Robert Romano
Guest Columnist
$128 billion and counting.
That is Investor’s Business Daily’s latest tally of settlements the Obama Justice Department has extracted from the U.S. banking industry in connection with the 2008 financial crisis, as Bank of America agreed to another $17 billion in payouts over losses stemming from its 2009 acquisition of Countrywide.
Included is $5 billion as a penalty paid to the federal government itself, $300 million will be paid to the state of New York, $300 million to California, $200 million to Illinois, $75 million to Maryland, $45 to Delaware, and $23 million to Kentucky, according to the Justice Department.
Another $7 billion will go to debt forgiveness, mortgage principal cramdowns, and, of course, more low-income lending. And then, after four years, whatever is not lent into the financial abyss by Bank of America directly will be given to community organizer groups so they can do it.
You know, the ones that in part contributed to the financial crisis by coercing low-income, Community Reinvestment Act (CRA) loans from financial institutions engaged in mergers allowed under the 1999 Gramm-Leach-Bliley financial modernization law.
The groups include the Interest on Lawyers’ Trust Account, NeighborWorks of America, La Raza, the National Community Reinvestment Coalition, the Neighborhood Assistance Corporation of America, Operation Hope, and the Mutual Housing Association of New York, an ACORN off-shoot.
So, Bank of America and other institutions get busted for engaging in risky low-income lending, and naturally, their penalty is to engage in even more of it. Similar settlements have been reached with Citibank and JP Morgan Chase, the Investor’s Business Daily editorial notes, with more to come from Morgan Stanley and Wells Fargo.
This is the same type of stupidity that helped contribute to the mortgage crisis in the first place.
Most forget that when the 1999 law was being debated, it almost did not pass. The hold-up? Concerns by the Clinton White House and congressional Democrats such as Senators Chuck Schumer and Chris Dodd over the Community Reinvestment Act (CRA), as chronicled by the New York Times’ Stephen Labaton in 1999.
The White House “wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.”
When all was said and done, the final agreement provided that “no institution would be allowed to move into any new lines of business without a satisfactory lending record.”
In other words, Democrats were okay with rolling back Glass-Steagall — that is, the banks, investment houses, and insurance companies could merge — so long as low-income lending programs would be expanded dramatically.
And so they were. The American Enterprise Institute’s Edward Pinto, a former chief credit officer of Fannie Mae, estimated that CRA commitments totaled $4.5 trillion by 2008. The rest, as they say, is history.
Those were not the only bad loans that were made. Hundreds of billions more stemmed from Fannie Mae, Freddie Mac, the Federal Housing Administration and other federal agencies. These institutions operated under separate legal requirements that the crappy loans be made, but it’s all the same story. The government wanted this lending to occur.
Here’s a thought. If these types of loans are so risky to the economy, perhaps they should not be required to be made as a matter of policy?
That is, if Congress has a mind for true financial reform. Then, removing such mandates on lenders, both government-backed and private, would be a good place to start. And in the meantime, members of both houses should be working to guarantee that not one penny of these $128 billion of settlements goes to engage in any more risky lending or go to shady community organizer groups to do the same.
Robert Romano is the senior editor of Americans for Limited Government.