The New York Times reports faithfully that the Department of Justice has entered into the biggest fair lending settlement on record with Bank of America on charges that Countrywide had charged more 200,000 Hispanic and black borrowers higher rates and fees than white borrowers with similar credit records. It also engaged in discrimination by marital status.
Impressive, no? If you do the math, $335 million divided by 200,000 is $1675 per borrower, and the settlement agreement indicates that the amount borrowers will receive will average $1600. While obeying the usual “no one admits to anything” forms, the settlement has language that indicates that borrowers were overcharged in the range of several hundred dollars to several thousand dollars. So at a superficial level, one might conclude the settlement amount is roughly in line with the damages suffered by borrowers.
But is it? First, we don’t know the distribution of the alleged damages. And there is a net present value issue. These abuses were first noticed by the Fed in 2006 (and since, as we wrote in 2007, the Fed was even more lax than the OCC in enforcing subprime-related legislation, one can assume the conduct was flagrant) and referred to the DoJ, and the Office of Thrift Supervision made a similar referral in 2008. So the conduct started before 2006 and continued to the end of the subprime market. Countrywide has thus has the use of its presumably ill gotten money all these years. And if this settlement is philosophically a disgorgement, that suggests that a fine is also in order. And there are other cute features, such as the settlement is to be administered by someone hired and paid for by Bank of America.
More important, given the number of people involved, one has to think that there are some cases where the difference between the cost of the loan these borrowers got and the cheaper ones they qualified for could have made the difference between a borrower making it versus going into delinquency. So for any cases where the overcharges tipped a stressed borrower into a foreclosure, the settlement is clearly inadequate.
This is how the DoJ sees the situation:
“Chances are, the victims had no idea they were being victimized,” said Thomas E. Perez, the Justice Department’s assistant attorney general for civil rights. “It was discrimination with a smile.”
That isn’t the way lawyers on the ground see it. For instance, I received this e-mail from attorney Michael Olenick, and I’ve heard similar accounts over the years:
The second most common story I hear from homeowners — after being told to stop paying — is they were bait-and-switched to sub-prime loans. It happened to me. When people showed up to a closing there was a sub-prime loan when they’d asked for, qualified for, and agreed to a standard loan. But then they were told “you can walk away but then you’ll be in breach to the seller since we are offering you a loan, and then the seller will then sue you and you’ll ruin their own closing .. but don’t worry because you can always refi it into a prime loan.”
They’re paying a token fine for discrimination when, for once, on this issue, they probably weren’t discriminating at all: they were equal opportunity fraudsters.
So we have the appearance of justice being done, when much bigger crimes go uninvestigated and unpunished.
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Ah Eric:
It’s been a while since we last talked -I hope you enjoyed your vacation in the sunny Carribean. It is so nice to get out of the Washington whirl especially since those nasty questions from Congress on that gun running scheme. Those guys are so unfair and I’m so glad that Mr. Obama stroked your ruffled feathers.
But, Eric, to the point –
I know that some say you are just a marionette ( you know a puppet) and some say you have no control over the DOJ.
That said it’s time to man up –
Here’s the deal the banks are criminal enterprises. So your and DOJ’s continued lack of meaningful prosecution opens the door to continued criminality.
Now we all heard that you and DOJ do not prosecute because the cases are too difficult, too involved for an ordinary jury to understand. And in a clever move you and DOJ put this canard out there via a ex DOJ man whom is easily deniable. You know “He’s not an official spokesman” sort of guy.
Here’s where you need to start and note that Brad Miller a member of Congress has asked that you start here with an investigation of foreclosures on service members apparently there are criminal penalties at stake here. And if your prosecuting attorneys make a little patriotic pitch the jury will find it difficult not to convict.
Man up Eric
Been going on for a while like this. Warren, The Two-Income Trap, 2003, 136:
” . . . [T]hey were bait-and-switched to sub-prime loans.” That is, bluntly, out and out fraud. Not ‘discrimination,’ fraud. To agree to one thing, than be forced into another through the deliberate misreprentation of the other party—‘you will be sued if you decline’—isn’t just common fraud either.
If the process Olenick describes was in any way common, every officer of Countrywide should be indicted and sent up for the long-term. And there’s every reason to believe tha Olenick is right. The probable reason that these fraudulent practices were more prevalent against minorities is that the fraudsters at Countrywide infrerred, more or less correctly, that minorities were both more likely to be intimidated by the tactic, and less likely themselves to sue since lacking money and less confident that the court system would treat them fairly.
