If you want to understand what’s really going on, look to Rome. What did the Romans know about mortgage-backed securities? Nothing. But they knew spectacle when they saw it, and left us a timeless tool to help us see through it. “Cui bono?’’ was the question posed by the consul Lucius Cassius. More simply: “Who benefits?’’
The state attorneys general who led the crusade will trumpet the deal as comeuppance for banks that employed shoddy practices in past foreclosures. The banks will grimace and go along with that story line, because it’s in their interest. If the agreement weren’t preferable to the alternative - letting states pursue separate cases against them - they would never sign. Though $25 billion is a lot of money, each bank weighs its cost against what it would otherwise spend. Its choice is based on the best outcome for shareholders. And if banks cut a bad deal, there are plenty of lawyers waiting to sue on behalf of unhappy shareholders.
The AGs are still winners. They get great headlines and have an issue to take on the campaign trail. These are politicians after all; AGs are elected in 43 states. (New Hampshire is one of a handful where the position is appointed.) They’ll take credit for punishing “bad’’ banks, returning money to consumers, and reforming foreclosure practices. Of course, states take a pile of cash for themselves - as much as $5 billion for homeowner funds they control.
Last among the winners are those foreclosed-upon and underwater homeowners lucky enough to get a piece of the settlement. The banks will pay about $1,500 to a million homeowners who lost homes to foreclosure. Another 850,000 who owe more than their homes are worth could have their principal reduced by $20,000. But the wheels of bureaucracy turn slowly. It will take two months to choose a program administrator, and another nine months to figure out exactly who gets help.
