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Why Are the Big Banks Getting Off Scot-Free?

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We are one of several guest bloggers at Salon while Glenn Greenwald is on vacation and we have a a post up that discusses why big banks are getting away with murder, um, probable fraud. It begins:

For most citizens, one of the mysteries of life after the crisis is why such a massive act of looting has gone unpunished. We’ve had hearings, investigations, and numerous journalistic and academic post mortems. We’ve also had promises to put people in jail by prosecutors like Iowa’s attorney general Tom Miller walked back virtually as soon as they were made.

Yet there is undeniable evidence of institutionalized fraud, such as widespread document fabrication in foreclosures (mentioned in the motion filed by New York state attorney general Eric Schneiderman opposing the $8.5 billion Bank of America settlement with investors) and the embedding of impermissible charges (known as junk fees and pyramiding fees) in servicing software, so that someone who misses a mortgage payment or two is almost certain to see it escalate into a foreclosure. And these come on top of a long list of runup-to-the-crisis abuses, including mortgage bonds having more dodgy loans in them than they were supposed to, banks selling synthetic or largely synthetic collateralized debt obligations as being just the same as ones made of real bonds when the synthetics were created for the purpose of making bets against the subprime market and selling BBB risk at largely AAA prices, and of course, phony accounting at the banks themselves.

You can continue reading here. Enjoy!

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62 comments

  1. attempter

    Because that’s the principle and practice of kleptocracy, where all significant government officials are criminals or enablers of organized crime.

    BTW, although the effect is most spectacular in the FIRE sector, the same is true of all other sectors.

  2. Because

    The banks have not gotten off scott free. Just a temporary get out of jail free card. They will be handled like the S&L’s were in short order. They are done and know it. They were like a stage 4 cancer patient getting some radiation for a little longer lifespan.

    I suspect a government confiscation of their total global assets could be had as well.

    1. alex

      “The banks have not gotten off scott free. Just a temporary get out of jail free card.”

      Devoutly to be wished.

    2. Jimbo

      Really? Geithner just gave them $6 trillion dollars for the hell of it? And Geithner to Obama to Holder got the rule of law suspended for them? And now they just have a temporary get out of jail card? I guess we all only have temporary get out of jail free cards

    3. Dale

      I find it very unlikely that they will receive their just-due… There is no indication of it occurring. There is too much money and political clout behind the banking machine. I just don’t see it happening…

  3. Skeptic

    Ok maybe it is control fraud, but it could just deception of orphans and widows, or it could be the rise of the uber class with their insider trading and right to power.

    1. ScottS

      We’re watching the upper class overthrow the super-upper class, in my opinion. It just that from the level we are at, they all look like aardvarks to us.

  4. trk

    My fear is that corporate is so deeply embedded in DC that maybe – and that’s a slight maybe – a slap on the risk after long press releases, talking head commentary, blah,blah,blah amounting to spin control. Maybe they will identify a ‘major’ player who is out of country and out of reach.

  5. MyLessThanPrimeBeef

    When you have mastered all the strategies from the book, the Art of Looting by Moon Tzu, you can do almost anything.

  6. JM

    In my view, here are the three people who have lead the effort to let the banks skip.

    1. Geithner: wants to preserve the financial system at all costs, and sees only systemic risk in going after the malefactors. I’m sure he pushed the “all perfectly legal” line Obama likes so much.

    2. Holder: his DOJ is risk-averse, and won’t push any inquiry that doesn’t have a 100% chance of a conviction. Better to leave it all to the wrist-slappers at SEC.

    3. Obama: any effort to crack down on the banks would be met with cries of “socialism.” The initial period would have been very rough, and the economy would have suffered more up front. I’m betting Rubin convinced him that the downturn could be “managed” and that a turnaround could follow the mini-stimulus. This is the most ironic decision – Obama will now own the decline, and the “turnaround” will turn back into collapse. Ooops.

    Things could change of course, but it’s looking pretty bleak right about now. Might get a test of the Dodd-Frank resolution authority with BAC soon – how many more -20% days can they take?

    1. Nescafe

      Geithner: wants to preserve the financial system at all costs, and sees only systemic risk in going after the malefactors. I’m sure he pushed the “all perfectly legal” line Obama likes so much.

