A shocking aspect of the proposed foreclosure fraud settlement among Bailed-Out Banks, the state attorneys general, and the Feds has rightly gotten a lot of attention, namely the Bailed-Out Banks’ ability to use other people’s money to pay their ” penalty.” I confess, when I first heard about it, I figured it was a testament to the federal government’s craven capitulation to the Bailed Out Banks. (Let’s call them the B.O.B.s, rhymes with S.O.Bs.) But now I know it’s much worse than that, thanks to excellent reporting by David Dayen. The federal government really wants the B.O.Bs to use pension fund money to pay their ” penalty.”
Now, readers know I’m not exactly a Pollyanna, but I feel like one now. See, I thought our federal government understood that the right way to penalize someone with a fine was to actually make them pay the bill. I thought the feds realized the best way to punish the banks was to have them cough up cash into a BP spill-type fund, and have 50 special masters (one per state) use it to pay down mortgages, thereby punishing banks and helping homeowners. I just figured the Feds had rushed things so much, doing essentially no investigation, that they didn’t have the goods to leverage a better deal. But no. The Feds see the banks’ ability to spend firefighters’, teachers’ and cops’ money as a design feature, not a flaw.