Elizabeth Warren Embarrasses Hapless Bank Regulators At First Hearing (VIDEO) - HuffPo

[hay rick]

44. Make an example.

Well done. Elizabeth Warren prefaces her question by suggesting that if a big bank expects that the penalty for bad behavior will be a consent decree and a fine that can be paid from a portion of the proceeds from their bad behavior- then they will have very little incentive to refrain from bad behavior. She states the obvious, but that makes the follow up question (when was the last time you took a big bank to TRIAL?) devastating when the answer is "never" or "don't know."

I thought it was hilarious that Curry, from OCC, was the first one to speak up and the first one to fall on the punji sticks. A discussion of his agency's handling of the recent Independent Foreclosure Review here: http://www.democraticunderground.com/12525602

Yves Smith weighs in on the settlement here: http://www.nakedcapitalism.com/2013/02/occ-compounds-botched-foreclosure-review-process-with-barmy-plan-for-distributing-peanuts.html

Warren rightly points out that if a party (any government regulatory agency, for example) is unwilling to go to trial, they have reduced leverage in negotiations. The recent OCC settlement is a poster child for this phenomenon. Here's what Smith has to say about the OCC's pretense that the settlement they got was good for homeowners:

Just focus on the cash portion, which is $3.3 billion across the ten servicers in the settlement. The other forms of relief, paralleling the state attorney general/Federal settlement, either aren’t worth much (writing off deficiency judgments) or are for things the banks were inclined to do anyhow.

495,000 complaint letters were filed. The estimates of serious harm from the whistleblowers at the Bank of America site in Tampa Bay ranged from 10% to 80%. The average was 33%, and the estimates also clustered around 30% to 40%. So we’ll use 30%...
...
You get $18.75 billion. Let’s say maybe the temps were too generous and their estimate is 1/3 too high. You still get $12.5 billion, nearly four times the amount for the banks to divvy up. And you’d have some less large payouts for the people not seriously harmed. If you would have qualified for a mod but the bank never processed your application, or were denied a mod incorrectly, that’s a $15,000 award. The folks who were processing mod complaints say they saw another 30% to 40% instances of less serious harm. So if you assume a $15,000 payout for another 20% (that’s conservative, the real number is probably closer to 30%), you get another $1.5 billion.

$14 billion, which is a conservative estimate of what the banks should have been required to cough up, is more than four times the only part that the OCC got that really matters, hard dollar payments to borrowers that suffered real losses. No wonder the banks are perfectly happy to pay out $2 billion to consultants who made a mess of things. Those madcap consultant were as clever as foxes.

But hey, one quarter of a fair settlement is better than no settlement at all. Elizabeth draws the obvious conclusion- we need to make an example of someone or we will never get fair settlement agreements or discourage banks from engaging in bad behavior.