Why Are They Willing To Pay $26 Billion?

This just in from CNN:

In the largest deal ever to address the housing crisis, federal and state officials on Thursday announced a $26 billion foreclosure settlement with five of the largest home lenders.

The deal settles potential state charges alleging improper foreclosures based on “robosigning,” seizures made without proper paperwork.

Most of the relief will go to those who owe far more than their homes are worth, which is known as being underwater on the loans. That relief will come over the course of the next three years, with the banks having incentives to provide most of the relief in the next 12 months.

So why are the banks willing to pay $26 Billion?

Because they have made (and are going to continue to make) much more than that off their bad behavior.

Look, if I stole $100, I would have to pay back the $100… all of it.  If I hurt someone in the process, I would also have to give them extra money on top of paying them back – pay for the medical costs of the damage I caused, and more on top of that to attempt to compensate them for having made them suffer.

The banks, though are getting a deal.  They have stolen hundreds of billions of dollars through their “improper foreclosures”, caused untold pain and suffering… and they are only paying back part of the money.

This bad behavior is the same reason that corporations have paid more this year in lobbying than in taxes – it is more profitable to behave badly and pay a fine than it is to do the right thing; it is more profitable to pay lobbyists and taxes than to pay taxes alone. (Hell, their getting off is probably BECAUSE the corporations have paid more in lobbying than in taxes, too!)

And not even to the people they have hurt.

And now to add insult injury to injury.

About $20 billion of that $26 billion is set aside for loan forgiveness.  The banks are being required to forgive all or part of loans for people who are currently “underwater”. 

I bet you $20 billion that the lion’s share of that relief goes to the 1%.

What, mansions can’t be underwater?

Banks are going to prioritize the loan forgiveness to their best customers.

Here is what ought to happen:

  1. The banks should repay the full amount of their ill-gotten gains.
  2. They should compensate everyone whose home has been foreclosed on, everyone they overcharged for mortgage rates, everyone they provided predatory loans to.
  3. They should compensate everyone who was left holding the bag after
  4. The money should come first out of the pockets of every bank executive who has gotten a bonus in the last decade before it comes out of the companies themselves.  Bad behavior is performed by people, people should take responsibility for their actions.
  5. Companies and individuals who sold bad mortgage investments should pay back the investors they left holding the bag; hedge fund managers who bet against the crap they were selling should pay back their ill-gotten gains.
  6. Stockholders who profited from holding bank shares during the last decade should be made to repay their personal gains off the misery of others.*
  7. Once all of those sources are exhausted, then the companies should take the remainder out of their bottom lines.

* As a stockholder (indirectly through mutual funds), I recognize I would have to pay back some of the money I have made from my investments.  Really, would you want to keep money given to you if you found out the money had been stolen from someone else, someone who was having trouble affording food and medical care for their children?  Really?

Of course none of that is going to happen.  So, more realistically, here is what needs to happen:

  1. A more significant, substantial dollar amount, one that more accurately reflects the amount of their ill-gotten gains, needs to be found.
  2. The money needs to be guaranteed to benefit the portion of the population that isn’t making millions of dollars a year.
  3. The money needs to be directed as much as is possible to the specific people already hurt by the actions of the financial institutions.

It is the right thing to do.

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