So what we’re likely _really_ looking at in Countrywide is NOT systematic ‘discrimination’ but systematic _and intentionally designed_ FRAUD on a massive scale. The fact that DoJ is not even investigating the possibility just described but in fact is paying out nominal sums just so as to preclude any competant investigation, is despicable. Again, and yet again, we see the highest levels of our government actively intervening in the legal system to rig outcomes to protect the wealthy and in fact _prevent_ investigation, let alone prosecution. Because, y’know, if there was any real investigation than those injured could sue in the civil courts for far, FAR more money than the pennies on the dollar they are going to be given now. Because they could sue for damages, not just nominal losses.
Our government in the USA has turned completely into a criminal enterprise, where the enterprise of criminals is the only thing it protects and defends.
As the quote from Warren’s book shows, this has — in various forms — been going on for at least a decade and a half, Richard.
So Foppe, longer than that. It’s old news that banks systematically exploite minorities, to the both sides of the line of legality. What’s new and news is that the government isn’t simply condoning the practice but conspiring to cover it up. Which means that the government is systematically conspiring to defraud minorities and keep them out of the courts. What good are nominal ‘rights’ if you can’t work via the law and the courts to enforce your standing and seek recourse for injury?
Revolutions come out of this kind of abuse. I mean that seriously as a matter of historical example, rather than as conjecture.
I don’t mean to be needlessly critical, but what exactly do you mean by “new”? Because I am reluctant to call a decade-old practice of confirmed cover-ups and wrist-slaps ‘new’. And given that the case Warren refers to (which seems quite similar, just involving a different bank) was reported on in Bloomberg, it seems reasonable to say that it was there for all to see then as well. The only ‘new’ thing I see is that a few more, and different people — such as myself — are aware of it, and outraged by it. (Though I am, as you might infer from this reply, currently running short.)
Anyway, I’d say that the cover-ups and perfunctory fines extend way further back than just a decade and a half, even if the justifications for them might’ve changed slightly (with a bit more effort going into them). As to your last point: yes, nominal rights are of little use, but, different from you, I don’t think that this matters much for social stability, so long as the system makes sure that the people treated thusly remain marginalized. Unequal (absence of) access to the courts for minorities while nominally enjoying equal access is a situation that has existed for decades if not longer, and yet society goes on, mostly oblivious. (This is also what bothers me about Greenwald’s recent book: I cannot shake the feeling that the real reason he felt the need to write it was not the change in elite justification/self-congratulation, but rather that Greenwald was bothered by idea that the ‘middle’ class is now becoming his so-called second tier, while the previous occupants of that tier have been moved into a third tier — thanks to the WoD, as described in, e.g., the new jim crow.)
Re Greenwald’s recent book:
Oh God, you may be correct.
OTOH, would he not simply say so?
He seems plain spoken enough, and unafraid to be so.
One really has to be a dyed-in-the-wool cynic of truly epic proportions to attribute ulterior motives in this instance.
With regard to Greenwald, your point is interesting but perhaps a little unfair. Writers are faced with constant dilemmas not just about what to say, but also about what not to say.
I am sure, as Mike S. suggests, that Greenwald is only too well aware of the plight of the American underclass. He is also no doubt aware that, as you correctly point out, nobody cares about them. So if his purpose is to highlight the descent of our legal system into separate tracks for different classes, his message will be more effectively received if aimed at the educated (and self-interested) middle-class.
Greenwald – or his editor – may have decided that discussing the “new Jim Crow” is another book in its own right, and other authors have already been there. I also suspect he felt a need to rush this book out to try and ride the coattails of the Occupy Movement (or bolster it). The lack of detailed footnotes – a surprising omission from him – reinforces the impression that the book was penned in haste. Regardless, we should be thankful for his voice.
” . . . [T]hey were bait-and-switched to sub-prime loans.” That is, bluntly, out and out fraud. Not ‘discrimination,’ fraud.
Fraud. No games on word definitions. Fraud.
http://www.iwatchnews.org/2011/12/13/7606/management-gurus-claim-they-were-blindsided-toxic-culture-countrywide
Michael Hudson story, 12/13/11 — Management guru Cynder Niemela surveys Countrywide employees ca 2006 (gets fired in 2007):
Credit creation is INHERENTLY discriminatory (exception: the credit is simply given equally to the entire population). Even if all borrowers paid the same interest rates there is still the moral problem of cheating savers of honest interest rates which, in the case of housing, are often negative in real terms.
