Of Special Interest

7th February 2012

US Bank bail out in disguise?

Shaun Donovan, US housing secretary, is proposing that investors in Mortgage Backed Securities be required to make a 'substantial contribution' to help pay off some of the capital owed by distressed mortgage customers as an alternative to a fine imposed on the banks relating to the illegal foreclosure charges and failing to adjust and rewrite mortgages according to federal and bank policies. Some US media are suggesting that substantial could equate to as much as $40bn (€31.0bn £25.9bn ¥3.1tr Y253.4bn).

In a telephone interview with reporters Donovan said:
“We believe not only that bringing state and federal powers gives us the ability to create real accountability at a scale that we have not seen to date, but ....there is the opportunity to get very large-scale relief, including serious principal reduction, for families that have been victims of the crisis.”

The highly controversial factor here, and one that could seriously damage the administration is why it should be the MBS holders and not the banks that broke the law and regulations that should pay. The statement was immediately characterised in some media as '(the tax-payers) pension funds been forced to bail out the banks'.

It would seem unlikely that this proposal will be agreed in Congress in this Presidential election year.