      Frankly I doubt he’s quite dense enough to not see the systemic risk in allowing malefactors a free hand to operate.

      Holder: his DOJ is risk-averse, and won’t push any inquiry that doesn’t have a 100% chance of a conviction.

      Utter bull. They hounded the NSA whistleblower for years, driving him into bankruptcy, and had the chutzpah to drop all but a single misdemeanor charge on the eve of the trail and then ask the judge to punish him severely on that one trivial count as an example to others. They engineered a massive crackdown on Anonymous for what amounted to a digital toilet-papering. They’ve raided anti-war groups on the flimsiest of pretexts.

      They’re not risk-averse, they’re MOGW-averse.

      Obama: any effort to crack down on the banks would be met with cries of “socialism.”

      When he puts mustard on his hamburger he’s met with cries of “socialism”. The most powerful office-holder in the world will go massively derelict in his duty to protect the public because he’s afraid the opposition will call him names?

      The initial period would have been very rough, and the economy would have suffered more up front.

      Why? The banks all sat on their money anyway despite all the assurances that the spigot would start flowing again as soon the ink on TARP was dry. At the very least, if the investment community saw the resumption of some semblance of lawfulness it might have boosted confidence a little.

  7. psychohistorian

    Yves,

    What is with this ENJOY B.S. On top of no one in jail, our country continuing to kill innocent people in my/our name around the world and continual threats to what is left of the social safety net of what was once a great country and you want me to ENJOY reading your passionate tirade against this.

    Thanks for your efforts but enjoy is not part of the equation for me at this time. Maybe if and when I see some movement is a positive direction, I will ENJOY some part of this insanity, but not until then.

    Thank you!

    1. Yves Smith Post author

      You have to pretend there is reincarnation or some other plane of existence out there, and we are all here because this is the Universe’s E-ticket ride.

      I think I’m here because I drew the short stick or someone talked me into it in a weak moment.

      1. psychohistorian

        Thank you for the reply.

        I am feeling strangely centered about myself going forward in the midst of this so it must be the correct path. I am, in some ways, returning to the radical things I was working on at the end of my college days at TESC and try and bring some tools I learned about there to bear on our situation…Delphi technique for developing consensus and FAR for teaching and understanding complexity. I hope to live long enough now to make free internet versions of those tools.

        The short stick you say you have may end up being just the right length, you never know.

        May peace be with us.

      2. compass rose

        Yves, with all due respect to “psychohistorian,” you’re talking to a graduate of The Evergreen State College there.

        Over yonder the campus culture holds that math shouldn’t be taught to kids because it’s patriarchal. That classical and quantum physics operate at the same level, and you can beam thoughts at the universe to change it, ergo if you’re poor it’s because you didn’t think hard enough. That if you don’t FEEL that something factual is right, the molecular construction of DNA, for instance, then it’s not right. And that white skin, liberal guilt, and growing up in Olympia trumps physics where 30-ton moving construction equipment is concerned.

        They flog the securing of bachelor’s degrees in underwater basket weaving on the public teat, while espousing a new kind of American Calvinism–a liberal fundamentalism that is deeply divisive, ultimately punishing and reactionary (why did “psychohistorian” feel the need to rear up and slap you for such a modest and readership-hugging comment?), suspicious of anything but its own minted-in-the-moment expertise on any and all topics. and addicted to drawing attention to itself and playing Buzzkill Crack?

        So feel free to ask me to ENJOY anything, including the freakin E ticket of this mess we’re in. And surely including a quick bracing dip in your thoughts and words.

        The local “alternatives” of TESC and its grads is as “psychohistorian” presents it: “peace,” “tools,” “consensus,” “teaching,” “understanding,” and all these methodological buzzwords by which money changes hands among Greener Grads. What it amounts to is a steaming souffle of moose turd. But lucrative, if you agree to make that your tribe’s currency.

        The truth is, you have something substantive to say. And for many of us, that substance is deeply enjoyable indeed. Particularly those of us regularly exposed to what passes for knowledge at TESC.