Let’s quit thinking of credit as a magical means to borrow from the future. Instead, it is a means to steal from our neighbors in the present.
“you can walk away but then you’ll be in breach to the seller since we are offering you a loan, and then the seller will then sue you and you’ll ruin their own closing ..”
How is that not felony extortion? Where the fck was the FBI? Are we going to have to call in the RAF to get redress?
mafia rule,
I agree with you. Threatening to cancel a sale opens the buyers to a lawsuit from a seller. You and others who point out that this goes beyond discrimination (not that discrimination is acceptable or legal) are correct. This makes the settlement that much more of a scam. Clearly, it adds another whole layer of illegality to the situation.
What puzzles me is the lack of recognition of these longstanding practices as blatant Perkinsian economic hit jobs. Why don’t analysts use the heuristic of economic hit jobs to explain current events?
I presume most of the astute readers of this blog know what I mean. For those who don’t, here’s the pattern:
~~~~~~~~~~~~~~~~~~~~~~
JOHN PERKINS: The first real economic hit man was back in the early 1950’s, Kermit Roosevelt, the grandson of Teddy, who overthrew of government of Iran, a democratically elected government, Mossadegh’s government who was _Time_’s magazine person of the year; and he was so successful at doing this without any bloodshed — well, there was a little bloodshed, but no military intervention, just spending millions of dollars and replaced Mossadegh with the Shah of Iran. At that point, we understood that this idea of economic hit man was an extremely good one. We didn’t have to worry about the threat of war with Russia when we did it this way. The problem with that was that Roosevelt was a C.I.A. agent. He was a government employee. Had he been caught, we would have been in a lot of trouble. It would have been very embarrassing. So, at that point, the decision was made to use organizations like the C.I.A. and the N.S.A. to recruit potential economic hit men like me and then send us to work for private consulting companies, engineering firms, construction companies, so that if we were caught, there would be no connection with the government.
http://www.democracynow.org/2004/11/9/confessions_of_an_economic_hit_man
~~~~~~~~~~~~~~~~~~~~~~~
Thanks to the notorious revolving door, there’s no distinction anymore between USG and the big firms doing its covert dirty work. So is the dirty work really being outsourced to private firms, or isn’t this just SOP?
IMO, the Perkinsian economic hit job is what we do, it’s our official unofficial business model.
Perkins himself revealed this model, in detail, on Democracy Now! years ago. Why don’t more economists use this heuristic to explain the news of the day?
~~~~~~~~~~~~~~~~
AMY GOODMAN: Well, before we go further, “economic hit men” — for those who haven’t heard you describe this, let alone describe yourself as this, what do you mean?
JOHN PERKINS: Well, really, I think it’s fair to say that since World War II, we economic hit men have managed to create the world’s first truly global empire, and we’ve done it primarily without the military, unlike other empires in history. We’ve done it through economics very subtly.
We work many different ways, but perhaps the most common one is that we will identify a third world country that has resources our corporations covet, such as oil, and then we arrange a huge loan to that country from the World Bank or one of its sister organizations. The money never actually goes to the country. It goes instead to US corporations, who build big infrastructure projects — power grids, industrial parks, harbors, highways — things that benefit a few very rich people but do not reach the poor at all. The poor aren’t connected to the power grids. They don’t have the skills to get jobs in industrial parks. But they and the whole country are left holding this huge debt, and it’s such a big bet that the country can’t possibly repay it. So at some point in time, we economic hit men go back to the country and say, “Look, you know, you owe us a lot of money. You can’t pay your debt, so you’ve got to give us a pound of flesh.”
http://www.democracynow.org/2007/6/5/john_perkins_on_the_secret_history
~~~~~~~~~~~~~~~
It’s bloody obvious that USG and the banksters are one and the same. So WTF, economists? Hasn’t the mortgage crisis actually been a Perkinsian economic hit job? Am I the only one who sees Obama as the very model of the modern major EHM?
“economic hit men” —
JOHN PERKINS: Well, really, I think it’s fair to say that since World War II, we economic hit men have managed to create the world’s first truly global empire, and we’ve done it primarily without the military, unlike other empires in history. We’ve done it through economics very subtly.
