One of the unpleasant outcomes of the financial crisis of 2008 is the way the Obama Administration has treated many of the banks who wrote some of the bad mortgages. Never mind that many of the bad mortgages were required to be written because of government regulations regarding discrimination or that some of the leading Democrats in Congress were making sure that bad loans were continually being made, the Obama Administration is going to make the big banks pay for bad policy on the part of the government. Well, one bank has decided to stand up to the bully that the federal government has become.
The article reports:
The claim is that Fan and Fred—the government-created dominators of the mortgage market—were unwitting victims of the banks. To believe this fairy tale, you have to ignore the findings of a bipartisan congressional inquiry, as well as separate federal lawsuits in which the government is arguing that Fan and Fred did the misleading.
Yet regulators figured that the banks would probably cave to avoid unpleasant publicity and a juror pool angry about bank bailouts. And 17 banks did cave, paying the Beltway bandits nearly $18 billion to make these Little Orphan Fannie claims disappear. Firms like Bank of America , Deutsche Bank, Goldman Sachs and J.P. Morgan all wrote checks to buy peace with the politicos.
Nomura did not settle out of court and the trial is set for March 16. This is causing the government lawyers to lose no small amount of sleep.
The article reports:
In January the feds dropped their claims for damages. The government claims it can recover as much or more from the “equitable” claims, in which Nomura would merely be required to buy back the securities it sold to Fan and Fred. But Nomura says the damage claims were the most lucrative part of the case.
Why would the government want to limit its potential winnings shortly before the trial? Well, because abandoning damage claims lets the government avoid a jury trial. That means leaving it all to federal Judge Denise Cote, who is well known for tilting toward the government against business and has been siding with the feds in pre-trial rulings.
FHFA’s lawyer explained in a recent filing that a “bench trial clearly would conserve time and assets.” That may be true. But when the defendant is a large multinational bank and the government doesn’t want to face a jury in this era of public anger at big banks, that tells you how much confidence the feds have in their case.
This trial could be very interesting. Last fall, Nomura Bank offered evidence to show that Fannie Mae and Freddie Mac went shopping for sub-prime mortgages in order to align themselves with their political partners.
It would be nice to see this go before a jury that would get a chance to see the true facts of the case. The Obama Administration has engaged in shakedowns of anyone they think they can get money from or anyone they consider a political enemy. It would be nice to see that practice end.