Ever since it was first proposed, the financial services industry has launched a withering assault on the Volcker rule, a regulation meant to rein in the ability of banks to gamble with their customers’ deposits. The banks were able to water the rule down before it was passed into law — thanks in no small part to Sen. Scott Brown (R-MA) — and have now submitted a heap of comments to the regulators charged with implementing the rule, in hopes of watering it down even further.

But not all members of the financial industry are against the Volcker rule. In fact, former Citigroup CEO John Reed submitted a letter to the Securities and Exchange Commission saying that the rule does not go far enough in preventing the banks from engaging in risky trading with deposits:

When a firm is focused on market gain, it will employ every available device to achieve those gains – including taking advantages of clients and putting the firm at risk. And. when it is large enough to be a threat to systemic stability, it is able to avoid the constraints of market discipline which apply to smaller actors In short, little will stand in the way of it becoming a threat to systemic stability.

The Volcker Rule is a critical response to this problem. and the proposed rule takes an important step forward in pulling into place the prohibition on proprietary trading and positions in private funds. However, I am concerned it docs not offer bright enough lines or provide strong enough penalties for violation.

Reed called for “specific and vigorous penalties” for traders who break the Volcker rule, as well as a provision requiring banks’ senior officers to sign forms attesting to their firms compliance with the rule.

Reed is no saint when it comes to regulatory matters, as he was instrumental in bringing down the barrier between investment banking and commercial banking in the 1990s, which laid the groundwork for today’s mega-banks and the financial crisis of 2008. However, he has since acknowledged that his position then was a mistake, and has pushed for strong financial reform, including breaking up the biggest banks. (HT: Huffington Post)

Today, 49 states joined the federal government in finalizing a $26 billion settlement with five of the nation’s biggest banks over the banks’ foreclosure fraud abuses. The money will be used to aid homeowners, both through direct payments and by reducing mortgage principal for homeowners who find themselves owing more on their mortgage than their home is currently worth.

In terms of the size of the housing problem, as Reuters’ Agnes T. Crane and Daniel Indiviglio noted, $26 billion is a “mathematical drop in the bucket,” considering that homeowners are underwater by some $700 billion. As far as being a knock for the banks, Nasdaq.com columnist Daniel Pereira noted that the $26 billion is about half what the four publicly traded banks involved in the settlement made in profits last year:

The $26 billion represents a significant settlement, but it clearly won’t stagger the banks too much. Together, the four banks mentioned above took in a total profit of $47.6 billion in 2011. It’s not as if the banks will be paying the settlements out of pure profits, either; they’ve all set aside a fair amount of capital to pay for their mistakes. Still it’s telling that the banks will be paying just about half of their annual profits to walk away from the foreclosure mess.

Several state attorneys general were hesitant to join the settlement, fearing that the terms were too easy on the banks and that the extent of the banks’ fraudulent activities had not been uncovered. As we noted before, the settlement protects the banks from state and federal lawsuits pertaining to some abuses, such as “robo-signing” foreclosure documents, but doesn’t prevent individuals from moving forward with their own individual actions against the banks.

While it certainly won’t be a panacea for all that ails the housing market, it will certainly help those people who, until this point, had little hope of receiving a principal reduction any other way.

Federal and state officials today will finally announce that they’ve reached a settlement with the nation’s biggest banks over the banks’ various foreclosure fraud abuses, such as “robo-signing” foreclosure documents and submitting falsely notarized documents to courts. The settlement has been in the works for several months, as a few key states — most notably California and New York — were holding out for tougher terms against the banks.

Here are some of the key numbers in the settlement, which is being officially announced at 10 a.m.:

49: States that have reportedly signed onto the settlement. The lone holdout is Oklahoma, as Attorney General Scott Pruitt (R) feels that the terms are too hard on the banks. Attorneys General Eric Schneidermann (D-NY), Kamala Harris (D-CA), and Beau Biden (D-DE) have thrown their support to the agreement, after opposing earlier versions for being too easy on the banks.

5: Banks covered by the settlement: Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial.

$26 billion: The amount of the settlement. About $5 billion will be direct cash penalties, $1.5 billion of which will go directly to homeowners foreclosed upon between September 2008 and December 2011.

