circumstance, in spite of all the hue and cry, the settlement becomes a modest side show to a much bigger story.

Wall Street bankers are in serious whining mode these days, and not just about the settlement. A fascinating, funny, and at least modestly encouraging, article just came out in the New York Magazine by Gabriel Sherman entitled "The End of Wall Street as They Knew It." It has some hilarious quotes in it from bankers and those close to them. Banking analyst Dick Bove said, "The government has strangled the financial system... We've basically castrated these companies. They can't borrow as much as they used to borrow." And an unnamed investment banker was really crying a river about Morgan Stanley's bonus numbers:

"After tax, that's like, what, $75,000?" an investment banker at a rival firm said as he contemplated Morgan Stanley's decision. He ran the numbers, modeling the implications. "I'm not married and I take the subway and I watch what I spend very carefully. But my girlfriend likes to eat good food. It all adds up really quick. A taxi here, another taxi there. I just bought an apartment, so now I have a big old mortgage bill." "If you're a smart Ph.D. from MIT, you'd never go to Wall Street now," says a hedge-fund executive. "You'd go to Silicon Valley. There's at least a prospect for a huge gain. You'd have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun."

It's worth a read, and some serious discussion by progressives. The basic point of the article is that Wall Street has been affected more than is commonly understood by the changes in the law and the structural economy, and by the changing political currents caused by progressive organizing. I think it is an article that is worth a lot, and will engender a lot, of discussion among progressives, probably in equal amounts causing pleasure and cynicism.

The idea that bankers are in sad shape is of course absurd. They are still the most powerful special interest in Washington, still coddled when they blatantly violate the law, bank execs are still firmly in the top 1 percent in wealth, and the biggest banks are actually far bigger than they were when they were officially Too Big To Fail in 2008. They still have the Federal Reserve ready to bail them out with 0.01 percent loans anytime they start to get wobbly. Compensation packages are getting restructured, but still are very sweet compared to any normal industry. Sherman seems to buy a little too much about how awful things suddenly are for bankers. But having said all that, I think progressives should not be so cynical about the system that we shouldn't see the victories we are winning.

The fact is, the Dodd-Frank financial reform legislation did accomplish some important things. The Consumer Financial Protection Bureau is going to curb some of the worst bank abuses against consumers and homeowners. The Federal Reserve audit in the bill provided the public invaluable information about the way the Fed is bailing out the big banks. The Volcker Rule, even with the loopholes that bank lobbyists managed to insert, banned proprietary trading and most hedge fund investing by banks, and is forcing positive changes in the industry. Swipe fees for small businesses and retailers did get regulated and reduced (although not as much as they should have been).

And progressives are making real progress in other areas of financial reform as well. Banks were forced to roll back new fees because of consumer activism. Move Your Money Day last year started a major new trend in terms of people and institutions switching their accounts to community banks and credit unions. And whatever the final outcome, it is absolutely safe to say that there never would have been a financial fraud task force without progressives fighting alongside Schneiderman for a broader investigation to happen, and that this settlement would have been far worse without that same fight.

Money never sleeps, as the movie said. We haven't won nearly enough, and the still way-too-rich-and-powerful Wall Street bankers will keep trying to roll back whatever progress we do make. But sometimes, we can win big victories. Bankers outspent progressive forces approximately 500-1 on the Dodd-Frank fight, and we still got the CFPB, the Volcker Rule, the swipe-fee regulations. They outspent us more than that in terms of the money they are putting into the settlement talks, but we still got a new fraud task force, and we will either see a better settlement or a lot of key attorneys general will walk away from it.

If we keep fighting, we just might get a lot more.