By **Les Leopold**
American families are fortunate to have Elizabeth Warren on their side, along with the 50 state attorney generals who are demanding reparations from the nation’s largest banks.
Warren, who is the temporary head of the Consumer Financial Protection Bureau (a quasi independent agency housed in the not-so-friendly Treasury Department) and these AGs are demanding justice. It’s about time.
They want the big banks to pay dearly for the fraud they’ve perpetrated on potential homeowners in the form of robo-signings, lost titles, forged documents, phantom fees, willfully mismanaged loan modifications and a slew of other ruses even Kafka couldn’t imagine. Most of these homeowners are underwater&8212;their homes worth less than their mortgages&8212and many are unable to meet their payments. All have seen the value of their homes plummet.
Well, aren’t these deadbeats getting what they deserve for taking on mortgages they couldn’t afford? To be sure, in the mix there are some speculators and crooks who were lying and flipping their way through the bubble. But the vast majority of homeowners in trouble are true victims of the 2008 Wall Street crash that killed eight million jobs in a matter of months. The big banks, now accused of fraudulent foreclosure procedures, are the same ones who puffed up the housing bubble, polluted the financial system with toxic assets, and nearly sent us back to the Great Depression. These banks helped put in motion the entire cavalcade of disastrous processes that crashed the value of homes all over the country. At this point it should be clear that too-big-to-fail banks are at the core of the problem and they owe us big-time.
This week in a confidential presentation for the AGs, Warren reveals that the banks’ malfeasance had a hidden design. She calculates that the five big banks (JP Morgan Chase, CitiGroup, Bank of America, Wells Fargo and Ally Financial) saved about $20 billion over the last three years by not hiring enough staff to properly process the tens of thousands of loan modifications and foreclosures.
Think about that for a moment. We’re in the worst jobs crisis since the 1930s and these banks had the chutzpah to amass another $20 billion by inadequately staffing up to deal with the foreclosure crisis they created in the first place? Instead, they reached into their grab-bag of spurious “financial innovations” and came up with technologies like robo-signings to process thousands of claims a month with only an emaciated skeleton crew. And, of course, they only stopped when they got caught.
Not only are Warren and the AGs (good name for a rock group) demanding $30 billion in reparations, they also want these banks to create thousands of jobs right now to properly process the foreclosures and loan modifications. How refreshing! Government officials are demanding that the rich and powerful pay for the damage they have done AND create jobs. That’s quite a contrast from the deficit hawks who refuse to tax the rich and instead lay off teachers by the thousands.
Warren and the AGs are also calling for a settlement that forces the banks to change their entire foreclosure process. They want bank staff to be rewarded for processing successful loan modifications instead of pushing people through foreclosures. They want systems in place so that titles don’t vanish into the black hole of securitization, and that unjustified penalties don’t get foisted onto homeowners in distress. And best of all, they are insisting that these banks make millions of loan modifications that might cost these five banks up to $135 billion. Now we’re talking real justice.
But don’t we already have a federal loan modification program in effect? We do, but, it’s another sad example of “government sucks.” When too-big-to fail banks were on their knees begging for TARP funds, both the Bush and Obama administrations could have easily forced them to modify millions of mortgages. After all, the government not only was bailing out the banks but also was willing to chip in for the modifications. Instead, Wall Street-friendly government officials ever so gently instituted a voluntary program where it was up to the banks to decide when and where to modify loans using the federal funds. (Mustn’t upset our fragile banks that suffered so much stress when their gambling schemes collapsed.)
So instead of reaching 4 million distressed homeowners who had the means to work out successful modifications, only 607,000 homeowners were helped. And a billion dollars of federal money sits unspent with the Treasury Department targeted for destruction by the deficit hawks.
Warren and the AGs are not about to make the same mistake. The big banks violated the law during their rigged procedures. Therefore the AGs have negotiating power and they intend to use it—to protect us instead of the banks.
We’re in the worst jobs crisis since the 1930s and these banks had the chutzpah to amass another $20 billion by inadequately staffing up to deal with the foreclosure crisis they created in the first place?
Not so fast. The dark side of government is doing all it can to protect the banks from Warren and the AGs. The Treasury Department (which should be renamed “Wall Street Lite”) wants a smaller penalty—$5 billion—and much less interference into banking processes. Here’s how Michael Powell and Andrew Martin assessed the situation in the New York Times:
“In private conversations, senior Treasury officials offer an often-heard critique: Homeowners failed the program. That is, Americans were in far worse shape—jobless, underwater on mortgages and with terrible credit—than anyone realized in 2009.”
Daily encounters in county courthouses suggest this is overstated. Homeowners bring in foot-high piles of paper documenting income, credit reports and loan payments. Some missed a payment or two, but many are not deadbeats.
Yet they cannot obtain a modification.
Republicans, of course, are going apoplectic over Warren’s involvement with the AGs. They’ll be hauling her before committee after committee in a futile attempt at intimidation. (They haven’t yet figured out how to haul her to Gitmo as a financial terrorist.)
Then there’s the Obama administration along with far too many Democrats who have their fingers high up in the wind waiting to see how much political capital and campaign donations from Wall Street they’ll be putting at risk if they support Warren’s efforts.
And of course, the opposition will try to muddy the waters by shifting the issue to whether or not Warren and the AGs are overstepping their bounds. There will be talk about how big government intrusions into the private sector will cripple our fragile banks, and so on. You’ve heard it all before.
But it won’t be so easy. The AGs have enough evidence of criminal activity to force a settlement and the banks will pay. The only questions are how much and how tough the reforms will be.
This really is one of those clear “which side are you on” moments. And it’s not about Warren, the person, although she’s terrific. It’s about the very essence of government.
There was a time, not so long ago, when government service was considered a high calling. Protecting the common good from those who tried to foul it or steal from it was considered far more worthy than a high-paying job in high finance.
Win or lose, Warren and the AGs still represent that calling. And for that we should be very grateful. Let’s hope that someday soon their sense of integrity and guts will go viral.
Copyright 2011 Les Leopold
This post originally appeared at Alternet.Org.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York.