Shahien Nasiripour has an update on the talks between the big banks and the state attorneys general, with some rather worrying news. " data-share-img="" data-share="twitter,facebook,linkedin,reddit,google,mail" data-share-count="false">

Shahien Nasiripour has an update on the talks between the big banks and the state attorneys general, with some rather worrying news: under the proposed settlement, the AGs are going to give the banks broad immunity from prosecution, despite the fact that they don’t really have a clue what the banks might have done wrong.

Some officials with experience sitting across the negotiating table with major banks say the government is making a critical miscalculation that jeopardizes the public interest by seeking a deal before amassing a credible threat of successful prosecution: In essence, they say, the government would give servicers a blanket pass for widespread alleged acts of fraud while extracting too little in return and operating from a relative position of weakness. “I would never want to go into a negotiation without solid evidence of actual misconduct to hold as leverage over my counterpart,” said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program, which was crafted to bail out teetering banks. “It would also be very dangerous from a public policy perspective to waive all future claims as part of such a settlement if you do not have a good sense of the size, scope and severity of the underlying misconduct.” According to sources familiar with the ongoing state and federal probes, state and federal officials have wasted months not digging into the details of the foreclosure crisis, yielding little of value in court and undercutting the lenders’ incentive to strike a settlement of greater benefit to homeowners and taxpayers. The investigators have yet to gather many documents, conduct depositions or assemble tallies of aggrieved homeowners. They don’t yet have a good handle on the number of wrongful foreclosures, the amount of fraudulent documents filed in local courts or the volume of legal instruments processed by so-called “robo-signers,” the agents that lenders employed to process foreclosure filings en masse without examining the underlying paperwork. “The evidence a prosecutor would use is not in the possession of the prosecution,” said one person familiar with the ongoing settlement talks.

This doesn’t really surprise me. A coalition of 50 AGs, not to mention a large number of disparate federal agencies, is never going to be particularly good at taking a focused look at wrongdoing in the banking industry during the financial crisis. The best they can hope for is to get a flavor of what the likely crimes were, and then try and extract as much as they can from the banks.

But the dangers here are obvious, especially to those of us who remember the story of Steve Rattner. Andrew Cuomo, if you recall, granted Rattner immunity from criminal prosecution in return for his testimony — and then regretted that deal later, when he found out much more about Rattner’s actions. It’s clearly in the banks’ interest to do a deal now, before a lot of detail comes out about what they did wrong; after all, this is a world where a single bad mistake can result in fine of hundreds of millions of dollars. Multiply that by thousands of mistakes and it’s easy to see why the banks would much rather pay a few billion dollars up front and put all that prosecution risk behind them.

If a deal isn’t done, aggressive AGs in New York and maybe a couple of other states could decide to start prosecuting cases individually — but the AGs don’t really have the resources to do that in all cases and against all banks, and most AGs don’t have the resources or even the inclination to do it at all. Which is why it’s important that they have all the information they can lay their hands on now, in the run-up to a global settlement. I’m already pessimistic that the settlement will actually achieve much of anything. And if it results in hugely valuable immunity for the banks, it might well be Wall Street which ends up the ultimate winner. Again.