After the financial meltdown of 2008, the Bush administration shoveled tons of money into Wall Street as did the Federal Reserve. TARP, the Troubed Asset Relief Program, was a $700 billion carte blanche gift to Wall Street to prevent an imminent meltdown. This was engineered by Henry Paulson, Bush’s Treasury Secretary.
But that was miniscule compared to what the Fed ponied up. A lawsuit by Bloomberg News forced the Fed to reveal that it had given $7.7 trillion to banks all over the world to prevent the looming crisis. And the Fed is still at it with its policy of Quantitative Easing (QE).
But while the banks have been bailed out and are still being given monthly money cards, they have not been held to account for the behavior that caused the financial crisis in the first place. No banker has gone to jail despite the massive fraud and corruption that they perpetrated and in fact are still perpetrating.
The main, if not the only, cause of the 2008 meltdown was the mortgage market. Mortgages were being given to anyone who could fog a mirror. Waitresses were stating their incomes at $12,000. a month in order to get a mortgage on a $650,000. McMansion. These mortgages were then packaged into securities (CDOs or Collateralized Debt Obligations) by Wall Street and sold to unwary investors like pension funds.
When people defaulted on these mortgages, the whole house of cards started to collapse. Everywhere along the chain of events there was corruption. For instance, the mortgage originators like Countrywide were paid a loan origination fee. The more loans they originated the more money they made. Countrywide then sold off portfolios of mortgages to Wall Street so they had no skin in the game if the mortgages failed.
But, you might ask, why did Wall Street buy such toxic crap? Didn’t they do due diligence on these portfolios? They actually subcontracted the due diligence out to due diligence underwriters who vouched for the soundness of these portfolios. Why would they do that? Because they had a financial incentive to process and approve as many portfolios as possible.
This is one of the schemes that makes it hard to prosecute the bankers. At each step of the way there was no central character responsible for the whole shenanigan. It was parceled out to different subcontractors and entities along the way.
Wall Street can claim that it was the due diligence underwriters’ fault for not doing proper due diligence. Not only that but these mortgage portfolios were then evaluated by the rating agencies: Standard and Poor’s, Moody’s and Fitch Group. These rating agencies gave the portfolios triple A ratings even though many of them verged on worthlessness. Again Wall Street can claim that it was the rating agencies’ fault. The rating agencies got paid by Wall Street itself so they had every incentive to rate them highly.
If they didn’t, Wall Street wouldn’t have been able to attract investors, and the rating agency that didn’t play along would lose business. They were only too happy to play along. Since the fraud and corruption existed on so many levels, it is hard for the US Justice Department to go after any particular banker.
But that’s not all folks. There is even more overt criminal activity going on. In December 2012, HSBC was fined $1.9 billion for laundering drug money out of Mexico. It’s getting harder to fight the War on Drugs if the banks are in cahoots with the drug kings themselves. But no bankers will go to jail. Jail is reserved for young black men primarily who get caught with an ounce of marijuana in their possession. HSBC has also laundered money for Iran and Libya.
It seems that even terrorists need a banker and HSBC was only too willing to comply taking in suitcases of cash through specially designed windows built just for that purpose. In return for overt criminal activity, HSBC gets a slap on the wrist and no criminal prosecution because Eric Holder and the US Justice Department are a bunch of wimps treading on eggshells lest they upset the worldwide criminal capitalist banking system and bring on the collapse of the world economy.
“Shame on the Department of Justice. Shame on them,” said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame. “These are actions that facilitated major international drug cartels to continue their operations,” he said. “Now, if that doesn’t justify criminal prosecution, I can’t imagine a case that would.”
CPA Practical Advisor reports:
“Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland’s Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
“While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government’s allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.”
In the Savings & Loan scandal of the 1980s, over 1000 bankers went to jail. But the Saving and Loan deal was a paltry undertaking compared to the worldwide criminal enterprise that the global capitalist banking system represents. At the heart of the whole thing are the world’s central banks each of which is printing money like crazy trying to debase their currencies.
The US Fed’s goal is to drive up inflation. What? That encourages people to buy now instead of waiting for later when the prices might go up. The Fed indulges in all sorts of convoluted thinking of this sort. They are giving $85 billion a month in QE (Quantitative Easing) to the big banks in an effort to keep the economy from going into the tank.
The theory is that by keeping interest rates low, people will borrow more money and buy more stuff. A side effect is that the US is able to keep its interest payments on the national debt low. Another side effect is, that because savers are getting practically no interest on their savings accounts, they will invest in the stock market.
Hello! The stock market is at all time highs! Since consumption is 70% of GDP, the Fed and the US government desperately need people to keep buying stuff. This will supposedly create jobs and lower the unemployment rate (one of the Fed’s mandates) which is still very high by historic standards. But printing money cheapens the value of the dollar.
The cheapening of the dollar will also make US exports more attractive. But since other countries are engaged in the same strategems, the overall denouement is that the world is degenerating into a currency war. The problem is that QE only amounts to another round of gift giving to the big banks. The money isn’t trickling down to the average person.
If the Fed really wanted to boost the American economy, it would inject money into the bottom of the economy (example, paying off people’s mortgages thereby freeing up money for consumption) and let it trickle up instead of the opposite which is not working, but it is against the law to do that. Capitalist rules prevent that from happening. And although the Fed is encouaging them do do it, intelligent consumers are not going to borrow money and go into debt just to purchase a lot of cheap crap made in China in order to keep the economy going. What if consumers revolt? Then the economy goes into the tank.
The state of New York has filed suit against JP Morgan Chase for fraud related to the sale of mortgage backed securities. Eric Schneiderman, the state’s attorney general, seeks an unspecified amount of damages related to billions of dollars in investor losses. The state maintains that JP Morgan’s Bear Stearns division should have known that the stuff it was selling was crap.
Bank of America agreed recently to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn’t admit wrongdoing.
And homeowners foreclosed on illegally are also filing lawsuits. Many were told that in order to have their mortgages modified they would have to adhere to certain conditions including continuing to make mortgage payments albeit at a reduced rate. After complying with all conditions, many had their homes foreclosed on anyway. The banks had a two track strategy: one department pursued modification while another concurrently pursued foreclosure. The foreclosure guys usually won out because it was more profitable to foreclose than to modify.
States are filing lawsuits against banks because of MERS, the Mortgage Electronic Registration System, claiming that they have been defrauded out of registration fees and that mortgages transferred through MERS are illegal. Louisiana’s lawsuit is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.
And the beat goes on. Little piddly civil lawsuits with no criminal prosecution instead of one gigantic criminal lawsuit by the US Justice Department. That means no bankers in orange jumpsuits pulling KP duty any time soon. They are free to continue their fraud and corruption because to discontinue it would bring down the whole international banking system.