        To answer your question, the reason the banks are getting off scot-free is because they can.

        cheers
        compass rose

  8. chris

    The reasons the banks are skating is the same reason as always. They have the money or control of the money and control fo the financial system. Bank of America is holding the country hostage. They know that they are in trouble, they know they could have avoided millions of foreclosures by negotiating with borrowers, the refused and still refuse to take any measure to curb the real estate delcine. There stock is dropping quickly but the bank believes and probably rightfully so , that the government will bail they out. They could go do bankruptcy leveal in stock price and know that they will not be allowed to fail. They have manipulated the congress and the president for the past 3 or 4 years and the white house doesn’t have the stones to call them on it.

    1. BondsOfSteel

      In almost every analysis of Bank America’s problems I’ve seen in the past week is the mention of when the US will step in to help them out. The bailout is assumed.

      IMHO, if this happens, this will be a Rubicon moment. Our politicians say Too Big To Fail is finished. Yet, no one believes them.

      1. Just Tired

        I say this is really what this S&P BS is all about. S&P is just trying to preserve their business model but the reaction is another test of TBTF. The markets have built in the fact that the government will talk the talk but not walk the walk, and the markets will always be bailed out. That said, they must put the bailout process to the test from time to time just to be certain.

    2. jacke

      The banks have the money, control the financial system, and the legal system.

      Few can stand up to the amount of money, power and influence the banks have. The courts don’t bother to even allow evidence of bank malfeasance. Attorney-client privilege covers up the dirty schemes.

      The banksters and the likes of Geithner and Bernanke caused this financial crisis. They had their hands in the till and will continue to do so as long as Congress keeps deregulating them and giving them a legal pass on their obligations to their borrowers.

  9. Capo Regime

    Why are they getting off scott free? Well lets look at say the campaign contributions for the “liberal democratic leader” representing New York in the U.S. Senate Mr. Charm Charles Schumer:

    Sector Total PACs Indivs
    Agribusiness $203,085 $70,985 $132,100
    Communications/Electronics $1,084,554 $303,934 $780,620
    Construction $362,777 $56,800 $305,977
    Defense $127,250 $80,000 $47,250
    Energy & Natural Resources $145,400 $71,200 $74,200
    Finance, Insurance & Real Estate $5,511,354 $631,600 $4,879,754
    Health $1,019,500 $538,750 $480,750
    Lawyers & Lobbyists $2,742,123 $258,283 $2,483,840
    Transportation $180,400 $103,500 $76,900
    Misc Business $1,460,315 $357,885 $1,102,430
    Labor $325,750 $324,500 $1,250
    Ideological/Single-Issue $605,241 $199,339 $405,902
    Other $733,525 $7,800 $725,725

    There. Mystery solved. The other 99 are bout the same….

    1. Dean

      Both bribing a government official, and accepting the bribe, even if they call it lobbying, should be a capital crime. Perhaps it should be the only capital crime.

      If you want to fix American government, this is the only place to start. As long as money is more important to a “representative” that his or her constituents, you will have a de facto plutocracy, not a democracy.

  10. Michael Hamersley killed Jane

    Hamersley Partners. Tax shelter. KPMG. Misprision, the crime of not reporting a crime. Someone should turn in Michael Hamersley of the KPMG and the California FTB, he is a lying thieving murdering tax shelter cheat who turned many of his clients over to the U.S. Senate for investigation after lying and disclosing confidential information for massive personal profit, all by lying about what his clients did. Never disclose any confidential information to him or you may end up in jail because Michael Hamersley will lie to the government for personal gain.

  11. sleeper

    Yes – why aren’t our banker friends going to jail ?

    It is crystal clear that the banking system has been and still is neck deep in fraud. If nothing else these fellas could be charged with wire and mail fraud.
    Eric Holder and the boys at Justice have no intention of prosecution.
    The real question is why isn’t this very question asked at every press conference ? Why isn’t this question asked of every talking head on Sundays ? Why doesn’t the MSM ask this question at ever opportunity ?

    The failure of any meaningful actions on the part of law enforcement clearly indicates that the old bromides of “rule of law” or “a nation of laws not men” are long dead.

    If the DOJ cannot or will not take action against merchants of fraud perhaps they should turn in their badges.

