Mike Lux has worked for the Obama administration, posts here on occasion, and blogs at the Huffington Post. I"ve been a fan of Mike since I found him on OpenLeft, a now defunct site once run by Dkos' own Chris Bowers.
Mike has a column/post out today, posted at Crooks and Liars, entitled Obama on Banking: The Worst Deal They Could Cut.
The whole thing is worth the read, but I think this is the part that every Kossack should definitely read, think about, and weigh in on.
But if the administration rams through this ultimate in Wall Street sweetheart deals — a laughably pocket change fine combined with “credit” for what they would have done anyway, at the expense for a get out of jail free card for 1 million counts of perjury and a wide range of other potential fraud [emphasis added] — they will have zero credibility to run as the tough on Wall Street candidate. ZERO. . . .
This makes no sense. For example, for the Obama administration to be leaning so hard on California Attorney General Kamala Harris to sign off on this is truly politically suicidal, both for them and for her after she so strongly announced she was pulling out a couple of weeks ago. Yet they continue to push her. Why are they pushing so hard for this? It all boils down to Treasury Secretary Tim Geithner. It is apparent that Geithner believes the only thing that matters in terms of fixing the economy is to keep the big banks in good financial shape, which is ironic given that in public he claims that everything is fine with the banking sector now. Given the mistakes some of these big banks made in the housing bubble era, keeping some of them afloat has been a heavy lift, but Geithner is determined to keep these banks whole. If that means massive bailouts, that's the price we have to pay. If that means 10,000,000 foreclosures and 25 percent or more homeowners underwater, that's okay too. If it means slow-walking resolution authority for Citibank in spite of the President's orders to take it over and start to sell off its assets, okay. If it means continued 9 percent unemployment, it's what we have to do. And if it means waiving legal liability for 1 million counts of perjury and all kinds of other fraud, whatever. [snip]
I have banged away on this topic with my old friends in the administration for a while, which is why I feel like I have no other choice to go public with this. But the cult of Geithner seems to reign supreme inside this administration. No matter how much damage Geithner’s policies will do to this President, the administration is still following his lead. [snip]
This is high-stakes drama, folks. Pay close attention to what happens next, because it may well determine the fate of both the American economy for the next 10 years and the 2012 election. Let's hope the Obama administration gets some sense on this issue, because by continuing on the path they are with this deal to once again bail out the banks from their own law breaking and incompetence, they are in danger of destroying all the good things they have done to shore themselves up politically these last couple of months. The political folks like Dave Plouffe need to understand the policy Tim Geithner is pushing is in direct contradiction with their political strategy of taking on Wall Street and will blow up badly in their faces. You can’t give the Wall Street guys the ultimate sweetheart deal, and then try to run against Wall Street, or run as fighting for the middle class. As my old boss Bill Clinton used to say, that dog just won’t hunt.
What has Mike so exercised? Remember that whole 50-State settlement thing, whereby the banks are supposed to agree to provide $25-30 Billion in mortgage write-down relief, in exchange for limited immunity from prosecution for industry-wide mortgage fraud? Well, while you and I weren't looking, it's changed.
As things stand, the settlement, said to total about $25 billion, would cost banks very little in actual cash — $3.5 billion to $5 billion. A dozen or so financial companies would contribute that money. The rest — an estimated $20 billion — would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.
Sure, $5 billion in cash isn’t nada. But government officials have held out this deal as the penalty for years of what they saw as unlawful foreclosure practices. A few billion spread among a dozen or so institutions wouldn’t seem a heavy burden, especially when considering the harm that was done. [Snip]
Still, a mountain of troubled mortgages would not be covered by this deal. Borrowers with loans held by Fannie Mae and Freddie Mac would be excluded, for example. Only loans that the banks hold on their books or that they service for investors would be involved.
Perhaps most important, will the banks change the terms of loans enough to ensure that borrowers can actually meet their obligations over time? Or will these modifications default again, as is often the case? If so, the banks will have received a lucrative credit, even though borrowers fall back into trouble.
The deal being discussed now may also release the big banks that are members of MERS, the electronic mortgage registry, from the threat of some future legal liability for actions involving that organization.
Source: Gretchen Morgenson at the NYT.
Just to make it clear: Now it's supposed to be $3.5 to 5 Billion, instead of $25-30 Billion, which would only have covered about 5% of the estimated shortfalls anyway, and the rest will provide a benefit TO THE BANK in the form of "credits," i.e., tax credits. Where would the offsets for the lost tax revenues come from? Obviously, from other taxpayers, i.e., the 99%. That's right, this deal is becoming not a homeowner's mortgage relief deal, but rather, another backdoor bailout for the banking industry.
