What the Mortgage Deal Reveals About The Obama Administration

Edward Harrison here. I was reading Yves’ excellent post on The Top Twelve Reasons Why You Should Hate the Mortgage Settlement and I thought about a post I wrote a year ago on what this was all about. I am re-posting this post verbatim below but I just want to say a few words first.

Clearly, the Obama Administration is positioning itself for the 2012 general election. The goal is to do the right things and say just enough to make the Administration’s policies appear successful. The messaging is designed to build up a base from which to contrast Obama from the eventual Republican nominee in order to get out the vote. I doubt seriously that Obama’s people want any of these mortgage fraud initiatives to have teeth. After all, the President is going for the Super PAC money.

This is kabuki theater for the masses. it is designed to give those people inclined to vote for a Democrat a reason to do so in November, nothing more.

Original post from 8 Mar 2011 below


Yves Smith wrote a post this morning highlighting the $20 billion mortgage settlement the Obama Administration, the banks and the State Attorneys General are hashing out. Her conclusion is that this is this is a Bailout as Reward for Institutionalized Fraud. Read the post. It is quite good.

Here is my take.

The Administration has now moved into re-election mode. Uppermost in their mind is the need to demonstrate that they have taken the right policy steps on the economy all along. And this means making the recovery stick.

Obama’s economic agenda for re-election, Nov 2010

What that means is that there will be no foreclosure moratoria, and certainly no ‘fat cats on Wall Street‘ rhetoric. The Obama Administration is looking to cultivate a pro-business profile. This is why erstwhile Obama-basher and GE CEO Jeff Immelt has been brought on side as well. That’s also why Obama has brought Bill Daley into the tent as Chief of Staff. Call it the Jamie Dimon comeback – that’s what I am calling it. Call it whatever you like. The fact is the old Obama Administration already set policy early in 2009 and the new Obama Administration now has to defend it if the President wants to be re-elected, which he clearly does.

So, of course they are going to push for a mortgage settlement. As with the Goldman case this past summer, the number is eye-poppingly large enough to throw a bone to the anti-Wall Street crowd but small enough that it doesn’t jeopardize the still fragile US financial system. Bankers can continue business as usual. And that is the goal, of course. Remember Tim Geithner’s statement about the Administration’s needing to do "deeply unpopular, deeply hard to understand" things to right the economic ship?

I watched exceptionally capable people just get killed in the court of public opinion as they defended those policies on the Hill. This is a necessary part of the office, certainly in financial crises. I think this really says something important about the president, not about me. The test is whether you have people willing to do the things that are deeply unpopular, deeply hard to understand, knowing that they’re necessary to do and better than the alternatives.

More than ever, Tim Geithner runs the show for economic policy. He is the last man standing of the Old Obama team. Volcker, Summers, Orszag, and Romer are all gone. So Geithner’s vision of bailouts and settlements is the one that carries the most weight.

What is Geithner saying with his policies?

  • The financial system was on the verge of collapse. We all know that now – about US banks and European ones too. Fed Chair Ben Bernanke has said so as has Bank of England head Mervyn King. The WikiLeaks cables affirmed systemic insolvency as the real issue most demonstrably.
  • When presented with a choice of Japan or Sweden as the model for crisis resolution, the US felt the Japan banking crisis response was the best historical precedent. It is still unclear whether this was a political or an economic decision.
  • The most difficult political aspect of the banking crisis response was socialising bank losses. All banking crisis bailouts involve some form of loss socialisation and this is a policy which citizens find abhorrent. That’s what Geithner meant most directly about ‘deeply unpopular, deeply hard to understand’.
  • Using pro-inflationary monetary policy and fiscal stimulus, the U.S. can put this crisis in the rear view mirror. Low interest rates and a steep yield curve combined with bailouts, stress tests, dividend reductions and private capital will allow time to heal all wounds. That is the Geithner view.
  • Once the system is healthy again, it should expand. The reason you need to bail the banks out is that they have expansion opportunities abroad. As emerging markets develop more sophisticated financial markets, the Treasury secretary believes American banks are well positioned to profit. American finance can’t profit if you break up the banks.

I would argue that Tim Geithner believes we are almost at that final stage where the banks are now healthy enough to get bigger and take share in emerging markets. His view is that a more robust regulatory environment will keep things in check and prevent another financial crisis.

