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The Bank Settlement's Flawed -- But Fight Bank Crime, Not Each Other

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Two thousand bucks for having your home illegally foreclosed on is an insult. But two billion dollars' worth of lawyers suing bankers on behalf of wronged homeowners could change everything. And a real investigation into bank crime could make a real difference.

Will we get those things? Maybe -- but only if we fight for them.

There are still opportunities to take action. (There's even a loophole in the deal that could still leave banks on the hook for robo-signing crimes.) So rather than attacking one another -- something progressives are very good at -- why don't we build pressure for the best outcome we can get?

Yesterday I was asked if I would discuss the foreclosure fraud settlement this morning on KPFK radio. This morning they told me they'd added David Dayen of Firedoglake, whose reporting on this deal continues to be the best anywhere, "to get a different perspective." It was a great discussion, but if they were looking for disgreement I'm afraid we disappointed them. (audio here)

Why Can't We All Just Get Along?

This conversation echoed the one I'd had yesterday evening on RT Television's Alyona program (below), as well as a million others taking place across the progressive community. I'm beginning to think the left looks more divided on this settlement than it really is -- or than it should be, anyway. (I think we can find some allies on the libertarian right, too, but that's a discussion for another day.)

The Alonya Show with Richard Eskow on the foreclosure fraud deal

Do I think some groups inside and outside Washington oversold this deal? Yes. But do I think that Eric Schneiderman and his allies made it considerably better than it would have been? Yes.

Do I think the dollar amounts are insultingly low? Do I think it traded away one of the best tools we had to force bankers to make real concessions? Yes and yes. Do I think it creates an opportunity for aggressive prosecutors to get some prosecutions going? Do I think it includes some tools that could result in a much better outcome? Again, yes and yes.

Despite all the heated arguments I've heard today, the two positions aren't mutually exclusive. I agree with all of the shortcomings Yves Smith, David Dayen and others have so thoroughly outlined -- and I've added a few of my own. But even if the deal protects bankers by building a brick wall around them, at least now there's a door or two in the wall.

In fact, if Dayen's source is right and there's no term sheet for this deal yet -- which is a mind-blowing possibility -- there's even a chance to make the doors bigger.

Two other scenarios are likelier, though. In one the public doesn't see the terms until they're finalized in court, and the deal is even better for the banks than we've been told. In the other, public pressure - along with allies like Schneiderman -- hold firm. In that case the deal either holds or the banks walk away and full-scale prosecutions can begin.

But without public pressure -- either because we've over-celebrated the deal or walked away from it -- the scenario that's worst for the public becomes the likeliest one.

Mad as Hell

Do I understand the anger, the outrage, the moral indignation? Of course. I feel it, too. (Like the old reggae song said: "Who feels it, knows it." If you've talked to and corresponded with a lot of people who've been screwed out of their homes, as I have, you'll feel it. See "Letters From Foreclosure Hell.")

The authorities had bankers dead-to-rights on forgery and perjury, which is what "robo-signing" really is, and they traded it away for a relative pittance. I wish they'd locked somebody up with this evidence -- or, better yet, sweated the small fry until they got to the top guys behind the criminal behavior. They locked up Al Capone for tax evasion, after all, not bribery or theft or murder.

Yeah, I'm ticked off that it played out the way it did. And I'm mad as hell about all the cushy SEC settlements, and about the Justice Department's lack of action over the last three years.

So can we stipulate the following? The money banks will have to pay is meaningless, if that's all they ever pay. The dollar amounts homeowners will receive in compensation is an insult, and the principal relief it offers are a tiny fraction of the real problem.

Now what? We keep fighting. What else?

Peace Train

That's why Dayen and I agreed on pretty much all of the key points. (He thought so too.) Both of us agreed on the deal's many failings. We also agreed on how it might be leveraged to get a whole lot more justice for American homeowners.

The operative word here is "might." Concerned activists prevented this deal from becoming the broad immunity from prosecution it was originally intended to be. Now that the deal's done, the fight's just beginning.

