October is a busy month in the Manhattan office of Preet Bharara, the U.S. Attorney for the Southern District of New York. Over the span of a few short autumn weeks, the federal prosecutor filed civil suits against two of America’s biggest banks – Wells Fargo and Bank of America – seeking damages for various incidences of fraud and misconduct that helped crater the housing market in the mid to late 2000s, thereby causing a massive financial implosion that subsequently plunged the world into the Great Recession.
Just up the road in Albany, New York State Attorney General Eric Schneiderman joined in the fall frolic. His office already sued the biggest U.S. bank, JP Morgan Chase, in state court, alleging that failing investment firm Bear Stearns misled thousands of investors about billions of dollars of toxic mortgage-backed securities it sold to them. JP Morgan Chase gobbled up Bear Stearns in 2008. Schneiderman’s civil action alleged widespread criminality “caused, directly or indirectly, by fraudulent and deceptive acts.”
While all three cases allege extensive deceit and corruption on the part of the banks, they differ with regard to their legal specifications:
- Bharara’s suit against Wells Fargo was brought under the False Claims Act. It charged that the bank lied for a decade about the quality of loans that it certified for federal mortgage insurance, forcing the U.S. Federal Housing Administration (FHA) into paying claims on hundreds of millions of dollars’ worth of defaulted mortgages – loans that the bank knew were deficient.
- Scheiderman’s suit against JP Morgan Chase is the first brought under the auspices of the Residential Mortgage-Backed Securities Working Group, a task force composed of federal and state agencies formed, according the President Obama, to “hold accountable those responsible for the subprime mortgage swindle.”
- The suit against Bank of America accuses it of keeping alive a fraudulent mortgage scheme, known as the “Hustle,” that it inherited in 2008 when it acquired the now defunct Countrywide Financial Corp., once the nation’s largest mortgage lender. The “Hustle” was a scheme dreamed up by Countrywide in 2007 that, according to Bharara’s complaint, aimed to speed up the “High Speed Swim Lane” for loan approval, removing all unnecessary “toll gates” that tend to “slow down the loan origination process.”
United by Deceptive Practices
Of course, those toll gates were actually the very critical underwriting procedures and checklists that would have assured that the thousands of loans that B of A sold to Fannie Mae and Freddie Mac, the two quasi-government giants that dominated the secondary mortgage market and are now under federal receivership, were, according to the government’s complaint, “sound and not tainted by fraud.”
But what finally unites all three cases, as well as the many other actions pending, or already brought and won, against the country’s biggest financial institutions over the past few years, is that while fraud, deceptive practices, and misconduct that was “spectacularly brazen in scope,” has been cited and condemned, not one person from the banking industry has been indicted, convicted, or forced to pay for any crimes they might have committed.
And while dozens of these civil cases have resulted in settlements and fines – some of them substantial – the banks, although having to suffer some litigious headaches, merely see the penalties imposed on them as the cost of doing business. (How else to explain the fact that on the day of its indictment, BOA shares actually traded up 2 cents, or the fact that JP Morgan’s third quarter profits were up by 34 percent, hitting a record $5.7 billion?)
No Criminals Yet among Banksters
The sad truth is that there have been no substantial criminal prosecutions for the unlawful acts committed by these banks’ executives. And the nation has been cheated out of seeing the individual perpetrators of these colossal financial crimes held responsible to any degree.
Indeed, the bankers who were guilty of causing considerable damage to America’s economy, not to mention millions of its people, have all been allowed to “hustle” down the “high-speed swim lane” without having to pay the price at any “toll gate.”
The time has come to cage these financial sharks. It’s time to prosecute.
I want to see guys like Jamie Dimon, Richard Fuld, Lloyd Blankfein, Angelo Mozilo, John Thain and others perform a perp walk, handcuffed, on national TV while hiding their heads in shame under their Armani jackets.
It’s time to see a re-institution of the rule of law in America that requires those persons who are charged and found guilty of criminal behavior to pay the price with their freedom and not just with their investors’ chump change.
Merely shifting dollars back and forth between financial institutions and the government does nothing to help those who have suffered from the economic crisis caused by individuals and the corporations they work for. Nor will it ever deter bankers from engaging in similar criminal misconduct sometime in the future – especially if that behavior is never punished.
Martin Luther King Jr. reminded us that the arc of history is long, but that it bends towards justice. Bharara and Schneiderman, it’s past time for you to lean a little harder on that arc and help bring the weight of history down a little heavier on the heads of those who broke the law.
While you may garner some political chits for going after the big, bad banks, as well as some money for your respective offices, the American people are still hungering for simple justice.