I hope this helps to explain why the Obama Administration is keen to get this $20 billion mortgage settlement done. The prevailing view in the Administration is that the U.S. is in a fragile but sustainable recovery. With emerging markets leading the economic recovery and U.S. banks on sounder footing, now is the time to resume the expansion of U.S. financial services. I should also add that given the balance sheet recession in the U.S., the only way banks can expand is via an expansion abroad.

I strongly disagree with this vision of America’s future economic development. But this is the road we are on.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com

68 comments

    1. Crazy Horse

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    2. nonclassical

      William K Black it is…no more bushbama…who never makes a move on the basis of ethics…(I haven’t perceived a non-political move from him yet).

      We all know how Malcolm would define him…

  1. kravitz

    Fortunately I live in a state where I don’t have to vote for Obama, or even do a protest vote against him. He’s a shoo-in here. So that campaign won’t miss my vote or donation.

  2. Richard

    This was a great post when it was initially posted. It clearly outlines what is wrong with the current policies as Japan is an abysmal failure.

    Your observation that the settlement is all about getting re-elected is spot on.

    It probably scared the heck out of the White House to see what the Super Pacs were able to achieve in the Republican primaries. They could see the handwriting on the wall and want to have a fully funded Super Pac of their own.

    The only way to achieve this is to give Wall Street what it wants (in the case of the settlement, Wall Street gets a release from prior bad action with an unenforceable promise to behave in the future) as Wall Street has any number of individuals and companies that could contribute enough to make a difference to a Super Pac.

    1. TK421

      It just amazes me: if Obama would do the right thing more often than not, enough people would support him for free that he would win re-election. Instead, he throws his base to the wolves in order to get money to convince his base to come back to him.

      1. Richard

        Absolutely. It would be nice if just once in a while we could get a politician who does the right thing not to angle for votes but because it is the right thing to do.

        1. alex

          “It would be nice if just once in a while we could get a politician who does the right thing not to angle for votes but because it is the right thing to do.”

          I have no problem with politicians “angling for votes”. In fact that’s what they should be doing. Pleasing as many voters as possible is what’s _supposed_ to get you (re)elected.

          The real problem is with the way this garbage is reported. If the MSM did half as good a job as Yves in pointing out what a bad deal this is, then people wouldn’t vote for Obama because of it.

          1. YankeeFrank

            Its not one or the other. If we had either principled politicians or a principled press things would be better. The problem is society-wide — a breakdown in morality and a huge expansion of what is considered acceptable behavior. Combine this with a massive propaganda complex and we have a perfect storm… the only thing that will stop this madness is if we overstep and are strongly rebuked. War against Iran may very well be that event.

          2. nonclassical

            ..did we miss the report yesterday that 4 world militaries have the capability to
            utilize-influence weather as a weapon…?

      2. John

        Obama has no intention of doing what is right for the people. That isn’t who he works for. So of course he has to play the game exactly the way he is playing it.

        And boy do the sheeple on the Left fall for it. Talk to them. Except for a few souls who follow what he is actually doing, they think he is working hard for them and being twarted by the evil Republicans.

      3. ChrisPacific

        The way to get to the top in the US political system is not by doing the right thing. It’s by doing whatever the wealthy lobby groups want, and spending the money gained thereby on spin and marketing to convince the public that the thing you just did was the right thing.

        Expect this settlement to be sold aggressively to the voting public as a Good Thing For You in the weeks and months to come. Throw enough money at it and it’s likely to work – it did for the Iraq invasion.

        The only antidote to this is a more informed electorate that thinks about what’s going on instead of just swallowing the official line. (That and reform of the political system, but that one comes back to an informed electorate as well as it’s not going to reform itself). Sites like NC and people like Yves and Ed are a crucial part of this.

  3. Jack M.Hoff

    As long as there’s another dollar to steal somewhere on planet earth, by god, we’ll make sure ‘our’ bankers get a crack at it. Right Timothy?

  4. Fraud Guy- Also

    Has there really even been a “settlement”?

    There is no settlement agreement yet. As I understand it, there is little more than a detailed term sheet. And a press release template. That’s the key part, the press release template. Regarding the legal mumbo jumbo, I’ve seen lots of deals fall apart, and certainly lots of deal terms change between term sheet finalization and actual contract finalization. Since the Obama administration has shown that they really, really want to get this deal inked, I fear that the banks are in a very strong position to re-trade term sheet deal terms in formulating the legally binding language.

