Too Big For Justice

The too big to fail banks are still in cahoots with their regulators. That’s the message coming loud and clear from the Justice Department’s highly touted $315 million deal with Bank of America to settle racial discriminatory lending charges.

The charges stem from the actions of Countrywide, the subprime lending giant, which was bought by Bank of America after the housing collapse.

The Justice Department’s publicity offensive, labeling the deal “historic” can’t hide the stink emanating from it. Shame on the New York Times for swallowing the Justice Department’s propaganda whole.

The Justice Department concluded that Countrywide charged 200,000 minority borrowers across the country higher rates and fees than white borrowers. Countrywide also steered 10,000 minority borrowers into costlier subprime loans when similar white borrowers got traditional loans.

While $315 million sounds big in a headline, for the bankers, it’s just part of the cost of doing business, less a punishment than the latest favor in the bailout that doesn’t end.

Bank of America, which received $45 billion in bailout funds, admits no wrongdoing in the deal. Victims would get between $1,000 and $1,600 apiece under the deal.

The deal also allows Bank of America to hire its own monitor to keep track of whether the bankers live up to their Justice Department agreement.

Regulators typically whine that they just don’t have the resources to take on the banks at trial.

Regulators argue that they could never get their targets to settlements if they had to wring admissions of wrongdoing from their targets, because those admissions would be used against those targets by other litigants in future lawsuits.

Without the settlements, the crack Justice Department lawyers would be forced to, horror of horrors, try their case in court.

The reasonable response from taxpayers should be: So what? Life is hard. Do your job, which is to hold lawbreakers accountable, not make their lives easier.

The Bank of America deal is only the latest to highlight the lower standard of justice prosecutors have applied to banks. Prosecutors have become part of the government’s team whose main goal Is propping up the banks. Meanwhile, the Obama administration has yet to come up with a decent, functioning program to stem the ongoing fraud in foreclosures, or to help the substantial numbers of homeowners facing foreclosure.

According to news reports, the Justice Department has another six discriminatory lending investigations cooking. This agency would be a good target for future actions

The Bank of America deal also highlights why a strong Occupy movement is needed, outside the traditional political system: neither party, nor the president, will fight for one of the most basic notions of democracy: that lawbreakers, especially the most powerful, should not receive favorable treatment from authorities.

You can read a slightly more sympathetic rundown of the Bank of America deal here, a more skeptical take here.

 

 

Bank of America (BoA) / Martin Column / Too Big To Fail - 12/22/2011

SEC TO Mozilo: Fraud Pays

The SEC is at it again. They’re bragging that the agency nailed the largest penalty of its kind in history against the king of the subprime lenders for defrauding his shareholders.

And no doubt, $65 million dollars sounds like a lot of money.

But when you remember how much money Angelo Mozilo raked in during his reign, and when you break down the details of the SEC fine, it doesn’t add up.

It certainly doesn’t add up to much in the way of punishing Mozilo.

As usual when the SEC settles the civil charges it files, Mozilo and his two former colleagues admitted no wrongdoing as part of their settlement.

The SEC accused Mozilo, the butcher’s son who rose to be the president of Countrywide, of keeping from shareholders his fears that his collection of subprime loans was trash while reassuring his stockholders that everything was hunky-dory.

Federal prosecutors are still poking around in the ashes of Countrywide, and maybe they will come up with something.

But so far here’s the scorecard on Mozilo: the SEC said he received $141.7 million as a result of fraud and insider trading. They fined him $22.5 million.

As the Center for Public Integrity points out, that means he has give back just 16 cents of every ill-gotten dollar he got.

In addition, the SEC touts the $45 million that Mozilo will have to turn over to Bank of America shareholders, though that money won’t come out of Mozilo’s very deep pockets. That will come from his insurer and the company that bought Countrywide, Bank of America.

The fines seem even slighter when you contemplate what Mozilo was paid in his days as master of the universe.

