The wake of the 2008 real estate crisis was, in part, a huge transfer of funds from the private real estate industry to the government in the form of fines. In fact, there were billions of dollars in fines collected. Here we will take a look at how the billions from mortgage-crisis related fines are being spent.
Just how much was collected in fines?
According to who you ask, between $50 billion and $204 billion in fines were collected by the government between 2008 and 2015 specifically from mortgage related crises. The overwhelming majority of these fines were paid by multinational banks with very recognizable names in the real estate industry and in the public eye, with every one of the six largest banks fined including JPMorgan Chase, Bank of America, and Citigroup.
Where did all of this money go?
The Wall Street Journal was able to analyze $110 billion in fines from a macroeconomic standpoint, reporting on the major government agencies that received the money. Of the $110 billion that the Wall Street Journal tracked, housing agencies like Freddie Mac and Fannie Mae got $39 billion, $44.7 billion was put towards the general bubble of “general relief,” the US Treasury got $14.5 billion, and states received $5.3 billion. The report also noted that government agencies like Fannie and Freddie are basically arms of the Treasury, so in total, the Treasury received anywhere from $40 billion to $45 billion of the fines.
How has the Treasury accounted for its take?
In short, the Treasury is not required to account for any money that it spends, and it has not accounted for the majority of the $40 billion or so that it received from the big bank real estate fines. Looking more deeply into the Treasury’s take, reports found that there was an additional $10 billion that reverted to the Treasury through federal agencies that were tasked with cleaning up banks. If the continued fines that banks are receiving to the present day are any indication, those cleanup efforts have not gone incredibly well.
What is the general relief fund?
The general relief fund is an umbrella term that centralizes local housing aid community groups and money that is dedicated specifically to helping borrowers. However, no report has been able to drill down into the local level beyond a few isolated reports. For instance, New York is famously using its share of the money to finance horse stables for its state fair. There are very few states who have actually given reports on how they have spent the money, and those that have did not report much relief for the borrowers who were actually put underwater in their mortgages or kicked out of their homes during the crisis.
Congress also plays a role in authorizing funds from these fines; however, Congress is just as opaque as the government agencies who are actually holding the money. There have been no real reports about how Congress is authorizing the funds, nor any reports from Congress itself about where the money is going. Any of the money that was given to the states is not under the auspices of Congress; for instance, the New York horse stable scenario did not come from a Congressional report.
What is being done about the lack of transparency?
There are some special interest groups in Washington, D.C. that are fighting the lack of transparency of the government funds, most famously the Bipartisan Policy Center. However, there is very little that an isolated policy group can do without the cooperation of other government agencies, and the money that is coming from these banks seems to be going to the very agencies that would normally be tasked with overseeing the process. Many bank executives are also bemoaning the fact that they do not even know where their money went, and as they continue to be fined, the government seems to become even more opaque.
What about the Justice Department?
The Justice Department also received a hefty sum around $447 million dollars for its role in negotiating with the banks. The use of that money is also unaccounted for.
Is any of the money actually making it to displaced borrowers?
It is unclear whether the money that was given to the Treasury or to any of the other government agencies ever made its way to the borrowers who were actually affected by the 2008 housing crisis.
Banks continue to pay fines as investigations from 2008 continue, so the total number of dollars moving away from banks will most likely rise in the future. It is up to local communities to make sure that money gets to the people who deserve it, because if not, the black box of the government is more than happy to swallow it up, lost to accountability forever.
2 Point Highlight
There are very few states who have actually given reports on how they have spent the money, and those that have did not report much relief for the borrowers who were actually put underwater in their mortgages or kicked out of their homes during the crisis.
It is unclear whether the money that was given to the Treasury or to any of the other government agencies ever made its way to the borrowers who were actually affected by the 2008 housing crisis.
