Why Is Obama's Treasury Dept. Perversely Siding With Big Banks Against Elizabeth Warren and the State AGs?

American families are fortunate to have Elizabeth Warren on their side, along with the 50 state attorney generals who are demanding reparations from the nation’s largest banks.

Warren, who is the temporary head of the Consumer Financial Protection Bureau (a quasi independent agency housed in the not-so-friendly Treasury Department) and these AGs are demanding justice. It’s about time.

They want the big banks to pay dearly for the fraud they’ve perpetrated on potential homeowners in the form of robo-signings, lost titles, forged documents, phantom fees, willfully mismanaged loan modifications and a slew of other ruses even Kafka couldn’t imagine. Most of these homeowners are underwater – their homes worth less than their mortgages – and many are unable to meet their payments. All have seen the value of their homes plummet.

Well, aren’t these deadbeats getting what they deserve for taking on mortgages they couldn’t afford? To be sure, in the mix there are some speculators and crooks who were lying and flipping their way through the bubble. But the vast majority of homeowners in trouble are true victims of the 2008 Wall Street crash that killed eight million jobs in a matter of months. The big banks, now accused of fraudulent foreclosure procedures, are the same ones who puffed up the housing bubble, polluted the financial system with toxic assets, and nearly sent us back to the Great Depression. These banks helped put in motion the entire cavalcade of disastrous processes that crashed the value of homes all over the country. At this point it should be clear that too-big-to-fail banks are at the core of the problem and they owe us big-time.

This week in a confidential presentation for the AGs, Warren reveals that the banks’ malfeasance had a hidden design. She calculates that the five big banks (JP Morgan Chase, CitiGroup, Bank of America, Wells Fargo and Ally Financial) saved about $20 billion over the last three years by not hiring enough staff to properly process the tens of thousands of loan modifications and foreclosures.

Think about that for a moment. We’re in the worst jobs crisis since the 1930s and these banks had the chutzpah to amass another $20 billion by inadequately staffing up to deal with the foreclosure crisis they created in the first place? Instead, they reached into their grab-bag of spurious “financial innovations” and came up with technologies like robo-signings to process thousands of claims a month with only an emaciated skeleton crew. And, of course, they only stopped when they got caught.

Not only are Warren and the AGs (good name for a rock group) demanding $30 billion in reparations, they also want these banks to create thousands of jobs right now to properly process the foreclosures and loan modifications. How refreshing! Government officials are demanding that the rich and powerful pay for the damage they have done AND create jobs. That’s quite a contrast from the deficit hawks who refuse to tax the rich and instead lay off teachers by the thousands.

Warren and the AGs are also calling for a settlement that forces the banks to change their entire foreclosure process. They want bank staff to be rewarded for processing successful loan modifications instead of pushing people through foreclosures. They want systems in place so that titles don’t vanish into the black hole of securitization, and that unjustified penalties don’t get foisted onto homeowners in distress. And best of all, they are insisting that these banks make millions of loan modifications that might cost these five banks up to $135 billion. Now we’re talking real justice.

But don’t we already have a federal loan modification program in effect? We do, but, it’s another sad example of “government sucks.” When too-big-to fail banks were on their knees begging for TARP funds, both the Bush and Obama administrations could have easily forced them to modify millions of mortgages. After all, the government not only was bailing out the banks but also was willing to chip in for the modifications. Instead, Wall Street-friendly government officials ever so gently instituted a voluntary program where it was up to the banks to decide when and where to modify loans using the federal funds. (Mustn’t upset our fragile banks that suffered so much stress when their gambling schemes collapsed.)