Massive Justice Department Attack on Banks?

by Hans Bader on September 2, 2011 · 15 comments

in Bailout Watch, Economy, Legal

A monumentally-destructive Justice Department attack on banks may soon occur. Earlier, I wrote about how the Obama Justice Department is now forcing banks to make risky loans (in the name of “fair lending”), thus planting the seeds of a future financial crisis. In response, I received an e-mail from a former Justice Department lawyer who told me that the Justice Department’s HCE (Housing and Civil Enforcement Section, Civil Rights Division) is planning to block foreclosures across America (“across the whole [banking] sector”), even for irresponsible deadbeats who deserve to be foreclosed upon, citing racial disparities in foreclosure rates (which generally exist between black and white borrowers due to causes unrelated to intentional discrimination — as the Supreme Court has observed, racial disparities often occur for reasons completely unrelated to racist decision-making, as it has noted in cases like Richmond v. J.A. Croson Co., Watson v. Fort Worth Bank & Trust,  and United States v. Armstrong).

He wrote that “there is a unit in the HCE section headed by a nut running this. They are next going to BLOCK foreclosures based on this theory. It is part of an administration wide-strategy to stop foreclosures.  I’ve heard from people who have participated in the internal meetings.” He also asked that I not print his name yet, but allowed me to pass on the content of his e-mail.

While such a lawsuit seems insane — it would destabilize the banks and wipe out the value of their loans at a time when the financial system and economy are extremely fragile — there is no area where Democratic administrations are less willing to listen to reason than in the area of “civil rights.” Bill Clinton was reasonable in many areas, such as free trade, but not in the context of civil-rights, where he let left-wing ideologues in the Office for Civil Rights and the Civil Rights Division run wild and push radical legal theories that were so extreme that federal judges imposed sanctions on them. Similarly, under the Obama administration, civil-rights officials have demanded that trucking companies hire alcoholic truck drivers, and that some employers hire felons (under the theory that minorities are more likely to have criminal records).

The highly-politicized Obama Justice Department is already suing banks that it perceives as not making enough loans to minorities, and forcing them both to award preferential loans to high-risk borrowers based on race, and to cough up money in “settlements,” some of which goes to left-wing “community” groups that are allied with the Obama administration. I earlier questioned the legal logic behind these lawsuits, noting that racial disparities are often not sufficient evidence of discrimination in many areas of the law. (Ironically, if the government itself were liable for “discrimination” based on unintentional racial disparities — the way private employers sometimes are — it would continually be sued, since, as the Supreme Court noted in Washington v. Davis,  it cannot be denied “that a whole range of tax, welfare, public service, regulatory, and licensing statutes” are “more burdensome to the poor and to the average black than to the more affluent white.”)

The administration is also weighing a costly bailout for people whose mortgages are owned by two Government-Sponsored Enterprises, a bailout that could cost taxpayers tens of billions of dollars a year.

Sal September 2, 2011 at 5:14 pm

Truly, this is Marxism in action. It’s a manifestation of the Cloward–Piven strategy, a political strategy outlined in 1966 by American sociologists and political activists Richard Cloward and Frances Fox Piven, that called for precipitating an economic crisis that would lead to a replacement of the capitalist system with a more heavily socialist economy.

James September 2, 2011 at 10:37 pm

Such lawsuits would harm the stock market and result in a flight of capital from the financial system — cutting economic growth. To be audacious enough to do this stupid, the Obama Administration must assume that it already has the 2012 election in the bag, due to a sympathetic press.

There is plenty of real racism in the world — try catching a cab in many places if you are black. But the banking system is hardly a hotbed of racism. If banks could make more money by making more loans to minorities — or foreclosing less often — they would do so.

The Justice Department should take off its ideological blinders.

flytrap September 2, 2011 at 10:53 pm

This isn’t Marxism, it’s racism and payback. Marxism shouldn’t have a racial component. This is in line with Black Liberation Theology which was Obama’s religion under Rev. Wright.

Jimmie September 3, 2011 at 8:09 am

Stupid is as Stupid does…..

Josea September 3, 2011 at 1:42 pm

This is willful and criminal negligence of the oath to support and defend the constitution. This is breaking the law by the very people sworn to uphold the law. We are NOT a nation of laws under this administration.

Does ANYONE else see this?

chelle September 6, 2011 at 2:11 am

Bravo, Josea!

vanessa September 11, 2011 at 8:48 pm

Josea,

Don’t believe everything you read or hear.

Just use your common sense on this one.

joe September 3, 2011 at 5:16 pm

We got into this mess because the government forced banks to make loans to people who nevere should have gotten loans in the first place. If we want to make sure this never happens again, Congress should do three things ( which won’t cost taxpayers and more than the paper and ink needed to print the bills).

First, repeal the Community Reinvestment Act, which reverse-redlines certain areas, and forces banks to pay bribes to ACORN-like organizations, in order to get approval for purchases, new branches, etc.

Second, require Fannie and Freddie to use commercially reasonable underwriting standards in determining which loans are conforming.

Third, amend the Civil Rights Act, the Fair Housing Act and all similar federal and state statutes (which Congress has the authority to do by pre-empting the field under the 14th Amendment), to expressly provide that discrimination cannot be proven by statistics showing that one group or another has a greater or lesser representation than another, and that discrimination must be proven in specific inidividual cases.

As a great American once said, in our current crisis, goverment is not the solution, government is thge problem!

chelle September 6, 2011 at 2:22 am

Not to mention the fact that ACORN and the SEIU protested outside of the homes of these bank Directors (Bank of AMerica) – threatened their families unless they complied to these unreasonable loans. Now this administration, along with Barney Frank and his lover (Fannie Mae employee – granted only b/c of Frank’s influence) suggest we sue the baks that supported their agenda only after bullying and Union thuggery?!? All of this has been nothing but a ponzi scheme which the AMerican people are now required to bail out b/c of decisions based on unrealistic philosophies embraced by the Dems and Liberals…. and if you disagree – you’re a racist…. or a terrorist… a barbarian.. a son of a b*tch…. or simply – someone who agrees with fiscal responsibility (Tea Partier). I;m sick and tired of being labeled the enemy simply b/c I don’t want to bail out the loser programs promoted by the Democratic Party.

Gary September 4, 2011 at 2:12 am

His day is coming. So is Eric’s.

vanessa September 11, 2011 at 8:45 pm

Gary,

Try not to make threats. Everyone sees this for what it is.

chelle September 6, 2011 at 2:24 am

oh – and not everyone is “entitled” to owning a home. It’s a privilege.

vanessa September 11, 2011 at 8:50 pm

They are entitled if they have the credit score, qualifications and job.

Richard September 6, 2011 at 10:12 am

I think you overlook the fact that these banks failed loans are still on the balance sheets (if not their own, then the balance sheet of a purchase or coerced purchaser).
So, where you say ‘destabilize banks and wipe out the value of their loans’ – I say good!
The bad loans have to be written down for their actual value , otherwise the charade continues (fraudulent value on the books – it used to be considered a crime).
You advocate continuing the charade to avoid the pain of reconciling the pain, but the pain will come, sooner or later.
If I owned bank stocks and were of low moral character, I would wish for someone else to pay the piper too.

Uno Hu September 23, 2011 at 12:41 pm

I’m just watching this one – I don’t know if it’s true or not. But I do have this to say. If the banks being threatened are so cowardly and craven as to comply with this “no foreclosure foolishness”, I would consider that they DESERVE all the financial losses they would incur. They are being bullied by a crooked (term chosed advisedly) Justice Department, and they only correct response to a bully is to stand up to him.

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