  12. john

    Eric Holder and the boys at Justice have no intention of prosecution.

    Maybe because everything that happened was…wait for it…legal.

    1. Nescafe

      Maybe because everything that happened was…wait for it…legal.

      Then why are they riding the state AGs so hard to let the banks off scott free?

  13. noe

    more nods to pre revolutionary France.

    The similarities between the times is intriguing – an accusation of “speculation” in the markets was enough to send you to the local lock up.

    The 3rd Estate, comprised of lawyers, merchants as well as sans coulatte..the peasantry and military… all were fed up with the ‘excesses’ of cronyism and acquisitiveness.

    Extreme wealth was an indication of guilt, because everyone knew how hard it was to earn a profit in such corrupt times… so after a while those who profited on the backs of others… ie tolls collected on the roads to Paris, by bankrupt nobility.. or speculators in commodities in the years following the crop failures of 1788 89

    We are reaching a tipping point here in this country as well,.. and if the French Revolution is any teacher… it’s that a military with nothing to do, can be turned inward to keep their paychecks in hard times.. and who ever seizes the imagination of the 3rd Estate… decides who gets shot or worse.

    I vote Wall St…. tomorrow by noon?

  14. Sam

    Um, the banks got off scot-free with George W Bush, hank Paulson, and that legislation introduced by Phil Gramm, another Republican. The crisis didn’t start with Obama. I think Karl Rove was running his little piddly-ass ades. The President of the United States asked Americans to contact Congress and the damn communication lines lit up like representative democracy. That’s a proxy election right there.

    1. Jimbo

      Of course it didn’t start with Obama. He only decided not to investigate, indict or prosecute.

  15. Jimbo

    The obvious answer is Tim Geithner who bends Obama’s ear who talks to Holder and says “Leave them alone, they are too fragile.”
    And thus was the Rule of Law suspended.

  16. steelhead23

    Yves, Your explanation is wholly unsatisfying: Given bad precedents and limited budgets the cash strapped administrator of SEC, etc., decides that a wrist-slap fine is the best he/she can do. BS. There’s more. There’s got to be more. Look, in total, the big fish cost this nation trillions, put millions out of work, and the same millions out of their homes. They’ve crushed retirement funds, pillaged pensions, and destroyed the credit worthiness of the nation. I think the underlying problem, the reason we aren’t seeing more significant prosecutions is ignorance and politics.

    Ignorance – many people who work hard for a living don’t understand finance in the least. Quite often, they are victims of “the system.” They tend to view everyone who makes money with other people’s money as shysters and scoundrels – not necessarily criminals, but sharpies, not to be trusted. So, when one sharpie, like AIG, sues another sharpie, like BAC, they quietly cheer, but don’t really care who wins – they’re all bad. You and I understand that AIG is life insurance, pensions, and the like – but that’s lost on most Americans. Hence, if public support for difficult prosecutions is to occur, public education would have to be part of the process. Rather than presenting paperwork fraud as “mistakes” public figures would have to routinely call it purposeful fraud. This is not the language you typically hear, is it?

    Why? Why is leadership so intent on protecting senior executives? I don’t know, but I think concepts such as revolving doors and campaign contributions are too shallow. I suspect that after being wined and dined by the big dogs on Wall Street, it wouldn’t be strange for a politician to consider them “friends”. I understand that there are a number of “Friends of Angelo’s” in the U.S. Congress right now. One does not push to put one’s friends in jail, now does one? Of course the campaign contributions and the promise of a future doing very little in a fancy office for an astronomical salary are strong inducements to excuse high powered miscreants, but I suspect that power, charisma, and charm are in there as well.

    Finally, there is the politics of fear. Whether Jamie, Lloyd, or Angelo know who you’ve been boinking and have the pictures to prove it, or simply threaten to “blow us all to kingdom come”, they are not to be taken lightly. There is little doubt that were they to collude, they could cause “mishaps” in the markets. Further, if something bad did happen, it has become very easy to “blame government” – if so and so hadn’t opened Pandora’s Box and brought this into the public sphere, the public would have never known and the markets, which rule us all don’t you know, would not have been riled. Foolish government officials simply don’t understand how business works.

