Matt Taibbi is reporting that the Obama administration is attempting to negotiate a resolution to potential liability on the part of major banks for their wrongdoing leading up to the mortgage crisis. According to Taibbi, compared to the damage caused, the settlement amount looks to be cheap. Standing in the way is New York Attorney General, Eric Schneiderman.
This second camp has all gotten together, put their heads together, and cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.
The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.
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But New York’s Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR.
Taibbi describes some of the subsidiary things the banks are accused of (e.g. robo-signing perjury, MERS-related tax evasion) but identifies the central crime as dressing up junk bonds as AAA rated investments.
The banks lent money to corrupt companies like Countrywide, who made masses of bad loans and immediately sold them back to the banks. The banks in turn hid the crappiness of these loans via certain poorly-understood nuances in the securitization process – this is almost certainly where Scheniderman’s investigators are looking – before hawking the resultant securities as AAA-rated gold to fools in places like the Florida state pension fund.
Taibbi figures Obama’s motive in this to be fat campaign contributions if he can make the foreclosure mess go away for the banks.
While the mortgage crisis is indeed a mess, little I have seen (and I am a foreclosure lawyer) suggests that there was criminal conduct. If there was criminal intent, it would have been so high up that very few people would have known about it.
Greedy? Yes. Stupid? Also, ultimately, yes. Criminal? The evidence is still coming in, but my my initial take is no.
The one area that many banks should be held criminally responsible is the signature fraud that was committed. There were many cases of robo-signing that need to be prosecuted.
I wonder if the motivation — especially given Bank of America’s gyrations the last few days — is that the banks are in such horrible, horrible shape, worse than any of us would want to know, that the Obama administration is agreeing to go easy in order to avoid a panic. It’s taking banks YEARS in some cases now to get around to foreclosures. I don’t think that’s just a paperwork issue. I think it’s so the banks don’t have to write down the value on their books.
Greg – I think the entire Robosigning perjury is criminal by definition. I thin the intent component of perjury is limited to knowledge the statement is false. Since robo-signers in many cases weren’t even signing their real name, this shouldn’t be difficult to prove.
And it should be dealt with harshly. The system relies on a certain amount of trust, honesty, and integrity. If the prevailing attitude is that a plaintiff can simply conjure documentation out of whole cloth without penalty, then what rights does the defendant truly have?
I still don’t know why we support socialism for banks. Let the ones that broke the law and/or made poor decisions be bought by the ones that made better decisions & didn’t get caught breaking the law.