By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
With the imminent departure of Tony West from the Justice Department, we can assuredly close the book on this latest round of financial fraud settlements. West was a co-chair of the vaunted task force known as the RMBS Working Group: of the original members, only U.S. Attorney for Colorado John Walsh and New York Attorney General Eric Schneiderman remain. And West was the point person inside the Justice Department for the JPMorgan, Citigroup and Bank of America cases (“Top Nemesis of Big Banks,” screams the New York Times for some reason).
There were surely more banks selling RMBS than those three – the Federal Housing Finance Agency sued 17 of them – but without West’s, er, leadership, I wouldn’t expect any further action. Especially given the other prosecutors heading for the exits, including Antonia Apps, the lead lawyer in the SAC Capital case, and Jeffrey Knox, the I would assume lonely head of the criminal-fraud division. Both hooked on with white-collar legal defense practices.
With the end upon us, we can therefore assess this working group and their efforts. We know the raw numbers you see in headlines – $36.65 billion spread among the three settlements. We also know that these numbers are wrong. The JPMorgan settlement includes the $4 billion agreement with FHFA, even though it was settled weeks before DoJ announced. Yves quite properly coined the phrase “bullshit to cash ratio” to describe how the consumer relief portions of the settlement – where banks can use other people’s money, get credit for routine operations like donating homes and even money-making enterprises like making loans, and satisfy their obligations through HAMP loans that allows them to collect incentive payments – look nothing like any kind of penalty you would see in any other format. No bank robber is told that he can serve out his sentence by opening a lemonade stand.
When you weed out the bullshit, you get $5 billion from JPMorgan, $4.5 billion from Citi and $9.65 billion from BofA. And that’s before you take into account the tax deductibility. My initial estimates for the tax savings were $2.66 billion for JPM. About $1 billion of the Citi settlement will be offset by tax savings, and around $4 billion for BofA. So that’s $7.66 billion in offsets.
Let’s do the math!
$5 billion + $4.5 billion + $9.65 billion = $19.15 billion
$19.15 billion – $7.66 billion = $11.49 billion.
We’ll round up for convenience’s sake. So that’s $11.5 billion in penalties – almost all of them to the Justice Department themselves, and none to the actual investors in mortgage-backed securities who got swindled. That’s the results from nearly three years of work involving multiple DoJ divisions, U.S. Attorney’s offices and state AGs around the country. For context, just in 2013, Citigroup, the smallest of these three banks, recorded a profit of $14.39 billion. Their share of the penalty is $3.5 billion. It’s a blip, and I doubt it covers even a fraction of what they made in MBS sales.
I know it’s fun for the financial press to characterize Tony West as this heroic swashbuckler, fending off bank lawyers and leaping over C-suite executives in a single bound, but he was a lifeline to an industry seeking only to shed their legal exposure and move forward. Now, with that work done, with nobody coming close to seeing the inside of a jail cell, West can ride off into the private sector. And this is a bit of a giveaway as to his next move:
Mr. West has hired Robert B. Barnett, the famed Washington lawyer whose client list includes President Clinton, Sarah Palin and Bob Woodward, according to people briefed on the matter. Mr. Barnett, who acts as a career counselor of sorts to political and media elite, is expected to help Mr. West, 49, land his next job.
Barnett is a top-notch Washington fixer. Wherever he lands, West will be well-positioned. Maybe he’ll join Lanny Breuer and Mythili Raman at Covington & Burling (where I assume they’re keeping a seat warm for Eric Holder, or maybe he’ll come back to California – he’s our AG Kamala Harris’ brother-in-law – and use these weak-ass settlements as the springboard to a political career. Maybe I’ll have to do an ad with the “Bank Settlement Veterans for Truth” or something.
Ultimately, I don’t hold West responsible for this debacle. He probably had a hand in setting the policy, but the fish rots from the head down. We’ve known for many years that banks would escape the financial crisis without so much as having to come clean on the nature of their crimes and the extent of the damage caused. West just executed on this strategy. And for that, he’ll be rewarded.