Obama’s “Get Out of Jail for Helping 1.36% Card” for Banksters

Yesterday, I described how the Obama Administration was going to charge the banks just $8 billion for immunity from a whole new swath of crimes. Shahien Nasiripour has more details which make the deal look even shittier. First, the proposed deal does appear to provide states immunity not just from robo-signing and the lies banksters made at origination, but also for their securitization errors.

In return for getting the banks to agree to the refinancing scheme and give up higher interest income, the states would release the banks from civil claims related to loan originations, the stage at which many homeowners say they were duped by unscrupulous lenders.

Last month, state prosecutors proposed to effectively release the five big lenders from legal liability for allegedly wrongful securitisation practices related to the banks’ treatment of loan documents. Taken together, the release from liability over poor origination, securitisation, servicing and foreclosure practices could amount to an effective grant of immunity for the banks from civil claims, people familiar with the matter said.

And in exchange, the banks would pay 80% of their $25 billion penalty into a fund that the same people who botched HAMP would use to help just 1.36% of homeowners who are underwater on their homes.

About 150,000 borrowers could benefit from the refinancings, as the vast majority of US home loans are owned by investors and government-controlled mortgage giants Fannie Mae and Freddie Mac. By comparison, nearly 11m US borrowers are underwater, according to CoreLogic, a data provider. The average underwater homeowner owes $258,000 on his mortgage.

In other words, all the settlement would do is help those who crashed our economy stay in business. The vast majority of their victims–and the US economy–would continue to pay the price for their crimes.

7 replies
  1. prostratedragon says:

    Not to belabor a point, but this article to which several linked yesterday will give an outstanding view to why letting the perps continue is fully equivalent to opening the national veins in a warm bath:

    Not with a Bang, but a Whimper: BofA’s Death Rattle

    Mind, nearly everything Ritholtz says about BofA, Countrywide, the general situation, etc., was fully known at the time, which was enough to bring some people I know to the very edge, since those facts (including the implied hammerheadedness of so many of the key actors) made the destructive potential of the situation obvious.

    William Black said it, and the history from whichever S&L bust you prefer to the present bears it out: if the fraudsters are allowed to get away with what they view as satisfactory take and little inconvenience, they not only will do it again, but it will be worse the next time because they will have amassed more money and resources and penetrated farther into society’s institutions and even social relationships.

  2. barne says:

    We still haven’t discovered how many side derivative bets were laid on this whole set-up, and where all the proceeds of those bets went. It may be, unless I’m mistaken, that huge, gargantuan floods of side bet money was made shorting this whole mess, but I guess we’re not supposed to learn about that.

    We’ll just leave it at “Oh, SEE the banks lost money too!; THEY must be victims too!” Yeah, but how much money was made on SIDE BETS, and who made that money?!

  3. barne says:

    Back of napkin, wild, wild guess: But let’s say that, thanks to bank shenanigans, housebuyers overpaid by about $50K each during the bubble years. That $50K has vanished now that the bubble is popped, but you’re still paying the full bubble-size mortgage payment, every month. And you will continue to pay for the next quarter century, perhaps. At 6%, it costs about $300/month to amortize a $50K loan. (A loan you shouldn’t have been forced to take out in the first place.) But now you’ll go through the years, paying an extra $300 every month as a fraud or semi-fraud bubble fee to stay in your house. Now, President Obama hints that a lot of what the bankers did was not illegal, so maybe this extra $300/month is part of that not-illegal junk, so is not a pure rip really and truly, according to our President. So, I guess just keep paying.

    What could you buy for your family for $300/month over the next 20-25 years?

  4. MadDog says:

    Sounds like the MOTU banksters are merely waiting out the foreclosure of the US itself in order to buy it for a song.

  5. earlofhuntingdon says:

    I’d still like to see the legal mechanics on how the federal government acquires authority to release private parties from civil and criminal state law claims for liability that likely totals in the hundreds of billions of dollars – let alone for $8 billion, about what the banks pay in top executive bonuses in a good year or two. The securities laws claims, in addition, most but not all of which would be federal, likely total a trillion. That’s a lot of incentive for captured politicians and bureaucrats to do the MOTU’s bidding.

    The question that helped obliterate Sen. McCarthy as a political force, “Have you no shame?”, seems to have lost its punch. Either that, or there’s no one left in the public forest to hear the tree of political corruption grow and grow.

  6. rugger9 says:

    @earlofhuntingdon: #5
    There isn’t really, but I’m sure a test case that reaches the current SCOTUS will result in more rewrites of stare decisis law and centuries of precedent by Roberts, et al. on a 5-4. That being said, the MA Supremes in Bevilacqua did throw serious cold water on this parade, because if the foreclosed property cannot transfer title, who would buy it?

  7. Bob Schacht says:

    @MadDog: As I noted a few threads back, banks– not just American, but European– are among the most highly interconnected transnational corporations (TNCs) in the world. The top ten superconnected TNCs are
    1. Barclays plc
    2. Capital Group Companies Inc
    3. FMR Corporation
    4. AXA
    5. State Street Corporation
    6. JP Morgan Chase & Co
    7. Legal & General Group plc
    8. Vanguard Group Inc
    9. UBS AG
    10. Merrill Lynch & Co Inc

    Those corporate boards are where the MOTU hang out, and since they are transnationals, they are not worried about adverse events in one country, because they can always move their assets elsewhere.

    These are the “too big to fail” monsters, and they need to be busted up because they have too much power. BTW, I was surprised to find Vanguard in this elite group. They have some of the best low-risk investment funds anywhere, and I have some of my own life savings in some of their mutual funds. But I haven’t heard anything about fraudulent behavior in their ranks.

    Bob in AZ

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