If you burglarize a home, or squat in an empty home, you are not given the opportunity to purchase your freedom—you are going to jail. But if you use illegal practices to kick millions of people out of their homes … well that only requires a nominal fee.
The big banks threw millions of people onto the street, tanked the economy, insisted on a bailout, then lined their pockets with bonuses and went back to the same work. And now, thanks to a recently announced settlement with the Obama administration’s Justice Department, the big banks are celebrating once again. Not a single major banker has gone to jail, no significant regulations have been imposed, and the money they are dishing out for their crimes is only a tiny fraction of what they earned from them.
In the wake of the 2008-2009 economic crisis, the whole world learned of the depth of corruption, irresponsibility and reckless speculation within the real estate and finance industries. The rate of foreclosure continued at the same pace, however, and no bailout emerged for those facing homelessness and mass unemployment.
During this period, it was revealed that the major housing lenders had been improperly evicting and foreclosing people through the process of “robo-signing,” essentially an automatic rubber-stamp so they would not have to even review borrowers’ documents before foreclosing. As a response, the Justice Department opened an investigation in which the banks were asked to review their foreclosures for improper conduct.
Note that this "investigation" was largely based on the banks investigating and reporting on themselves. But even that was too much work for the banks’ tastes, and the Justice Department agreed to settle on the grounds that with its available resources it would not be able to secure a quick legal victory. The question of resources is, however, one of political priorities and the role of the state, as the government finds plentiful resources for cops, prisons, weapons and wars—but not to investigate the banks.
Under the terms of the settlement, 10 big banks will pay $3.3 billion to the 4.4 million people who went through foreclosure in 2009-2010. On average, that means a meaningless $750 per foreclosed homeowner! The banks will also use an additional $5.2 billion to lower the principals on some homeowners' mortgages. The corporate media's admission that this amounts to a "favorable settlement" for the big banks is putting it mildly. As far as these institutions are concerned, they got away scot-free. The settlement spares them from ongoing federal review.
There are all sorts of pending lawsuits against housing lenders—mostly from others in the capitalist class, including investors, insurers, and so on—but this was the largest government investigation that was supposed to help homeowners and lead to new regulations.
This deal, a slap in the face to all working-class families and everyone behind bars for a petty crime, is just one case in a long series of betrayals of justice. Last February's settlement with many of the same banks penalized the banks what amounted to $2,000 per forged or fabricated loan. It created no real enforcement mechanism to stop future abuses. It included the dropping of lawsuits from hard-hit foreclosure states against the most egregious lenders.
The close collusion between Wall Street and the federal government is now well known. Just as with the ‘Troubled Assets Relief’ bailout program in 2008-2009, the federal government has essentially come to the banks’ rescue—even as it pretends to be a “regulator.”
A few billion dollars is a drop in the bucket compared to the hundreds of billions, even trillions, that these financial institutions are worth. In fact, some estimate that it will save the banks $10 billion in the costs of ongoing litigation and internal reviews. It is nothing compared to the lost dollars, and declining living standards of millions, which are products of the economic crisis. “A couple hundred dollars will be nothing,” Geralyn Burrell, a 56-year-old who has repeatedly faced foreclosure in Las Vegas, Nev., told the Wall Street Journal.
The makings of this crisis
As documented in Liberation and other media, politicians and policy makers responsible for decades of financial deregulation expected the biggest capitalists to essentially “police” themselves. The runaway money train was handed over to the financial industry to handle as it saw fit.
An enormous accumulation of money capital made credit easy to dispense, and working people hoping to find the “American Dream” made for perfect customers. Consumer debt skyrocketed, and federally backed loans, along with rising tuition, made education simultaneously more accessible and expensive. But mortgages became the credit industry’s bread and butter.
With the fox in charge of the henhouse, getting a mortgage was made easy. Adjustable-rate and subprime loans were doled out like candy, appearing attractive to borrowers because of the low initial interest rates despite the looming possibility of sky-high rates to follow. The easy loans primed the pump for rampant speculation and reselling. Even the so-called NINJA loans (no income, no job, no assets) proliferated.
In 2006, more than 60 percent of homes purchased in California were loans of the type where homeowners paid interest only and the cost of the mortgage soared as the principal became included in the payments.
In a flagrant display of racism, the banks offered such predatory loans at a much higher rate to African American buyers (2.7 times more) and Latinos (2.3 times more) than their white counterparts, according to a report issued by ACORN. This was the case even where their economic standing was identical. The racism was in no way accidental—documents and testimony show that officers were instructed to get the worst loans possible for Black and Latino applicants, who they often referred to in racist terms.
The bankers’ fraud was rampant. They created special programs specifically designed to get as many loans out the door as possible. Loan officers were compensated for the number of loans they generated, so documents were often falsified. One program at Countrywide Financial, now owned by Bank of America, was almost unbelievably called the Hustle. Upper management did not just know of these practices; they encouraged them.
The fraud and abuse did not stop there. Homeowners found that the banks had bundled their mortgages with many others, repackaged and resold them, so that it became nearly impossible to navigate the complex web of ownership that resulted. In many cases, companies seized property without any grounds for doing so, and were not even able to prove that they owned it.
The overproduction of new homes and apartment buildings created a massive surplus in inventory. Home prices stagnated and then went into decline. Millions found that they could not sell their homes or pay the amount they owed. New federal laws made declaring bankruptcy almost impossible, and the foreclosure epidemic began.
As more dirty practices come to light to this day, the lawsuits continue but on a smaller scale. HSBC has been targeted by county governments in Georgia, and Bank of America, one of Wall Street’s “big four” titans, is being sued by the federal government. The government’s attorney seeks an initial $1 billion in damages.
It is an immutable law of capitalism that, for all the wealth and development that it has generated, it will be driven to busts, crises and extreme inequality in its non-stop thirst for more profit. That’s the real reason for the housing crisis—and another reason the system must be replaced.