Embarrassingly Lame Federal/”50″ State Attorneys General Mortgage Negotiations Continue

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I’m having trouble understanding why anyone is still treating the Federal/state attorney general mortgage “settlement” negotiations as anything other that a fiasco. The more news reports come out, the more the parties aligned against the banks look like fools.

The latest confirmation comes in an article by Shahien Nasiripour in the Huffington Post that a member of the Department of Justice briefed state attorneys general and reported that the biggest banks in the servicing business had resigned themselves to paying $20 billion:

The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Sounds impressive, right? It’s not.

You don’t negotiate price without negotiating terms, and yet this exactly what is happening. The dollar figure utterly meaningless unless you know what is being traded off against it. A bigger dollar figure means the banks will demand a broader waiver against liability, which is precisely what we warned against (actually, we advised this craven political exercise be dropped, since no investigations had been conducted and hence the Federal/state negotiators had no bargaining leverage). You don’t give a waiver unless you have an idea the depth and nature of the abuses and the likely costs associated with them. As Dave Dayen at FireDogLake points out, the Abigail Field report, based on one person’s work, suggest the mortgage chain of title abuses are pervasive. We’ve been told that other investigations under way are coming up with similar results. That confirms that banks have a sinkhole of exposure. As we said early on, they’d be getting a fantastic deal if they got a broad waiver for a mere $20 billion.

And any “$20 billion” is likely to be a lot less in real economic terms. It’s not hard to imagine that any costs would be spread out over years, reducing its value in current dollar term, or might come the form of promises to change business practices, or fund certain activities, and those actions might not take place (how much monitoring do you think really will take place once the settlement team takes its photo op?)

But the banks may be playing the negotiators for fools on more than one level. Many of the state AGs are not keen to give the banks a “get out of jail free” card. New York, Illinois, California, Nevada, and Arizona are pursuing investigations and/or suits of their own, which means they are effectively out of the settlement. Shahien reports that Delaware has stated a probe of MERS, which suggests it will also exit the state AG effort. More states will withdraw if the waiver is, ahem, generous. And certain Republican AGs, by contrast, are opposed to having the banks subjected to even a slap on the wrist. They joined the negotiations for the sole purpose of quitting in a huff when the deal was finalized.

So the AG settlement looks to be a PR fabrication to make this whole exercise look serious. And as we’ve said repeatedly, the notion that this Administration will get tough with banks when they’ve gotten so deeply in bed with them and need their contributions for the 2012 election is sheer fantasy.

Dayen says, “I’ve lost sight of why we’re still having this conversation.” And I’m getting frustrated as well with this ridiculous PR effort which has only the potential to make matters worse (by letting the banks off easy) on the generous assumption that a deal actually gets done. But this ranks as one of the most utterly incompetent negotiations I have even seen. I’m assuming that this is simply a half-hearted effort to provide credible cover for a “the banks are putting this behind them” story, when that’s untrue too (a Federal/state won’t stop private lawsuits).

But after the buttoned-down stress test charade, the Obama Administration seems to be dialing its performance in on the banking front, not even bothering to go to the trouble to have its conduct look consistent or credible (pretty much everyone who has been paying attention has taken a dim view of everything it has done on the mortgage front, from HAMP to its continued bad foreclosure policies at Fannie and Freddie (continuing a speedy foreclosure process which encourages servicer abuses, continued reliance on foreclosure mills) to its phony investigation last fall (which we have repeatedly attacked) to the phony consent orders which appeared to be an OCC effort to undermine the HUD-DOJ-attorneys general negotiations. This Adminisitration is not only showing how deeply it is in bed with the banks, but also its inability to shoot straight.

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  1. Paul Tioxon

    Is there a pattern beginning to emerge? Wasn’t $20BB used as he amount for the BP Gulf disaster fund?


    Is $20BB the new marketing concept in paying for unlimited liability in a number big enough to get people to say WOW!! But a number small enough to barely scratch actual profits and will be just a tax deduction or cost of doing business?

    How about this, the Pentagon was given $20BB, as a special fund in lieu of regular payments it normally receives. WOW!! That $20 billion is sure a lot of money, I feel secure in knowing Obama Bin Ladin won’t crash into my cement pond with a suicide kamakazi jihadist!!

    1. petridish

      I smell a Frank Luntz rat-$20BB–most morts can’t even write the number down. It’s GOT TO BE a winner.

  2. Long Hot Summer

    Miller’s embarrassing, wimp like dancing with the rentiers is enough to make any American hurl their egg whites. Housing relentlessly stinks, and the behavior of some public officials is, at times, horrific. They keep trying to drown issues, grabbing with their hands to protect their associates who funded their election efforts. Prostituting, judging, stealing and punishing to sustain the status quo when the bulk of the populace is keenly aware of the systemic corruption.