$17 billion: The amount of settlement money going toward reducing loan principal (the amount homeowners have outstanding on their mortgages) and mortgage modifications. Banks will not get dollar-for-dollar credit for every principal reduction, so HUD Secretary Shaun Donovan believes the deal will ultimately result in $30-$40 billion in real principal reduction.

$1,800 to $2,000: The amount going to homeowners who qualify for direct cash payments.

1 to 2 million: Homeowners expected to be aided by the settlement money, with one million receiving reduced loan balances or loan modifications and 750,000 receiving direct payments.

4 million: Americans who have been foreclosed upon since 2007.

The deal protects banks from state and federal lawsuits pertaining to some foreclosure fraud abuses, including robo-signing. However, Schneidermann’s lawsuit against three big banks for allegedly fraudulent use of a mortgage database will go forward. In addition, “individual homeowners retain private rights of action to sue over foreclosure fraud and other abuses.”

Yesterday, the Department of Justice and a group of state Attorneys General were scheduled to finally announce the terms of a settlement with the nation’s biggest banks over the banks’ foreclosure fraud abuses. However, the announcement was canceled at the last minute, leaving the status of the settlement where it has been for several months: in limbo.

Part of the hesitation on the part of several of the AGs is that a settlement would limit investigations into the extent of the fraud perpetrated by the banks. In the meantime, between shoddy foreclosure and faulty loans, the biggest U.S. banks have already lost $72 billion — with the most losses coming at Bank of America — and are preparing to lose even more:

Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices.

Wells Fargo & Co., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Ally Financial Inc., the five largest home lenders during the real estate boom, tallied at least $6.78 billion in new costs tied to mortgages during the second half of 2011, according to data compiled by Bloomberg. Bank of America, ranked second among U.S. banks by assets, contributes $41.8 billion of the overall total.

“It’s a colossal failure of basic banking,” said credit analyst David Knutson. “It’s surprised everyone in terms of persistence and longevity and I think it will continue to surprise.”

Foreclosure fraud has been going on at the biggest banks since at least 1998. According to a New York Times report over the weekend, government backed mortgage giant Fannie Mae also knew about the shoddy foreclosure practices as far back as 2003, but did nothing. The more facts that come out regarding the extent of foreclosure fraud, the more it seems that further investigations and potential court action is warranted.

Last month, JP Morgan Chase — the largest bank in the United States — launched a project to digitize the documents of Martin Luther King Jr. and other civil rights leaders, making them available on the internet. “It’s important for JPMorgan Chase to support Dr. King’s legacy because of the important values he committed his life to promoting, such as equality, equal opportunity, and quality education for all. People like Dr. Martin Luther King are what made America what it is today. The values he espoused are the values that JPMorgan Chase also tries to stand for around the world,” said JP Morgan Chase CEO Jamie Dimon.

But at the same time, as Change.org has noted, the bank is on the verge of foreclosing on a 78 year-old former civil rights activist:

Helen Bailey is a 78-year-old grandmother who participated in the civil rights movement, worked as a childcare provider for autistic children, and was a community volunteer. She has paid her mortgage since 1999, but now she can’t keep up the payments. All she wants is to stay in her home until she dies, in the neighborhood where she feels safe and has lived for nearly quarter of a century. She could have refinanced with a company willing to let her live in the house for free until her death, but Chase Bank would not reduce her principal by $9,000. She’s been paying 7% interest, well above most rates, so Chase could have decided they had made enough. Instead, they have started foreclosure…While Chase tries to tie itself to the incredible legacy of Martin Luther King, who really did believe in communities, Chase tries to throw a grandmother who marched for civil rights out onto the street.

“JP Morgan Chase must practice what it preaches,” said Gary Flowers, Executive Director and CEO of the Black Leadership Forum, Inc. “On one hand, the bank cannot earnestly invoke the values of Reverend Doctor Martin Luther King, Jr., while devaluing the very principles for which he lived and died.”

This is not the only mortgage-related issue JP Morgan has brought upon itself recently. Last year, JP Morgan found itself in hot water for overcharging members of the military on their mortgages, eventually agreeing to a $56 million settlement. The bank even sold off the home of a military member on the very day that he returned from Iraq.

