Federal and state officials are struggling to find a settlement to impose on the U.S. banking industry for its part in last year's foreclosure debacle.
This emotion-filled scenario starts, it could be debated, with bankers giving up their role as guardians of the financial system by handing out mortgages pell-mell in a housing market boom that certainly showed signs of potential collapse. Some, at this point, also point out that millions of borrowers signed loans they could not afford, but banks are the professionals and shoulder, as such, the larger burden -- the burden of acting responsibly.
When the tide turned around and the market headed back out to sea, taking a lot of sand castles with it, the number of foreclosures escalated to the point that banks short-changed the foreclosure process, again in pell-mell fashion. Among the industry's mistakes was to "robo-sign" documents on foreclosures -- rushing them through so fast, in other words, nobody could have possibly read the documents they were signing.
From a legal point of view, this was like the banks taping a sign to their backs that said "Sue me." So, nearly everybody did.
All 50 states jumped in on the action, which is likely to be settled without trial and without an admission of guilt. But 50 state attorneys general and regulators, including the Treasury Department, must now decided how large the settlement should be and what to do with the windfall.
With the average amount of time it takes to process a foreclosure at about two years at this point, it seems odd to call displaced homeowners victims of foreclosure fraud. For an average of two years, they live in their homes without making a payment and now it is possible they will be handed part of a settlement on bank actions that had little bearing on the outcomes. They were due to lose their homes, anyway.
The Los Angeles Times reported Saturday that officials are kicking around sums of between $5 billion and $20 billion to settle the case, but unsure of what to do with the money it might generate. "We've finalized nothing and we're still working on some very complicated issues," said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who is leading the case on behalf of the states.
By one estimate, the U.S. housing market is $744 billion underwater at this point, which defines what is owed on mortgages above and beyond the value of the homes. As such, Rep. Maxine Waters, D-Calif., said, "This settlement is too small and will likely have one of two results: Either borrowers will receive insignificant principal reductions or reductions will only be available to a small subset of troubled borrowers."
There is no doubt, the settlement will be disappointing, especially when held up against the national debt -- $14 trillion -- or some other arbitrary figure. The more interesting point is not the size of the settlement, anyway, it's how it will be deployed. Would regulators be content with a settlement of $1 if banks agreed to a principal of "First, do no harm." That would be money well spent.
In international markets Monday, the Nikkei 225 index in Japan and the Shanghai composite index in China each added 0.92 percent. The Hang Seng index in Hong Kong rose 1.42 percent and the Sensex in India added 0.69 percent.
In Australia, the S&P/ASX 200 index dropped a sliver, down 0.1 percent.
In midday trading in Europe, the FTSE 100 index in Britain rose 0.17 percent while the DAX 30 in Germany gained 1.28 percent. The CAC 40 in France climbed 0.94 percent and the Stoxx Europe 600 rose 0.77 percent.