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. Those who cheer the huge fine miss the larger picture. Certainly many banks used dubious tactics and business practices that helped lead to the 2008 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 banks and other companies. Then they bailed out some individuals who borrowed too much .
Perhaps the biggest problem with the huge monetary settlements between banks and DOJ is that the penalties are not placed on actual perpetrators of wrongdoing. No executive or bank employee has been charged criminally. Further, the fines will be paid by current 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. 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 problems.
Steve Makowitz 8-21-14