    1. kris

      I doubt it.
      Schneiderman has stuck his neck out as tough guy. It would be suicidal for him at this point.
      I think there is no chance whatsoever that a legally binding agreement is signed and approved by a judge.

          1. Francois T

            This is what Missouri AG has done against DocX. Criminal charges.

            Will it allow further action against the TBTF banks? Rest assure that Obysmal will do whatever it takes for that NOT to happen.

      1. kravitz

        I’m still thinking a Judge will rip this for no admission of actual wrongdoing. No one has actually said that will be in the VapoWare Terms Document. And if it’s about releasing banks from robo-signing, and that’s what’s being released, how can ‘admit wrongdoing’ be missing?

    2. Yves Smith

      I’m going to write about this tonight.

      The massive PR push means the AGs have lost their ability to walk from a deal, no matter how stinky the fine points are. This deal is pro bank. The Administration clearly wants it, the banks want it, and the AGs gave up all their bargaining leverage.

      1. Carla

        We’ve got 350 million people, at least 300 million of whom would swear up and down that this is a FREE country — we’re living in a Democracy. After all, didn’t we elect an African American president?

        The orchestration of this ruse is so cynical it’s vomitous.

        Meanwhile, for the maybe 1 million or so American whose interests are actually being represented by the bought-and-paid-for-government this is hunky-dory. And the couple million hangers-on who serve the elite and enjoy some special privileges, they delude themselves that their interests are being represented, too.

        Okay, Yves, that leaves you and Edward Harrison and Bill Black with only 347 million to educate. Would it be possible to do tutorials (online, in person, conference calls) for community organizers?

        Each one, teach one. It seems like the only way.

        Oh, Yves, I forgot to say thank you. THANK YOU.

  5. kris

    Clarification
    I’m no specialist. I just read a lot about finance and gotten addicted to it. I spend few hours daily on reading about finance.

  6. Praedor

    I could have swallowed the so-called logic behind the listed Geithner/Administration arguments above IF the heads of all the banks were indicted, tried, jailed and forced to pay personal reparations. Since they were all rewarded instead, Geithner and Obama can kiss my ass. They are as guilty as the criminals in charge of “high finance” institutions.

    Also, the big banks can be broken up into smaller “too small to matter” organizations and still “benefit” by raping and pillaging the developing world. I will NEVER forgive the allowance and perpetuation of TBTF. NEVER.

  7. craazyman

    I do believe you are correct Ed.

    If somebody really thinks about history, and considers all the abuse heaped upon the weak by the strong, none of this stuff is all that bad, relatively speaking.

    I did the math. $25 billion divided by 50 million (households say) is about $500 each.

    The banksters get one last dig into the public purse at $500 per household. Then they go home, and the carnival reboots and moves to Asia and Eastern Europe and Africa, where the money/spirit expands more and more, breaking down nation/tribe/clan and transforming identity itself for good and for bad in the Big Id Cloud.

    This is a natural phenomenon of pysche that very few people truly understand. I don’t, but at least I know it’s there and it swims its energies in my head like the flashing of fish in a stream. If you’ve seen them, you know what I mean.

    1. Yves Smith

      You have not been paying attention! Go to the back of the classroom.

      This isn’t $25 billion from the banks. The cash portion is only $5.8 billion. And of that, the official air cover to write down $16 to $20 billion of MBS owned by investors, which will make the bank-owned seconds better, means that this deal is probably a NET PLUS to the banks.

      Some of the items are pure bullshit. Of the $7 billion in other forms of relief, $3 billion of that is forgiveness of deficiency judgments. Despite all the recent PR, banks only pursue even now a few borrowers to scare the rest. So they are gonna pick ones they’d never pursue anyhow and take credit for doing something they would have done anyhow.

      So the price to the banks is at most $100 per borrower, and more likely another transfer from private parties to them.

      1. craazyman

        I have already started drinking but I’m sober enough, still, to believe that I said the money comes from the U.S. public, not the banks.

        And why do I know that? Because I read your blog! hahahahahah

        But I’m saying the banks gouged the public at $500 per household. That’s my back of the envelope number. One last punch from the banksters just to remind us who’s boss.

        I’m also not counting the economic impact of their fraud, or the corrosion of social cooperation and faith in civil society.

