Obama's "Settlement" Spares Big Banks

Once again, Obama spares his biggest campaign contributors.

Earlier this month, the federal government and most states agreed to  a $25 billion settlement with Bank of America, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial for carrying out fraudulent foreclosures on mortgages. The settlement will direct $20 billion toward mortgage relief for borrowers and $5 billion to the government. As Dennis Kelleher of Better Markets has argued, this deal is a complete sell-out to the financial industry.

First, there was no serious criminal prosecution, meaning that no one will be charged with a felony and no one will go to jail. In terms of affecting executives’ incentives, this is the only thing that matters.

Even the terminology used to frame the discussion is wrong. Kelleher, an attorney with extensive experience in private practice and the public sector, tells it like it is: “ ‘Robo-signing’ is massive, systematic, fraudulent, criminal conduct.” Alternatively, as he points out, we could just call it “lying, cheating, and stealing.”

Second, the civil penalties in this settlement—a form of fine—are minuscule relative to the size of the companies involved. As Shahien Nasiripour, one of the best reporters on this issue, dryly put it: “None of the five lenders have said they expect to incur a material charge due to the settlement.” In other words, from a corporate perspective, the penalty is a trifling affair.

Third, such fines are, in any case, paid by the companies’ shareholders, not by their executives or board members (all of whom carry insurance). In the rare cases in which fines have been levied on individuals, either their insurance policies picked up most of the bill, or the penalties were trivial relative to the cash compensation that they received while committing their crimes—or both.

I suppose it's comforting to know that Obama is loyal to something.