Wednesday, December 12, 2012

Too Big To Jail

(Editorial cartoon by Joel Pett, published 10/1/08 in the Lexington Herald-Press, and found here.  Click on image to enlarge and then please return.)

It's been a bumpy couple of months for banks.  For Wells Fargo and HSBC, it also looks to be a bit expensive.

Wells Fargo is the target of a couple of law suits.  The first is a "private" law suit which claims the bank has failed to live up to the settlement agreement of a class-action suit.

Legal filings last week claimed Wells Fargo failed to provide wide-ranging reductions of loan balances to delinquent borrowers as it had promised two years ago when it settled a combined national class-action suit. A bank spokeswoman strongly disputed the claim, saying it was riddled with errors.

The litigation illustrates how lawsuits continue to dog major home lenders more than five years after the mortgage industry imploded, including recent challenges to certain cases the banks thought had been put to rest.

The second suit has been filed by  a U.S. Attorney and looks to be even more serious.

The U.S. attorney in Manhattan has accused Wells Fargo of defrauding a government-backed mortgage insurance program, in another major civil case brought in the wake of the housing bust and financial crisis.

The mortgage-fraud suit, filed by U.S. attorney Preet Bharara, seeks "hundreds of millions of dollars" in damages for claims the U.S. Department of Housing and Urban Development has paid for defaulted loans "wrongfully certified" by Wells Fargo.

The suit alleges the San Francisco banking giant falsely certified loans insured by the government's Federal Housing Administration.

“As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," Bharara said in a statement.

Adding "accelerant to a fire," Bharara said, was Wells Fargo's bonus system that rewarded employees based on the number of loans it approved.

This case, like the first, was brought in civil court, even though it appears the US attorney has some decent facts to prove the fraud.

 Unlike the cases against Wells Fargo, HSBC was nailed in a criminal investigation.

British banking giant HSBC will pay $1.92 billion to settle a wide-ranging investigation by U.S. authorities into money laundering at the bank.

In a deferred prosecution agreement, confirmed by the bank Tuesday, HSBC will undergo independent monitoring for five years as it puts in place safeguards to make sure it does not again become a conduit for illicit transactions. ...

A deferred prosecution agreement is a less severe punishment than criminal charges.

In other words, nobody at HSBC and nobody at Well Fargo is going to jail for their malfeasance.  I find that a bit discomfiting.  Bernie Madoff went to jail.  And Ken Lay was convicted but died before he could be imprisoned.  Why not someone (or someones) from either bank?  Can banks hide behind their corporate shield even in criminal matters?

If so, than contrary to Mitt Romney's opinion, at least some corporations are not people, especially if they're big enough and rich enough.

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7 Comments:

Anonymous Anonymous said...

"If so, than contrary ..."

then

7:06 AM  
Anonymous JoyfulA said...

Empty the jails of pot smokers. Then there will be room for the entire corporation.

7:14 AM  
Blogger Kevin said...

Even Margaret Stewart went to jail.

But no one in the banks.

If the French Reign of Terror thing could be done in way that actually purged society of these amoral greedy feckers, well... let's just say you wouldn't see me demonstrating for due process and respect for the rights of the accused. Might not support it, but I wouldn't be too pushed to oppose it at this point.

7:15 AM  
Anonymous Anonymous said...

Isn't it funny that corporations want to be considered people when there is some upside to be had; yet when the downside hits, nobody goes to jail? There's no person to be found!

7:18 AM  
Anonymous Anonymous said...

Also - the shareholders of these companies pay the fines, not the people who did something wrong.

9:08 AM  
Blogger Daniel Fox said...

If no one actually faces punishment, then the stakeholders would be insane to do anything other than come up with another profitable, though illegal, scheme.
The 1.92 billion is just the cost of doing business. The real profit is probably much higher than the fine.

9:28 AM  
Anonymous Anonymous said...

HSBC has exited or "unwound" a very successful legal arbitrage
trade. No doubt yet another TBTF is already exploiting the
opportunity opened by HSBC's exit from the business.
Crime is just another
"risk/reward" variable in determing how profitable a "trade" will be.
Deferred prosecution makes the trade less risky, more profitable
and has the added bonus of essentially making DOJ just another
counterparty.

6:37 AM  

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