        I can’t imagine myself in a class anywhere. I’d be disruptive or I’d fall asleep, unless the topic interested me. I can barely tolerate my office and I may get fired there because I can’t suffer fools very well.

        maybe I can come and work for you? :)

        1. Carla

          @craazyman: I got what you were saying. I think maybe Yves was reading fast and missed your point that the bucks for this feel-good lie of a mortgage settlement are coming, once again, from you and me. God damn.

      2. kris

        Madam
        A deal means that two parties agree on something they controls.
        If they are using 3rd party money, hence the so called deal is subject to lawsuits by these 3rd parties as you wrote in posts 1 or 2 days before “the deal”.
        Well, a deal subject to lawsuits is …..not a deal.

    2. reslez

      The banksters get one last dig into the public purse at $500 per household.

      I have no idea why you think this is the last dig.

      The banks aren’t going away or anything. There are still millions of houses to steal, pensions to plunder, and local businesses to shutter. This is just the beginning.

  8. Hugh

    All the lines about Obama being a socialist are quite funny and illustrate how warped, even inverted, our political discourse has become. He is at least as conservative as George Bush. He has afterall continued virtually all of Bush’s policies. You could even argue that he is more conservative than Bush since he expanded on Bush’s policies.

    As I have been writing recently, Obama’s favorite strategy is a long form of the bait and switch. He drags out debates and decisions for as long as possible and then settles, after various zigs and zags, for what we find, in retrospect, were his original terms.

    And as I wrote here yesterday:

    {Obama} does the same things over and over again. So if you want to know what an Obama second term will look like, look at the first.

    Obama will continue to support and cover for the banks, corporations, and rich in every way he can. He will do next to nothing on jobs or to help homeowners. Elite wrongdoing will not be investigated or prosecuted. He will continue to pursue the War on Terror with all of its satellite wars and special operations. He will continue to erode the financial security and Constitutional protections of the 99%. He will continue to push Cass Sunstein’s agenda of broad deregulation. And he will continue his attacks on Medicare and Social Security.

    The truth is that if either of the main party candidates wins in November, we will have a Republican President for the next 4 years. A President Romney or Gingrich or whoever will certainly be more annoying but it is hard to see how they could be any more conservative, pro-rich, and corporatist than Obama.

    1. kris

      Sir
      Obaman is no conservative. Since the first speed I heard on TV, I understood that that guy is collectivist. Not that I’m bright, I’ve just lived in communism for the first 19 years of my life in eastern europe until communism collapsed.I have hands on experience that americans or canadians do not have
      Simply put, he is a COLLECTIVIST, new breed of marxists.

      1. kris

        I should have checked spelling.

        Obama is no conservative. Since the first speech I heard on TV, I understood that the guy is a collectivist. Not that I’m bright, I’ve just lived in communism for the first 19 years of my life in eastern europe until communism collapsed.I have hands on experience that americans or canadians do not have
        Simply put, he is a COLLECTIVIST, new breed of marxists.

        1. aletheia33

          can you provide a little more background–country? leader/example of the collectivist you’re speaking of? characteristics of obama that fit with such eastern european leader(s)? thanks!

          1. kris

            Albania, but I’ve spoken with many eastern europians and we have a special bond – We all lived on food coupons from 1985-1990, much like food stamps.

            Very shortly putting it,the current big banks are NOT private banks. They can exist only if the government bails them out. Hence those banks like BAC, JPM, C, MS etc are GOVERNMENT BANKS UNDER PRIVATE MANAGEMENT much like Canadian Banks.
            Obama is not helping some “other” banks. Obama is forcing investors bail out government banks- I repeat again. The big banks are no longer private since they can’t live on their own.
            Fed Gov owns insures 90% of housing in USA, hence until these houses are paid off the government has a lien on them. Military is Gov Business that keeps alive Boeing, Lockheed Martin etc. All auto industry is dependent on Gov Funds and rebates. Health Care is nationalized. I don’t see much left for the private sector. Non existent.
            Pure and simple AUTHORITARIANISM, COLLECTIVISM. Give it any name you want, it’s just NOT CAPITALISM.