One former JP Morgan banker told Reuters, “I don’t say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization.” And evidently that exploitation extends to touting the bank’s commitment to civil rights with one hand while foreclosing on a former civil rights activist with the other.

One of the problematic developments for the U.S. economy in the last several decades has been increased financialization. In the 1950s, the financial sector made up less than 3 percent of the economy. Today, it is back to its pre-recession heights of more than 8 percent. The financial sector accounts for about 30 percent of total corporate profits, which is actually down from before the financial crisis, when it made closer to 40 percent.

Increased financialization is of dubious societal use; as former Federal Reserve Chairman and big bank critic Paul Volcker has said, “I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence.” (Volcker has opined that the last useful bit of financial innovation was the ATM.) At the same time, the industry is one of the highest paid. In a new piece in New York magazine, a former Lehman Bros trader explained that, in his view, “there’s no other industry where you could get paid so much for doing so little“:

Many [on Wall Street] acknowledge that the bubble­-bust-bubble seesaw of the past decades isn’t the natural order of capitalism—and that the compensation arrangements just may have been a bit out of whack. “There’s no other industry where you could get paid so much for doing so little,” a former Lehman trader said.

The Great Recession destroyed nearly $20 trillion in wealth, and total family wealth is still down $15.1 trillion (in 2011 dollars) from its last peak. And there’s very little that the financial industry can point to that could possibly be worth that cost. To the contrary, as Nobel Prize winning economist Paul Krugman has pointed out, the era of “boring” commercial banking — when strict regulations kept investment banking and commercial banking separate — “was also an era of spectacular economic progress for most Americans.” (HT: Jillian Berman)

Back in November, hundreds of thousands of Americans took part in “Bank Transfer Day,” a day for those fed up with the actions of the nation’s biggest banks to move their money to a different institution. Initial estimates of the impact of Bank Transfer Day placed the number of accounts moved at around 600,000, but later estimates revised that downward to around 200,000.

However, new estimates from Javelin Strategy and Research, a research and consulting firm, show that the original numbers were closer to the truth. Javelin found that 5.6 million people have moved their bank accounts in the last 90 days, with 610,000 citing Bank Transfer Day as their reason:

Bank Transfer Day and the Occupy Movement have received tremendous attention, and for the first time we have market research data to measure the impact on the financial services industry. Javelin’s research estimates that 5.6 million U.S. adults with a banking relationship changed providers in the past 90 days. Of those switchers, 610,000 US adults (or 11% of the 5.6 million) cited Bank Transfer Day as their reason and actually moved their accounts from a large to a small institution.

Javelin noted that this pace of account closing is three times the normal rate. While 11 percent of people moving their accounts cited Bank Transfer Day, one quarter said they moved their money because their old institution charged too many fees. Account closures at Bank of America, the nation’s second largest bank, actually jumped 20 percent in the fourth quarter of last year, potentially driven by the bank’s ill-fated decision to implement a $5 monthly fee for its debt cards.

According to the consulting firm cg42, the nation’s 10 biggest banks could lose as much as $185 billion in deposits this year due to customer defections. Of those banks, “Bank of America is the most vulnerable and could lose up to 10% of its customers and $42 billion in consumer deposits.” (HT: Business Insider)

In the fourth quarter of 2011, Rep. Spencer Bachus (R-AL) reported raising $388,895.26 in campaign contributions. According to a ThinkProgress analysis, at least 44 percent of that came from political action committees and individuals connected to real estate, insurance, banking, and finance industries — areas overseen by the House Financial Services committee Bachus chairs.

According to his latest disclosure, more than $173,000 of Bachus’ total haul came from the financial sector. Over the past quarter Bachus received at least:

– $144,805 from employees of and PACs for banks, financial services firms, and venture capitalists. This includes $7,500 from Wells Fargo’s corporate PAC, $5,000 from U.S. Bancorp’s PAC, $5,000 from UBS Americas’ PAC, and $5,000 from payday lender Advance America’s PAC.
– $15,810 from insurance industry political action committees and from insurance agents for State Farm Insurance Co.
– $12,500 from real estate PACs and individual real estate agents and realty investors.

