Imagine if the president of the United States forced America’s biggest banks to funnel hundreds of millions—and potentially billions—of dollars to the corporations and lobbyists who supported his agenda, all while calling it “Main Street Relief.” The public outcry would rightly be deafening. Yet the Obama administration has used a similar strategy to enrich its political allies, advance leftist pet projects, and protect its legacy—and hardly anyone has noticed.
The administration’s multiyear campaign against the banking industry has quietly steered money to organizations and politicians who are working to ensure liberal policy and political victories at every level of government. The conduit for this funding is the Residential Mortgage-Backed Securities Working Group, a coalition of federal and state regulators and prosecutors created in 2012 to “identify, investigate, and prosecute instances of wrongdoing” in the residential mortgage-backed securities market. In conjunction with the Justice Department, the RMBS Working Group has reached multibillion-dollar settlements with essentially every major bank in America.
The most recent came in April when the Justice Department announced a $5.1 billion settlement with Goldman Sachs. In February Morgan Stanley agreed to a $3.2 billion settlement. Previous targets were Citigroup ($7 billion), J.P. Morgan Chase ($13 billion), and Bank of America, which in 2014 reached the largest civil settlement in American history at $16.65 billion. Smaller deals with other banks have also been announced.
Combined, the banks must divert well over $11 billion into “consumer relief,” which is supposed to benefit homeowners harmed during the Great Recession. Yet it is unknown how much, if any, of the banks’ settlement money will find its way to individual homeowners. Instead, a substantial portion is allocated to private, nonprofit organizations drawn from a federally approved list. Some groups on the list—Catholic Charities, for instance—are relatively nonpolitical. Others—La Raza, the National Urban League, the National Community Reinvestment Coalition and more—are anything but.
This is a handout to the administration’s allies. Many of these groups engage in voter registration, community organizing and lobbying on liberal policy priorities at every level of government. They also provide grants to other liberal groups not eligible for payouts under the settlements. Thanks to the Obama administration, and the fungibility of money, the settlements’ beneficiaries can now devote hundreds of thousands or even millions of dollars to these activities.
The settlements also give banks a financial incentive to fund these groups. Most of the deals give double credit or more against the settlement amount for every dollar in “donations.” Bank of America’s donation list—the only bank to disclose exactly where it sends its money—shows how this benefits liberal groups. The bank has so far given at least $1.15 million to the National Urban League, which counts as if it were $2.6 million against the bank’s settlement. Similarly, $1.5 million to La Raza takes $3.5 million off the total amount of “consumer relief” owed by the bank. There are scores of other examples.