Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Weekend Contributor
It seems that a week doesn’t go by without news of the latest Big Bank agreeing to pay billions in a settlement with the government over their past and continuing abuses concerning mortgages. This past week was no exception.
“Preliminary reports say that a $16 to $17 billion settlement will soon be announced between the Justice Department and Bank of America. That would break the record for the largest bank settlement in history, set less than a year ago by a $13 billion agreement between Justice and JPMorgan Chase.” Crooks and Liars
Sixteen billion dollars is not chickenfeed! However, as we have learned in the many past settlements, the dollar amounts can be a little deceiving.
“Much of the “consumer relief” in past deals has turned out to be nothing more than gamesmanship with numbers. Banks modify loans in ways that are advantageous to them, offer deals they almost certainly would’ve offered anyway, and then count them against their “settlement” obligations.
That’s the kind of thing that happened with the much-hyped “$25 billion” foreclosure fraud deal announced in 2012. Subsequent settlements (including last month’s “$7 billion”Citigroup deal) have been vulnerable to the same kind of abuse.
Now the Wall Street Journal reports that $7 billion to $8 billion from the Bank of America deal will be allocated for “consumer relief, such as reducing mortgage balances for struggling homeowners,” while $9 billion will go to “the federal government, states and other government entities.” Only the $9 billion is a sure thing – and most of that money will go to government agencies that have a poor record of providing relief to wronged homeowners.
What’s more, it hasn’t been announced whether this deal, like Citigroup’s recent settlement, will be tax-deductible. If so, Americans will get shortchanged at the federal level, too.” Crooks and Liars
If the full amount of this latest “settlement” would actually get to abused and defrauded investors and borrowers, it would go a long way in making people whole. Why does it seem that the Justice Department and the SEC provide a large number for the media and then when the facts come out, the allegedly criminal banks are paying out a fraction of the agreed upon settlement amount?
In light of the consistent failure of the Justice Department and the SEC to criminally prosecute bankers and Banks for what could be called serial mortgage fraud, it could be argued that prosecutors are purposely giving the Banks a “free pass”. I realize that I may be stating the obvious, however, if it is obvious why do prosecutors keep shying away from criminal prosecutions? Is the Fix in?
In light of the recent past, Bank of America seems to have been a frequent recipient of what I allege are sweetheart deals or slaps on the wrist. I am not the only one who thinks the Big Banks are getting off easy.
“Worst of all, nothing in these settlements is likely to dissuade bankers from engaging in similar misadventures in the future. When the New York Times studied bank settlements several years ago, it found that banks routinely violated the pledges they made in agreements like these.
Bank of America had engaged in six repeat violations as of November 7, 2011. Since then it’s been a party to mortgage-related settlements that include the (allegedly) $25 billion foreclosure fraud deal; a $9.3 billion multi-bank settlement in 2013; and an $8.5 billion agreement with a group of mortgage investors it had defrauded.
Many deals with other big banks were also struck during that time. But there have been no criminal prosecutions of big-bank executives, an omission that Federal Judge Jed S. Rakoff lamented in a recent speech. Rakoff called the lack of prosecutions from the Justice Department and the Securities and Exchange Commission “technically and morally suspect” and characterized the excuses they’ve given for failing to prosecute as “hollow” and “lame.”’ Crooks and Liars
Let’s review. Bank of America has been involved in at least 6 repeat violations, just in the last 3 years and yet no one is in jail. If a Big Bank like Bank of America is allowed to allegedly break the law on multiple occasions and the only penalty is a money settlement or fine, why should any Big Bank change its behavior? They can make a lot more money breaking the laws, even with the so-called billions paid in settlements.
These big banks are corporations and we have learned that “corporations are people”, so why haven’t any of these corporate “people” been put in jail? Why haven’t these “people” been forced to do the perp walk in front of the cameras? The now infamous Bernie Madoff was jailed for defrauding many customers with his investment scheme, but maybe his only mistake was not establishing a corporate bank first. If Bernie Madoff had been Bank of Madoff, would he be in jail now? What do you think?
