The more information we learn about the mortgage settlement that was announced Monday—official documents are yet to be made public—the more of a smarmy backroom deal it turns out to be.
The deal lets ten major banks and other “loan servicers” off the hook for a corrupted and illegal process of millions of foreclosures, with a paltry one-time settlement of $8.5 billion. The economic damage inflicted on homeowners, and by extension on the economy, was many times that.
The deal was hatched by the weakest of the federal bank regulatory agencies, the Comptroller of the Currency, and signed off on by the Federal Reserve. There was no consultation with the more consumer-oriented agencies, such as the FDIC or the Consumer Finance Protection Bureau. The Comptroller just went and did it.
Nor was the Justice Department consulted, even though the deal, nominally a civil settlement, will make criminal prosecutions more difficult now that a major regulator has signed off on an bargain to close the books on past misdeeds. Well-placed sources say that other regulators were appalled.
Why did the Comptroller make this deal? To protect the banks, of course. Certainly not to protect foreclosed homeowners who were victims of flagrantly illegal practices by financial institutions.
The relevance to Jack Lew? The comptroller of the currency is part of the Treasury and reports to him, assuming that Lew is confirmed.
At his confirmation hearings, progressive senators should be all over Lew to tell what he thinks of this stinker of a deal, both as process and as substance. Is he even up on housing issues? His defenders say he cares about the poor. What about the working class and minority homeowners who were victims of the bank scams?
And speaking of Jack Lew, President Obama’s affectionate White House introduction of Lew yesterday should only increase one’s apprehension both about Lew’s priorities and the president’s. In showering praise on Lew, Obama said, “Under President Clinton, he presided over three budget surpluses in a row. So for all the talk out there about deficit reduction, making sure our books are balanced, this is the guy who did it, three times.”
But in today’s economy, the last thing we need is a balanced budget. We need enough public spending to restore growth and full employment—and then a slow path to lower deficits built on a healthier economy. The boom of the late 1990s was an entirely different context.
By harping on budget balance and appointing a treasury secretary who considers it a paramount, President Obama only reinforces the echo chamber of the Fix the Debt crowd and strengthens Republican demands for the Administration to deliver on deficit reduction. This can only end in more cuts in the public investment and social spending that the economy needs.