A Tale of Two Settlements

Fri, Feb 10, 2012 - 8:03am

So yesterday, there were two big settlements: Greece, and the Mortgage Mess.

Completely independent of each other, both settlements not only happened on the same day, they happen to highlight two issues which ought to be bugging us all like cockroaches crawling through our underwear.

Issue One is how in both cases, the Too Big To Fail banksters won—and they won big. Again. Insofar as the mortgage settlement goes, they got what amounted to a speeding ticket, while getting a Get-Out-of-Jail-Free card on the worst of the robo-signing and illegal foreclosures scandal. And insofar as the Greek situation goes, the banksters have gotten the IMF, the ECB and the EC to essentially put the Greek people’s collective nuts in a vise and squeeze until they scream “θείος!” (“Uncle!”)

Issue Two is the mainstream media’s spin on these two settlements: How the completely cheerleadery, near-sycophancy of the MSM serves to both obscure how big the banksters won in both settlements, and to give us all a false sense of security. From the MSM, we hear that Greece has been “bailed out” and the Mortgage Mess has been “fixed”, and that the banksters are “getting their comeuppance”—so we get the false sense that the world is right as rain, and everything can slowly go back to normal.

But the world is not right. We will not be going back to normal any time soon. The banksters are not getting righteous justice.

Rather, the two settlements go to show how crony-corrupt our particular epoch’s Global Capitalism really is: The banksters rape the people of two countries, and the mainstream media cheers.

Let’s go over each of the two settlements, and pick apart their implications.

The Mortgage “Settlement”

The ballyhooed “Mortgage Settlement” is a big ol’ pile of crap—plain and simple. President Obama called the $25 billion deal the biggest settlement since the one with Big Tobacco—but that settlement, at $350 billion, was over ten times the size of this one. Actually, 14 times bigger, to be precise. And when you look at actual out-of-pocket costs (which I will below), you realize the Big Tobacco settlement was sixty times bigger.

And of course, the mortgage mess is a helluva lot bigger than the suits involving Big Tobacco.

To understand why the settlement is a steaming pile of shit, we have to understand two things: What the problem is, and what the settlement brings to the table to solve the problem.

This is the problem: About 20% of all homeowners are underwater, adding up to about $700 billion in negative equity in the U.S. housing market today. That is, if you add up the difference between what underwater homeowners owe on their mortgages and what they could realistically get in the current housing market, it totals $700 billion. On average, that’s about $50,000 per house.

Additionally, 750,000 people lost their homes to foreclosure between 2008 and 2011—of which many (most?) were processed improperly. Processed illegally, in many (most?) cases.

As to whether “many”, “most” or “all” of those foreclosures were processed merely improperly or in fact criminally, we’ll now never know: The settlement releases the banks from prosecution for these 750,000 foreclosures.

That was one part of the settlement: No Federal prosecutions.

The other part of the settlement was how much the banks had to pay. And that dollar figure is pathetic when you look at the headline number—but even worse when you look at the actual number.

The mortgage settlement totals just shy of $25 billion. But of that figure, only $5.8 billion is “fresh money”—that is, money that the banks have to put up out of pocket.

The rest is loan modifications—that is, changing one loan for another. Essentially an accounting move, not a cash-bleeding penalty.

So the banks are paying out—in total—a mere $5.8 billion, while they are getting bullet-proofed from Federal prosecution for all the mortgage shenanigans they were carrying out.

That is what the ballyhooed “Mortgage Settlement” comes down to: The Obama administration plea-bargained a serial killer down to a speeding ticket.

And insofar as the rest of the settlement money goes—the refinancing of about $19 billion—the refinancing marginally lowers the payments for some of the 14,000,000 homeowners who are underwater. Less than half actually, as the settlement does not cover mortgages held by Fannie Mae and Freddie Mac. But it guarantees that the banks have first dibs to recover their money, if and when some of these 14,000,000 homeowners begin to default.

(Yves Smith at naked capitalism has a much more detailed discussion of the financial implications of the settlement here. Her reporting and analysis have been the best in the business, insofar as the Mortgage Mess and this execrable settlement is concerned.)

In other words, the banksters won—again.

The most despicable part is how much the banksters will have to pay to those families whose homes were improperly—illegally—fraudulently—foreclosed upon:

The princely sum of between $1,500 and $2,000.

Now, I’m not saying that someone who didn’t keep up with their mortgage payments and lost their home to foreclosure should get their house back for free just because of faulty paperwork—I’m not saying that at all. Nor am I saying they should get a gazillion dollars from the bank for screwing up the paperwork in a foreclosure that was justified.

The problem is, a non-trivial number of those 750,000 lost their homes even though they were up to date on their payments. Hell, there were even cases where people who were foreclosed upon and had their homes taken away from them who did not owe a mortgage loan on their property. (Example here.)

All of this happened because of the foreclosure mills and the famed robo-signing. Banks declared a loan in default, fobbed off the property to a specialty law firm—a “foreclosure mill”—which then in turn hired minimum wage workers to illegally sign the documentation to carry out the foreclosures. That was “robo-signing”.

The robo-signing was forgery—plain and simple. It was fraud. The fact that many—perhaps even most—of these foreclosures were justified does not excuse the use of fraud to carry out the foreclosures. And the fact that a non-trivial number of those foreclosures were completely unjustified—and in some cases amounted to the bank stealing people’s homes—makes this settlement unconscionable.

With this settlement, there will be no more criminal prosecution—even for cases where the bank literally stole people’s houses!

All the bank has to do is pay between $1,500 and $2,000. For stealing your house.

Prosecuting the robo-signers would have led to prosecutions of the foreclosure mills—which would have led to prosecutions of the banks which pressured the foreclosure mills to hire the robo-signers—which would have meant jail-time for the bank executives who ordered this criminal activity.

That’s how prosecutors work: They go after the small-fry, then get ‘em to flip on the big-fry.

However, with this settlement, the banks are released from further investigation of robo-signing—and therefore, of the improperly foreclosed houses—and therefore, the executives who ordered these illegalities and ordered this fraud are bullet-proofed from prosecution—and thus shielded from their richly deserved jail-time.

Sure, New York’s Attorney General can still proceed with his suit of MERS, the mortgage service provider—but MERS doesn’t have deep pockets, and isn’t even really the instigator of this whole mess.

It was the Too Big To Fail banks, and the criminal banksters who lead them. They were the ones who should be prosecuted, tried, convicted, and jailed.

But the banksters got off scot free: Serial killers, who plea-bargained their way down to a speeding ticket.

The Greek “Bailout”

On March 20, Greece has to pay out roughly €15 billion, to cover maturing bonds. Of course, they don’t have €15 billion. So they need a bailout. Again.

Greece is broke—there’s no other way to put it. It has debts which total 160% of GDP. So they’ve been negotiating with the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission (EC), trying to get more money to avoid bankruptcy.

The Greeks want to avoid bankruptcy—while the Troika of the IMF, the ECB and the EC want to avoid a default. If there is a default, all sorts of events are triggered involving derivatives and other nasty pieces of financial weaponry, which will send the eurozone’s banking system into a tailspin.

Will the European financial system go bankrupt in the event of a Greek default? No one really knows—and no one really wants to find out.

So both sides have an incentive to sit at the table and reach an agreement.

However, because of the ongoing crisis, there is one inescapable problem that both parties are facing...

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