“when was the last time you took a Wall Street bank to trial” — Senator Elizabeth Warren from Massachusetts addressing regulators at open Senate hearing.
Editor’s Comment: In a Supreme Twist of irony Republicans and the Banks in bed with them got a taste of “be careful what you wish for.” Had Warren been confirmed as head of the Consumer Board protecting consumers from bank abuses she would have been required to answer the question rather than ask it.
The squirming response of the regulators was “I’ll get back to you on that.”
As I have repeatedly stated on these pages along with dozens of other commentators, economists, law enforcement officials and as repeated by Senator Warren, by this point in the Savings and Loan crisis more than 800 individuals were behind bars serving out stiff prison sentences for playing around with the public trust and our economic system.
The answer is so far back none of the people in the room could give even an approximate date of any prosecutions except against individuals who are prosecuted to set an example of what happens when you abuse the rules, fool the public and cause a crash. In this case the crash pretty much cracked the structure of every economy in the world.
Which led to her next question: has “too Big to Fail” become Too Big for Trial?” or, as I would have put the question: can you explain the difference between the prosecutions in the Savings and Loan Crisis of the 1980’s and the lack of prosecutions now in which much of the same behavior is at issue with some creative additions to the criminal conduct of the 1980’s.
Of course there is no answer because the real answer which the regulators have been following as policy without stating it aloud is that The Paulson-Geithner doctrine of saving the banks (without checking to see whether they were really in trouble) scared the crap out of Congress which in turn, by authorizing TARP and passing HAMP without any teeth, sealed the deal.
If you start with the premise that the banks lost money, much of what followed makes sense, except for the lack of prosecutions. But if you start with the premise that the basic transaction, the only transaction was that investors advanced money for residential mortgage loans, you start coming up with some very different answers and some thorny political and judicial issues.
If the money came from investors, how did the banks lose money? If the investors took the cash loss, why are the banks being permitted to (a) take the paper loss and (b) collect as though they had a monetary loss? If the rating agencies were bribed, why are they not being prosecuted? If the insurance companies and counterparties to credit default swaps were defrauded, why (a) are there no prosecutions for criminal fraud and (b) why is there no recognition of the lies and fraud committed on homeowners, title companies (unless they were con-conspirators) and their successors as each refi or sale compounded the corruption of our title system?
If the insurance paid off, the CDS and other hedges paid off all to the advantage of the banks, why and how could anyone possibly say that the insurance and other proceeds paid to the banks were not agents for the investor/lenders? If the banks who are foreclosing claim the authority to do so through agency and powers of attorney and appointment, why doesn’t that road travel both ways? If we are going to allow the insurance money and CDS proceeds to be retained within the financial community why are the banks allowed to maintain balance sheets that are grossly misstated by the value of loans and bonds on which they already collected through insurance and which are valued in the open market at pennies on the dollar rather than 100 cents on the dollar now that these transactions are gradually being repatriated onto the balance sheets and income statements of the banks?
If we prosecute to set an example, what example are we setting when we don’t prosecute?
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