This is rich: a headline from our former paper of record:
U.S. Is Set to Sue a Dozen Big Banks Over Mortgages
Yes, that’s right: the Feds are casting a beady eye upon Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, “among others,” accusing them of “misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble.”
Really? Do you think so? The Feds have their knickers in a twist at the thought that these banks might have “failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified.”
You know what? I’ll bet you a nickel some banks did just that. And do you know why? Because Barney Frank (speaking of twisted knickers) told them they had to. Not Barney personally, perhaps. But agencies he spoke for, Fannie Mae & Freddie Mac, and the whole Community Reinvestment Act Swindle (CRAS for short).
Remember CRAS? I’ve written about this government property-expropriation program before in this space (e.g., here): the relevant datum in the context of the Feds’s search for a scapegoat is the fact that the program required banks to make risky loans. The buzz word was “affordable mortgages.” What it meant was “irresponsible lending, especially to favored ethnic groups.” We want the layabouts in the bad part of town to partake of “the American dream” of home ownership. They won’t work and save the requisite money, or live prudently enough to earn a good credit rating, so the government twists the rules and forces lenders to close their eyes and proffer the cash.
Mene mene tekel upharsin: the writing was on the wall a long time ago. More than a decade ago, in 2000, Howard Husock wrote this in City Journal: “Bank examiners would use federal home-loan data, broken down by neighborhood, income group, and race, to rate banks on performance. There would be no more A’s for effort. Only results—specific loans, specific levels of service—would count.” My emphasis. Make the loan or get fined.
And guess who was part of the enforcement squad? Yep. The chap known to one part of the population as President Downgrade, to another part as President Holiday: the White House golf champ: Mr. Zero-Job-Growth: the Alfred E. Neuman of Pennsylvania Avenue, Barack H. Obama — and no, mes amis, you who were just about to whine: “Don’t say Hussein! I hate it when you say ‘Barack Hussein Obama’ ” — I do not mean “Hussein” when I write “H.,” I mean “Hoover” as in Herbert Hoover, he of the last Depression. It was he — the imitation Jimmy Carter, but without the finese, or the patriotism — it was Barack Obama, then lawyer Obama, who sued Citibank on behalf of a client who charged that the bank “systematically denied mortgages to African-American applicants and others from minority neighborhoods.”
That was back when suing banks for properly adjudicating risk yielded political capital. Now what Obama needs is a distraction from the consequences of his staggeringly incompetent economic policies. So the banks he once sued for not making irresponsible loans he is now suing for getting with the program and handing out the cash — more than a $1 trillion of the stuff — to anyone who fit the profile.
It’s disgusting. It’s business as usual in Washington. And it’s the reason for the success tea party. There are a lot of people in Washington who should be polishing their resumes. Come November 2012, they’re going to have to find someone else to fleece.
Meanwhile, take a stroll down to your local bank. Look around. One of the little signs you’ll see posted is a notice informing you that the bank abides by the Community Reinvestment Act Swindle (also known as CRAP). It’s still in force, it’s just not talked about quite so much, now that the Feds are suing banks for making loans instead of refusing to make them.
Politicians blame everybody else for the problems they cause. These idiots will kill banking, as no one with an ounce of sense will risk buying the common stock of a banking enterprise anymore. The lenders will catch on, too. Recently a small Texas bank announced it was giving up its banking charter and selling its branches off. And then…
“Mr. Depping plans to set up a new lender that will operate beyond the reach of banking regulators—and the deposit-insurance safety net. Backed by the private investment firm of Microsoft Corp. co-founder Paul Allen, the company won’t be able to call itself a bank, but it will be able to do business the way Mr. Depping wants.”
Hey, we’re not a bank, we just take deposits and make loans. So Barney, Barack and the rest of the DC circus clowns, go to hell. Take your CRAP and stuff it.
There’s probably nothing wrong with this country that a big meteor hitting Washington DC wouldn’t fix.
Yesterday my bro-in-law called to ask for prayers … he worked for WaMu until they laid him off, about a year before they cratered. He’s being sued by FannieFreddie. Whatever happened to indemnification?
This contemplated lawsuit is a perfect opportunity for the banks to demonstrate the value of the counterclaim.
Right on Bill.
Hey Roger, the AEI Manhattan Institute line happens, with due respect, to be dead wrong on this. CRA didn’t do it. Or Barney Frank or housing policy. Self protective mythmaking aimed mostly at partisan swiping, sorry to say (but with a kernel of broad historical truth, for as conservatives rightly intuit, the real cause was the New Deal). The underlying cause was extreme regulatory failure, plus, quite arguably, fraud on the part of Wall St. This definitely ought to be litigated, as the nation needs the discovery process, as it is necessary to get the rules right for the future. Fannie seemed to legitimize securitization, then when it was “privatized” (this happened under LBJ by the way, not “Reagan”) Wall St. ran off with that process. Legally, it couldn’t. Fannie was an insurance program of the New Deal. Not an investment banking operation, even if what it did looked very much like that. (In the stock and bond situation, investment banking contains free market checks and balances inherent to that specific situation, if coupled with strong securities laws, which protect the markets against the very high potential for fraud whenever a lot of money and corporate complexity is involved). Wall St. knew this very well and clearly misled Congress and the regulators about it, and unfortunately Congress and our regulators are dumb, corrupt and out to lunch and thus not worthy counterparties in any deal-making with Wall St. But Wall St. is supposed to be the nation’s partner. Its regulation is in fact its golden goose, and license to steal, a gift from the nation. Having cheated the nation over the long term absolutely justifies suit against it and discovery about what Wall St. knew and when it knew it. Of course, it is also relevant what government knew or should have known, and in what it might be deemed contributorily negligent, or fully complicit. It is possible that Wall St. must be found “innocent” rather than culpable, because at every turn government entirely sanctioned Wall St. engaging in this illegitimate process with no regulation or scrutiny. Since after all they are the government and in theory can know and do anything they want to anyone whenever they want. And are so empowered under existing securities law.
The larger market concern is that since the New Deal restructured banks so that they would grow very big, via direct government subsidy of their industry, over time extending them an ever broader government guarantee of their ever more vertically and horizontally integrated business, that the banks themselves did not in fact understand what they were doing. (This I find hard to believe.) That implies that there may be a lot about our current financial system as a whole, that may be wrongly structured and out of control and subject to future collapse. Because the banks themselves are no longer competent, having been made so by a dumbing down process begun by FDR’s corporate welfare to those banks of the New Deal.