As my friend William D. Cohan said in a recent New York Times post, “nearly eight years after the onset of the financial crisis; its unintended consequences continue to startle and amaze.”
The latest in a long saga of TBTF bank settlements, Goldman Sachs, one of the more recent banks to resolve settlements charges for the mortgage backed securities packaging that led to the financial maelstrom of 2008, has announced a $5.1 billion settlement with the Department of Justice and others.
Goldman Sachs said the settlement comprises a $2.385 billion civil penalty, an $875 million cash payment and $1.8 billion in relief for homeowners whose mortgages exceed the value of their property as well as distressed borrowers.
Goldman Sachs, who was accused of cobbling together home mortgage securities it knew would implode — and selling them to investors who were naively trusting in their good name — was called by Matt Taibbi of the Rolling Stone Magazine, “the Great Vampire Squid of Wall Street.” Ironic, when others in banking did the same.
To date, the government has won multibillion dollar settlements from J.P. Morgan Chase, Bank of America and Citigroup, to mention a few. As you know, the probes dealt with banks deceiving investors by misrepresenting the quality of the loans being packaged.
I find several things rather ironic in all this. For some time, both Cohan and I have been writing about the Department of Justice’s indictments of the major Wall Street banks. I was actually heartened by the strong stance taken by Attorney General Loretta Lynch some time back, when she said the corruption “is rampant, systemic, and deep-rooted both abroad and here in the United States.” I recall applauding, yet still being somewhat cynical when she said, “this Department of Justice intends to end any such corrupt practices, to root out misconduct, and to bring wrongdoers to justice.”
[tweetthis]The corruption “is rampant, systemic, and deep-rooted…” ~ @LorettaLynch #AG #DOJ #tbtf #wallstreet[/tweetthis]
Her intentions and former Attorney General Eric Holder’s seemed fairly forthright, yet as Cohan and I have repeatedly pointed out, the Department of Justice has lost sight of the larger issue: the fraudulent behavior of the Wall Street bankers and traders that resulted in the 2008 financial crisis. They keep dishing out fines yet, have only managed to indict and jail one banker in eight years!
In the 1980’s financial crisis over 1,000 bankers were jailed, not just let off with just a fine. To date, the 2008 crisis has resulted in nearly $190 billion in fines and settlements from 49 separate financial institutions (Keefe, Bruyette & Woods analysis). Sure, that’s a pretty impressive number; however, those fines and settlements were paid by the bank’s shareholders, not the bankers themselves. And, they were paid out as corporate expenses. In other words, the payments were treated as the cost of doing business and in some cases these expenses were tax deductible. Unbelievable, but true!
Frankly, I believe these settlements are merely payments of extortion to the Department of Justice to ensure that the evidence of these frauds is sealed … locked up… so the American public will never know how widespread this fraud actually was that was perpetrated on the public and helped cause the financial crisis. These settlements are not, on the part of the banks involved, admissions of guilt. In fact, I stated in a Bloomberg TV interview that “the lack of prosecutions does not indicate a lack of evidence.”
Goldman Sachs may complain that the settlement in question may “dent its fourth –quarter profits by about $1.5 billion after taxes,” but with that said, even after all those fines and settlements have been paid out the banks are entering what Cohan describes as another “golden age of Wall Street,” with profits at an all-time high. So the banks get off pretty much scot free and, get this, are making record profits.
The 2008 fiasco has assured them of less competition and they’ve learned they can get away with one heck of a lot, the legal/regulatory side will let them off, and it’s just another cost of doing business!
The message is clear. In the aftermath of the ‘80’s financial crisis over 1,000 bankers went to jail, a crisis less than one third as severe as 2008. Regardless of what our past and present Attorneys General claim — that the lack of prosecutions are not a result of their lack of effort, to date, the D.O.J. has not displayed any desire to seek punishment for bankers’ misconduct.
Instead we reward their behavior. Well, you always get more of what you reward so the near future should be most interesting.
[tweetthis]”The #DOJ has not sought punishment for bankers’ misconduct.” ~ @RichardMBowen #tbtf[/tweetthis]
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