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Bank of America is not so bad. They just made a mistake in buying Country Wide. That bank was not a play on words. They invented the A-B Loan. The A Loan was for the 10 per cent down payment and the B Loan was for the rest. So, they loaned money on homes to people with no down payment. Then B of A comes along and buys the C Word bank and obtains all those bad loans. You see, there is a fundamental tenant of banking. Do not rent to a tenant who has no down payment money to risk on their first home. The second tenant is don’t buy a loan mortgage to a home with only a tenant. I could go on and on with the play on words but I just got one of those E Alerts from B of A and I want to see what has happened. I have to read it for my half blind human guy. I am just a dog who knows nuthin bout birthin babies, much less banking.
Lost comment. Tried to re-post, but WordPress said it was a duplicate. Funny how WP remembered it was a duplicate yet forgot to post it in the first place.
Think of our federal government and its many favored corporations as a super-power Mafia. This also goes for foreign policy which is more like worldwide mob violence than anything else.
Just waiting for JUST ONE friggin’ top banker to do dead time in the federal pokey—where most of them belong!
Compare and contrast: The Credit Suisse $2.6 Billion fine
Some heads will surely roll, but perhaps not CEO Brady Dougan and Chairman Urs Rohner. UBS changed top management after its deal, and this one is far bigger and involves a guilty plea to criminal charges.
The winners
The IRS wins big. Plus, the IRS earns dividends in the form of account holders applying for amnesty. And for the IRS, it isn’t just Switzerland, but everywhere now that FATCA has expanded
U.S. tentacles almost worldwide. Attorney General Eric Holder wins big too, getting the benefit of a guilty plea. He can’t be accused of letting another big bank off the hook for being too big to fail.
The U.S. Treasury and New York State both make out well. Credit Suisse will pay nearly $1.8 billion to the Justice Department, $100 to the Federal Reserve,
and a whopping $715 million to New York’s Department of Financial Services.
Jaime Dimon, CEO of JP Morgan, received a raise in 2014. A big one: 74%. The raise came after JP Morgan had been hit with $20 billion in fines last year. The directors were obviously quite happy. As Matt Taibbi wrote:
But Dimon’s wasn’t the only raise – for the JP Morgan executives anyway. They received raises too while the “not executives” got a pay freeze, and 7,500 non-executive employees were laid off. Even the business community could see the apparent foolishness. Taibi quotes Adam Hartung of Forbes:
Except it is completely logical if the fact that the bank had worked a dirty system is admitted. Also, what’s good for the bank is irrelevant to the executives. It’s all about what’s good for execs personally. Dimon had performed brilliantly by their standards.
Yes. The fix is definitely in. And no. The DOJ under Bain Capital’s Mitt Romney would have done no differently than the DOJ under Goldman Sachs’s Barack Obama.
http://www.rollingstone.com/politics/news/jamie-dimons-raise-proves-u-s-regulatory-strategy-is-a-joke-20140130
Rep. Waters et. al. were told directly by McCain and colleagues that disaster would result from their interference in the industry, which they had not the capacity nor experience sufficient to function in, even at the most basic level, to generate “welfare mortgages.” Anyone can be “elected.” And they are.
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money,” admonished Tocqueville.
Governmental interference in industry is anathema to the American thesis. Capitalism has mechanisms to self-resolve problems. There are courts for litigation. Scavengers process the insolvent. Tocqueville told us that “elected” politicians would create the “insolvent” when the set out to “bribe the public.”
The Federal Reserve was established to assure “reserves.” That is all. Talk about overreach. The Federal Reserve is the poster boy for overreach.
What created American success was innovation and enterprise in truly free markets. What has led to corruption and decay is interference by government.
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To wit:
“”Sub-prime loans were the stuff of which the toxic derivatives were made, and it was not some idle whim or fancy of the bankers that led to the proliferation of sub-prime loans.
It was the pressure of the CRA that led to the invention of the concept of the “credit score” so as to diminish the discretion of lending institutions. Credit scores in turn became a driver of the expansion of credit to ever less creditworthy borrowers.
Former comptroller John Dugan told FCIC staff that the impact of the CRA had been lasting, because it encouraged banks to lend to people who in the past might not have had access to credit. He said, “There is a tremendous amount of investment that goes on in inner cities and other places to build things that are quite impressive. . . . And the bankers conversely say, ‘This is proven to be a business where we can make some money; not a lot, but when you factor that in plus the good will that we get from it, it kind of works.’”