        2. YankeeFrank

          No, he is an authoritarian. He and his ilk believe they know what is best for the country, and are so massively arrogant that they will push us with whatever force they think necessary towards their goals. He and his ugly little troll-followers like Cass Sunstein think they are smarter than everyone else so they are justified in lying and deceiving for “the good of the nation”. They have no respect for democracy at all and do not believe the state is responsible for the welfare of the people. They are not collectivist in any socialist or communist sense. They believe strongly in a tiered society where the wealthy are coddled and protected and the general citizenry are kept under the boot.

          1. kris

            Authoritarian – It’s a term, but you’ve got to lay out and application. How is his authoritarianism implemented? How would you call the system he’s running?

          2. kris

            I gave it a 2nd read. Your description is very similar to FEUDALISM of middle ages. You may have a point. I’ve got to think about it.
            However, USA is the only western country where the population owns fire arms, at least 60% of population as far as I know.
            If your evaluation of the current structure is basically feudalism, then soon a revolution is coming. People own guns.

          3. Nathanael

            Feudalism is the right description as far as I can tell. We’ll see whether people will stand for it.

            I think if the 1% implemented feudalism PROPERLY, where the lords actually had some obligations to the serfs, where the serfs get fed and clothed and housed, they might get away with it.

            They aren’t doing that, they’re trying to implement late-stage feudalism where the serfs have no rights at all. I agree that people will not tolerate that, so I predict revolution.

        3. Doug Terpstra

          The collectivist label is so broad, it’s almost meaningless.

          Wikipedia: “According to Moyra Grant, in political philosophy ‘collectivism’ refers to any philosophy or system that puts any kind of group (such as a class, nation, race, society, state, etc.) before the individual. According to Encyclopædia Britannica, ‘collectivism has found varying degrees of expression in the 20th century in such movements as socialism, communism, and fascism. The least collectivist of these is social democracy, which seeks to reduce the perceived injustices of unrestrained capitalism by government regulation, redistribution of income, and varying degrees of planning and public ownership. In Communist systems collectivist economics are carried to their furthest extreme, with a minimum of private ownership and a maximum of planned economy.'” (emphasis added)

          So collectivism can apply to almost any “in-group” in any system, but Obama’s brand of “collectivism” is emphatically not Marxist or socialist; it’s narrow and it’s corporatist. He’s an ultra-elitist who believes in empire and the divine right of kings and aristocrats. His “in-group”, despite eloquent campaign lies and feigned empathy, is exclusively the one-percenters, period, and any redistributionism is strictly one way — UP.

          Per Wikipedia, “Corporatism refers to a form of collectivism that views the whole as being greater than the sum of its individual parts, and gives priority to group rights over individual rights.” Obama’s group, his tiny “whole” is Wall Street.

      2. oldsoul

        To Kris: Your reply explanation that the bailed out private banks are not private and are “government” owned is incisive. Thank you for sharing your insight from your life experience and observations.
        We, in the US, have missed this critical point. Our homes are being foreclosed by the government, using the names of banks as a front. Using the banks as a front to take our real estate assets distracts us from seeing the truth: that the banks are the current government. This unifying truth makes sense of the facts that there has been no regulation, no investigation, no prosecution and no convictions for what is just the tip of the iceberg: forged documents (a/k/a “robosigning”) which, if traced, would lead us back to the real party in interest in the property seizures, the real government of the US: the Federal Reserve Bank of New York and its 11 other tentacles spread throughout the nation.
        Having lived in the US all my life and having studied our monetary history in detail, I would take your observation one step further and say that it is the banks, through the private Federal Reserve, which are the goverment. They can take what they want, with impunity, because they are the real power of the government. Masked as private entities, this goverment of the banks has heretofore concealed the real identity of the entity committing violations of the US Constitution, i.e. taking of private property through fraud. This takeover of the US government by a private banking cartel has been meticulously planned and executed for over 100 years.
        The fraud settlement will ratify the method of the takeover.
        Colonel Edward Mandell House, an advisor to President Woodrow Wilson (the President who signed the Federal Reserve Act and the creation of the IRS into law) boldly described the scheme to enslave the USA over the last 100 years: “[Very] soon, every American will be required to register their biological property in a national system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will effect our security as a chargeback for our fiat paper currency. Every American will be forced to register or suffer being unable to work and earn a living. They will be our chattel, and we will hold the security interest over them forever, by operation of the law merchant under the scheme of secured transactions.
        Americans, by unknowingly or unwittingly delivering the bills of lading to us will be rendered bankrupt and insolvent, forever to remain economic slaves through taxation, secured by their pledges. They will be stripped of their rights and given a commercial value designed to make us a profit and they will be none the wiser, for not one man in a million could ever figure our plans and, if by accident one or two should figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debt to the registrants in the form of benefits and privileges. This will inevitably reap to us huge profits beyond our wildest expectations and leave every American a contributor to this fraud which we will call “Social Insurance.” Without realizing it, every American will insure us for any loss we may incur and in this manner, every American will unknowingly be our servant, however begrudgingly. The people will become helpless and without any hope for their redemption and, we will employ the high office of the President of our dummy corporation to foment this plot against America.”
        IT IS DONE.

