EDITORIAL: Federal shakedowns

Federal regulators often profess concern about how U.S. companies take advantage of consumers. But when it comes to shakedowns, the feds are unrivaled in bilking businesses while enriching government agencies and preferred organizations — and leaving affected consumers holding an empty bag.

On May 19, the Senate Homeland Security and Governmental Affairs Committee released a majority report assessing settlements the government reached with banks following the housing crisis, which hit Las Vegas particularly hard. The title sums it up well: “The Justice Department’s Housing Settlements: Millions of Consumer Relief Funds Disbursed with No Guarantees of Helping Homeowners.”

The website PoliticallyShort.com did a deep dive into the report and found that settlements involving JPMorgan Chase, Citigroup and Bank of America totaled $36.65 billion in payments to various federal and state agencies, as well as nongovernmental organizations and direct consumer relief. That latter category, however, amounted to just $13.5 billion, hundreds of millions of which was handed out to groups approved by the Justice Department.

Not surprisingly, as PoliticallyShort noted, those groups tended to be progressive organizations.

And that was no accident. PoliticallyShort pointed out that the department required banks to disburse settlement funds to third-party groups, rather than collecting fines that would be subject to the congressional appropriations process. The Wall Street Journal’s Kimberley A. Strassel reported as much last December, stating that the Justice Department was “in the process of funneling more than half-a-billion dollars to liberal activist groups.”

Further, Ms. Strassel wrote, Justice “would make the case that this money is flowing to groups that aid the targets of supposed banking abuse, such as homeowners. But that assumes the work these groups do is targeted at actual victims — which it isn’t. It assumes that the work these groups do in housing is nonpartisan — which it isn’t.”

Of course, no good shakedown is complete unless those executing it can benefit financially, as well. PoliticallyShort reported that the Justice Department’s cut from the three aforementioned settlements was $575 million. Since 2009, the department has taken in $1.5 billion for itself from various settlements,

If this type of activity were going on in the private sector, it would be called extortion, and somebody would be doing jail time. But since it’s the federal government putting the fear of God into major financial entities — who often cave rather than risk larger fines or even prosecution — we’re supposed to believe this is all on the up-and-up.

Washington already has its hands far too deep into too many people’s pockets, between its onerous tax code and overbearing regulations and mandates. The feds shouldn’t magnify that fact by being in the shakedown business, too.