We work many different ways, but perhaps the most common one is that we will identify a third world country that has resources our corporations covet, such as oil, and then we arrange a huge loan to that country from the World Bank or one of its sister organizations. The money never actually goes to the country. It goes instead to US corporations, ”
Resources like excess population that “our corporations [will] covet”.
“then we arrange a huge loan [investment] to that country [to ourselves, the globalists] “
I have no doubt this settlement was concocted to save BoA’s share price from staying under $5. Many analysts have considered this the danger zone of insolvency for BoA even when you include mark to fantasy accounting.
It seems some people front ran the announcement of this per the usual.
The good news is that this hasn’t gotten court approval yet , so there is a glimmer of hope this settlement will be shot down.
The FBI reported that an epidemic of mortgage fraud was sweeping through the industry back in 2004 or 2005.
It’s hard lately to figure out which branch of government is more fvckt up. They kind of rotate. The whole place is running interference for their criminal bosses, and they use the media to launder their conduct. It works like a charm. They now have everybody scrapping for crumbs and blaming each other while they continue with their charade.
This type of “settlement” between the DOJ and Bank of America is like plea bargaining criminal conspiracy to defraud and loot to a minor civil infraction. Keep the peasants distracted.
Michael Olenick’s article is yet another case in point I could cite:
~~~~~~~~~~~~~~~~~~~~~
This arrangement clarifies that the Federal Government, at the highest levels, are comfortable, or even arguably complicit, covering up foreclosure fraud.
http://www.nakedcapitalism.com/2011/12/michael-olenick-the-administration-likes-foxes-in-charge-of-henhouses-%e2%80%93-proof-that-occ-foreclosure-reviews-are-a-sham.html
~~~~~~~~~~~~~~~~~~~~~~
Doesn’t this make the Perkinsian economic hit job USG’s overt policy? I say USG because Obama didn’t invent this longstanding method, he’s just doing the bidding of his Wall Street paymasters.
It’s well known that the Republican Party was turned toward corporatism after The Powell (Chamber of Commerce) Memo. Less known is the sister effort, to do the same with the Democratic Party. The name of this effort today is The Hamilton Project, discussed by Jeff Cohen and Paul Jay (Sr. Ed. The Real News) in this February 3, 2010 video: http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=4783)
Wall Street money has always gone to the frontrunner in the presidential race – except in 2007, when it went to Obama. Brand Obama, IMO, is Wall Street’s best ever stalking horse of a different color for massive domestic Perkinsian economic hit jobs.
IOW, Obama doesn’t “cave,” he’s doing exactly as he intends, namely doing to this country what this country has so often done to so many others: creating a labor force as cheap, captive, and powerless as possible.
Regulatory Capture (adopted from Wikipedia): A term used to refer to siuations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating. Regulatory capture is an explicit manifestation of government failure in that it not only encourages, but actively promotes the activities of large firms that produce negative externalities. For public choice theorists, regulatory capture occurs because groups or individuals with a high-stakes interest in the outcome of policy or regulatory decisions can be expected to focus their resources and energies in attempting to gain the policy outcomes they prefer, while members of the public, each with only a tiny individual stake in the outcome, will ignore it altogether. Regulatory capture is when this imbalance of focused resources devoted to a particular policy outcome is successful at “capturing” influence with the staff or commission members of the regulatory agency, so that the preferred policy outcomes of the special interest are implemented. The risk of regulatory capture suggests that regulatory agencies should be protected from outside influence as much as possible, or else not created at all. A captured regulatory agency that serves the interests of its invested patrons with the power of the government behind it is often worse than no regulation whatsoever.
“Capture” does not capture the reality. We are talking the purchase and co-optation, not just of the regulators, but the politicians, the parties, the political process, government, most public issue groups, academia, the judiciary, and the media. Kleptocracy is totalitarian in its scope and penetration. Virtually all the institutions and organizations the 99% might look to represent their interests or which they could organize around are owned or controlled by the kleptocrats and their, let’s face it willing, minions.
Hugh,
I agree with your analysis. This is a very scary situation. There is literally no place in traditional institutions to redress wrongs. It is why I believe OWS is so important and why OWS scares elites enough for them to be openly violent towards US citizens.
Cheney purged the DOJ at least three layers down. Since then, there is no one to stand in the way of appointed lackeys like Holder. The only people who have a conscience in these institutions are too low on the totem pole to help set things right.
