There was a deal in preparation between the 50 U.S. state attorneys and the five big mortgage banks, including Bank of America which had acquired the then leading mortgage company Countrywide, to release the banks from all liabilities for falsification of documents, unlawful bundling of mortgages and selling those under false pretense to investors. For a payment of a few billions the banks would be freed from further criminal charges of crimes that led to several hundred billions dollars of losses for investors.

The state attorneys of New York, Delaware, Nevada and a few other states are barking against this insane deal. They are sure that they can prove fraud on a huge scale and want to, as is their job, hold the banks responsible for this.

The Obama administration takes its to be expected stand and lobbies for the criminals and against the rule of law.

Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.

In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.

The proposed deal itself is a joke:

An initial term sheet outlining a possible settlement emerged in March, with institutions including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo being asked to pay about $20 billion that would go toward loan modifications and possibly counseling for homeowners.

In exchange, the attorneys general participating in the deal would have agreed to sign broad releases preventing them from bringing further litigation on matters relating to the improper bank practices.

The main issue for the Obama administration is the imminent bankruptcy of Bank of America. With acquiring Countrywide, the then biggest mortgage company, a few years ago BofA is on the hook for an immense amount of losses:

The deal would require Bank of America to pay $8.5 billion to investors holding the securities; the unpaid principal amount of the mortgages remaining in the pools totals $174 billion.

As Countrywide did a lot of criminal stuff with regards to mortgage documentation and the issuing of mortgage securities, the investors in those mortgages will likely have a loss rate of some 50% or more. The penalty for BofA in this indemnifying deal is only 10% of that.

On the consumer side the wrongful documentation of house titles for mortgages by Countrywide and others (via MERS) leads to unjust evictions from houses and makes those houses with dubious titles difficult to sell.

The deal is only about criminal charges and would not solve these problems at all.

But the Obama administration takes the side of the criminals and against the rule of law. A bankruptcy of BofA could create quite a mess in the financial markets and some headaches for the administration. By pushing the deal and pretending that it would clean up all issues about housing it is trying to sweep the dirt under the mat and hopes that no one will notice that it is still there.

Mr. Schneiderman should watch his back. With so much at stake it will not be beyond the thinkable for some people involved, including the administration, to let him fall from a high rise or to use other methods to get him out of the way.