Jewish World Review Nov 15, 2011 / 18 Mar-Cheshvan 5772
Mr. President, Stop the Great Bank Heist
By Ed Koch
A New York Times editorial of November 9, 2011 sounded the alarm concerning what I would refer to as the Great Bank Heist. The robbery, however, is not of the banks, but by them, with the Obama administration, I regret to say, helping them, in effect, to rob the public.
We recognized early this year that, though many public officials -- including state attorneys general, members of Congress and the Obama administration -- have delved into aspects of the bubble and crash, we needed a more comprehensive investigation before the financial institutions at the heart of the crisis are granted broad releases from liability.
The Times editorial describes why Eric Schneiderman, Beau Biden and Kamala D. Harris, Attorney General of California, have refused to join the 47 other attorneys general who have agreed to the settlement. The Times editorial stated,
The proposed settlement reportedly would prevent the states from pursuing claims against banks relating to fraud or abuse in the origination of loans during the bubble. (In some states, the statute of limitations has expired for bringing challenges for faulty originations but not on all loans in all states.) It would also prevent states from pursuing claims for foreclosure abuses, like improper denial of loan modifications. And it would prevent them from pursuing banks' misconduct in their dealings with the Mortgage Electronic Registration Systems database, or MERS, a land registry system implicated in bubble-era violations of tax, trust and property law. The proposal would not preclude the states from pursuing the banks for wrongdoing in the repackaging and marketing of loans as mortgage-backed securities. But, as a practical matter, the ability to fully press such claims -- and to achieve significant redress -- could be impeded or blocked by the other constraints. Once one avenue of inquiry is closed off, it can be difficult to ascertain what happened along other points in the mortgage chain. In effect, the legal waivers being contemplated would let the banks pay up to sweep wrongdoing under the rug.
The statement of Schneiderman and Biden makes a similar point, stating:
All 50 state attorneys general teamed up with federal agencies last fall to focus on the last of these four areas[a reference to different claims against the banks]. As our colleagues seek to settle these servicing-related issues, the financial institutions on the other side of the negotiating table have predictably sought releases that are as broad as possible from future liabilities, delaying the process. We look forward to doing whatever it takes to obtain servicing reforms -- whether through a negotiated deal with banks or through regulations issued by the federal Consumer Financial Protection Bureau. But we will not release claims that we are currently investigating, including securitization, origination and MERS. Reforming the servicing of mortgages is crucial. But these servicing abuses did not create the mortgage bubble. Robo-signing did not blow up the U.S. economy. Rather, these are symptoms of a more far-reaching and insidious problem. The American people deserve a full investigation and public exposure of the conduct that got us into the economic quagmire we face today. We must ensure that it never happens again. And we must restore public confidence that ours is a nation committed to the goal of equal justice for all.
Hopefully, the three attorneys general opposing the proposed settlement will hold fast. Why is the Obama administration seeking to assist the banks and endangering the broader claims that exist against those banks? Why wouldn't the public be better served by having the trials expose the banks chicanery and fraud? By pushing for the limited settlement, the U.S. government is aiding what in effect is a cover-up of the banks' misdeeds. Why hasn't the Obama administration supported legislation that would give bankruptcy judges the power to reduce the principal of a mortgage or at the very least, allow the mortgage in question to be reduced to an amount that approximates current values, so that properties described as "underwater" -- worth less than the mortgage -- would be retained by current owners?
One of the greatest of the Obama administration's failures is its reluctance to assist homeowners while continuing to aid the banks.
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JWR contributor Edward I. Koch, the former mayor of New York, can be heard on Bloomberg Radio (WBBR 1130 AM) every Sunday from 9-10 am . Comment by clicking here.
© 2011, Ed Koch