As regards that $7 billion Citigroup will pay as part of its settlement with the government regarding the spotty mortgages it sold to MBS investors, in a sane world that money would go to the MBS investors who were harmed, right? The logic isn’t hard: Citi represented the loans as being of a certain quality. When the loans turned out to not be of the quality Citi said and bondholders lost money as a result, the bondholders deserved to be made whole. As I say, not difficult.
Except that’s not what’s going to happen. Rather—and this is the kind of thing that tempts one to bang one’s head against the wall for hours on end–fully $2.5 billion of the $7 billion has been earmarked instead for consumer relief, in the form of things like loan modifications and funding of affordable housing.
How the heck does that make sense? If anything, borrowers were the big beneficiaries of Citi’s shenanigans. They ended up being granted loans (often as a result of fraud on their part) they never deserved in the first place. Then after the borrowers defaulted, many ended up living in their properties rent-free for many months as lenders dealt with the huge backlog of defaults. They weren’t victims in any sense of the word. They freely entered into agreements that, either because of bad luck or malice, they failed to live up to. And now they’re getting rewarded? Worse, in many cases it’s likely the debt relief the borrowers will receive (via loan mods, say) will actually work against the interest of the borrowers the agreement was supposed to help in the first place.
This is beyond unfair. It’s perverse. So, by the way, is the notion that state and federal agencies will receive $500 million in the deal. Again, why?
Yet this seems to be the pattern. Around $4 billion of JPMorgan’s $13 billion mortgage settlement last year, you may recall, is going toward consumer relief. It’s crazy.
The Citi deal and the others like it isn’t an instance of the government intervening on behalf of a wronged party and securing justice on its behalf. I believe it’s more like a shakedown operation by a crime syndicate, conducted for the benefit of its friends and cronies.
Which is to say, it’s a disgrace.
What do you think? Let me know!