You might have read recently about the multibillion-dollar fines being assessed some of the world’s largest banks. Counted in the billions, it seems such large fines would cause JPMorgan Chase, Bank of America and Wells Fargo (among others) to think twice before breaking any more banking rules.
Forgive our skepticism, but it appears little has changed since the Wall Street-fueled financial meltdown and taxpayer-financed bailout of 2008. The world’s biggest banks are once again raking in record profits. And instead of seeing heads roll for the gross mismanagement that precipitated the failure, these banks are paying extravagant compensation to many of the same executives who engineered the activities that got them fined in the first place. Billion-dollar fines must be just the cost of doing business.
JPMorgan’s $13 billion settlement in November for its role in the mortgage-backed securities fiasco is one such cost. All totaled, JPMorgan has paid out $20 billion for its misdeeds over the past 12 months – and still the company made $5.8 billion, according to the Washington Post.
The New York Times reported last Friday that 16 other big banks are preparing for similar payouts, expecting to settle for roughly $50 billion.
Such payouts won’t cause the leaders of the biggest banks to blink. Shareholders will pay, no individuals will be held accountable (much less go to jail) and the Dodd-Frank financial-reform law of 2010 will remain a paper tiger.
An estimated $15 billion of the $50 billion settlement would go to consumers affected by bad loans. But the financial meltdown became vastly larger than mortgages going bad. The world’s biggest banks had essentially placed bets against each other using unregulated financial “derivatives” – meaning the value of what they were betting on came from something else, usually mortgages that many banks knew were going bad. These bets took a bad situation – defaulting mortgages – and turned it into a catastrophe. For every dollar of bad mortgage debt there was at least $30 of bad bets.
When the housing bubble burst, those bets were called and that caused the country’s financial markets (since virtually every bank was a player) to seize and stop lending money to businesses that had nothing to do with real estate. When that happened, millions of Americans lost their jobs, then their homes; many lost their life savings.
Though the economy is improving, far too many have not recovered. The government no longer counts people who have been out of work for two or three years.
But a very specific group has recovered quite nicely. They work on Wall Street, doing business as usual.