A couple of weeks ago, Treasury Secretary Timothy Geithner
said that "dramatic enforcement actions" against Wall Street would be coming, only to be greeted with skepticism.
That reaction turned out to be pretty well-founded last week, when details of the foreclosure fraud settlement the administration has been negotiating emerged.
Cutting to the chase: if you thought this was the deal that would hold banks accountable for filing phony documents in courts, foreclosing without showing they had the legal right to do so and generally running roughshod over anyone who opposed them, you are likely to be disappointed.
This may not qualify as a shock. Accountability has been mostly A.W.O.L. in the aftermath of the 2008 financial crisis. A handful of state attorneys general became so troubled by the direction this deal was taking that they dropped out of the talks. Officials from Delaware, New York, Massachusetts and Nevada feared that the settlement would preclude further investigations, and would wind up being a gift to the banks.
It looks as if they were right to worry. 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.
Mike Lux, an administration supporter and transition team staffer from 2008-09, has a must-read reaction to this story at Crooks and Liars. In short, it's a crappy deal, typical of the "dirty sweetheart deals for wealthy and powerful special interests" that happen all the time in Washington. But it's the kind of deal that could doom a presidency, he argues.
[I]n the short run, if housing stays dead and more than a quarter of homeowners stay underwater in their mortgages, this economy will not start producing significant numbers of new jobs, because the housing problems are so big they will drown everything else out. And giving away so much of the legal leverage we have over these bankers without negotiating to force them to write down those underwater mortgages will guarantee us a dead economy for many years to come. Welcome to Japan's Lost Decade, squared.
It would be bad enough for Obama to make this economic decision that will likely ensure jobs don't start picking up before next year's election. Even worse for him, though, is the deadliest, most toxic political situation this puts him in. [...] [I]f 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—they will have zero credibility to run as the tough on Wall Street candidate. ZERO. And look, it won't be just me who will notice how bad this deal is—and I'm a ton more sympathetic to the President than many of the people who will. Reporters like Morgenson will keep blasting away. Economists like former IMF chief economist Simon Johnson and Nobel Prize winners Joseph Stiglitz and Paul Krugman will be outraged. The tens of thousands of people occupying cities all across America will turn on the White House. The millions who have signed online petitions on Wall Street issues will be devastated. Organizations that are usually Obama's allies like labor and MoveOn.org will likely condemn the deal. And at the end of that entire outcry, they will have no credibility left to ever tell voters they are tough on Wall Street. [...]
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. [...] 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 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. [...]
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. Right now, the administration's best hope is that public outcry and courageous AGs bucking this deal will save them from themselves. [...]
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.
That pretty much says it all, from a strong supporter of Obama who has been around politics long enough to see and understand the political climate. This potential settlement, so key to the whole impetus behind Occupy Wall Street, might not be front-burner right now, but if it goes through and the banksters get away with even less than a slap on the wrist, it will explode.