In a
little-noticed post last week, Matt Taibbi made the following observation (my emphasis throughout):
[T]his settlement is not about getting money from the banks. The deal being contemplated is actually the opposite: a giant bailout.
In fact, any federal foreclosure settlement along the lines of what’s been proposed will amount to a last round of post-2008-crisis bailouts. I talked to one foreclosure activist over the weekend who put it this way: “[The AG settlement] will be a bigger bailout than TARP.”
How is this possible? Aren't the banks supposed to pay as a result of this "deal"? Taibbi again:
Any foreclosure settlement will allow the banks to pay one relatively small bill to cover all of their legal liabilities stemming from the monstrous frauds they all practiced in the years leading up to the 2008 crash (and even afterward), when they all schemed to create great masses of dicey/junk subprime loans and then disguise them as AAA-rated paper [note that this is fraud] for sale to big private investors and institutions like state pension funds and union funds.
I emphasized "all of their legal liabilities" to expand on it. Here's Taibbi's list of the groups who were cheated:
[A]ny “AG settlement” might allow the banks to avoid legal damages being sought from three different set of enraged creditors: the public institutions who invested in these sham securities, the private investors who did the same, and the localities [thousands of county collectors] who were cheated out of their taxes [recording fees].
For just one of those categories, private investors who were knowingly sold junk, just one bank, Bank of America,
has already settled with just 22 customer, to the tune of $8.5 billion — almost half of the money the AGs under
Iowa's Tom Miller want to "extract" from all banks in the settlement. According to the Times story linked above, that settlement alone "would wipe out all of the company’s earnings in the first half of this year".
The article also notes that BofA "could face a total of $25 billion of losses from the soured mortgages" — which Taibbi correctly observes is already more than the AGs want from
all affected banks, in the aggregate, to pay out. That aggregation includes a lot more than just BofA; add in JPMorgan Chase, Citigroup, and Wells Fargo.
And that's just a settlement, often ten cents on each dollar of actual liability. Taibbi adds:
In fact, the settlement amount in that case was just 2% of the face value of the loans when they were securitized ($424 billion), and represented just 4% of the principal still outstanding ($221 billion). ... [M]inus a settlement, Bank of America – one bank -- had a potential liability of $424 billion just from its Countrywide holdings! And it got off for $8.5 billion, a major victory.
Consider the aggregate of all affected banks, all private investors, and all unreduced liabilities. The numbers are beyond staggering — possibly in the trillions.
And yet that's just one class of defraudees, private investors. Taibbi also tabulates the bill owed to the second class of investors — public agencies also defrauded, the FHFA, state pension funds, union pension funds and the like. Again,
staggering numbers.
As to the third class, county tax collectors, he notes that
one county has sued the banks so-called recording facility (MERS) for $22 million, and another has sued for $50–100 million. That's two counties. How many counties are there, do you think, that could make such claims?
Add those three classes of the defrauded, and the numbers, as Matt noted at the start, are "bigger than TARP" by far.
Taibbi thinks the AG "deal" (gift) will ultimately go through. (Read to
see his reasoning.) Sad day if it does.
Maybe someone should
Occupy Wall Street or something.
GP
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