One person who is a bit of a hero, I think, in this whole post-financial-crisis-the-bankers-got-away-with-it scam is Jed Rakoff, who sits in the Federal District Court of Manhattan. A few years ago, I wrote that Rakoff understood that the government, our government, and, in particular, the Securities and Exchange Commission, is not serious about holding people accountable for the robbery and greed and incompetence that led to the financial collapse, costing millions of people their jobs and obliterating trillions of dollars in wealth. As Rakoff said, it’s all a show. But, at least, when he can, Rakoff is trying to make it hurt--and, now, to the tune of a $1.9 billion fine against Bank of America.
A federal judge has ordered Bank of America to pay nearly $1.3 billion in penalties for its role in defrauding Fannie Mae and Freddie Mac into buying thousands of defective mortgages.I've read through his actual decision and he sums it up quite well:
The penalty handed down by Judge Jed S. Rakoff of the Federal District Court in Manhattan on Wednesday comes after a jury in October found Bank of America liable for selling the questionable loans to the government-sponsored entities in the run-up to the financial crisis.
The jury also found a top manager at Bank of America’s Countrywide Financial unit liable for the sale of the loans, which were originated as part of a program nicknamed the “hustle,” which linked bonuses to how fast bankers could originate loans.
The judge also fined the former executive, Rebecca S. Mairone, $1 million, for her role in the scheme.
Relatedly, if the victims had known that the defendants were lying to them about the quality of the loans produced by the HSSL process, they would never have purchased any of the loans so generated, or parted with any of their money, so the happenstance that some of the loans turned out to be of high quality would be irrelevant from a deterrence standpoint.[emphasis added]And:
While no analogy is perfect, a simple one will illustrate the point. If I sold you a cow for $100 saying it was a healthy dairy cow when I knew it had foot-and-mouth disease, you would in theory have a net loss of less than $100 since the cow would still beHeh.
worth something as dead meat. But if you had known the truth, or, short of that, had known that I as the seller was intentionally lying to you about a material matter, you would never have bought the cow in the first place, so your out-of-pocket loss of $100 is
really more reflective of the misconduct perpetrated upon you. Similarly, since I would have spent some money to purchase or raise the cow before I discovered it was diseased and duped you into buying it, my net gain from the sale would have been less than $100. But since you would have never purchased the cow from me if you knew that it had foot-and-mouth disease or that I had intentionally lied to you in trying to induce you to part with your $100, the $100 I received, that is, my gross gain, is far more reflective of the essential nature of my fraudulent
misconduct than my “net” gain.
In short, while the HSSL process lasted only nine months, it was from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.[emphasis added]I will say that I, and others, have long argued that these fines are not sufficient. Bankers needed to go to jail and, at the very least, lose their jobs--which, by in large, they have not. People like Jamie Dimon, et al continue to make huge amounts of money and never paid a price for their greed and/or incompetence. At the end of the day, these fines end up being paid by shareholders (like union pension funds) and customers (who will pay higher fees, partly because these costs are quietly passed on).
But, that said, it's good to have Rakoff saying it like it is.