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Banks face federal lawsuit over bad mortgages
Signing a mortgage
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Kai Ryssdal: Next week is the third anniversary of the demise of Lehman Brothers, which makes it also the third anniversary of the shotgun marriage between the government and a whole lot of this country's banks. Suffice it to say, some couples therapy might be warranted.
Today, a key government regulator filed suit against a bunch big banks -- Bank of America, JPMorgan, Goldman Sachs, you know, the usual suspects -- accusing them of stuffing mortgage-backed securities with mortgages that had no business being turned into bonds. Mortgages they knew would go bad.
There's something to be said for punishing bad behavior, but at what point does going after the financial industry hurt more than it helps? Our New York bureau chief Heidi Moore reports.
Heidi Moore: The U.S. government has taken the same approach to banks as doctors usually take with patients: First, do no harm. In fact, the banks have gotten a pretty sweet deal in bailouts and stimulus.
But now the bills are coming due. Some parts of the government are suing the biggest banks. Which raises the question: Will the effort to make banks pay for the crisis end up hurting all of us?
Chip MacDonald, a lawyer for the firm Jones Day, says yes.
Chip MacDonald: I'd sort of like to see the mortgage market restored to health as opposed to fighting battles from three years ago, four years ago.
MacDonald says more expensive lawsuits will end up hurting consumers because banks will recoil and lend even less; that would make it even harder to get a mortgage.
And then are those who say the economy can't take more doom and gloom. Ernie Patrikis is a former Federal Reserve official who now advises banks at White & Case.
Ernie Patrikis: If we could just think about it in terms of the financial system, it just continues the cloud over the marketplace. For the country as a whole, it's not helpful.
But consumer advocates say the bad news facing banks is karma. Norma Garcia, the chief lawyer for the Consumers' Union, says many banks reneged on their deals to boost lending and stop unnecessary foreclosures.
Norma Garcia: The taxpayer stepped in to bail out the banks to keep them from failing. The banks were given an opportunity to do the right thing and they failed to do so once again.
It remains to be seen whether another lawsuit will do the trick.
In New York, I'm Heidi Moore for Marketplace.
We bailed out the banks because they were too big to fail, and are we now going to continue with this line of thinking that they are too big to be accountable. Some where the buck has to stop and not continue to enable their disjunction or we will all be out of Bucks. We expect them to act responsibly because they are the heart of our economic system pumping out the life blood to business and individuals that want to thrive. The analogy to our own heart is if blood doesn't get to the parts of the body we slowly die. So the banks need to act with little more "heart" in order for the economy to survive (we want to thrive but we have to survive first) because right now we are on life supports and without a transfusion we will fail-implode. We have given them , the banks, the tarp , bailout money and they have obviously done well with it for themselves but have not been responsible to lend and to revive and stimulate the economy as requested by their mandate and the government. Instead they are making matters worse for the economy by not stabilizing the housing market through excessive and indiscriminate foreclosure policy with complete disregard for the letter of the law and individual rights. They could stabilize the housing through loan modifications and principle reduction which intern would begin to stabilize the economy. If they modified peoples loans, reduced principle, let people refinance their mortgages at lower interest (even without equity) they would make a bad situation better and begin to create some confidence and certainty in the consumer who drives our economy besides putting more money in in pocket to spend. O'bama's HMP program didn't work because the banks in their own self interest didn't want to cooperate. We feel we need the banks but like a abused wife by her husband how much is too much until you take action and say enough is enough. Let them feel the pain of this lawsuit show them the error of their ways, we should speak up and be counted that we aren't going to take it any more. The lawsuit is more about principle and teaching the banks to act responsibly, because if we don't it won't get any better. It's like when do you disciplined a spoiled child when you realize who's in charge and take remedial action not revenge. Banks don't want to refinance mortgages because they don't want to set a bad precedent or being in the business of owning mortgages. Why did we bailout the Banks? what precedent did we set? They created this housing bubble through reckless lending brought on by cheap money, greed and strong demand for mortgage backed security which they conspired to write as triple A . The dumb leading the dumb blinded by greed (because someone else is doing it makes it right). The formula for the jobs program is when you stabilize the housing through equitable modifications and refinancing regular mortgages, rather than flooding the market with foreclosures from people who need a modification because of income loss or from people who have lost equity and decide to walk away. When we lend to small business and don't reckless call in loans because all of sudden your concerned about risk. Let's us get moderate, reasonable with heart because their is compassionate capitalism when we work together in the spirit of common good equaling individual good. When you work only from self interest you eventually kill the golden goose. We have trusted in the system and part of the system is to take a stand and speak out rather than listen to politician that insult our intelligence and lie to us in order to get in.
After the months "we" spent agonizing over whether institutions could be "too big to fail", I was surprised to find the concept of "too big to hold accountable" practically a given on Friday's show. Chip MacDonald's comment seem to say "those loans were so 2008, get over it." I appreciated the story, but felt as though I'd come in at the summation and missed the discussion.
There must be criminal proceedings. There were criminal actions. They were taken by individuals. If those individuals aren't prosecuted, where is the deterrent for the next wave of financial barons?
@RA Meagher points out the irony perfectly.
We are in the current depression due to illegal acts. Government officials have been bribed. Financial interests have committed fraud. Now the traitors are committing extortion by claiming that prosecution of these criminals will lead to further economic decline. Where does it end?
What's the rationale for Macdonald's claim that banks will lend less if sued by the government? If lending more means more bad CDOs, why would we want to encourage that. I have enough faith in the greed of the banks to believe that they will lend as much as they think they can get away with.
Great. First the banks were too big to fail, now they are too big to punish. How dare us lowly peasants complain when are lied to, tricked, robbed or literally raped by a banker. We should just blame the victim and remain silent. After all, it takes more than just physical evidence to convict a banker these days.