This will take a peaceful citizen movement. I do not know if we can be successful because we do face such a dangerous, well armed corporate government. We also face a citizenry who is many times on the side of this violent govt. Republicans often agree with repression of citizens as a matter of policy and Democrats agree with it as long as a Democrat is doing the repression.
Eric Holder has been a corporate lawyer for his whole career. That didn’t change just because he became AG. These kinds of suits are nothing more than a few scraps thrown to the rubes to make them think something is being done. Real fines and penalties might have sent an already shaky BoA over the edge. But then those were never in the cards.
Obama said it all back at the beginning of his Administration when he said he wasn’t going to investigate the banksters. He made it clear even before then when he whipped for the TARP and assembled his economic team of the biggest corporatist hacks and shills going. He reiterated his pro-corporate position in the sweetheart deals he made with Big Pharma, Medical, and Insurance during the healthcare debate. And let us not forget the travesty of BP. No felony charges, indeed no charges. Just a $20 billion compensation fund that was supposed to be a down payment. To date, it has paid out less than $5 billion for what was perhaps the largest environmental disaster in US history. And if memory serves they can write even this amount off on their taxes.
You have to remember that kleptocracy is not a victimless criminal enterprise. It kills people and destroys the lives of others. 200,000? And this was only one scam of one division of one bank. Obama and Holder, indeed our elites in general, facilitate this looting and cover for it when and wherever they can, and they do it with their eyes open. For them keeping BoA afloat is an elite good, and if it is good for the elite, again for them, it is by definition good for the rest of us. The 200,000 are just a cost of doing business. Unfortunate, but it is an election year coming up, so here are a few bucks and now just go away.
It is futile and the issue is beyond banks and all entities involved (auditors, regulators, raters, analysts, insurers, $ 800 trillion plus gross derivatives, BIS, IMF, WB, ISDA, FINRA, SEC, CFTC, PF, MF, HF, PE, VC, politicians, shadow banking, judiciary, $ as reserve currency). WW2 arose after WW1 because of war debts more than reparations on Germany. And at USA debt of circa $15 trillon and circa 300 million USA population, it is $ 50,000 MILLION debt per capita. (15 * 1000 * 1000/300).
IT IS KAPUT just like between WW1 and WW2.
My bad. It is $ 50,000 per capita debt.
“VIP loans”- a few years ago I worked on mortgage processing software for a giant bank. This is a master console, like in Star TrekWars, with different things done by different people: loan officer, processor, people who check this, people who check that, people who approve or deny.
In designing the menus I was informed that there were a few different kinds of loans: normal, alt-a, no-doc, VIP etc. and what these meant. I had previously bought a house on some employment bonuses from Enron, and lost the house through unemployment. “Alt-A” I could get: lower quality borrowers pay higher interests is in Finance 101. “No-doc” when explained was rather eye-popping. And VIP was described as “friends of the chairman etc.”
A case of watching the making of sausage. Later we learned, sausage out of us.
Jack,
Just as a heads-up for us, can you tell us if you are working somewhere now?
Enron followed by a big bank on mortgages is a fear inducing resume of Kamikaze firms. You could serve as a warning bell for coming disasters.
(Joke, I hope.)
Why are none in jail for these crimes?
I was hopeful at some point that our military would find our government shameful enough to apply world military code of conduct to the most egregious but this victimization of Bradley Manning shows poorly on their true patriotism to the public they are supposed to defend.
Where do we go from here? Are we forced to continue to observe and rail against what this country has become until they take us away? One can hope that more of the public wakens soon to stop this nightmare from continuing.
Laugh the global inherited rich out of control of “Western Democracies” and into rooms at the Hague.
This settlement is a pittance and no one is going to prison. It should be ten times larger and BofA should be barred from writing any more home loans.
Banks aren’t the only ones corrupted by discriminatory
lending practices; the law firms who represent them
have as well.
Case in point: here in Memphis, Wells Fargo has
been sued for violations of the federal Fair Housing
Act for discriminating against minority homeowners.
The evidence against WF is overwhelming, thanks
in part to some whistleblowers.The company lost
its motion to dismiss and is reputed to be in
settlement discussions with the plaintiffs.
So guess who’s representing WF? Why, of course,
the same law firm that represented Martin Luther King
during his ill-fated civil rights activities in
Memphis, and still touts civil rights as one of
its areas of specialty.