The Department of Justice took a lot of flak for failing to prosecute the
banks whose mortgage lending practices contributed to the collapse of
the housing market and the resulting recession. Other regulatory efforts
have been similarly maligned by consumer advocates. (I'm looking at
you, Independent Foreclosure Review.)
In the last month, it has been reported that
Citigroup reached a $7 Billion settlement with the DOJ for its role in selling bad mortgage securities. It also
Bank of America is nearing a settlement with the DOJ. The BofA settlement is rumored to be between $16 and $17 Billion.
Before you find either the Citi or BofA settlements impressive, keep in
mind that these sums are really a drop in the bucket for these banks.
The rumored BofA settlement would only result in $9 Billion in payments
from BofA. The rest would go towards consumer relief. In the past, this
has translated to writeoffs, etc. of largely uncollectable debt. Allowing
BofA to count these writeoffs as "payment" towards a settlement
would be similar to the less-than-punitive National Mortgage Settlement.
Similarly, the Citi settlement is $4.5 Billion in cash. The remainder is
borrower relief. These kinds of settlements are not truly punishments.
Naked Capitalism does a great job breaking down the Citi settlement and
why it's bogus
As more details on these settlements emerge, I will update the blog with