Bank of America Settles with US Justice Department for $17 Billion
Posted by Steve Markowitz on August 21, 2014
The Wall Street Journal reported that mega-bank, Bank of America, has agreed to pay a $17 billion fine for its role in the mortgage crisis that led to the 2008 financial meltdown. This is only a piece of the nearly $60 billion the bank paid during the last five years to settle legal problems.
Those who cheer the huge Bank of America fine are missing the larger picture. Certainly many banks used dubious tactics and business practices that help lead to the 2008 economic meltdown. However, willing partners included the US government that pressured banks into giving mortgages to individuals who could not afford them, and the Federal Reserve whose easy money policies were major factors in creating the housing bubble. These issues, along with banker greed and borrowers, were significant factors in creating the bubble and subsequent meltdown.
How did the government respond to those largely responsible for creating economic calamity? First they bailed out large banks and other companies. Then they bailed out some individuals who borrowed too much money.
Perhaps the biggest problem relating to the huge monetary settlements between large banks and the Department of Justice is that the penalties are not placed on the perpetrators of wrongdoing. No executive or bank employee has been charged criminally by the DOJ. This is not by accident. Further, the current fines will be paid by shareholders including pension funds who had nothing to do with creating the problem.
The Department of Justice understands the misplaced logic behind the large penalties imposed on banks today. However, this populist action not only protects those in the private sector responsible for the bad behavior, but deflects attention from the government’s own role in creating the economic problems.