Skip to main content

In a front-page article in Monday’s LA Times (see: “In major policy shift, scores of FDIC settlements go unannounced”), reporter E. Scott Reckard filed a story that’s still breaking in the blogosphere wherein we learn that, since 2007, the Federal Deposit Insurance Corporation (“FDIC”) deliberately withheld information from the public and the press concerning fraud and negligence settlements with “scores“ of banks.

Reckerd reported that his newspaper had filed a Freedom of Information Act (FOIA) request with the Federal Deposit Insurance Corporation and “…obtained more than 1,600 pages of FDIC settlements, made from 2007 through this year with former bank insiders and others accused of wrongdoing. The agreements constitute a catalog of fraud and negligence: reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans.”

In major policy shift, scores of FDIC settlements go unannounced
By E. Scott Reckard, Los Angeles Times
March 11, 2013, 4:05 a.m.

Three years ago, the Federal Deposit Insurance Corp. collected $54 million from Deutsche Bank in a settlement over unsound loans that contributed to a spectacular California bank failure.

The deal might have made big headlines, given that the bad loans contributed to the largest payout in FDIC history, $13 billion. But the government cut a deal with the bank's lawyers to keep it quiet: a "no press release" clause that required the FDIC never to mention the deal "except in response to a specific inquiry."

The FDIC has handled scores of settlements the same way since the mortgage meltdown, a major policy shift from previous crises…

The story continues on noting that virtually all of the covert deals included confidentiality clauses between the FDIC and the banks with whom it had concluded settlements, with guarantees made by the government agency that it would not publicize the results of its litigation.

The HuffPo picked-up the story late Monday afternoon: “FDIC Secretly Settling Bank Cases For Years With 'No Press Release' Clause: Report”…

…At the request of rule-breaking bankers, a top U.S. regulator has for years settled bank cases in secret, raising the bar on just how far regulators are willing to go to help the industry they regulate…

…The FDIC would not comment to the LAT about the no-press-release clauses, but a spokesman did say that it announces settlements "when damage payments are large and media interest intense." And many of the settlements turned up by the FOIA request were indeed fairly small. That does not explain the non-announcement of the Deutsche Bank settlement, which was relatively large and would probably have attracted some media interest.

The no-disclosure clauses might have helped the FDIC settle cases more easily, saving it the expense of going to trial. But so far the agency has been able to recover only $787 million of the $92.5 billion lost to bank collapses between 2007 and 2012, according to the LAT. Those bank failures were often helped along by the banker misbehavior flagged in the FOIA documents, which the LAT calls "a catalog of fraud and negligence: reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans."

The revelation comes just days after U.S. Attorney General Eric Holder admitted publicly that some banks are simply too big to prosecute without hurting the broader economy. Instead, U.S. regulators have repeatedly doled out wrist slaps to major banks over allegations such as money laundering, mortgage fraud and foreclosure fraud, while declining to file criminal charges against either banks or individual bankers.

Regulators are also cracking under heavy banker pressure when it comes to implementing Dodd-Frank financial reform laws. The "Volcker Rule" that tells banks they can't gamble with their own money has been repeatedly delayed, and could soon be delayed again, the Wall Street Journal recently reported…

As I was preparing to post this, I took a quick look over at Naked Capitalism, about 90 minutes ago, and I realized that Yves had (as usual) beaten me to the punch
…The FDIC’s excuse is unpersuasive. It amounts to, “well, we publicize big settlements, why bother with these?”

In fact, this practice is yet another gimmie for banks. First, by not publicizing the settlement, it saves the target embarrassment. But far more important, it also helps them escape private litigation. A claimant has a much more persuasive suit if he can tell a judge or jury, “Look, XYZ bank engaged in this conduct, we have proof in the form of an FDIC settlement.” Mind you, it doesn’t mean for every settlement you have private litigants lurking in the wings, but given how many investors lost money in a big way during the crisis, you’d have to think that in a meaningful percentage of cases, hard evidence that a bank engaged in a particular form of prohibited behavior would be very useful to private parties.

The worst is that these secret settlements look to have become institutionalized….

Yves then links to the LA Times story…
…Attorneys who have represented bank officials and the FDIC said regulators are now far likelier to settle cases before filing lawsuits than after the last spate of failures, when more than 2,300 institutions collapsed in the 1980s and early 1990s, bankrupting a fund that insured savings and loan deposits. That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.

Critics describe the FDIC’s current practice of low-profile deal-making as a major departure from the S&L crisis.

“In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures,” said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: “to make other bankers scared.”

Newsom said he couldn’t understand the shift, unless the agency doesn’t “want people to know how little they are settling for.”

The good news is that these deals are not secrecy pacts, but an agreement not to publicize a settlement. Now that the Los Angeles Times has exposed this practice, one hopes the Times and other media organizations will periodically request a list of these deals, making the “no publicity” provision meaningless. But for the FDIC to have gone down this path in the first place shows how utterly captured bank regulators have become.
(Bold type is diarist’s emphasis.)

h/t to Kossack quasimodal

Originally posted to http://www.dailykos.com/user/bobswern on Tue Mar 12, 2013 at 12:07 AM PDT.