But if we're to get any more justice for American homeowners we're going to have to strike the right balance: Cheerleading for this deal creates a false sense that justice has been served and the battle's over. But trashing it altogether discourages people and could prevent them pressuring the administration and their state's attorney general to use the tools it does provide.

So fight the banks and their unshakeable allies. Pressure the people who can be pressured. Recognize and support our allies and friends. It sucks to find out that the bankers got their brick wall. But if we don't admit it has doors, we'll never walk through them.

The Doors

So can we agree? We lost an opportunity when this deal granted immunity for robo-signing crimes. But those doors could amount to something much bigger -- if we keep up the pressure on state and federal officials, and if we keep watching to make sure they walk through them.

The deal reportedly provides $2.75 billion for states to use at their discretion for things like homeowner help lines, financial counseling for distressed homeowners, and legal aid. As far as I'm concerned, help lines and counseling are fine -- but I'd spend most of the money on legal aid. I want a flotilla of lawyers moving against the banks in formation: demanding documents, taking depositions, and filing actions in state courts.

Two thousand dollars isn't much. But 2,000 dollars and an attorney who might get your house back -- or at least settle out of court for real money -- could be a lot.

Pressure Points

But will the states spend the money that aggressively? In many cases, no -- not unless they're put under intense scrutiny and pressure. We've already heard reports that some states plan to use the money to pay down their deficits. That's outrageous. It was outrageous when the Obama Administration used HAMP homeowner money for the same reason, or when Freddie Mac's CEO considered deficit reduction a higher priority than carrying out his mission.

So it's not enough to express outrage. We need to anticipate that kind of reaction, report on it, and react when it happens. And we've got to do some political triage: Who's with us, who's against us, and who can be swayed if we press them?

I believe that Matt Stoller's absolutely right when he says that a top priority under both Bush and Obama has been to preserve the capital structure of big banks at all costs. I attended one of those off-the-record meetings he cites -- one with a high government official -- and I can confirm that I was both shocked and surprised by the extent of the unnamed official's lack of support for homeowners and his concern for bank balance sheets.

I don't know how deeply held those beliefs are throughout the administration, but it doesn't really matter in this sense: getting re-elected is even more important. I don't know the precise combination of openmindedness and political calculus led to the reversals in this agreement, but I do know that public pressure eventually led to the inclusion of these words in the attorney general's statement:

The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits. State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.

So, if nothing else, they deserve recognition for bowing to public pressure. It's all a game of political triage, anyway, of learning who's with us, who's resolutely against us, and who can be swayed.

This is an important change. Schneiderman's already sued three banks over MERS, which has been both a corporate shell game and the digital gaming table for the Wall Street mortgage casino. And the ability to bring individual lawsuits is a big thing -- especially if there's money for lawyers to file them.

Loophole?

Then there's this:

"The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers. "

Now, we've been told banks were just given a free pass for foreclosure fraud, so this might just be a semantic problem. Mr. Holder may have thought he was leaving the door open to prosecuting servicing companies like DocX. But most of the country's large banks own part or all of their own servicers.

Might it be possible to grant bankers immunity from their bank crimes, but not for their servicing crimes? I don't know -- but every avenue should be pursued.

Keep on Pushing

Either way, Schneiderman and others can still pursue the pre-2008 crimes (alleged, of course) that drove the bubble, deceived homeowners, and crashed the economy. These (alleged) crimes include: lending fraud; investor fraud in the selling of mortgage-backed securities; securities fraud in making false statements in annual reports, shareholder meetings, and investor calls; suborning fraud in the hiring of dishonest appraisers to inflate the value of a home -- and there's more where that came from.

But time's running out. The statute of limitations is looming on some of these crimes. Schneiderman and his team need resources that they're not likely to get with an angry -- but reasonably hopeful -- citizenry demanding that they get them. Attorneys general will be tempted to waste that resource money, or will target it for their own purposes rather than where they'll do the most good.

There are doors in this deal -- doors that lead to a better deal for homeowners and a chance at restoring justice. Progressives need to recognize that these doors exist, and then demand that our elected officials use them. What's lousy is lousy, but that's no reason to let an opportunity go to waste.

As we keep saying: The battle is over but the war goes on.

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