Five big banks have agreed to give twenty-three Democratic attorneys general more than a billion dollars that can be distributed to housing groups and community organizers in the months prior to the 2012 election.
The money is part a deal valued at $25 billion that the five banks announced Feb. 9 with President Barack Obama’s deputies and with a coalition of 50 attorneys general. Ninety percent of the value consists of mortgage write-offs, accounting changes and cash transfers that are to be delivered to homeowners over the next three years.
But $1.1 billion in cash will be transferred to the Democratic attorneys general as soon as the deal is approved by a judge, which is expected to happen in March or April.
The bank deal is also slated to deliver almost $1.4 billion to Republican attorneys general, but many of the GOP attorneys general have already announced they will transfer the funds to state legislatures.
The deal is a government shakedown of bank executives and their shareholders, said Tom Fitton, the president of Judicial Watch, a law firm that promotes transparency in funding.
By using the courts, the Democrats and their patronage groups have seized money and the ability to favor constituencies that elected legislators in Congress had already denied them, Fitton told The Daily Caller.
“The left is very adept at using the offices of the federal government to keep itself funded, and Republicans are generally oblivious to this,” he said. “Tax dollars shouldn’t be going to interest groups on the left — or the right,” he said.
Few Republicans, he said, “understand that they need to defund the left.”
Some GOP leaders are becoming alarmed about the political payoffs in the growing number of bank lawsuits.
On Jan. 25 Texas Republican Rep. Lamar Smith, chairman of the House Judiciary Committee, asked Attorney General Eric Holder to explain a December $335 million deal with Bank of America that would direct some of the funds to progressive groups.
Democratic-affiliated groups are already lobbying to win shares of the Feb. 9 funds, including a share of the $430.2 million being sent to California Attorney General Kamala Harris.
“In the last conversations we had with [Harris’ office] … they were still trying to decide how that money will be best used,” said Rosa Cabrera Aqeel, a community organizer in California for People Improving Communities through Organizing. “It is our understanding that we will be working cooperatively about how those funds are spent,” she added.
“There are local community organizations that are struggling to keep the doors open and they are really on the front lines of this,” said Jordan Estevao, a D.C. advocate for the National People’s Campaign and a coalition of progressive groups, dubbed the New Bottom Line campaign. “In many cases, it would be appropriate for them to get help in organizing homeowners and making sure that banks are held accountable,” he said.
Instead of $25 billion, the banks should be held responsible for the $336 billion that homeowners are underwater, said Estevao.
Once the attorneys general cash their checks, the flow of funds “will be difficult to track,” Fitton said.
Some of the money may be sent to advocacy groups that are allied with the Democratic Party, said Dan Epstein, at Cause of Action, which tracks corruption in federal funding.
“There is concern about Action Now, Alliance of Californians for Community Empowerment … and New York Communities for Change,” which were affiliates of the controversial street-politics group, the Association of Community Organizations for Reform Now, or ACORN, he said in a statement to TheDC.
The money can also be transferred through multiple federal or state agencies, Epstein said. For example, Affordable Housing Centers of America — a Chicago-based ACORN offshoot — has received funds through Illinois’ housing finance agencies, he said.
As part of the $1.1 billion payout, Illinois Attorney General Lisa Madigan will get $110.8 million.
The money “will go towards remediating the effects of historical levels of foreclosures … legal aid services, housing counselors, guidance counselors, outreach to buyers, funds to community revitalization initiatives,” said her deputy press secretary, Maura Possley.
But “there will be checks and balances,” she insisted.
When pressed by TheDC for evidence that the funds will be allocated without concern for partisan advantage, she said the interview was “getting to a point where it is insulting. … We’re in the initial stages of setting up this plan, and there will be effective checks and balances in place.”
Some of the Democratic attorneys general have already said they will use their money to spur further lawsuits against the banks.
New York Attorney General Eric Schneiderman gets at least $93.7 million. “New York will be able to distribute these funds to legal aid, homeowner assistance and advocacy organizations to help distressed individuals facing foreclosure or servicer abuse,” said a Feb. 9 statement on his website.
Iowa Attorney General Tom Miller was the lead AG in the negotiations with the banks, and came away with a promise of $15.3 million.
The money will help fund “a 911 help hotline, a legal aid structure … [and] future consumer-enforcement efforts,” said Geoff Greenwood, Miller’s spokesman.
Nevada Attorney General Catherine Cortez Masto is slated to receive $60.1 million, which adds to a prize of $30 million won from a related lawsuit against Bank of America.
The money will be used to “fund statewide consumer protection efforts, support homeowner protection efforts through legal aid, and most importantly increase resources for criminal financial fraud investigations and prosecutions,” said Masto’s spokesman, Jennifer Lopez.
