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8 Things You Should Know About the New Lawsuit Against the Banks That Torpedoed the Economy

The FHFA filed lawsuits last Friday alleging nearly $200 billion in fraud by the nation's biggest banks. Could this be the beginning of accountability for the banksters?

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Rep. Miller shrugged off this argument. “I would like to see the cases, the legal authority that makes that a defense to this lawsuit. The argument that he's a bad guy too doesn't strike me as a very strong legal defense.”

“There has been precious little interest on the part of Republicans to pursue any claims or to allow private litigants to pursue any claims,” he continued.

Of course, there's been precious little interest from many Democrats as well, as the Obama administration has joined in pressing for a sweetheart-deal settlement for the banks. The question then becomes, will lawsuits like this lead to the end of the romance between finance and at least certain parts of the Democratic party?

4. Suing Obama advisers: where does GE fit in?

General Electric? That's not a bank! Yet it is named in its very own lawsuit over mortgage securities—and its CEO, Jeffrey Immelt, is a top Obama adviser (on jobs, which requires more comment than I have room for here).

But among the many tentacles of the $739 billion conglomerate that is GE is GE Capital Services, otherwise known as GE Consumer Finance or GE Money, which is in turn the parent of GE Mortgage Holding or GE Holding. If you're confused, you're not alone. Suffice it to say that in addition to weapons, household appliances and NBC, GE has some significant money in mortgages—and like the other banks in the suits, was doing some shady things with them. ( You can read the whole suit here [PDF].)

William Alden and Zach Carter at the Huffington Post explained the ongoing tensions between Obama and Edward DeMarco, acting FHFA director. “DeMarco, a holdover from the Bush administration, has rebuffed a push from Obama insiders to spur mortgage refinancing for underwater borrowers,” they wrote.

So is the inclusion of GE a sign that the Obama administration is willing to tackle even its buddies (and donors)? Or is it a Bush-administration holdover continuing to be at odds with the Democratic administration in charge? It seems clear that Obama doesn't want to take credit for the lawsuits—though Democratic Rep. Brad Miller has cheered them.

Either way, GE's involvement should remind us that we're not dealing with just financial institutions here—multinational corporations are wrapped up in this crisis on all sorts of levels.

5. Impact on the housing crisis

These lawsuits, like so much of the ongoing fallout from the economic crisis, are all about the housing industry. The New York Times noted:

“Buried in the filings themselves, however, is a damning portrait of the excesses of the housing bubble, when borrowers were able to obtain home loans without basic proof of income or creditworthiness, and banks appeared only too happy to mine profits taking the risky loans and assembling them into securities that could be sold to investors.”

So as we follow the fallout, it's important to remember that there were real people who bought homes under pressure from lenders desperate for more mortgages to sell as securities, or who refinanced their homes only to get foreclosed upon.

And the Housing Predictor blog wondered if there could be help for homeowners struggling with their loans or underwater on their mortgages in negotiations with the FHFA. Mike Colpitts wrote, “...according to two highly placed federal sources. Negotiations could include more than just big cash settlements with the lenders.”

Mortgage modifications have been part of every settlement or deal with the banks since the beginning of the crisis—and they've also nearly always been optional, and banks have actually done very little modifying. But, Colpitts argued, “BofA could presumably work out an agreement with the government that could reduce the amount the bank would have to pay in damages to the federal government, by increasing the amount it would reduce the principal of mortgages for at risk mortgage borrowers.”

 
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