You remember the Tobacco settlement, don’t you? Based on dubious claims that smoking costs the states healthcare money, 46 states entered into an agreement that (1) froze the market for cigarettes in favor of a cartel existing companies; (2) took hundreds of billions from those companies, which they simply passed on as price hikes to the captive market; (3) paid lawyers tens of millions of dollars; (4) poured money into states ostensibly for healthcare and anti-smoking initiatives that, in the end, went into the same ratholes all other taxes went to.
We’re seeing the same script play out with the mortgage bubble. The big banks are more powerful and have a bigger market share than before. They’ve paid lots of money to various governments, and …
Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.
In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.
The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes.
Fifteen states, so far, have admitted they will use all or most of the settlement money like general revenue. This is being justified as “economic development”.
Is anyone surprised? Is anyone at all shocked that state governments took one look at the mortgage industry and said, to paraphrase what Dave Barry said about the Tobacco Settlement: “You’re making billions by selling mortgages to people who can’t afford them and then selling the securities to investors the Feds bail out. We want a piece of that action!”
Really, the only thing missing is warning labels on mortgage documents. I’m sure they’re working on that.