Outrage of the Week: Banks get tax deduction for payments for illegal foreclosures
On January 16, the Federal Reserve Board announced a settlement with Goldman Sachs and Morgan Stanley companies to settle claims of wrongful foreclosure and other forms of mistreatment and illegality inflicted on homeowners. The deal is similar to one reached a week before with 10 other major lenders, those being Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, US Bank, and Aurora.
Goldman Sachs and Morgan Stanley will together put up $232 million in direct payments to eligible borrowers and $325 million in other forms of assistance, such as loan modifications, for a total of $557 million. For all 12 banks together, it will be $3.5 billion in cash compensation and $5.5 billion for mortgage assistance. That's $9 billion.
Which may seem like a lot of money, and it is - but not to them. That $557 million Goldman Sachs and Morgan Stanley together will pay? Morgan Stanley made $507 million in profit in the 4th quarter of 2012. And speaking of Goldman Sachs, it had profits of $7.3 billion in 2012, so it alone could almost cover the entire amount to be paid by all 12 banks with just one year's profits. Not sales, not gross receipts, not total income, remember: profit.
This is nothing but a slap on the wrist, especially in light of the huge potential liabilities the banks can now just write off their books. And it's not even a slap on the wrist, not when you consider that this is "compensation" for hundreds of thousands of people who had their homes wrongfully taken and millions more dealing with delinquency notices and other problems because of the failures and illegalities of the banks.
In fact, some 4 million homeowners are covered by this agreement. With a $9 billion fund, that's an average payout of $2250. As compensation for having your home wrongfully taken away from you.
Now to be as fair as I possibly can, there is a range of figures for compensation depending on, to put is simply, in just what way the bank screwed you. The top figure is $125,000. Some will get just a few hundred.
Bear in mind that according to the National Association of Realtors, the cheapest region of the US for house prices over the past 12 months was the Midwest, with a median figure of $142,000 at the end of 2012. It was $157,000 in the South, $233,000 in the Northeast, and $248,000 in the West.
Which means that it's possible - it's possible - that if you had a very modest home in the least expensive area of the country, you hypothetically might, might, be able to get compensation at least approaching the financial value (not the emotional value) of what you lost. But what's far more likely is that after having your home stripped away from you as a result of the illegal behavior of the banks, your "compensation" will be a check for a couple of thousand dollars and a shrug.
Not enough? Want to go one more round? This is what, to use a great old expression, caps the climax: All that money going to lenders as compensation for what the banks did wrong? All that money as supposed compensation for deceiving you, two-timing you, even taking your home?
The IRS regards the money as a cost incurred in the course of doing business. That's right: It's tax-deductible.
This is not only not even a slap on the wrist, it's a kiss of the ring. It is an outrage.