Feds Get a Sweet Deal After Sour Housing Market
Some 6 million Americans were stripped of their homes during the housing crisis and subsequent economic recession. It was soon apparent that the underlying cause of the crisis were unethical and fraudulent practices by some of the biggest banks in the world. The federal government through its U.S. Department of Justice vowed to make these big banks pay dearly for the harm caused to homeowners and taxpayers. And ultimately, federal prosecutors did finagle some large settlements from six of the biggest banks, which allowed those firms to resolve criminal allegations. None of the top-level banking executives served time in prison.
In all, there were more than 30 mortgage-related settlements reached and more than $110 billion collected by the DOJ, federal housing agencies and state Attorneys General. But there has been very little accounting of where that money went. Presumably, it was to go to taxpayers. Specifically, it was supposed to go in large part to those who had lost their homes or suffered other serious financial woes after the fallout.
Some of the money was used for that purpose. But as a recent investigation revealed, much of it was not. In fact, one of the biggest benefactors of that money? The federal government.
This is interesting because the government was sharply criticized by a number of media outlets and consumer advocacy groups for failing to criminally prosecute bank executives, choosing instead to impose hefty fines – sums for which the institutions, not the individuals, were responsible. A number of news outlets characterized the banks and the executives as “Too Big to Jail.”
It would seem now, based on The Wall Street Journal’s latest analysis, that the federal government had a significant incentive not to criminally prosecute the banks. The government brought these cases on behalf of homeowners who lost their home in foreclosures, and then failed to ensure those same homeowners received recompense for their shattering losses.
So where did the money go?
For starters, $1.2 billion of it is “unknown.” It is a small fraction of the total, but that’s an awful lot of money to have lost track of. There is according to WSJ, no apparent accounting for that amount.
Beyond that, $34 billion was deposited straight to the U.S. Treasury Department. As a writer for The Fiscal Times wrote, “As far as I know, the Treasury Building was never at risk of foreclosure over the past eight years, and its inhabitants never had to worry about being thrown onto the street with all their possessions.” Yet, it was this agency that received the biggest chunk.
Beyond that, about $49 billion went to various “housing programs.” However, as The Fiscal Times pointed out, those numbers simply don’t add up. According to the Special Inspector General for the Troubled Asset Relief Program (TARP), the government has only spent $19 billion on housing relief programs as of the end of 2015.
Another revealing element was the fact that the states, which received a total of $5.3 billion, had no obligation to use that money in a way that would benefit housing-related programs. In fact, nearly $3 billion of that went to various budget holes, for everything from state fair repairs to creating email accounts for police.
And then there’s that $45 billion that reportedly went to “consumer relief.” On the surface, this would seem like a sizable portion that went to those who had been most deeply affected by the crisis. But that’s not true because a large percentage of that amount wasn’t handed over in cold hard cash. Instead, banks received credit for bulldozing homes to the ground. They received credit for donating to charity. They got credit for short sales. They received credit for giving underwater homeowners “move-out money.” Bear in mind – these are things the banks would do anyway, regardless of whether there was this large settlement involved. With this deal, they got to write off a big portion of their debt to the government for it.
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