States Let Banks Off

The mortgage settlement between 49 states' attorney generals and the banks may sound large--$26 billion--but its peanuts for the big banks whose misfeasance in the sub-prime mortgage market led to a worldwide financial crisis that still reverberates through western economies. All the corporate news markets have details, so go there for a run down. What readers of this post should know is:

• no criminal prosecutions for fraud or admissions of wrong doing;
• only $17 billion for principal write down to borrowers who are facing foreclosure compared to total negative equity of $700 billion;
• the banks already have reserves set aside for the deal achieved with the help of near zero interest funds from the Federal Reserve;
• only $5 billion of payments is from banks, the rest is from securitized loans;
• restitution for fraudulent loan documentation (60% error rate in one sampling) has been priced at $1500-2000 per loan foreclosed on between September 2008 and December 2011, a fraction of the average loan amount of $180,000 or about 1% of the outstanding loan balances.

In short, it stinks as the banks' rising stock prices will tell you. Former Special Assistant U.S. Attorney Cynthia Kouril commented,"The court system will be permanently corrupted by forged and perjurious documents. This settlement is an incredible breach of the social contract between the government and the governed." Equally incredibly, Oklahoma's attorney general did not sign up for the deal because he thinks the banks should not face any penalties. With regulators like that in office, who needs laws?