In 2010, Bachus candidly admitted that he believes Washington’s role is “to serve the banks.” As chairman, he has sought to cut foreclosure prevention programs and to repeal many of the the key reforms in the Dodd-Frank financial reform law.

Bachus, now in his tenth term in Congress, has also been in hot water for his financial investments. In November, CBS News’ 60 Minutes reported that one day after receiving a private briefing from the nation’s chief economic officials on the extent of the financial crisis in 2008, Bachus bet that the stock market would tank, “buying option funds that would go up in value if the market went down” and netting about $28,000. After the report broke, Bachus attempted to seize the high ground by moving a bill to ban the sort of insider trading he was accused of, but Republican leaders blocked his effort. One colleague reportedly said at the time that House Republicans were “not going to cover Spencer’s ass by passing a half-baked bill.”

Bachus is term limited as chairman of the Financial Services Committee, and has said that he won’t seek a waiver to keep the seat in the next Congress.

As Reuters’ Felix Salmon noted, Citigroup CEO Vikram Pandit went to the Davos Economic Forum to announce that job creation should be a top priority for the international business community:

The 42nd World Economic Forum Annual Meeting closed today, with business leaders urging resolute action to promote growth and employment, particularly among young people. “Jobs should be our number one priority,” declared Annual Meeting Co-Chair Vikram Pandit, Chief Executive Officer of Citi, in a session on the global agenda for 2012. “Ultimately it is about growth. Nothing creates jobs better than growth.”

But this proclamation comes just seven weeks after Citigroup announced 4,500 job cuts, and some analysts think those job cuts are just the “tip of the iceberg.” Overall, the financial industry cut 200,000 jobs in 2011. Bank of America has announced 30,000 job cuts that will take place over the next several years.

“Everybody knows, in any case, that profits are Pandit’s number one priority; to be honest I’d be surprised if jobs are on his priority list at all,” Salmon noted. “The markets like it when big banks cut jobs, and hate it when they add jobs. And Pandit’s job is to do what the market wants. Which is, fire people.”

To explain how to boost growth, Pandit broke out the favorite right-wing canard about “uncertainty” holding back job creation. But as economist Bruce Bartlett has pointed out, “regulatory uncertainty is a canard invented by Republicans that allows them to use current economic problems to pursue an agenda supported by the business community year in and year out.”

In late 2010, Arizona launched an investigation into Bank of America, alleging that the bank misled homeowners who were seeking mortgage modifications. Arizona’s attorney general claims that Bank of America “repeatedly has deceived” borrowers looking to lower their monthly payments.

According to BusinessWeek, Bank of America is fighting back by giving loan modifications to borrowers who have made complaints. The catch is that, in return for the modification, the borrower must agree to stay silent and expunge any previous criticisms of the bank from his or her public record:

Bank of America Corp. is impeding an investigation of its loan modification practices by negotiating settlements with borrowers who must agree to keep them secret and not criticize the bank in exchange for cash payments and loan relief, Arizona officials say. [...]

One 2011 accord involving a borrower facing foreclosure who defaulted on a $253,142 mortgage included a $5,000 payment, plus $7,500 for legal fees, and the defaulted payments were waived and the loan was modified to a 40-year term with a 2 percent interest rate, court documents show. The terms of the original loan and the borrower’s complaint about the lender weren’t described in the documents.

The borrower “will remove and delete any online statements regarding this dispute, including, without limitation, postings on Facebook, Twitter and similar websites,” and not make any statements “that defame, disparage or in any way criticize” the bank’s reputation, practices or conduct, according to documents filed in state court in Phoenix.

This isn’t the first time that Bank of America has been accused of obstructing an investigation into its mortgage practices. Back in June of 2011, the U.S. Department of Housing and Urban Development’s inspector general claimed that the bank was blocking access to employees and data in order to slow down an investigation into its alleged misdeeds. “Our review was significantly hindered by Bank of America’s reluctance to allow us to interview employees or provide data and information in a timely manner,” said HUD’s William Nixon.

Now, if the Arizona officials’ claims are true, Bank of America has gone from obstruction to explicit payoffs in order to keep its mortgage mess under wraps. (HT: Naked Capitalism)