Crime in High Places

The Obama administration is busy making sure the crime pays.

They are pushing for a "deal" which will give the banks a slap on the wrist and get them out of the threat of hundreds of billions of lawsuits over the fraud and corrupt practices behind the mortgage securitization bonanza that led to the 2008 bank panic. Here is a bit from a post by Matt Taibbi in his Rolling Stone blog:

A power play is underway in the foreclosure arena, according to the New York Times.

On the one side is Eric Schneiderman, the New York Attorney General, who is conducting his own investigation into the era of securitizations – the practice of chopping up assets like mortgages and converting them into saleable securities – that led up to the financial crisis of 2007-2008.

On the other side is the Obama administration, all the banks, and, now, apparently, all the other state attorneys general.

This second camp has all gotten together, put their heads together, and cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.

The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.

This deal is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with some stability and certainty, so that they know exactly how much they’ll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.

This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would “toward loan modifications and possibly counseling for homeowners,” as Gretchen Morgenson reported the other day.

The banks, however, apparently “balked” at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.

To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.

So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup , will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.

The corruption and fraud is breath-taking in its extend and depth. This is what Obama wants to paper over and give the banks absolution for:

The issue goes beyond fraudulent paperwork to an intentional, far-reaching theft scheme designed to take junk subprime loans and disguise them as AAA-rated investments. The banks lent money to corrupt companies like Countrywide, who made masses of bad loans and immediately sold them back to the banks. The banks in turn hid the crappiness of these loans via certain poorly-understood nuances in the securitization process – this is almost certainly where Scheniderman’s investigators are looking – before hawking the resultant securities as AAA-rated gold to fools in places like the Florida state pension fund.

They did this for years, systematically, working hand in hand in a wink-nudge arrangement with clearly criminal enterprises like Countrywide and New Century, with the victims being millions of investors worldwide (like the pensioners who saw their funds drop in value) and hundreds of thousands of individual homeowners, who were often sold trick loans and often hustled into foreclosure when unexpected rate hikes kicked in.

Obama is contending with Warren G. Harding as the most corrupt president in US history:

My theory is that the Obama administration is trying to secure its 2012 campaign war chest with this settlement deal. If he can make this foreclosure thing go away for the banks, you can bet he’ll win the contributions battle against the Republicans next summer. Which is good for him, I guess, but it seems to me that it might be time to wonder if is this the most disappointing president we’ve ever had.

The Democratic party must find a challenger for Obama in the 2012 primaries, otherwise the American public has no real choice between two pro-Wall Street parties whose only competition is how fast they can give away taxpayer dollars to the ultra-rich and the big corporations.