More on the Banksters

Preliminary reports say that a $16 to $17 billion settlement will soon be announced between the Justice Department and Bank of America. That would break the record for the largest bank settlement in history, set less than a year ago by a $13 billion agreement between Justice and JPMorgan Chase. The numbers that accompany these deal announcements always seem impressive. But how large are they, really?

Bankers fraudulently inflated a housing bubble. They became extremely wealthy as a result, but the U.S. housing market lost $6.3 trillion in value when the bubble burst. It had only recovered 44 percent of that lost value by of the end of 2013. That's more than $3 trillion still missing.

As of the first quarter of this year, 9.1 million residences - 17 percent of mortgaged homes - were still "seriously underwater," which means that homeowners owed at least 25 percent more on the home than it was worth, risking losing their homes. If this added burden harms their credit score, they'll pay banks more for other forms of borrowing as well. Yet, these settlements do not require banks to provide principal relief for these underwater homeowners. They don't ask banks to return homes that they wrongfully took from their owners. They don't ask banks to forfeit every penny of earnings received through forgery or perjury. They don't even ask them to restore the credit ratings of defrauded customers.

And homeowners weren't the only ones hurt by banker misdeeds. When the bubble burst, it took the economy with it. Unemployment and underemployment remain at record levels, even as the stock market surges and corporations enjoy record profits. Compared to the wealth that bank fraud has taken from American households, these settlements are a drop in the ocean. Yet these settlements don't ask banks to invest in job creation, increase their lending to job-creating enterprises, or refrain from other forms of consumer fraud. Instead they're limited to addressing a very limited set of harmful activities - and don't even fully compensate victims for the harm those activities caused.

Much of the "consumer relief" in past deals has turned out to be nothing more than banks modififying loans in ways that are advantageous to them, offer deals they almost certainly would've offered anyway, and then count them against their "settlement" obligations.

That's the kind of thing that happened with the much-hyped "$25 billion" foreclosure fraud deal announced in 2012. Subsequent settlements (including last month's "$7 billion" Citigroup deal) have been vulnerable to the same kind of abuse.

Now the Wall Street Journal reports that $7 billion to $8 billion from the Bank of America deal will be allocated for "consumer relief, such as reducing mortgage balances for struggling homeowners," while $9 billion will go to "the federal government, states and other government entities." Only the $9 billion is a sure thing - and most of that money will go to government agencies that have a poor record of providing relief to wronged homeowners. What's more, it hasn't been announced whether this deal, like Citigroup's recent settlement, will be tax-deductible.

one of these settlements is likely to dissuade bankers from engaging in similar misadventures in the future. When the New York Times studied bank settlements several years ago, it found that banks routinely violated the pledges they made in agreements like these. Bank of America had engaged in six repeat violations as of November 7, 2011. Since then it's been a party to mortgage-related settlements that include the (allegedly) $25 billion foreclosure fraud deal; a $9.3 billion multi-bank settlement in 2013; and an $8.5 billion agreement with a group of mortgage investors it had defrauded.

There have been no criminal prosecutions of big-bank executives, an omission that Federal Judge Jed S. Rakoff lamented in a recent speech. Rakoff called the lack of prosecutions from the Justice Department and the Securities and Exchange Commission "technically and morally suspect" and characterized the excuses they've given for failing to prosecute as "hollow" and "lame."

From here