Obama Is on the Brink of a Settlement With the Big Banks—and Progressives Are Furious
For months, a massive federal settlement with big Wall Street banks over their role in the mortgage crisis has been in the offing. The rumored details have always given progressives heartburn: civil immunity, no investigations, inadequate help for homeowners and a small penalty for the banks. Now, on the eve President Obama’s State of the Union address—in which he plans to further advance a populist message against big money and income inequality—the deal may be here, and it’s every bit as ugly as progressives feared.
The Associated Press reports that a proposed deal could be announced within weeks. Five banks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC)—would pay the federal government $25 billion. About $17 billion would be used to reduce the principal that some struggling homeowners owe, $5 billion more would be used for future federal and state programs and $3 billion would be used to help homeowners refinance at 5.25 percent. Civil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations.
There are several reasons why this is could be a terrible deal. For one, the dollar amount is inadequate in relation to both the tremendous loss of wealth via mortgage fraud and the hefty balance sheets of these massive companies. Furthermore, the banks might be allowed to use investor money instead of their own funds—this makes the penalty even lower. Beyond all that: it’s extremely hard to justify the absence of investigations and punishment for mortgage fraud that was so widespread and so damaging to people’s lives.
There are also many other, more serious problems besides a lack of punitive action. The small amount of money—and the federal government’s recent inability to truly help underwater mortgage holders, of which there are currently 11 million—means that the victims of mortgage fraud might not see enough relief. And perhaps most importantly, with no real punishment for widespread damaging fraud, what are the incentives on Wall Street not to engage in similarly destructive practices once again?
http://www.thenation.com/blog/165806/obama-brink-settlement-big-banks-and-progressives-are-furious
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