In his time as executive chairman of Countrywide between 1999 and 2008, he was paid a total of $410 million in salary, bonuses and stock options.

In 2007, when the company’s stock tanked, dropping from $40 to under $10, Mozilo had an off-year too. He was only paid $10.8 million.

In perspective, this doesn’t seem like much for the SEC to brag about. Sixteen cents on the dollar certainly isn’t going to strike fear into the heart of any business titan.

Martin Column / Securities and Exchange Commission (SEC) - 10/19/2010

The Credit Wolves Stalk South-Central

Before they fell into a costly cycle of subprime refinancing, Harold and Patricia King could afford to live in their modest two-bedroom home in south-central Los Angeles. They had paid $17,500 for it in 1968 with the help of a low-interest G.I loan.They raised two children and two grandchildren there. Harold retired in 1994 after 30 years on General Motors’ assembly line. His wife retired a few years later from her clerical job with the school district. They had a monthly fixed income of $2,900 and a fixed monthly mortgage payment of less than $1,000. They could handle it.

Unlike some who were able to take advantage of the cash they squeezed from the value of their homes, the Kings have little more than financial devastation to show for it. They refinanced 10 times — eight times between 2000 and 2006 — through various financial institutions. They wound up with more than a half million dollars in debt and payments more than their monthly income. Earlier this year they joined the more than 1 million other homeowners across the country that face foreclosure.

While we’ve seen and heard lots of stories of families suffering through losing homes they could never actually afford, the King’s saga puts into sharp focus one of the overlooked aspects of the on-going foreclosure crisis –many homeowners who had traditional– and affordable – mortgage loans were sold into subprime hell via refinancing deals.

In its 2006 study, “Losing Ground,” the Center for Responsible Lending found that between 1998 and 2006, “the majority of subprime loans have been refinances rather than purchase mortgages to buy homes,” and that homeowners who repeatedly refinance face a higher likelihood of facing foreclosure.

In February, the Kings packed their belongings in boxes, preparing for the loss of their long-time home. But they decided to fight for the home they’ve lived in for more than 40 years.  With the help of their lawyer, they’ve been able to stave off foreclosure, at least through the rest of the year. They’ve gone on the offense, suing their most recent lenders earlier this year for fraud and elder abuse.

Tracking the complex cast of characters and institutions with key roles on the business side of the Kings’ plight also offers a stark reminder that the explosive growth in subprime created vast wealth that never trickled down to hard-hit communities like south-central Los Angeles, a once-vibrant largely African-American and Latino neighborhood increasingly blighted by the lasting marks of the severe recession – high unemployment and high rates of foreclosure.

Take for example Deutsch Bank, which bought the MortgageIT firm that provided one of their Kings’ refinancings. In 2009, the banking giant increased its compensation to its executive board nine-fold over the previous year, led by the bank’s president, who was paid $13 million. Deutsch Bank’s path through the rocky financial crisis was helped along by its share of more than $50 billion it got in funds from the taxpayer bailout–funds the federal government paid to insurance giant AIG, which were then passed on to AIG’s clients – what has been labeled the “back-door bailout.”

The Kings also crossed paths with a lesser-known firm called Green Tree, which at one time was hired to act as the servicer on their loan – collecting the Kings’ mortgage payments every month. Founded by Lawrence Coss, a former car salesman, the firm had made a fortune in the 1990s by loaning money to people to buy mobile homes. Around the time Harold King was retiring from GM, Coss was drawing attention as the country’s highest-paid executive, winning a $69 million bonus ­– the largest bonus of all time when it was awarded in 1996. The following year he did even better, with a $102 million bonus. However, the fat profits that got Coss the bonus later turned out to be a mirage, built from bundles of risky loans and shaky accounting. Coss had to give some of his bonus back but managed to hang onto his ranches and philanthropic foundation. If anybody had been paying attention back in 2001, the unraveling of Green Tree’s business could have provided an early warning signal of the problems to come.