    This “friendliness and fear” is unlikely to change unless we change it. We can change it by challenging politicians as well as prosecutors to defend their inaction. Sadly, I don’t see this happening – the ignorance is too ingrained, we are indeed complicit in our own undoing.

    1. pj

      “We can change it by challenging politicians as well as prosecutors to defend their inaction.”

      I call bull. We an send letters, make phone calls, comment on news stories and blogs, participate in polls, and more and it simply doesn’t matter. These people don’t listen because they don’t have to. They aren’t elected by you and me, they are elected by special interests with combined resources.

      The only way to change things is the way things have been changed throughout history. And on and on it goes.

      Civil war. Again. Will we never learn?

      1. steelhead23

        No, not civil war – political movement. Those interested in real change should learn from the Tea Party. There is a reservoir of anger out there. If tapped, it can become a movement. Writing to current leaders is the functional equivalent of begging. We need to stop begging and go to work. Yves suggests we primary Mr. Obama – to put the fear of God into him. I wish her luck finding a sacrificial lamb for the job. It would be far better to create a political movement, much like the anti-war movement that pushed LBJ to sit it out in 68. The energy is there, what we need are energetic young people and a handful of poli-sci wonks to create a movement – an anti-corporatist movement – a working families movement – and anti-war movement, etc. Let’s roll.

        1. Jason Rines

          The Boomers are tired and don’t wish to invest in the process. Anybody with real money all wants it to be “other-people’s-money”. This is a real buggar of a cultural issue not just here in America but in the entire West. It goes beyond risk appetite.

          So the youth will burn it down and the governments will take us to war as misdirection. No worries, eventually all but the truly insane will all learn to care, because otherwise the individual that doesn’t collaborate will die.

          We’re really kind of a sad species. If aliens are observing, they would be energy and would be scratching their heads at our galactic stupidity at the ability to only learn from history at a snails pace.

          1. compass rose

            Listen to Jason.

            I mean, WHAT “anti war movement”? The vast majority of “the Sixties” was an invention of the corporate mass media. If LBJ sat something out, it was because the military-industrial-Congressional complex directed him to.

            Baby Boomers grew up and matured within a spectacular series of illusions and bubbles, a concatenation of economic, political, and demographic conditions unprecedented in human history. To expect them to deal with the reality of everyone younger now…well, it’s just not realistic. And since they’ve given rise to, now, several generations of slackaholics and thumbbutton punchers who can’t calculate a 10% tip without the Internet…well, let’s just say I’m more in the Mad Max camp myself.

            ;D

            I agree with steelhead23 that “there is a reservoir of anger to be tapped out there.” But in politics, as in marriage/lifetime partnership, anger gets one only so far in building effective collective effort. In this I think the “tea party” has had more a therapeutic function than anything, and is more likely to give people a place to vent before they settle into the new conditions of serfdom the banksters have announced.

            But we shall see. Personally, I think Kang and Kodos left for another planet.

            cheers
            compass rose

  17. rd

    I think that Schneiderman opposing the BoA settlements and the new AIG lawsuit means the sharks are circling the feeding trough.

    The AIG suit is announcing to the world that the DOJ/Miller proposed settlement is a fraud. One company is suing one bank for half of the total proposed settlement amount in the DOJ suit which would have covered all the major banks.

    Schneiderman seems serious. I sent his office an e-mail supporting his current actions. His office sent a very nice little letter back thanking me for my interest in his actions on this. It was a letter tailored to the issue I wrote about, not the usual pro forma “thank you for existing” note you get back from Congressmen and Senators. His little letter indicated that he was planning on continuing, although who knows what really happens behind closed doors.

    I would imagine that BoA is scared to death right now about the synergies of having these various investigations and suits going on simultaneously. Multiple discoveries are likely to uncover something meaty at which point more sharks are likely to join the feeding frenzy. The BoA, Merrill Lynch, and Countrywide oeprations under one roof means that almost every aspect of the mortgage securitization process can be laid bare with one series of discoveries.

  18. Hugh

    Why Are the Big Banks Getting Off Scot-Free?

    I don’t know. They own the prosecutors. They own the judges. They own the politicians. It’s totally inexplicable.

