NEW YORK (TheStreet) -- Jerry Garcia, late of the Grateful Dead, is probably turning in his grave.

When U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announced the federal government and 49 state attorneys general reached a $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses, something is definitely happening on Shakedown Street.

The shaken are

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

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,

Wells Fargo

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,

Citigroup

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and

Ally Financial

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.

This nothing more than the Feds holding a gun to the head of the largest banks and telling them to empty their pockets. Yes, the banks have behaved like miscreants, or worse, but the solution to systemic fraud is not more fraud (more on that later), but rather jail time for the perpetrators. It's amazing to me that our criminal justice system will always prosecute an employee who steals

from

the company, but never

for

the company.

Worse, the philosophical underpinnings of the settlement are either off the mark or, worse, nothing more than an election-year stunt.

Here's why. Roughly $20 billion of the settlement will go to homeowners by having their mortgage debts reduced or their loans refinanced at a lower interest rate. Since when does the government have the power to tell private enterprise to rewrite the terms of some 1 million mortgage contracts, simply because the buyers overpaid or because economic trends turned against them? In almost any private transaction, when one party behaves differently than the terms of the contract -- after the contract has been signed and agreed to -- it's considered fraud.

Still worse: People who get relief in the form of a revised mortgage contract weren't even hurt by the robo-signing scandal, the presumed basis of the settlement. (Note to self: Get Robin Hood caps for President Obama, Attorney General Eric Holder and HUD Secretary Shaun Donovan.)

For the capitalists in the audience, this may represent an opportunity

a la

the 1998 tobacco settlement, in which the attorneys general extracted $206 billion from private enterprises selling a legal product. When the settlement was announced in November of that year, the price of what is now

Altria

(MO) - Get Report

sunk to about $5 on a split adjusted basis. Today, it's about $29, representing a compound annual return of nearly 16%, before counting what is one of the best dividends on the Street.

But these same capitalists, no fools, are probably crying in their beer too. Drawing on the most basic precepts of Econ 101, they recognize a bank reserve requirement of 10%, applied to the $25 billion of what should be bank capital, represents $250 billion of foregone lending which, depending on your thoughts about money multipliers, represents an opportunity cost north of $1 trillion. Given that, the upcoming election will represent the country's most expensive ever.

Chris Markowski is a radio show host and founder of the financial-planning firm Markowski Investments. A former sales professional in the brokerage industry, Markowski has dedicated himself to exposing the corruption he saw there. His radio show, "Watchdog on Wall Street," is now in its 10th year of syndication.