But in places like south-central Los Angeles, the country’s financial institutions were on a lending spree.  The Kings originally borrowed some money against their equity to supplement their retirement income. But then a series of lenders decided that the retired couple on a fixed income were good candidates for much larger refinancing.  What they offered the Kings were adjustable-interest rate loans with low teaser rates and exorbitant closing costs, fees and prepayment penalties. The Kings readily acknowledge now that they are financially unsophisticated and didn’t understand what they were getting themselves into. The deeper they went into debt the worse they felt.

“I felt guilty; I didn’t want to discuss it,” Patricia King says now. “I knew that something was deeply wrong. You hope for the best. But nothing good ever happened.”

Eventually lenders told the Kings that they needed to find somebody with better credit if they wanted to refinance their home. They brought in their 35-year-old grandson Antonio, who at the time worked at the Coca-Cola bottling plant.

According to the Kings’ lawsuit, Antonio King informed lenders that his monthly income was $3,700 a month, but when the broker or lender prepared the application, it showed his monthly income as $10,200 a month. The application, submitted on Antonio King’s behalf, also exaggerated the value of the home, from $154,000 to $540,000.  The Kings’ lawyer, Philip Koebel said of their grandson: “He threw himself to the credit wolves.”

Koebel said Antionio King found an ad for what sounded like an attractive new loan with a monthly payment of about $1,000 a month.

The Kings didn’t understand that they were getting into a negative amortization loan. The Kings were told that they would save $1,000.00 per month in comparison to a conventional mortgage if they made the minimum payment. They were not told that the minimum payment didn't even cover the interest. They were not told that the difference would be added to the principal of their mortgage and that they would be charged additional interest on the ever increasing balance of their mortgage.

With the money they got, the Kings paid off the previous loan. But they couldn’t keep up with the new payments. Antonio tried to work out a loan modification but Green Tree, which was servicing the loan,  “was not interested in making the loan affordable to the Kings,” according to their lawsuit.  Eventually Antonio filed bankruptcy in an effort to save his grandparents’ house. His 80-year old grandfather mows lawns in the neighborhood to bring in a couple of hundred dollars a month.

The lenders have fought to have the Kings lawsuit thrown out, so far unsuccessfully. In court papers their defense lawyers characterize the lawsuit as nothing more than “vague allegations and broad generalizations.” The Kings, they say, were “reaping the rewards of the strong housing market at the time and taking cash-out payment after cash-out payment each time they refinanced the loans.”

The Kings “were clearly very familiar with the loan refinancing process,” the lenders’ lawyers contend.

Like many others, the Kings didn’t see that the world had fundamentally changed, Koebel said. “Once a mortgage loan had been a relatively simple matter; a talk with a banker and a fixed payment for life. They’re not supposed to put your home at risk.”

Foreclosures / Martin Column - 08/09/2010

Consumer Protection, Fed Style

One of the big unsettled issues for the congressional conference committee considering financial reform is whether to create an independent financial consumer protection agency.

That’s what the House bill does. The argument for an independent agency is that consumers need a strong advocate in the financial marketplace.

The Senate decided that an independent consumer financial watchdog wasn’t needed, and that the consumer financial protector should live in, of all places, the Federal Reserve. After all, the Fed already has responsibilities to “implement major laws concerning consumer credit.” We all know how well that worked out.

The problem is that the Fed has functioned as a protector of the big banks, never more so than since the big bank bailout and in the battle over financial reform.

Despite promises for greater transparency, the Fed has repeatedly resisted attempts to get it to disclose all the favors it’s done for financial institutions since the bailout. If the Fed had put up half the fight against bank secrecy that it’s waged on behalf of bank secrets, consumers would never have been subjected to all those lousy subprime loans.

It is telling that no actual consumers or consumer organizations actually think that housing consumer protection inside the Fed is a good idea. Who does? The big banks and the Fed.

