How to Score a Foreclosure Fraud Settlement Deal

Deal, or no deal? We're not sure, but it's certainly possible we'll hear something today, tonight, or tomorrow.

How will we know if it's a good deal for the American people? After all, this is an issue with a lot of moving parts. It includes all of the states and multiple agencies within the Federal government, and involves a multitude of allegations involving several different kinds of crime that come under different jurisdictions. Even the statutes of limitations are a moving target.

That doesn't mean we don't know enough to judge the deal, if and when it's announced. There are well-established facts to guide us, and the principles involved are clear.

Moral and Legal Context

We keep hearing about what is and isn't possible, practical, or politically feasible. Media discussions of the topic keep mixing the quotidien problems of the process with the underlying principles involved. So let's take a second to perform a moral and legal reset and put this issue in the right context.

Legally, banks stand accused of securities fraud, investor fraud, racial discrimination, tax evasion, defrauding borrowers, and perjury (in the filing of false "robo-signed" documents). Each of the major banks has already settled charges with the SEC involving these crimes and more.

Banks committed a number of moral offenses, too, some of which may also have been illegal. Here's a quick overview:

We know that bank executives fueled the housing bubble, convinced borrowers to take out loans based on inflated home values, sold deceptively packaged mortgage-backed securities to investors (including state and local governments and working people's pension funds), concealed their true financial situation from investors while taking massive secret assistance from the Federal Reserve, were bailed out by taxpayers, took huge bonuses anyway ...

.... and never even said they were sorry.

That's what we're dealing with here. But if that's the context, how do we evaluate a settlement proposal?

Five Principles

Any deal should be measured against five basic principles: openness, justice, restitution, deterrence, and reconciliation.

Openness: Do we know what happened? Has the truth been brought to light? Do we finally understand what happened to us, why it happened, and who's responsible?

Justice means exactly what it says: Is the deal just? The American people should be able to review it and know in their hearts that justice has been served. The guilty have been held responsible, laws have been upheld, and we know once again that we live in a society of laws.

Restitution: Have those that were wronged been made whole?

Deterrence: Has the punishment been proportional to the crime? Is it severe enough to deter future criminal behavior?

Reconciliation: When major crimes disrupt a nation, the final element is reconciliation -- the restoration of social calm, renewed trust between the parties involved, and a return to confidence in the institutions of government.

These goals may be too much to ask of a single settlement deal, although we shouldn't accept that without a convincing argument. Either way, they form the moral constellation by which any deal should be scored. The fact that we can never achieve perfection - perfect justice, perfect truth, or whatever - doesn't mean we should abandon our search for justice and truth, does it?

So let's take a look at what we know of the proposed deal so far. (We'll update this as further information becomes available.)