        1. aletheia33

          please, you are not helping. i bet you even think edward mandell house was really a colonel. the only source for this quote i can find in google books is from the book mel stamper, fruit from a poisonous tree, which claims this quote is from woodrow wilson’s personal papers but with no attribution. in fact, the book has no bibliography. until shown otherwise, i can only conclude that, not that differently from the latest “robo-settlement” (h/t Mikent)–with its new robo-website created by “no one” willing to take credit for it–said book is, as people used to say, “nothing but a pack of lies.”

          attribution! citation! documentation! these are some of the bones of democracy, such as we always thought we had a bit of, anyway. attribution is required, at least on this site, for credibility. libraries, the last i checked (and i know this may not hold for much longer) are free of access to all, and many librarians (remember the occupy libraries, before the evictions?) are passionate about keeping that freedom.

          i suggest you do a little research. find that quote in wilson’s papers. contact the woodrow wilson presidential library. you’ll find a librarian willing to help you, i guarantee it. this is a quest worth undertaking. come back here when you’ve got the goods. if you can show this passage exists on actual paper or microfilm thereof, your information will be welcomed here with open arms.

          to the history-minded nc readers: can you provide a link to where a u.s. history scholar has established the source or nonexistence of this supposed quotation? is none has, one should. this quote is all over the internet. where’s the verification?

          side note: is the level of paranoia in a given society a reliable indicator of its level of collective trust and transparency of officialdom (love that word transparency–has anyone ever actually seen (through) that beast? doesn’t matter–it’s so great for signaling to skeptical progressives that you’re as sophisticated as they are and you “really get” what they’re so upset about).

          enough. forgive the rant. i really should not comment here before i have my breakfast and food has soothed the angry beast.

          1. kris

            Right now there is a merging of Banks and State.
            In Russia there is a merging of Commodity Owners and State. They call it OLIGARCHY.
            Similarly, in USA, it can be called BANKING OLIGARCHY.

  9. Dan Lynch

    Ed: “I strongly disagree with this vision of America’s future economic development. But this is the road we are on.”

    I don’t find it a very helpful article. So Geithner is running the show, and Geithner wants to help the banks. IS THIS NEWS ?

    “This is kabuki theater for the masses.” But is it working ? Thanks to Yves, there’s a significant backlash to this bailout.

  10. Cheyenne

    EH–

    Thank you for a beautifully written piece in the center of a bulls eye.

    I have but one suggested edit:

    Tim Geithner runs the show [].

  11. Tom Crowl

    My simple question for Mr. Geithner:

    Why would he believe the rest of the world would be interested in U.S. Financial Services?

    Especially with their disastrous record.

    Wake-up… they’ll develop their own ‘financial services’… and then, like manufacturing… we’ll lose that ball game too!

    Gutless politicians and a dis-empowered public.

    If only the public could effectively scream their dis-satisfaction?

    The Chagora Model: Scaling Speech

    Issues in Scaling Civilization: The Altruism Problem

  12. Rebel Cole

    There is another dark side of this robo-deal.

    John Prior at HousingWire is reporting that BofA settled its claims with the FHA for $1 billion, so that BofA can now present more than $25 billion in delinquent FHA-insured mortgages that it had to repurchase from investors to the FHA for payment (check the financial supplements to the Q4 earnings report or the FRY9s).

    JPM, WFC and Citi also have large exposures and likely got similar deals.

    Remember that last year Justice sued Deutsche Bank under the False Claims Act for presenting delinquent mortgages to
    the FHA for payment when they weren’t properly underwritten.

    This is a $50 billion bailout that will bankrupt the FHA.

    So much for “no more bailouts.”