The $25 billion deal did not grant the banks sanctuary from further lawsuits or investigations that may generate far more revenue for Democratic lawyers and progressive groups. Those investigations include one run by Schneiderman.
Some states are trying to redirect their shares of the $2.5 billion toward priorities unrelated to housing, Estevao complained.
In Missouri, Attorney General Chris Koster announced that he’ll send $40 million to the state legislature, and Democratic Gov. Jay Nixon has said he’ll push for the funding to be sent to state’s universities.
Many of the 27 Republican attorneys general are sending their funds to their legislatures.
In Virginia Republican Attorney General Ken Cuccinelli is sending nearly all of his $69.6 million to the legislature. Up to $900,000 of the money will be used to top up the “Regulatory, Consumer Advocacy, Litigation and Enforcement Revolving Trust Fund.”
Georgia’s take of $104.1 million will be sent to the state treasury.
Michigan’s slice of $101.8 million will go to the legislature, but Republican Attorney General Bill Schuette is asking that $6 million be used for the “investigation and prosecution of foreclosure-related crimes … [and] consumer protection education and assistance.”
New Jersey’s portion, $75.5 million, is slated for “various state housing programs.”
In Wisconsin, Republican Attorney General J.B. Van Hollen directed that $25.6 million of the state’s $31.6 million payout be used to close a state shortfall, and not be spent on local, Democratic-affiliated advocacy groups.
The announcement was furiously criticized by Milwaukee Mayor Tom Barrett, who said, “not one dime should be used to fund the unbalanced state budget.”
Other GOP attorneys general have not announced how their funds will be spent. These include the biggest GOP beneficiary, Florida Attorney General Pam Bondi, who will get $350.2 million.
Ohio’s Republican attorney general, Mike DeWine, announced that he’ll use his $97.1 million payout “to help with foreclosure prevention, revitalizing neighborhoods by getting rid of blighted properties, education for homeowners and prosecution of mortgage rescue scammers.”
The distribution of the $2.5 billion is skewed toward the states where federal and state real-estate regulation did the most damage to the local real-estate market. In four of the top five states — California, Florida, Nevada and Arizona — the housing markets were inflated by regulatory support for illegal immigrants after 2002. The regulations were established by President Bill Clinton and boosted by President George W. Bush.
For example, California’s Harris is getting $430.2 million, even though the state was home to Countrywide Financial, which worked closely during the bubble with federal regulators. In 2006, for example, it financed 20 percent of the nation’s mortgages, including many sought by unskilled immigrants. California’s government helped inflate the bubble by imposing so-called “smart growth” policies that sharply restricted new housing developments.
In contrast, the settlement only awards $140.9 million to Texas’ attorney general, even though the state has a population two-thirds the size of California’s. Texas got a lower payment because conservative housing rules in the state’s constitution minimized the price-boosting impact of federal regulations on the state’s property market.
Texas’ take is being transferred to the legislature’s control.
Countrywide was bought in 2008 by Bank of America shortly before the bubble burst. Countrywide’s shaky mortgages knocked the bank’s stock-value from roughly $50 per share to $10 per share. The collapse cost the bank’s shareholders and mutual-fund investors roughly $300 billion.
Partly because of the Countrywide merger, Bank of America is promising to pay up to $11.8 billion of the $25 billion settlement. JP Morgan Chase and Wells Fargo will each provide $5.3 billion, and Ally Financial will provide $310 million.
Citigroup, whose value on Wall Street has plunged by roughly $800 billion since July 2007, will offer $2.2 billion.
The banks are willing to sign the deal because the 2010 Dodd-Frank regulation bill has effectively put them under the control of the federal government, said Fitton. “They’ve been turned into public utilities. … They’ve become arms of the federal government,” he said.
Senior bank executives accept federal control, he said, because they get some benefits in return, including cheaper access to federally-backed credit, Fitton said. Smaller banks don’t get the same access to cheap credit, and lose out to the big banks, he added.
Estevao said he is also skeptical of the banks’ motives for accepting the $25 billion payment.
For example, banks are paying some of the $25 billion by forgiving over-priced mortgage contracts that wouldn’t ever be paid back. Other costs, he said, will be recouped by using losses as tax shelters. “This is accounting correction. … This is not real, the money they are supposedly paying is on paper only,” he said.
However, advocates for the deal say the terms discount bank-credit given to borrowers who have the least ability to pay huge loans. The real value of value of the deal may rise to $30 billion or even $40 billion, say these advocates.
The scale of the payout shows how much government has seized control of the economy, said Fitton.
Voters should be outraged, he said, adding that “the people who pay their mortgages on time, the people who make good decisions about mortgages … [and the banks’] customers and stockholders are going to be left holding the bag.”