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Excerpt: "On Tuesday, the Federal Reserve announced the much-anticipated results of the latest round of bank stress tests. How did the banks do on both? Pretty well, thank you - and better than homeowners and American taxpayers."

Street art at Occupy Wall Street expresses widely-held sentiment towards banks, 09/22/11. (photo: jamie nyc/flickr)
Street art at Occupy Wall Street expresses widely-held sentiment towards banks, 09/22/11. (photo: jamie nyc/flickr)

The Banks Win, Again

By The New York Times | Editorial

18 March 12


ast week was a big one for the banks. On Monday, the foreclosure settlement between the big banks and federal and state officials was filed in federal court, and it is now awaiting a judge’s all-but-certain approval. On Tuesday, the Federal Reserve announced the much-anticipated results of the latest round of bank stress tests.

How did the banks do on both? Pretty well, thank you - and better than homeowners and American taxpayers.

That is not only unfair, given banks’ huge culpability in the mortgage bubble and financial meltdown. It also means that homeowners and the economy still need more relief, and that the banks, without more meaningful punishment, will not be deterred from the next round of misbehavior.

Under the terms of the settlement, the banks will provide $26 billion worth of relief to borrowers and aid to states for antiforeclosure efforts. In exchange, they will get immunity from government civil lawsuits for a litany of alleged abuses, including wrongful denial of loan modifications and wrongful foreclosures. That $26 billion is paltry compared with the scale of wrongdoing and ensuing damage, including 4 million homeowners who have lost their homes, 3.3 million others who are in or near foreclosure, and more than 11 million borrowers who are underwater by $700 billion.

The settlement could also end up doing more to clean up the banks’ books than to help homeowners. Banks will be required to provide at least $17 billion worth of principal-reduction loan modifications and other relief, like forbearance for unemployed homeowners. Compelling the banks to do principal write-downs is an undeniable accomplishment of the settlement. But the amount of relief is still tiny compared with the problem. And the banks also get credit toward their share of the settlement for other actions that should be required, not rewarded.

For instance, they will receive 50 cents in credit for every dollar they write down on second liens that are 90 to 179 days past due, and 10 cents in credit for every dollar they write down on second liens that are 180 days or more overdue. At those stages of delinquency, the write-downs bring no relief to borrowers who have long since defaulted. Rather than subsidizing the banks’ costs to write down hopelessly delinquent loans, regulators should be demanding that banks write them off and take the loss - and bring some much needed transparency to the question of whether the banks properly value their assets.

The settlement’s complex formulas for delivering relief also give the banks too much discretion to decide who gets help, what kind of help, and how much. The result could be that fewer borrowers get help, because banks will be able to structure the relief in ways that are more advantageous for them than for borrowers. The Obama administration has said the settlement will provide about one million borrowers with loan write-downs, but private analysts have put the number at 500,000 to 700,000 over the next three years.

The settlement’s go-easy-on-the-banks approach might be understandable if the banks were still hunkered down. But most of the banks - which still benefit from crisis-era support in the form of federally backed debt and near zero interest rates - passed the recent stress tests, paving the way for Fed approval to increase dividends and share buybacks, if not immediately, then as soon as possible.

When it comes to helping homeowners, banks are treated as if they still need to be protected from drains on their capital. But when it comes to rewarding executives and other bank shareholders, paying out capital is the name of the game. And at a time of economic weakness, using bank capital for investor payouts leaves the banks more exposed to shocks. So homeowners are still bearing the brunt of the mortgage debacle. Taxpayers are still supporting too-big-to-fail banks. And banks are still not being held accountable. your social media marketing partner


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+16 # MainStreetMentor 2012-03-18 22:14
American citizens need to wake up. Abandon banks - for any and all financial needs. Go to a credit union. Do it yesterday!! And NEVER go back to a bank ... for anything, (well, maybe an exception would be to celebrate the closure of one).
+2 # BettyFaas 2012-03-18 23:46

...not even to more local small community banks?
0 # epcraig 2012-03-19 00:12
If your credit is like mine and the credit union refuses your deposit get the credit union to recommend a local bank. Taking their recommendation worked well for me.
+1 # bluepilgrim 2012-03-19 01:10
Interesting stuff here, and keep in mind that the financial world IS 'world' -- international, and the fan to be hit is going to scatter it everywhere. Dig your 'fallout shelters' now.

(also note
President Obama signs Executive Order allowing for control over all US resources

What's that all about?
The Greek crisis is only the beginning
19 March 2012
The media reports referred to it as the Greek bailout. This is a complete misnomer. The €130 billion package agreed to by eurozone finance ministers last week was not a bailout of Greece, but of the banks and financial institutions that put money in its bonds.
0 # RLF 2012-03-19 05:49
The banks are still getting bailouts while they give dividends to their share holders. Reverse Robbin Hood! Time to blow up this y off rich people before they educate the children.
+3 # propsguy 2012-03-19 07:18
a fundamental flaw in many of our deals- legal and political- is this notion of rewarding good behavior and allowing the perps to get off without admitting responsibility.
in this case, the banks should be forced to make the necessary adjustments with NO compensation and they should still be open to lawsuits of any kind for their bad behavior
+1 # BradFromSalem 2012-03-19 10:09
Health Care without the Public Option, let alone Medicare for All; which of course is the true Health Care solution. Wrong subject? Yes. But it is the same solution set. The settlement with the banks is way better than what was currently happening. Still it a is far away from an optimal solution.

In the end the Banks suffer very little and get the feds help in getting the bad loans they wrote off their books. In the end the Insurance Companies get the feds help in adding to their customer base, while using that to water down the impact of the smaller hits that Obama Care forced on them.

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