Mortgage news: GSIBs as a group have paid at least $163.7 billion in fines!!!


above photo - House Financial Services Committee Holds Hearing On Keeping Megabanks Accountable
WASHINGTON, DC - APRIL 10: (L-R) Michael Corbat, chief executive officer of Citigroup Inc., Jamie Dimon, chief executive officer of JPMorgan Chase & Co., James Gorman, chief executive officer of Morgan Stanley, and Brian Moynihan, chief executive officer of Bank of America Corp., listen during a House Financial Services Committee hearing on April 10, 2019 in Washington, DC. Seven CEOs of the country’s largest banks were called to testify a decade after the global financial crisis. (Photo by Alex Wroblewski/Getty Images)

The news was initial reported in April but it is worth repeating today because at first the amount seemed like a prank but it truly is real!  Ever since the Democratic party assumed control of the House of Representatives they have moved quickly to implement more accountability as part of their oversight.  Global Systemically Important Banks known as GSIB’s make us some of the largest U.S. commercial banks.

The TARP Bailouts

During the financial crisis or mortgage meltdown of 2008, in 2009 the GSIB’s as mentioned appeared before the Financial Services Committee to discuss the bailouts they received.  On April 10th they reappeared before the committee chaired by Rep. Maxine Waters.  The purpose was to discuss “lessons learned” as well as steps they have engaged to balance the lending spectrum across the nation.

WASHINGTON, DC – APRIL 10: Chairwoman of the House Financial Services Committee Rep. Maxine Waters (D-CA) speaks during a House Financial Services Committee hearing on April 10, 2019 in Washington, DC. Seven CEOs of the country’s largest banks were called to testify a decade after the global financial crisis. (Photo by Alex Wroblewski/Getty Images)

$163.7 in FINES

As a group to date they have paid $163.7 BILLION in fines for various consumer abuses and other violations of the law.  Questions remain but one thing is clear; many banks chalked up the fines as the cost of doing business as evidenced by their current behavior and fact collectively they have made over $780 billion in profits.  Has anything changed?

The hearing shed light on why accountability is critical.  The committee has more hearings planned to address specific steps the banks plan on incorporating to benefit all consumers, particularly those that have been historically marginalized.

Here is a list of the fines some of the largest banks have paid in the last ten years:

  • Bank of America has paid $76.1 billion in fines.
  • JPMorgan Chase has paid $43.7 billion in fines.
  • Citigroup has paid $19 billion in fines.
  • Wells Fargo has paid $11.8 billion in fines.
  • Goldman Sachs has paid $7.7 billion in fines.
  • Morgan Stanley has paid $5.4 billion in fines.

Here is the full hearing on video

The one bank indicted from the mortgage crisis of 2008


The mortgage or housing crisis erupted across the nation in 2008 and crippled the U.S. economy.  Institutions, companies, cities, communities and individuals were not spared its devastation.  Even though recovery was a painful process and total restoration is a fleeting hope for many, it was felt those responsible, especially the well-known companies and their corporate leadership would eventually be held responsible for their involvement.

 

Shockingly, of all those who may have been involved in the nuances of mortgage lending and whose decisions resulted in historic loses, only one bank was indicted by the federal government.  Abacus Federal Savings and Loan headquartered in New York was dealt the wrath of selling fraudulent loans to the Federal National Mortgage Association (FANNIE MAE).

 

Too Big to Fail

You remember the panic, the desperation and the commentary from our political leadership? Most had never heard the phrase, “too big to fail!”  They would quickly learn it was akin to one of the great Chick Hearn phrases in announcing a basketball game, “no harm, no foul.” That basically meant that even though a foul may have been committed by the opposing player, it was not deemed worthy of declaring a foul or infraction.

2008 photo Ben Bernake, President George Bush & Hank Paulson

Instead, countless banks and mortgage originators were fined billions by various regulators, however there was no criminal prosecution as was the case with Abacus.  Even today there are many raw nerves, emotions and opinions when the topic of the mortgage crisis is discussed.  The how and why of Abacus being targeted raises more questions than it answers.  In 2016 a film about the plight of Abacus and impending trial was released.  Frontline, which specializes in showing documentaries on the public broadcasting network platform released the television version on September 12, 2017.

This spread the danger of risky mortgage loans, systematizing the housing market’s risks throughout the global financial system.23 These developments occurred in an environment characterized by minimal government oversight and regulation and depended on a perpetually low-interest rate environment where housing prices continued to rise and refinancing remained a viable option to continue borrowing.  When the housing market stalled and interest rates began to rise in the mid-2000s, the wheels came off, leading to the 2008 financial crisis.

Low hanging fruit

Abacus was eventually vindicated as the government was not able to prove their case.   Whatever your thoughts are about the crisis or your familiarity of the case, you ponder and ask what was so unique about Abacus that the government thought them to be “the poster of criminal intent and deemed a responsible party?”  There were so many well-known companies that were involved in the crisis.  As a matter of fact, each day lenders were imploding right before our eyes.  No doubt, they represented low hanging fruit that even a rookie prosecutor could attempt to give the public some sense of relief through indictments..  Yet, absent those who managed to survive and keep the doors open, their core penalty as mentioned was having regulatory fines levied against them.    From their perspective, dealing with a fine was much better than going out of business or worse, having to spend time in jail or prison.

 

Abacus goes down in history by being the only bank or mortgage lender to suffer the fate of being indicated and having to go through a full trial.

 

 

You can access the full film by clicking HERE