The long awaited announcement last week that the Obama Justice Department and state attorneys general have reached a settlement with five of the largest mortgage lenders over foreclosure practices contains a mixed bag of consumer benefits: a regrettable lack of connection between the alleged legal violations and remedy provided, coupled with the all too familiar grandstanding by the Democratic attorneys general. As Oklahoma Attorney General Scott Pruitt indicated when his state refused to join the settlement, this settlement went beyond the actual alleged legal violations. It contains generous terms for those who may have fallen victim to shoddy foreclosure practices, but equally generous benefits for those who were never subject to any such practices. While I suspect that many of his fellow Republican attorneys general agree with Pruitt's assessment, it is completely understandable given the dire housing market that some conservative attorneys general would reluctantly sign on to the settlement. And so it is that this settlement, which even the Washington Post described as "rough justice", is firmly located in the American political neighborhood at the intersection of "Principles Street” and "Pragmatism Avenue.”

The banks should not be faulted for being willing to settle. Like all businesses, the mortgage lenders need regulatory certainty and predictability.  In the wake of the 2008 financial crisis, Congress did not enact laws requiring "cram downs" on mortgages and other features included in this settlement. The American public was truly divided on wanting to help get the housing market back on its feet and not wanting to reward irresponsible behavior - after all, while there were lenders that were making ill-advised and irresponsible loans, there were also consumers on the other side willing to accept them. (Yes, yes, I realize that some consumers probably could not understand the complex terms of the mortgages, but who, making $35,000 a year, would not wonder why they were being lent enough money to buy a $500,000 home with no money down and a poor credit history?)

Nonetheless, when the "robo-signing" controversy erupted, Iowa Attorney General Tom Miller saw an opening to force a policy outcome Congress was unwilling to implement using the leverage of substantial yet more narrow legal violations. At first, many Republican attorneys general balked at this clear overreach, but the banks were willing to negotiate because they began to see a path to regulatory certainty and predictability much like the tobacco companies in the early 1990s.  Thus, another industry participates in an historical settlement, this one with a $26 billion price tag, second only to the tobacco settlement of 1998 that officially positioned state attorneys general as the "cops on the beat" for corporate America.

In the tobacco settlement, conservative Democrat and Republican attorneys general (particularly from tobacco growing states) initially refused to join in the litigation.  In the end, they reluctantly signed on because of tremendous long-term financial benefits to their states.  With last week’s settlement, history has repeated itself for Republican attorneys general in states with record foreclosures and still suffering housing markets. How do you not participate in a settlement that will provide relief to consumers and even possibly boost the housing market itself? Understandably, these Republicans participated, while equally understandable, General Pruitt negotiated a separate, smaller settlement for his own state of Oklahoma, which is not in as bad of shape as Florida or Arizona. Republican attorneys general respect the rule of law, fight for their constituents, and, at the same time, recognize that federalism does not necessarily mean that one size must fit all for every state. In contrast, the Democratic attorneys general led by Tom Miller investigate by press release, ignore the constraints of the law they are sworn to enforce, and focus exclusively on policy outcomes to legal matters.

General Miller's frustration - Harvard law degree notwithstanding - is that he is just the Attorney General of Iowa, while New York is the financial capital of the world and California is, well, just big. So while Iowa is nationally important on a cold January night every four years, many watched with amusement as General Miller booted Attorney General Schneiderman off the vaunted Executive Committee for negotiations with the banks, only to then have President Obama appoint General Schneiderman as co chair of a joint task force to investigate the financial crisis on national television. This drama unfolded just as General Miller was putting the finishing touches on his grand settlement.  As for New York and California’s concerns about a settlement precluding future civil or criminal claims being brought, I think the average American would say “if you have a case, bring it.” Otherwise, it has been over three years since the financial crisis, and it is time for closure.

This all just points to the absurd and predictably ugly outcome that occurs when a government investigation becomes unhinged from the facts of law and becomes a search for a grand policy outcome. So as the Democrat attorneys general take yet another trip down "Grandstanding Boulevard" in our American political neighborhood, we should be grateful that consumers will get some relief and that the banks were truly cooperative - while fully expecting another spectacle to arise alongside the next economic crisis in our country so long as these Democratic attorneys general go unchecked.