Bank of America $9.5 billion settlement is hardly punishing

March 27, 2014 

There was a stunning contrast in two big events in Charlotte on Wednesday. The mayor was arrested in an FBI sting operation on charges that he took tens of thousands of dollars in bribes. Meanwhile, the real power in Charlotte – Bank of America – was paying the federal government $6.3 billion to settle a case involving more than $57 billion in shoddy, mortgage-backed securities that the bank and its subsidiaries sold to Fannie Mae and Freddie Mac. There were no criminal charges, and the bank admitted no liability or wrongdoing.

The bank allegedly misrepresented the quality of the mortgage-backed securities, which later went sour. As part of the settlement with the Federal Housing Finance Agency, Bank of America also agreed to repurchase about $3.2 billion in mortgage securities at market value.

Overall, the Charlotte-based bank has spent more than $60 billion in settlements and legal fees related to its selling of securities backed by questionable loans that were unlikely to be repaid. The peddling of securities of false quality led to the 2008 financial crisis and recession from which the nation is still recovering. The Federal Housing Finance Agency has filed 18 lawsuits over the activity and so far recouped $16 billion from banks and financial institutions.

Also on Wednesday, Bank of America’s former chief executive, Kenneth D. Lewis, agreed to pay a $10 million penalty for his bank’s 2008 acquisition of Merrill Lynch despite evidence that Merrill Lynch was facing up to $9 billion in losses, The New York Times reported. The settlement with the New York attorney general, Eric T. Schneiderman, ends a lawsuit brought by former New York Attorney General Andrew M. Cuomo. It alleged that Lewis and other Bank of America executives misled their shareholders during the acquisition. Bank of America also agreed to pay $15 million as part of the settlement.

The legal process will determine the fate of Charlotte Mayor Patrick Cannon. But in the case of bank executives who were involved in cases of deception that cost the federal government billions of dollars and created a crisis that threw millions of Americans out of their jobs and their homes, the legal process has failed to properly punish wrongdoing. Major bank and financial institution executives have escaped criminal prosecution. Reforms of financial industry regulations have been stopped or stymied. And the big banks and firms bailed out by taxpayers are back to generating huge profits. Bank of America reported a profit of $3.4 billion for the last quarter of 2013.

Dean Baker, an economist who was among the first to predict the bursting of the housing bubble, says President Obama and Congress failed to use the financial crisis as an opportunity to fix an industry that consumes a big share of the nation’s income without producing much of value. As a result, the message sent to industry executives is that they can act with impunity.

“Most still have their jobs and are still incredibly wealthy – and that’s after the worst-case scenario,” said Baker, who was in Raleigh on Wednesday to deliver a speech on why the economic recovery has been so slow.

Baker said Obama was too cautious in prosecuting financial crimes and bought into a fiction that some banks and firms were too big to let fail.

“It’s hard to say (the financial industry) would collapse by putting people in jail for breaking the law,” Baker said.

Schneiderman, the New York attorney general, said of Wednesday’s settlement: “I would hope this closes one chapter of our ongoing efforts to ensure the frauds that occurred in and around the financial crisis are not forgotten.”

To the contrary, settlements without criminal penalties show that the misdeeds of financial executives will be overlooked and that the lessons of the financial crisis will go unlearned.

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