Over the last year, the Administration has entered into a series of bank settlements over various types of mortgage misconduct. The sudden rush to generate headlines from misdeeds that have been covered in the media in lurid detail during and after the crisis looks an awful lot like an effort to stem continuing criticism over the abject failure to punish banks and more important, their execs for blowing up the global economy for fun and profit, particularly since the Dems are at serious risk of losing control of the Senate in the Congressional midterms.
But as much as the media dutifully amplifies the multibillion headline value of these pacts, we’ve reminded readers again and again that all of these agreements have substantial non-cash portions which are ludicrously treated as if they have the same value as cold, hard cash. As we’ve reminded readers often, it’s critical to keep your eye on the real money, since the rest of the total is almost without exception things the bank would have done anyhow (or even better, giving banks credit for costs actually borne by others, like modifying mortgages that the bank merely services, meaning the bank gets a credit for a writedown imposed on an investor).
A telling trend in this rash of deal-making is that the bullshit to cash ratio has been rising. Notice the pattern:
November 2013 JP Morgan settlement of FHFA, other Federal, and certain state mortgage claims. $13 billion headline value. $9 billion in cash. Bullshit to cash ratio: 44.4%
July 2014 Citigroup mortgage settlement over misrepresenting residential mortgage backed securities. $7 billion headline value. Cash portion $4.5 billion. Bullshit to cash ratio: 55.6%
August 2014 Bank of America settlement. $17 billion headline value. Cash portion $9 billion. Bullshit to cash ratio: 88.9%
Now admittedly, none of these approach the mother of all bullshit settlements, namely, the Federal/49 state mortgage settlement of early 2012, whose real purpose was to take pesky state attorneys generals out of the business of getting too inquisitive about mortgage chain of title issues, which Georgetown Law professor Adam Levitin more colorfully called “securitization fail”. The totals kept moving around prior to the filing of the settlements with each bank, and by then, the media had lost interest in the particulars. Since these pacts are really all about managing public perception rather than punishing bank crimes, the rough and ready figures touted at time of the initial announcement are most germane.
February 2012, Federal/49 state mortgage settlement. $25 billion headline value. “Less than $5 billion” in cash, so charitably call it $5 billion. Bullshit to cash ratio: 400%.
The difference between the much-ballyhooed Federal/state settlement and the latest round is their intent. The Federal/state deal was a “get out of liability for almost free” card, a cynical effort to paper over the still-festering rot of the failure to handle mortgage securitizations in accordance with their carefully crafted and rigid contracts, along with related, widespread foreclosure abuses. By contrast, the latest round of settlements deals with misconduct that even though the banks are getting off on the cheap again, the underlying abuses don’t strike at the heart of the too big to fail mortgage securitization complex. So the Administration can feign being a little more bloody-minded. Even so, the greater and greater proportion in recent deals of funny money relative to real dough show that this is simply another variant of an exercise in optics.
Update 12:20 PM: The deal was announced this morning. The final bullshit to cash ratio is less bad than the initially leaked level, but still worse than other recent deals.
August 2014 Bank of America settlement. $16.65 billion headline value. Cash portion $9.65 billion. Bullshit to cash ratio: 72.5%