For those who still need convincing that a Fed-housed consumer protection agency is a bad idea, the Fed has provided a more recent example of what it means by consumer protection.

Last month it unveiled a database that’s supposed to help people choose the most appropriate credit card.

The database might be useful to professional researchers but provides little that would be of use to ordinary consumers. It presents the credit card statements by company but provides no other search functions, such as comparing credit cards by interest rates or fees.

Some of the presentation suggests that the information was dumped onto the Fed’s website without much thought. Bill Allison, who is editorial director of the Sunlight Foundation, a non-profit organization that digitizes government data and creates online tools to make it accessible to readers, said the following:

“I don't think there's anything wrong with posting it, but this is obviously not data you can search,” Allison told Bailout Sleuth.

He also pointed out that some of the agreements themselves aren't particularly informative. He cited the entry for Barclays Bank Delaware, which notes that the bank may assess fees for late payments and returned checks. “The current amounts of such Account Fees are stated in the Supplement,” the agreement reads.

But that supplement is not contained in the Fed's database. The Fed promises to go back and refine its database. But if they’re not devoting the resources to get this right now, with their ability to protect consumers under the microscope, do you really expect they’ll do better later?

An independent consumer protector is not simply some technicality to be bargained away. We’ve learned from the bubble and its aftermath that consumers need all the help they can get. Contact your congressperson and tell them you’re still paying attention to the reform fight. Check out your congressperson and see if they’re on the conference committee. If they are, your voice is especially important. While you’re at it, contact the president and remind him we won’t settle for any more watering down of financial reform.

Action / Federal Reserve / Financial Reform Legislation / Martin Column - 06/02/2010

Around the Web: How a Big Bank Shows Its Gratitude

While the mainstream press has focused on the dubious notion that the Citibank bailout will turn out to be a good deal for taxpayers, the Center for Media and Democracy tallies up the real cost of the entire bailout so far: $4.6 trillion, with $2 trillion outstanding.

Most of that money comes from the Federal Reserve, not the Troubled Asset Relief Program, which amounts to a measly $700 million. The Fed bank dole is handled in complete secrecy, which is why Bloomberg News is suing to get the Fed to open its books, which got the WheresOurMoney treatment here.

As for Citibank and the supposed bonanza for taxpayers, Dean Baker takes it apart in this Beat the Press column. In any case, Citibank is eternally gratefully to taxpayers. Here’s how they’re showing it.

Get out the popcorn. Phil Angelides’ Financial Crisis Inquiry Commission is gearing up for another round of hearings April 7 through 9, this one on subprime loans and scheduled to feature former Fed chair Alan Greenspan, who before the bubble burst, used to take pride in being able to obfuscate any economic issue. If Angelides thought Goldman’s CEO was like a salesman peddling faulty cars, I wonder what he makes of Greenspan, who worshipped the financial deregulation that made the wreck not only possible, but probable.

Angelides meanwhile, appears to be playing down expectations for the FCIC, kvetching to the Wall Street Journal’s editorial board about the small size of the panel’s budget ($8 million) and short time frame (final report due in December).

While everybody was bowing down to Greenspan, they should have been listening to Harry Markopolos, the man who was tried to blow the whistle on Bernie Madoff but was repeatedly ignored by the SEC. Now he’s written a book. He doesn’t think the SEC has improved much.  Russell Mokhiber has a good interview with Markopolos in his Corporate Crime Reporter.

Around the Web / Federal Reserve / Financial Crisis Inquiry Commission / Securities and Exchange Commission (SEC) - 04/01/2010

Sympathy For The Devil

After all the poor bankers have been through, they can’t even go to Chicago for their annual conference and enjoy their Roaring 20s cocktail party without having to contend with a bunch of protestors.

What do these protestors want, for Pete’s sake?
It wasn’t like the bankers were partying and playing golf the whole time. A hundred of the more than 1,500 in attendance took time off to help fix up a house they had foreclosed on.

Martin Column - 10/29/2009