  19. Lyle

    Make that the bank execs, the shareholders are not getting off scot free, a 90% haircut is a penalty (City) and coming up on 80% for BofA. In the BofA case it was Ken Lewis and his desire to outdo Hugh McColl in terms of mergers that did the bank in by buying the piece of trash that was countrywide. So when you say the banks, please talk of the execs not the banks in general. Or if you want to go that far the bank bondholders perhaps (anyone who would loan money to a bank holding company needs their head examined, but then I would bring back a strenghtened glass stiegel and 3 6 3 banking.

    1. psychohistorian

      Lyle,

      I agree that some investors are going to lose but you can bet that since 2008 the global inherited rich have weaseled their money out of BofA and such.

      IMO, if we would have not had the first bailout insanity, the global inherited rich would have suffered more…but one of their own was pres at the time, forget we not.

  20. Maximilien

    I thought there for a while CNN might be moving in the right direction. Silly me. About two months ago, they allowed Eliot Spitzer to run a segment called “And They Got Away With It” about the wrong-doings of the banks. He even interviewed rabid anti-squidite Matt Taibbi.

    The predictable happened. Spitzer’s show was cancelled and he was let go. Apparently, in MSM, it’s unacceptable even to so much as ask why the big banks got off scot-free.

    1. fajensen

      Eliot Spitzer is lucky: In Russia “they” would have just smashed his face in with a lead pipe instead.

      Or given him a Polonium sandwich for emphasis on what kind of resources “they” have available should the occasion merit an escalation.

  21. DavidE

    Obama came up in politics through the Chicago organization. Among the people who helped him get started in politics are Tony Rezko, Allison Davis and Valerie Jarrett. Rezko was a big-time crook and political boss and Allison Davis and Valarie Jarrett were into low-income housing scams. Who did State Senator Obama side with when he was in Illinois-the tenants who were getting scammed or Rezko, Davis and Jarrett? He had no problem making accomodations with crooks when he was in Illinois and he has no problem as President.

    President Obama would rather use the banks as patronage mills and hit them up for contributions that actually enforce the law. Don’t expect any changes now or if he is reelected.

    1. Maximilien

      In his book “The Great Derangement”, Matt Taibbi describes Rahm Emmanuel as a “sleaze-bag” or a “scumball” or something like that. But he doesn’t elaborate.

      Can you fill me in?

  22. Linus Huber

    The reason these despicable individuals have not yet been put on trial can be found in the fact that the market moved up since March 2009. During a bull phase the mood is comparably positive and attitudes are more generous. It is interesting to put this question at this very point in time when the market seems to turn back to the bearish side. I am sure during the coming bear market and the mood changes into extreme negative territory, these people who were responsible for all the havoc will be prosecuted. People who will promisse to go after them will be elected.

  23. On The Horizon

    Because the conclusion of a serious investigation, would be that there is system wide fraud,with at best the final conclusion being because of lack of government regulation and enforcement – and at worse, because of government involvement.
    It would be an indictment of the whole system.
    The whole thing is rotten to the core, from years of turning their heads the other way, as long profits were being made.
    What a shame.
    The system had real potential, if was not for the human flaw of greed.

  24. ep3

    Yves, are you aware of the situation that went down with Ohio State University and their coach Tressel and players taking money? I am not entirely an expert either. But I think it’s something to consider in the larger picture. OSU has been a very successful football program especially over the last 10 years. With all their winning, it has been discovered they had been cheating the whole time and breaking rules. Not on the field cheating, but doing other things. Another team, USC. Reggie Bush had to give back his heisman trophy after it was discovered he cheated. Then how about baseball. Mcguire and bonds were cheating. Only after ticket sales recovered was anything done. And then only the players suffered. The MLB didn’t and they were proven to approve of this.
    So my point is that fraud and cheating is institutionalized in our system. Breaking/bending the rules is how things get done. Only after success and after the big shots make their money, are any consequences doled out. And usually it’s the people on the ground floor, the pawns, they are the ones who get in trouble (hitler made me do it).
    I think if you don’t cheat and cut corners, you fall behind and never get ahead. I am not saying that i do or that other people should. And this is a sign of a country that is collapsing.

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