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US BANKS COMMIT THE CRIMES, AMERICANS PAY THE FINES

Deyan Ranko Brashich

America has been sold a bill of goods: the millions and billions of dollars in fines levied on, or penalties agreed to by America’s major financial institutions for causing the financial crisis of 2008 are paid to the Federal and state governments for the benefit of us, the taxpayers.

That is a bald faced lie, galling because it is made by our government elected to protect our interests. In fact we, the taxpayers and consumers, are paying the fines, the real facts being obscured by and with the complicity of our government: we are paying the fines and in fact being double billed.

The fines and settlement dollars just keep rolling into the Treasury. Citigroup has agreed to pay $395 million fine for fraud or misrepresentation in 3.7 million mortgages sold to Freddie Mac, after agreeing in July to pay $968 million to settle similar claims made with Fannie Mae. The Bank of America agreed to pay $3.6 billion in penalties and buy back an additional $6.75 billion of fraudulent loans.

The SEC, the weakest of the regulatory agencies that failed in its appointed task to safeguard financial markets, keeps a tally of its sorry accomplishments. As of September 1, 2013 it reports that it has charged 161 entities and individuals of which 66 are CEOs, CFOs or other senior corporate officers; that it has ordered penalties or agreed to settlements of $1.53 billion; that it has ordered disgorgements of “profits” of $800 million and obtained additional monetary relief of $400 million for a grand total as of September 1 of $2.73 billion.

Last week JP Morgan Chase agreed to pay $920 million to four regulatory agencies [the SEC, the Comptroller of the Currency etc.] for $6 billion dollars in losses generated in 2012 by a rogue London [“The Whale”] bond trader now under indictment. On the same day JP Morgan Chase agreed to an $80 million fine for charging credit card customers for identity-theft products they never received. Just plain theft, if you ask me.

The Department of Justice has accused the Bank of America of civil fraud in failing to disclose risks and misleading investors in its sale of $850 million of mortgage bonds in 2008. The Securities and Exchange Commission filed a related lawsuit. A criminal grand jury may have been impaneled in California to consider JP Morgan’s action in precipitating the financial meltdown. A criminal complaint, it is said, is ready to be filed.

Today, September 26, 2013 there are reports that the Justice Department is close to making a settlement for more than $11 billion dollars, that’s billions, with JP Morgan Chase over other questionable, I say criminal, mortgage practices.

The reported offer of settlement has JP Morgan paying a $7 billion fine and providing $4 billion in relief to homeowners who had been royally screwed. The Justice Department has “largely agreed to the $4 billion in relief, which requires the bank to reduce the size of certain mortgages and refinance others [while] it seeks more than the proposed $7 billion in penalties and is now waiting for JPMorgan to prepare a new, larger settlement offer” the report states quoting people with knowledge of the facts.

“And the size of the fine is not the central negotiating point for the bank: JP Morgan is instead focused on using the wide-ranging pact to resolve many of the mortgage-related investigations it faces. Most important, the bank is asking that [federal] prosecutors in California drop a criminal investigation into the bank’s mortgage practices – a request that the Justice Department has yet to meet.” Crudely put “pay to play” with a free get out of jail card for crimes committed.

Last Thursday JP Morgan’s chief executive Jamie Dimon met with Attorney General Eric H. Holder Jr., an unprecedented in person meeting between a potential target of criminal investigations and the prosecuting attorney representing the interests of the American taxpayer. The results of the meeting are as yet unknown.

Whatever the outcome, the facts at issue are not in question. JP Morgan Chase perpetrated questionable if not criminal mortgage practices that warranted an $11 billion penalty. You can’t convince me that a course of conduct resulting in a penalty of such magnitude is anything but criminal.

What amazes is that a financial crisis of so far reaching magnitude with indices of misfeasance and malfeasance by hundreds has resulted in any criminal prosecutions.

There is no question that banking is profitable: Citigroup had net earnings of $11.1 billion in 2011 and $7.5 billion in 2012; Bank of America racked up profits of $6.2 in 2011; JP Morgan reported $17.4 billion for 2010, $18.9 billion for 2011 and $21.3 billion for 2012. The banking industry had a net profit of $141.3 billion in 2012. The penalties and fines imposed so far and yet to be paid are from the banks’ profits and meant to punish. They do not.

First of all don’t forget that the fines and penalties are tax deductible, they are just the cost of doing business notwithstanding they were generated by proscribed behavior. By that fact alone the banks have been subsidized at the expense by the tax payer. The fines are made negligible if not illusory. Robert W. Wood, an authority on the issue states “the tax deduction for business expenses is broad enough to include most settlements and judgments”, including all of those mentioned here.

Then we have the bailouts. Citigroup received three federal bailouts in 2008 and 2009. In fact the banking industry as a whole was bailed out and the taxpayer were little compensated for that bailout. As a result even in an anemic recovery banks prospered.

But banks are able to make us pay once again for their misdeeds and resulting fines by playing the “stimulus” gambit they had orchestrated for being too big to fail. The idea behind the stimulus was that the federal government would make money available at interest rates less than 1% to prod the economy to recovery. At that rate the banks grabbed the money and passed it on to the consumer.

What did the consumer get? Government guaranteed student loans at 6.8% APR with a 5.7% return; credit card consumer debt at 14.9% APR with a 13.8% return with no risk; medium risk credit card consumer debt at 29% APR with 28% return with little risk and the obscene payday loans made by bank funded companies operating without oversight or control on sovereign Indian reservations to the serving military and the poor at interest rates ranging from 400% to 700% APR, a potential return of 699%.

Wall Street long ago learned that “you gets what you pays for” and Wall Street has long ago paid for and bought Congress and the White House. Americans have yet to learn the “there ain’t no such thing as a free lunch” because your local bar or bank will always make money, even when the lunch is free.

Deyan Ranko Brashich, an attorney and Op Ed columnist writes from New York and is a contributing writer. A collection of essays “Letters from America” has just been published in June, 2013. His contact and blog “Contrary Views” is at www.deyanbrashich.com.

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