Also republished by Occupy Wall Street and ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.

EMAIL TO A FRIEND X
Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags

?

More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

jbou, bink, Angie in WA State, cslewis, DeminNewJ, Alma, Marek, jillian, Chi, melo, grollen, copymark, dfarrah, Joan McCarter, Danno11, NYmom, mimi, MouseThatRoared, Shockwave, Wintermute, OLinda, mslat27, Bryce in Seattle, sobermom, RFK Lives, Matilda, exNYinTX, Creosote, astro, Heart of the Rockies, TheMomCat, TracieLynn, justme, howd, Silverleaf, kalihikane, wonkydonkey, whenwego, boadicea, cosmic debris, farmerhunt, chimpy, roses, taonow, Nate Roberts, ctsteve, abs0628, revsue, psnyder, pat bunny, Tracker, Boppy, roseeriter, agincour, Chirons apprentice, defluxion10, Calidrissp, lcrp, AllisonInSeattle, zerelda, ybruti, Deward Hastings, ScienceMom, Steven D, xyz, nailbender, joanneleon, ExStr8, radarlady, 3goldens, NoMoreLies, jrooth, denise b, Ckntfld, UncleCharlie, Militarytracy, JohnB47, run around, grimjc, eightlivesleft, basquebob, YucatanMan, Laurence Lewis, Kevskos, reflectionsv37, ratzo, eru, Sun Tzu, Dem Beans, where4art, lotlizard, Ozymandius, Sandino, LucyandByron, KBO, Tool, Ginny in CO, sodalis, Pluto, Oye Sancho, accumbens, Jim P, RJDixon74135, Mother Mags, Patriot Daily News Clearinghouse, Medium Head Boy, Kingsmeg, cybersaur, tung sol, BlueInARedState, rl en france, Yellow Canary, AoT, KenBee, arlene, Lefty Coaster, blueoasis, triv33, praenomen, StrayCat, philipmerrill, Rosaura, joe shikspack, Preston S, ER Doc, middleagedhousewife, Turbonerd, onionjim, thenekkidtruth, CA Nana, Clive all hat no horse Rodeo, blueoregon, chapel hill guy, shaharazade, Statusquomustgo, NancyWH, Tom Anderson, kurious, bstotts, matx, sea note, krwheaton, seabos84, One Pissed Off Liberal, pgm 01, asilomar, dotsright, Habitat Vic, Loudoun County Dem, byDesign, possum, Debs2, leema, devis1, ColoTim, yoduuuh do or do not, Wino, FishOutofWater, DvCM, Trial Lawyer Richard, david mizner, terabytes, aliasalias, newpioneer, artisan, jayden, rivamer, Aunt Martha, carpunder, GeorgeXVIII, leonard145b, madgranny, bewild, homerun, Don midwest, TomP, cville townie, rmonroe, misterwade, wayoutinthestix, Sixty Something, Arlys, Alexandre, dadadata, elwior, Akonitum, KJG52, jamess, monkeybrainpolitics, Lujane, jobu, mofembot, temptxan, SmileySam, petulans, HarpboyAK, priceman, Robobagpiper, palantir, David Futurama, squarewheel, LaFeminista, Florene, cybrestrike, J M F, zmom, greengemini, lostinamerica, The Dead Man, Nebraskablue, maryabein, Norm in Chicago, Zotz, CamillesDad1, bekosiluvu, asym, Shelley99, jfromga, Just Bob, brentbent, coppercelt, p gorden lippy, The Jester, Anima, eb23, sunny skies, Eddie L, gulfgal98, samanthab, tb mare, Puddytat, albrt, Johnny Q, Publius2008, Betty Pinson, orlbucfan, ericlewis0, Floande, slice, Pakalolo, StateofEuphoria, jm214, swale44, Susipsych, Bluerall, FarWestGirl, Teiresias70, EquityRoy, boomerchick, Haf2Read, marleycat, Lusty, Wolf10, muddy boots, KVoimakas, merrily1000, tardis10, enhydra lutris, MuskokaGord, sound of progress, Wood Dragon, VTCC73, stevie avebury, blue muon, Miggles, Book of Hearts, Sunspots, MikeBoyScout, dradams, Regina in a Sears Kit House, Mentatmark, SouthernLiberalinMD, No one gets out alive, Azazello, paulbkk, chmood, anodnhajo, Williston Barrett, greenbastard, MsLillian, Joieau, 420 forever, 2thanks, FreeSpeaker, Horace Boothroyd III, Syoho, radical simplicity, MartyM, Wendys Wink, ricklewsive, DSWright, artmanfromcanuckistan, Robynhood too, BradyB, CalBearMom, WheninRome, Quasimodal, BobTheHappyDinosaur, Ray Pensador, Chaddiwicker, countwebb, jbob, glorificus, poopdogcomedy, goodpractice, weck, aresea, entrelac, ggfkate, JerryNA, Jim Tietz, footNmouth, Oldestsonofasailor, OldSoldier99, Capt Crunch, Paul1a

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site