Does the Punishment Fit the Crime?

The Occupy Wall Street movement has shed much-needed light on the fact that big banks have never been held properly accountable for the mortgage-related crisis of 2008 and the aftermath that continues to affect millions of homeowners, as well as investors who were sold troubled mortgage-backed securities.

Currently, a broad, multistate out-of-court settlement between state attorneys general and various financial institutions is underway, but it’s unlikely that final “punishment” will truly fit the crime.

Gretchen Morgenson of the New York Times writes about this very subject in her Oct. 29 column. According to the article, the proposed settlement will total about $25 billion, and would cost banks very little in actual cash-about $3.5 billion to $5 billion. A dozen financial companies would reportedly contribute that money. The remainder of the settlement-an estimated $20 billion-would entail credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors.

“If you thought this was the deal that would hold banks accountable for filing phony documents in courts, foreclosing without showing they had the legal right to do so and generally running roughshod over anyone who opposed them, you are likely to be disappointed,” Morgenson writes.

Meanwhile, a mountain of troubled mortgages may not be covered by the settlement anyway, including borrowers with loans held by Fannie Mae and Freddie Mac. Only loans that the banks hold on their books or that they service for investors would be involved, according to the NYT’s article.

For some time now, the federal government has been promising Main Street that the entities and people behind what they saw as unlawful foreclosure practices would be held accountable for their actions. It appears that promise is waning, and that the punishment will in no way fit the crime. In other words, big banks are likely to come out on top once again.