If this does is not exactly what we see in “Banana Republics” I don’t know how else it can be explained.
By Andy Koenig
Imagine if the president of the United States forced America’s biggest banks to funnel hundreds of millions—and potentially billions—of dollars to the corporations and lobbyists who supported his agenda, all while calling it “Main Street Relief.” The public outcry would rightly be deafening. Yet the Obama administration has used a similar strategy to enrich its political allies, advance leftist pet projects, and protect its legacy—and hardly anyone has noticed.
The administration’s multiyear campaign against the banking industry has quietly steered money to organizations and politicians who are working to ensure liberal policy and political victories at every level of government. The conduit for this funding is the Residential Mortgage- Backed Securities Working Group, a coalition of federal and state regulators and prosecutors created in 2012 to “identify, investigate, and prosecute instances of wrongdoing” in the residential mortgage-backed securities market. In conjunction with the Justice Department, the RMBS Working Group has reached multibilliondollar settlements with essentially every major bank in America.
The most recent came in April when the Justice Department announced a $5.1 billion settlement with Goldman Sachs. In February Morgan Stanley agreed to a $3.2 billion settlement. Previous targets were Citigroup ($7 billion), J.P. Morgan Chase ($13 billion), and Bank of America, which in 2014 reached the largest civil settlement in American history at $16.65 billion. Smaller deals with other banks have also been announced.
Combined, the banks must divert well over $11 billion into “consumer relief,” which is supposed to benefit homeowners harmed during the Great Recession. Yet it is unknown how much, if any, of the banks’ settlement money will find its way to individual homeowners. Instead, a substantial portion is allocated to private, nonprofit organizations drawn from a federally approved list. Some groups on the list—Catholic Charities, for instance—are relatively nonpolitical. Others—La Raza, the National Urban League, the National Community Reinvestment Coalition and more—are anything but.
This is a handout to the administration’s allies. Many of these groups engage in voter registration, community organizing and lobbying on liberal policy priorities at every level of government. They also provide grants to other liberal groups not eligible for payouts under the settlements. Thanks to the Obama administration, and the fungibility of money, the settlements’ beneficiaries can now devote hundreds of thousands or even millions of dollars to these activities.
The settlements also give banks a financial incentive to fund these groups. Most of the deals give double credit or more against the settlement amount for every dollar in “donations.” Bank of America’s donation list—the only bank to disclose exactly where it sends its money—shows how this benefits liberal groups. The bank has so far given at least $1.15 million to the National Urban League, which counts as if it were $2.6 million against the bank’s settlement. Similarly, $1.5 million to La Raza takes $3.5 million off the total amount of “consumer relief” owed by the bank. There are scores of other examples.
Our analysis of over 80 beneficiaries from Bank of America’s settlement shows that they received, on average, more than 10% of their 2015 budgets from the bank. When other bank checks are added, the amount funneled to these organizations is guaranteed to rise. And the banks have multiple years to pay their total penalties, meaning some liberal interest groups can count on additional funding for years—and election cycles—to come.
As part of their “consumer relief” penalties, Bank of America and J.P. Morgan Chase must also pay a minimum $75 million to Community Development Financial Institutions— taxpayer-funded groups propped up by the Obama administration as an alternative to payday lenders. “Housing Counseling Agencies” also get at least $30 million. This essentially circumvents Congress’s recent decision to cut $43 million in federal funds routed to these groups through the Department of Housing and Urban Development.
The politicians who negotiate the settlements as part of the RMBS Working Group have also directed money to their supporters and states. Illinois’s Democratic attorney general Lisa Madigan announced she had secured $22.5 million from February’s Morgan Stanley deal for her state’s debtridden pension funds—a blatant payout to public unions. The deals with J.P. Morgan Chase, Bank of America and Citigroup yielded a further $344 million for both “consumer relief” and direct payments to pension funds.
New York hit the jackpot too. Attorney General Eric Schneiderman, also a Democrat and chairman of the RMBS Working Group, arranged for Morgan Stanley to fork over $400 million to New York nonprofits and $150 million to the state.
Despite the best efforts of a few principled legislators late last year, Congress missed an opportunity to amend the Justice Department’s funding bill to stop further handouts. Lawmakers now have another opportunity as Congress enters budget negotiation for fiscal year 2017. Rep. Bob Goodlatte (R., Va.) introduced a bill in April that would prevent government officials from enforcing settlements that funnel money to third parties, and it needs to gain wider traction with his colleagues. The political shakedowns disguised as public service must end.
Mr. Koenig is senior policy adviser at Freedom Partners Chamber of Commerce.