  13. DavidE

    I may be cynical but I think the settlement is just for show. It’s a way that Obama and Company can say “look how we got $20 billion for you. In truth, the settlement does almost nothing for the underwater homeowners that couldn’t have been accomplished by those homeowners themselves.

    The homeowners have to be willing to play hardball. If they go for the Obama/Holder deal, they are not taking full advantage of their position.

    Let’s say that you own a property with a $250,000 fair market value and a mortgage of $400,000. What is the bank really giving up by taking $75,000 off of your mortgage? In my view, not much because to the extent a homeowner is underwater, the bank is just another unsecured creditor. So the banks have to make deals to reduce principal in order to convince people not to default.

    So this entire deal is completely phony and almost like a sales pitch for refinancings that the banks are doing anyway. The homeowner has to take full advantage of the fact that the bank is essentially an unsecured creditor for much of the debt that they owe.

    That means don’t call up the bank and ask about a refinancing under Obama/Holder. It’s time to play hardball. Threaten a default. Threaten Chapter 7 banruptcy after a default if the homeowner’s income qualifies them for that option. Take full advantage of the fact that the bank is in a very weak negotiating position because they can’t foreclose without losing a lot of money.

    1. Carla

      DavidE: “I may be cynical but I think the settlement is just for show.”

      Excuse me, DavidE, have you been reading this blog? Or did you just tune in to read a couple of comments?

      If you so choose, you can educate yourself, right here on NC. It’s challenging, but hey, where else can an adult get a free education? Take advantage of it, man!

    2. Bad Butch

      “they can’t foreclose without losing a lot of money.”
      False. Every one of the predatory attacks had insurance+, moving the balance to the other side of the sheet means no loss. Why in the f#$k do you think they are so aggressively foreclosing?

  14. Sam

    Why is that nobody seems to take the position that while the banks as institutions may be to big to fail, the individuals that have turned these institutions into criminal enterprises could have been prosecuted without causing a single ripple in the banking system.

    1. Doug Terpstra

      Bingo,Sam! But NC has made that point abundantly clear many times. The institutions themselves, their rank-and-file capability and function, need not be destroyed, only the leadership that recklessly and criminally looted and wielded great institutions as weapons of mass destruction. The leaders should go to the proverbial guillotine, while the institutions are resolved in receivership and reconstituted under new leadership.

      We needed neutron bombs in the penthouses. Instead, Obama protected and rewarded all of the original perpetrators, and even worse brought them into the high seats of power in government, just as he immunized and all the war criminals of the prior admin and even elevated some to oversee expansion of new wars.

  15. Fraud Guy- Also

    WHAT??!!!!!!!!!!!!

    All the claims that origination liability was not being released by yesterday’s settlement, and here we have HUD announcing a BILLION dollar settlement with Countrywide over defrauding the FHA insurance pool. I know FOR A FACT that Countrywide’s likely liability was many multiples of this.

    What a brazen lie the government engaged in yesterday in saying they were not releasing origination liability. And nobody reported it in the mainstream press.

    http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2012/HUDNo.12-026

    HUD No. 12-026
    United States Attorney
    Eastern District of New York
    271 Cadman Plaza East
    Brooklyn, New York 11201
    Contact: Robert Nardoza
    United States Attorney’s Office
    (718) 254-6323

    FOR RELEASE
    Thursday
    February 9, 2012
    $1 BILLION TO BE PAID BY THE BANK OF AMERICA
    TO THE UNITED STATES LARGEST FALSE CLAIMS ACT SETTLEMENT RELATING TO MORTGAGE FRAUD

    Agreement Resolves the United States’ Civil Claims that Bank of America, Through its Countrywide Financial Subsidiaries, Defrauded the Federal Housing Administration by Recklessly and Fraudulently Underwriting Loans to Unqualified Borrowers

    Agreement Also Resolves Claims Involving Home Affordable Modification Program

    As part of the global resolution between the United States of America and the five largest mortgage servicing banks in the country, which will bring much needed relief to financially distressed homeowners nationwide, Loretta E. Lynch, United States Attorney for the Eastern District of New York, today announced that the government will also resolve its claims against the Bank of America, Countrywide Financial Corporation and certain Countrywide subsidiaries and affiliates (Countrywide) for underwriting and origination mortgage fraud.