  3. Former Little Boy

    Love your site but gotta go now. I made the mistake of choosing the post name Little Boy, like the little boy in the story of the Emperor’s new wardrobe. (Yes, the Emperor is naked.) But now my email is shut down and I can’t find a reason other than the government supercomputers think it’s another reference to Little Boy (an evil one). Remember, just because you’re paranoid does not mean you’re not being followed. (Most economists did not study logic while learning their discipline.) Although I’m sure nobody cares, no more posts from me does not necessarily mean they got me! Good luck.

  4. Shankara

    This is a simple three card Monty game….keep your eye on the cards….which one is the ace? All the while American’s wallets are being pilfered by the banker accomplices in the crowd.

    The “discussions” between the various AGs/Feds and the criminals on Wall Street very effectively camouflages the fact that millions of people are still losing their homes in the never ending con that is foreclosure.

    A broken chain of title won’t support a single dollar, much less 20 billion of them. The banks are coming to the conclusion that $20 billion is a small price to pay if in fact they can continue to pillage at will. There are millions of houses yet to be stolen and they’d love nothing more than having all 50 states and the DoJ ordain their crime spree.

    Accepting money to legitimize crime is illegal. Only a captured government would believe otherwise.

  5. Anonymous Jones

    “You don’t negotiate price without negotiating terms.” Truer words have rarely been spoken.

    Negotiating is difficult, and most people don’t recognize the difficulty until they’ve done it more than a decade. Well, it’s more accurate that most people don’t even have a concept that there is something they don’t know about negotiating…they can’t even imagine what they don’t know or that there *could* be things they don’t know.

    Oh, wait, scratch that. I forgot. Everything is simple, and I’m just a sophist (current usage) trying to point out (for clearly nefarious purposes) that not just our universe, but almost everything that populates it, is complex and has subtleties beyond our comprehension.

  6. anon48

    YS-“You don’t give a waiver unless you have an idea the depth and nature of the abuses and the likely costs associated with them.”

    Right!- And the AG’s can’t really gather hard evidence about the abuses until they deploy extensive resources in the form of an army of investigators, auditors & enforcement personnel to dredge through the muck, not just regarding the foreclosure abuses, but the entire securitization process from loan origination through the placement of the mortgage securities with investors.

    I still have not seen many instances where this has happened (other than the few investigations highlighted on this blog). Is there any hope that even a few of the state AG’s are serious about pursuing things at this level? Probably all that is needed is just one honest AG willing to go the distance (a la the 2001 version of Spitzer) to achieve success.

  7. chris

    It seems like one day I think we might get out of this mess and that people will come to their senses but then the next day all I see is criminals acting without recourse in the private sector and the government.

    I am getting more cocerned about the future and the next 10 or 15 years of trying to make some money. How are we going to improve our standards of living if we are being squeezed on both ends.
    The small business person is getting knocked out completely by the state of financing and jobless rate. I hear so much about how we need people to hire and to grow small business but the government is feeding the big business beast taking the free out of the markets by propping up big business and excusing their abuses.

  8. steelhead23

    I cannot understand why, if 50 AGs can get together, they could not hire sufficient seasoned forensic accountants like Bill Black did back in the 80s, to, within a reasonable amount of time, develop significant cases. Real cases. Big cases. Bring the biggest and baddest to grand juries in their respective states to obtain criminal indictments, then use the lesser cases as a basis for a significant settlement – in the hundreds of billions of dollars. The fellatio currently being performed is not in the public interest.

    1. Salesanalyst

      That pre-supposes that the “50” Attorneys General are interested in pursuing such investigations and develop significant cases, doesn’t it…

  9. jerry

    Why isn’t Obama going after banks?
    1) The taking on of junks assets as part of TARP was necessary
    to keep the US & world economy afloat.
    2) The banks that supported Obama are going to probably throw
    most of their $ at Romney. Obama has to make sure he gets a
    large share of that. IMO, McCain was nominated to lose by the
    RNC b/c of the crisis. The only one with the nerve to mention that
    on TV was Hitchens.

    As part of TARP certain banks that took on worthless
    junk assets like BofA with Merrill Lynch, Countrywide and
    Citi taking over Ameriquest etc were probably told that prosecutions
    would be minimal provided they kept the ship of state floating by
    taking on the above junk plus much more. As in, you take one for
    Cheney Bush and for the country and the world economy we will
    make sure you stay in business and we will make sure things go
    light for you. That’s not a wild guess it’s a definite. Here’s a
    guess, Paulson via Cheney to bank CEO’s… support democrats in 08 & remember the republican party in 2012.

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