What a surprise. The big banks are not playing by the rules -- the rule of law, that is.
The Justice Department announced that it is pursuing a civil lawsuit against Bank of America on the grounds that the bank lied about the quality of the mortgages underlying its mortgage-backed securities (MBS) prior to the housing collapse and financial crisis. The Justice Department is still on a high from its successful civil lawsuit against Goldman Sachs Group Inc.'s (NYSE:GS) mid-level toxic securities shill, Fabrice Tourre.
The charges allege out-and-out fraud in Bank of America's soup-to-nuts loan origination and securitization of mortgages. Loans, bad from the start, were knowingly bundled and securitized into trade-able MBS, unbeknownst to buyers.
As we all know, this play went wrong (or worked spectacularly well, if you were short housing like John Paulson) and spread poison throughout the global financial system. It is alleged that this particular fraud led to losses of at least $100 million among investors who thought they were buying securities backed by mortgages that weren't worthless.
Bank of America Not Alone
Meanwhile, JPMorgan Chase announced that it was the subject of criminal and civil investigations by Justice for precisely the same misdeeds as Bank of America and Goldman Sachs. It is alleged that JPMorgan knowingly originated bad mortgages, packaged and securitized them and... you know the rest.
We also learned that JPMorgan may have been the first to do so in 2005. And the toxic securities of Bear Stearns, which JPMorgan picked up for a song just before the music ended in 2008, are thought to have cost investors $22.5 billion.
And with these revelations, JPMorgan and Bank of America join the Wall Street rogues gallery; to mangle Winston Churchill, a "grisly gang who work their wicked will." Three of the largest banks in the world, and they are being pursued like criminals.
But it actually gets worse, dastardly worse...
Criminal Banks Happy to Pay Record-Breaking Fines
If it seems to you that each month a new bank pays a record fine or settlement, you're not crazy. That's what's happening; $110 million here, $269 million there, $410 million here, $616 million there, and pretty soon, you're talking serious money!
There are 15 countries on Earth each with a nominal GDP that's less than the amount of these fines. Collectively, banks paid more than $10.7 billion in fines in 2012, more than half of which ended up in U.S. Treasury Department coffers. That tops the nominal GDP of 44 countries. Sorry, Liechtenstein!
All of these settlements have provisos wherein the banks get to maintain their innocence, and admit no wrongdoing.
As huge as these fines are, with each one breaking a record, they can't be said to do much, or act as any real deterrent. Just look at the way subprime securitization - yes, the same breed of activity behind Bank of America's recent lawsuit -- is still going on, and is ramping up again.
Indeed, the pattern suggests that these institutions view the fines as merely the cost of doing business. Goldman Sachs can shrug off a $550 million outlay as easily as expensing a power lunch tab at Le Cirque. Why? Because that $550 million fine adds up to only three days' worth of revenue for Goldman Sachs.
"What? You want $550 million? I'll have that for you by 9:30 a.m. Wednesday. Cash or check?" one imagines the conversation going.
On the other side of the coin, after raking in these fines - essentially docking Goldman Sachs three days' pay -- the Justice Department and the SEC go on about how the fines "make a powerful statement and clear signal that these acts won't be tolerated."
Aside from Bernie Madoff, a man with the flimsiest, most tangential connection to Wall Street's larger malfeasance, the Justice Department's criminal prosecutions haven't worked out at all. This is a shame, because sending seven or eight bank vice presidents down to Riker's Island to make license plates for 10 to 15 years just might actually constitute a powerful statement and a clear signal.
Bankers to the World's Evildoers
But there's an even bigger problem here. These banks' hijinks have lost billions for people... but that's not the worst of it. There have been murders, lots of murders; suicide bombings, shootings, even drug overdoses as a result of the big banks' dastardly deeds, believe it or not.
In late 2012, HSBC Holdings Plc (NYSE:HBC) was found to have laundered billions of dollars for drug lords, terrorists, and rogue states - criminals who've destroyed our cities and poisoned our children, who attacked us on Sept. 11, 2001, who've threatened our families with incineration in a nuclear war, and who have killed millions of people from Colombia to Juarez to Detroit to Baghdad.
Whenever the Iranian Revolutionary Guards Corps, the Osama bin Ladens, the Bashar al-Assads, or the Kim Jong-uns of the world had to top up at the ATM, they were aided by HSBC and other criminal banks.
Attorney General Eric Holder just wrung his hands and said that to pursue criminal charges, to prosecute HSBC, would be dangerous and impractical because the bank is too systemically important... too big to fail.
Rarely have our leaders looked so utterly weak, so incapable of doing the right thing, and so craven in their subservience to money as when Holder announced that he simply wouldn't do anything about it.
No, HSBC just paid another record fine: $1.9 billion for the money laundering, and $2.3 billion for selling bad securities.
And the dreary chain of guilt, of crime and no punishment, continues unbroken.
As bad as things are on Wall Street, there are ways that individual investors can beat the odds and just plain thrash the markets. Want to give Wall Street a taste of its own medicine? Keith Fitz-Gerald shows you how to do it...