    Since 2009, the office has been investigating the Bank of America’s lending practices to determine whether the bank, through Countrywide, which the bank acquired in 2008, knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers. To date, the FHA has incurred hundreds of millions of dollars in damages as a result of this conduct. The investigation also encompassed allegations that the bank and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals. During the investigation, the office determined that the bank’s conduct provides a basis for affirmative civil enforcement under, among other legal remedies, the False Claims Act, 31 U.S.C. §§ 3729-33.

    As part of the global settlement, Bank of America will pay $1 billion to resolve the wrongdoing uncovered during the office’s investigation. The settlement will entail an immediate payment of $500 million to provide a recovery for the harm done to the FHA by Countrywide’s conduct. Payment of the second $500 million will be deferred to fund a loan modification program for Countrywide borrowers across the nation with underwater mortgages. Under the terms of the program, Bank of America will solicit all potentially eligible borrowers and provide a loan modification to anyone with an eligible mortgage who accepts the offer. If, after the expiration of three years, the bank has not met its obligation to apply the full $500 million to provide such relief, any remainder will be paid directly to the United States.

    “We announce today the largest ever False Claims Act settlement relating to mortgage fraud. Through their underwriting and origination of tens of thousands of government-insured loans to unqualified borrowers, Countrywide Financial subsidiaries systematically abused the Federal Housing Administration and became some of the main players in this country’s financial crisis. We are committed to protecting the FHA’s ability to provide assistance to qualified low income and first-time home-buyers, and this settlement goes a long way toward that end. It also puts lenders on notice that they will face serious financial consequences for violating their obligations under the FHA’s programs,” stated United States Attorney Lynch.

    Ms. Lynch expressed her grateful appreciation for the assistance provided by Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD); Helen Kanovsky, General Counsel for HUD; David Montoya, Inspector General for HUD; and Julie Shaffer, Director of the HUD Philadelphia Home Ownership Center.

    “It is fundamental that lending institutions that earn the authority to directly endorse FHA-insured mortgages apply our standards,” said HUD Secretary Donovan. “This is the largest false claims act settlement related to mortgage fraud and will not only compensate FHA but will also ensure assistance for homeowners who have been harmed by Countrywide.”

    “This agreement is demonstrative, and should serve as a model, of what results can be achieved when agencies of the United States Government join forces in a united effort to combat fraud in the FHA insured mortgage program,” said Inspector General Montoya. “OIG staff served IG subpoenas, conducted multiple interviews, reviewed loan files, and worked closely with the U.S. Attorney’s office in developing this case.” He further added, “I am appreciative of the tenacity with which the Assistant United States Attorneys approached this matter, the expertise and effort of my OIG auditors, investigators and legal team, and the assistance of the HUD Office of General Counsel and its Office of Program Enforcement and Philadelphia Home Ownership Center throughout this endeavor.”

    The settlement announced today also resolves the office’s investigation, conducted with the Special Inspector General for the Troubled Asset Relief Program and the Inspector General for the Federal Housing Finance Agency, of allegations that Bank of America defrauded the government by failing to determine the eligibility of homeowners to participate in the government’s Home Affordable Modification Program. Ms. Lynch thanked Christy L. Romero, Acting Special Inspector General for the Troubled Asset Relief Program, and Steve A. Linick, the Inspector General for the Federal Housing Finance Agency, for their assistance in this investigation.

    The Eastern District’s investigation was conducted by Assistant United States Attorneys Richard K. Hayes and Kenneth M. Abell, Affirmative Civil Enforcement Auditor Emily Rosenthal, Senior Trial Counsel, Commercial Litigation Branch, United States Department of Justice, William C. Edgar, and Trial Attorney, Commercial Litigation Branch, United States Department of Justice, John Warshawsky.

    The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: http://www.stopfraud.gov.

  16. AGK

    You better get rid of this cocksucker and deal with the pseudo-banks before they get vaporised.. literally.

  17. Fiver

    I was deeply suspicious of Obama’s enthusiasm for the original bailout (among other things), but it was appointing Geithner that sealed it in my mind – game over for WS reform in the first 5 minutes of the match.

    Supposing Geithner is not leaving because he thinks it’s going to blow in the second term (I think it is), and believes the US recovery is assured, I don’t think he’s hanging it on only the reasons cited. I think we’re going to see a relative strength based rise that he (and orthodoxy) will mistake for confirmation of the “first to react, first to emerge” theory with a boost from the Fed this year. But it just won’t have the kick to pull up the global economy, and without that, it’s D-2.

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