Lawrence Lindsey, a former Fed governor who was responsible for the Fed’s Division of Consumer and Community Affairs, which oversees CRA enforcement, told the FCIC that improved enforcement had given the banks an incentive to invest in technology that would make lending to lower-income borrowers profitable by such means as creating credit scoring models customized to the market. Shadow banks not covered by the CRA would use these same credit scoring models, which could draw on now more substantial historical lending data for their estimates, to underwrite loans. “We basically got a cycle going which particularly the shadow banking industry could, using recent historic data, show the default rates on this type of lending were very, very low,” he said. Indeed, default rates were low during the prosperous 1990ss, and regulators, bankers, and lenders in the shadow banking system took note of this success.””
Paul C. Schulte
Arthur Anderson had its conviction overturned but the damage had already been done.
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By AA to itself.
rafflaw:
All true.
The story is even more complex.
(1) In conjunction with the settlement, BofA got permission to raise it dividend from 1 cent to 5 cents -something that regulators had denied permission for many months (obviously the settlement did not hurt cash flow very much).
(2) Nearly 3/4 of the defaulted mortgages come from Countrywide (1/4 from BofA), a company acquired at the urging of federal regulators in the 2008 financial crisis (and nobody from Countrywide is being punished).
(3) Regulators begged BofA to make unwise acquisitions during the 2008 debacle (Geitner wrote in his memoir that BoA’s acquisition of Countrywide “eased fears of a collapse” and Hank Paulson threatened to fire then CEO Ken Lewis if he backed out of the Merrill acquisition).
Given that the regulators now imposed unforeseen consequences to unwise acquisitions, how likely do think it is that a financial institution will step up to acquire a failing company in a time of systemic crisis?
The ultimate price of unwise acquisitions and regulators’ actions is not yet apparent, but ultimately, we tax payers will pay it.
leej, Completely agree. People see it through their own prism. I have voted for a Dem for Prez, not a Rep yet, but I might vote for Christie? I have voted for Dem and Rep in local and statewide elections. As I’ve said, I voted for Nader twice and for Jon Anderson. I don’t need corrective lens. I see most of the hypocrisy on both sides. I do have a few blind spots, but not many.
It is bipartisan but how quickly we see oh its the dems (or diff article would be it was the repubs)
As long as money runs politics, and politicians, there will never be a change.
Arthur Anderson had its conviction overturned but the damage had already been done.
leej, The duopoly is complicit in being enablers of big banks. It is a bipartisan pathology. But, glad to see you picked up on my snark. I am very strong on the evils of corporate welfare.
Michaelb,
As stated in the article and the linked Crooks and Liars article, only $9 Billion is guaranteed and that goes to government agencies with far too little of it reaching the pockets of borrowers and investors who were defrauded.
Where do these fines go?
This is the age of immunity for the 1% but liability for the 99% …
No one in government has ever been held accountable either and never will. Great pressure was put on banks and mortgage companies by politicians (democrats) because ‘everyone has the right to own their own home’ etc etc etc. Ummmm, no they don’t if they can’t afford to pay for it. Buying a house with no down payment, very low interest rate mortgages, got many people into homes but they couldn’t sustain the payments even at that bargain rate. What about Fannie Mae and Freddie Mac? Dodd/Frank? Where’s the accountability there?
Nick, It is so nice not to hear the you always go back to Bush when it is under Obama’s watch. (:
It is sickening to the extreme that these banks get a free ride (essentially) but when money talks much louder then the population ever could they will always walk away with the taxpayers holding the bag
I was of the impression that after the Arthur Anderson failure (Anderson was found guilty of criminal conduct, which meant that many of its clients could no longer conduct business with them), the DOJ lost its appetite to criminally convict any other corporation because of concern for the same outcome. And since our big banks ARE too big to fail, it will just never happen.
I hope I’m wrong on this, though.
I know Obama and Eric Holder have been in charge for 6 years but I still blame Bush and Gonzalez. And, I love the quote “16 billion dollars is not chicken feed.” I dub thee, The King of Obvious.