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There were two major revelations from these hearings, in addition to the ongoing revelation that the suits who people the country's financial regulators are sniveling, obfuscatory weasels who clearly view the banks they're supposed to be regulating as a bunch of stand-up dudes while the taxpayers who are always demanding this or that (and the politicians who represent them) are humorless pains in the ass.
In terms of new revelations, the first was this one, a real shocker: that apparently, it was not even the obscenely overpaid, lapdog consultants* who made the final decisions about which homeowners fell into which boxes in terms of settlement compensation. Incredibly, it appears that the banks themselves were allowed to do that sorting process!
(*Regulators had mandated the hiring of these "independent" consultants back in 2011, and the list of companies included Promontory Financial Group, PricewaterhouseCoopers, Ernst & Young, and Deloitte & Touche. These private firms were hired to review the banks' loan files in search of errors, and collectively were paid by the banks over $2 billion, a staggering sum which ultimately worked out to over $20,000 per file.)
Senator Warren: I just want to take a look at the Independent Foreclosure Review Payment Agreement details. I think you've probably all seen this one page agreement that lists all of the things that the banks did wrong and then boxes for how many people fall into each category and how much money they're going to be paid. Is that right? You've all seen this? [Panel indicates they have seen it.] And this was put out who put this out? I think this is put out by the OCC and Federal Reserve. Is that right? As part of the settlement details.
Senator Warren: So I just want to ask you about this. It has some pretty amazing categories here. The first category is about service members who were protected by Federal law whose homes were unlawfully foreclosed. It's got people who were current on their payments whose homes were foreclosed. It's got people who were performing all of the requirements under a modification who lost their homes to foreclosure. And it tells how many people fall into each category and how much money the people in that category will receive. And, it ultimately resolves what will happen to 3,949,896 families. So the question I have is having resolved this for nearly 4 million families, who put the people, the families, into each of these boxes. Is that what your firms did, Mr. Ryan?
Owen Ryan, Partner, Deloitte & Touche LLP: No, Senator, we did not.
Senator Warren: So who put them in?
Ryan: I'm not sure how that schedule is prepared. I saw it for the first time yesterday.
Senator Warren: Mr. Flanagan?
James Flanagan, Leader, U.S. Financial Services Practice, Pricewaterhouse Coopers LLP: Same response. We were not involved in the accumulation of that information.
Senator Warren: Mr. Alt?
Konrad Alt, Managing Director, Promontory Financial Group: Senator, I've seen the schedule but I'm not familiar with the basis for its preparation.
Having established that the consulting firms did not do this sorting, Warren presses toward the obvious conclusion:
Senator Warren: So that leaves us with the banks that broke the law, were then the banks that decided how many people lost their homes because of their lawbreaking. And, as a result, how many people would collect money in each of these categories. Is that right,Mr. Alt?
Alt: Senator, I'm not familiar with the basis for the scheduling.
Senator Warren: So far as you know, there's no independent review of the banks' analysis . . . You looked at 100,000 cases, and the banks have now put 4 million people into categories and resolved finally how much they will get from this review by the OCC and the Federal Reserve.
Even worse, when pressed on the question of whether they would deliver any evidence of wrongdoing they uncovered to private parties who might want to sue, they hedged.
In these exchanges, Warren questions Daniel Stipano, deputy chief counsel from the OCC, and Richard Ashton, Associate General Counsel for the Board of Governors at the Fed. There are two key sequences.
In the first, Warren asks both men if they will make public what they know about the extent of the illegality and errors whether the real error rate was, as she put it, 1 percent or 90 percent. But the two officials respond in gibberish legalese (if you watch the video, Ashton in particular seems to take pleasure in dicking the Senate around with his verbose non-answers), repeatedly forcing Warren to pin him down to their actual concrete position, which turns out to be, "Fuck you."
Senator Warren. So let me just make sure I understand this completely. I want to know on a bank-by-bank basis the number of families that were illegally foreclosed on. Will you give me that information?
Mr. Stipano. Eventually, we are going to issue a statement to the public where we provide additional information, but if we go through the processes that I described previously, we can share it to Congress in its oversight capacity.
Huh? I have no idea what that means, but it sounds positive it did to Warren, too:Mr. Stipano. Eventually, we are going to issue a statement to the public where we provide additional information, but if we go through the processes that I described previously, we can share it to Congress in its oversight capacity.
Senator Warren. So you are saying you will make that information publicly available?
Mr. Stipano. I did not say that. I said that we are planning on issuing a public statement that wraps up the IFR that provides additional information . . .
Mr. Stipano. Well, sometimes you get information through third parties, through outside sources. But in this case, that is not the case.
Senator Warren. So unless someone throws a rock through the window with this information tied to it, you will not release it, is that what you are saying?
Stipano here replies with more gibberish:
Mr. Stipano. To the extent that the information is confidential supervisory information derived from the exam process, it is subject to privilege.
From there, Warren asks a more specific question. What if someone wants to sue a bank for illegally tossing them out of their home? And what if you have evidence in such a case? Wouldn't such evidence be, you know, helpful to those people? Stipano helpfully agrees, yes, it would be helpful:
Senator Warren. All right. So let me ask it from the other point of view. You now have evidence in your files of illegal activity, I take it, for some of these banks. I get that from the evidence you have released about the charts, who is going to get paid what. So if someone believes that they have been illegally foreclosed against, will they still have a right under this settlement to bring a lawsuit against the bank?
Mr. Stipano. Yes.
Senator Warren. All right. Now, if a family wants to bring a lawsuit--you are both lawyers--would it be helpful, if you are going against one of these big banks, would it be helpful for these families to have the information about their case that is in your files? Mr. Ashton?
Mr. Ashton. It would be helpful, obviously, to have information related to the injury. Yes, it would.
Which leads to the next question having acknowledged that it would be helpful, will you help?
This seems like it should be an easy answer, but it isn't:
Senator Warren. Okay. So do you plan to give the families this information? That is, those families that have been victims of illegal foreclosures, will you be giving them the information that is in your possession about how the banks illegally foreclosed against them? Mr. Ashton?
Mr. Ashton. I think that is a decision that we are still considering. We have not made a final decision yet.
Senator Warren. So you have made a decision to protect the banks but not a decision to tell the families who were illegally foreclosed against?
Mr. Ashton. We have not made a decision about what information we would provide to individuals, that is true. Yes.
Senator Warren. Mr. Stipano?
Mr. Stipano. We are in the same position.
Obviously these guys can't come out and say, "We're not giving anybody anything. Blow us." That would cause too much of an uproar. So they just say they haven't decided, and we all know what that means. Warren tries to frame the issue in the most embarrassing way possible, but the witnesses prove immune to such embarrassment:
Senator Warren. So I want to just make sure I get this straight. Families get pennies on the dollar in this settlement for having been the victims of illegal activities or mistakes in the banks' activities. You let the banks, and you now know individual cases where the banks violated the law and you are not going to tell the homeowners, or at least it is not clear yet whether or not you are going to do that?
Mr. Stipano. We have not made a decision on what we are going to tell the homeowners.
All of this just confirms what we already suspected about the foreclosure settlement. This whole enterprise was conceived by the government solely as a means of dealing with the explosive problem of containing the private liability of these "systemically important" companies. Not only are we not prosecuting these firms anymore, we're also actively in the business of protecting them from litigation.
No other conclusion is possible from this testimony, which shows that our two primary regulators not only withheld information about bank illegality and errors prior to the settlement, but plan on continuing to do so going forward. There can be only one reason for concealing that information from the people affected by those "errors."
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