The Attorneys General of California and Nevada, Kamala Harris and Catherine Masto, have joined forces to pursue the banks that were involved in the foreclosure crisis to the ends of the earth. This is crusading stuff. But will it actually help? The LA Times sums it up:
The new alliance between Harris and Masto comes as the largest banks are working to strike a deal with a coalition of attorneys general and federal agencies that is led by Iowa Atty. Gen. Thomas Miller, who has forced the mortgage industry to accept large settlements in the past.
Masto has said the state would evaluate any proposed deal but would push ahead with her own work. New York, Delaware, Kentucky and Minnesota have signaled they are unhappy with the direction of the talks with the banks. New York and Delaware have struck their own agreement to pursue a wider probe of Wall Street's role in the mortgage meltdown.
The negotiations were expected to have produced a settlement of as much as $25 billion for the states, including a provision that would write down principal for troubled borrowers, a move long pushed for by housing advocates. But despite pressure from the Obama administration for a quick settlement that might give the beleaguered housing market a boost, those talks have dragged on for more than a year.
How can you walk away from $25 billion? Well, Harris and Masto may be justified in their belief that the proposed settlement, now unlikely to go anywhere with all the big states dropping out, given that the total loss of wealth due to foreclosures nationally could be nearly $2 trillion, according to the Center for Responsible Lending (using 2010 figures!).
On the other hand, defending themselves against ongoing lawsuits is going to get very expensive for the banks. Bank of America could be under great threat of insolvency from future legal liabilities than it is from all those bad Countrywide loans still on its books.
Harris and Masto, between them responsible for the legal machinations of two of the states that got hit hardest by the subprime meltdown and the housing crisis, seem determined to hold the greedy financiers to account. But what's the hidden cost of not doing the major settlement with the big banks?
For Harris, it's clearly an opportunity to pull an Elizabeth Warren and move decisively away from what the Obama administration would like to see happen: a settlement deal that includes principal writedowns, something that's been fairly elusive throughout the crisis. Warren, Harris, and now Masto, are beginning to establish a sort of axis of female justice, stretching from the Massachusetts Senate race to the Vegas strip and the shores of sunny California. Meanwhile, Obama and his economic advisors look as if they're increasingly beholden to the old boys on Wall Street and focused on maintaining continuity, rather than chaos, in the banking system.
It's quite obvious from even circumstantial evidence that the mortgage industry engaged in all manner of shoddy practices during the boom. The question now is whether it's worth it to punish the banks accordingly, which could mean lawsuits that drag on for years and seriously stress the banks ability to fully recover from their misdeeds, or call it a day and get as much money out of the banks as possible. While they still have it.