It is notorious that politicians only care about two things, tomorrow’s headline and the next election. If you want a good example of what that leads to consider the bank “settlement” announced yesterday by President Obama and a bunch of state attorneys general.
The headline is great, the noble politicians forcing the big bad bankers to cough up $26 billion to help the downtrodden. It probably won’t hurt on November 6th either. Of course the money doesn’t come from the big, bad bankers. It comes from their shareholders, for the most part perfectly ordinary citizens saving for their retirement. In other words, it’s an income transfer from the disfavored to the favored for the benefit of politicians claiming to act for the benefit of the people.
To be sure, there were mistakes made and sloppy procedures allowed when the banks were faced with an unprecedented avalanche of defaulting mortgages. And these lapses were dealt with in the usual—and proper—way. Bank regulators moved in, audited the books, required the banks to change their procedures, and fined the banks a total of $394 million.
This settlement is wholly a political, not a regulatory act. Corporations are largely defenseless against such a move, as the mainstream media can be counted on to be pro-government and anti-bank. When Ohio Attorney General Richard Cordray said that the banks were “a business model based on fraud,” the media reported it straight. All too often, the media’s idea of being fair and balanced is to offer the banks an opportunity to prove that they did not commit fraud—in 30 words or less, please. But how many banks have been indicted for fraud over the mortgage mess? Exactly none.
Of the $26 billion, only $1.5 billion will go to homeowners who actually lost their homes through improper foreclosure procedures. That money will be shared by about 750,000 families, each receiving a less-than-princely $1500 to $2000. Most of the rest will go to people who will have their total mortgage debt reduced or have their mortgages refinanced at lower interest rates. Even the New York Times reporters covering the story, were not much impressed: “Economists do not expect a big boost for the economy, in part because the banks have three years to distribute the aid. Some experts questioned whether the accord would do much to stabilize the housing market and its glut of millions of foreclosed homes.”
And Fannie and Freddie, whose business models were at the heart of the mortgage crisis? Well, they’re now back in the hands of the government. Sticking it to them would cost not stockholders but the government money. So while they hold about half the total number of mortgages outstanding, they get a pass. If your mortgage is held by Citibank, you might get a windfall. If it’s held by Fannie Mae, tough luck.
In short, welcome to a glimpse of the wonderful world President Obama would like to see the United States transformed into. It will be a world where the few will act as self-appointed and largely unaccountable fiduciaries for the many.