You know, I haven't checked the President's schedule, but if he's making any public appearances at which he is taking questions from the public, and if there are any Kossack's able to attend and just happen to get the chance to ask a question, I would hope somebody would ask him:
"When you claim you are trying to help the middle class, how do you expect to have any credibility, at all, when your administration continues to bail out the banking industry, provide the industry with immunity from prosecution, and provide little or no actual relief to all those who have been defrauded by the banking industry? Why should I vote for you, if you, a Harvard law professor, won't stand up for value of the rule of law?"
By way of contrast, consider what's happening in Greece, right now:
The Greek government faced possible collapse on Tuesday as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.
Caught unawares by his high-risk gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.
Papandreou, whose party has suffered several defections as it pushes waves of austerity through parliament despite mass protests, said he needed wider political backing for the budget cuts and structural reforms demanded by international lenders.
Source: HuffPo. Worth the read, if only to laugh at the shock of the conservatives and bankers at the audacity of Papandreou for considering the fact that his country may be on the verge of revolution.
Huh, that's a novel idea. Consult with the voting public on whether or not to engage in even more austerity, in order to pay for more bailouts. Wonder how that would turn out here?
UPDATE 1: Thought I should include a reference to Robert Reich's column, also at HuffPo, which has just gone up since I published this one here. Robert Reich.
Which do you trust more: democracy or financial markets?
Greek Prime Minister George Papandreou decided in favor of democracy yesterday when he announced a national referendum on the draconian budget cuts Europe and the IMF are demanding from Greece in return for bailing it out. [snip]
If Greeks accept the bailout terms, unemployment will rise even further in Greece, public services will be cut more than they have already, the Greek economy will contract, and the standard of living of most Greeks will deteriorate further.
If Greeks reject the terms and the nation defaults, it will face far higher borrowing costs in the future. This may reduce the standard of living of most Greeks, too. But it doesn't have to. Without the austerity measures the rest of Europe and the IMF are demanding, the Greek economy has a better chance of growing and more Greeks are likely to find jobs.
Shouldn't Greeks be able to make this decision for themselves? [snip]
We've been here before, remember? Here in the United States, at the end of 2008 and start of 2009. Wall Street had made lots of bad loans, and the question we faced then was whether to bail out the Street. [snip]
But Americans weren't really consulted. It was an inside job. [snip]
So which is it? Rule by democracy or by financial markets? Based on what's happened in America, I'd choose the former.
Really, it too is worth the read. And as I'm listening to the radio, seems like "The Street" is panicking now that Papandreou isn't just going to blindly do their bidding.
Sooner or later, the house of cards has to collapse. "Debt that can't be repaid, won't be repaid." And if the whole house of cards is all based on the requirement that unpayable debts must be repaid, the system has to change or collapse. One of the two.
3:18 PM PT: Obligatory "Top of the Wreck List" WOOT! Thanks to Mike Lux, for writing such an important piece, the people of Greece for standing up for Democracy, and to all who've read and recced.
OTOH, Tim Geithner, thanks for nothing. Less than nothing. Jack S**t. Go Soak your head in a bucket. Of Lye. And, it's almost time to go pick up the kids, so I won't be able to stay and reply to comments much longer. On a happier note, I am proud to report that the boys won 1st Place in Popcorn Sales for their Cub Scout Troop! WOOOOHOOOOO!
4:12 PM PT: Okay, there're some interesting comments I wish I had time to respond to, but I'm late picking up the progeny as is. Carry on. That is all.
Wed Nov 02, 2011 at 8:16 AM PT: Wow! Thought this would have faded off the list overnight, but I guess I must have struck a nerve with a lot of folks. Lots of comments to review, then I'll try to address what I can, but I'm also at work, so responses may be slow. Thanks to everyone for taking the time to read and discuss.
Wed Nov 02, 2011 at 8:25 AM PT: Kossack wytcld points out that the President is not a Harvard Law Professor, but rather, graduated from Harvard Law School (Editor of the Law Review) and was a Professor of Constitutional Law at the University of Chicago. I tend to conflate the two, i.e., that he is a Harvard graduate and a Professor of Constitutional Law, but that is factually inaccurate. I apologize for any confusion.
Wed Nov 02, 2011 at 9:03 AM PT: Want to respond to a general theme that seems to be popping up, the debate over whether it is President Obama's responsibility, or Secretary Geithner. I regard this largely as red herring, personally. As I understand it, Ron Suskind's book makes it look as though the President is basically incompetent and unable to rein in T.G. Others take the view that T.G. is acting on the President's "real" agenda. To me, the distinction is immaterial. I hate T.G. for his obvious dedication to preserving a fraudulent system at all costs; whether the President supports that agenda, or is too weak, whatever, to overrule his Secretary or ask for his resignation, the effect is the same, and I don't necessarily care about his "true" agenda. But he won't put a stop to the corruption, and regardless of why, he, as the President, bears the responsibility for that failure.