Leverage is not Justice

Here is the question: if you owned a home and were not paying your mortgage, did you suffer any damage if the documents used by the bank to foreclose were signed by a computer rather than by a person who checked their validity? The simple answer is no. Now, suppose you owned a home but were in a position to contest a foreclosure because you had not defaulted in a way that allowed the bank to take posssession. Were you damaged if the foreclosure papers were signed automatically by a computer rather than by a person who checked their validity? Here too, the answer ought to be no. After all, if you had a defense to the foreclosure, you should still have been able to present that defense and win the action. The only way you could claim to have been damaged in that situation is if you could show that the bank would never have proceeded against you if a live person had checked the documents -- and then your damage would just be the cost of your defense. Now supposed that you could also show that you simply could not afford to present a defense against the computer signed documents, not because you did not have one, but because you could not afford to do so. At that point, you would have a claim against the bank for damages. You would have lost your house, but, if you could not afford a defense, you might have lost it anyway even if a live person had checked the papers. Finally, suppose you were not paying your mortgage, but the bank did not foreclose. Were you damaged when the bank used computer signed documents to foreclose on somebody else's house? Obviously not! You were not affected at all.

All this may seem like a strange mix of irrelevant questions, but it is not. Bank of America is mailing out letters under which it will agree to forgive up to 30 billion dollars of mortgage debts covering 200,000 homeowners as a result of a settlement of a lawsuit brought because the bank used robo-signing methods for foreclosure documents rather than having an individual verify the accuracy of the papers and then sign them. This settlement has come about because various government agencies have used the mistake by B of A to leverage the bank into forgiving the mortgage debt as a way to settle the claims against it.

The clear message of the the settlement is this. No one cares about the people who were actually damaged by what B of A (and others) did. Those folks lost their homes in improper foreclosures. They are getting nothing out of the settlement. NOTHING! Instead, B of A is being forced for a stupid mistake into a redistribution of wealth scheme. The loans being forgiven represent money that B of A lent to borrowers. These were funds that the bank expected to get back. Now, B of A is agreeing to let the borrowers keep the funds in order to get this suit off its back. The government has the leverage of possible punitive damages and the reopening of an enormous number of closed foreclosures to force B of A to transfer the funds to the borrowers. Remember, these borrowers are not the ones who suffered any damage. They are just getting a windfall.

Now you may thing that this is a good thing. This big bank is having to give up billions to individuals across the country. The little guy has won and the big guy is taking it on the chin. But who do you think owns Bank of America? It isn't some plutocrat living on Fifth Avenue in New York. The bank is owned for the most part by pension funds, mutual funds, other banks and other institutions. In other words, probably a majority of Americans who save own a small piece of B of A. A majority of folks with pensions also own a bit of B of A. If you consider all these folks to be fat cats then B of A might qualify as such. The reality, however, is that all that is happening is that the lawsuit settlement is forcing one group of middle and working class Americans to subsidize a different group.

This is not justice. The small number of folks who were actually injured here are getting nothing, zilch, nada! This is, instead, leverage. The "government knows best" crowd has once again stuck its nose into the situation to force the "big guys" to transfer funds to the "little guys", except those actually paying are just other "little guys".