For big banks, crime pays

Last month federal authorities fined three European banks and arrested eight traders they say tried to manipulate the market in gold, silver, and certain financial products. This allegedly included a practice called “spoofing,” or placing thousands of bids to buy or sell a stock for the sole purpose of moving the stock. The orders are then quickly cancelled.

As usual, the case against Deutsche Bank, HSBA, and UBS was settled for a total of $46.6 million in fines without any of them admitting guilt. The money comes from shareholders, not individual bankers.

While the full extent of the wrongdoing is unknown, these and others of the world’s largest banks have broken the law over and over again, settling with the government each time. Fines don’t deter big banks, which are still out of control almost nine years after the financial crash.

The shameful legacy of the 2008 financial crisis continues. If a bank is “too big to fail,” the worst thing that will befall its senior executives is a comparatively minor fine that will be paid with shareholders’ money.

The 2008 financial crisis devastated the global economy and cost American workers their jobs and homes. After the financial meltdown and subsequent Great Recession, the government did not charge any top bankers or pursue corporate prosecutions for the widespread malfeasance and mortgage fraud that fueled the bubble and led to the crisis.

Some believe bankers control the government. Others believe the banks did nothing wrong. Still others believe there was insufficient evidence to prove beyond a reasonable doubt that any specific individual committed a crime.

Then there are those who believe that prosecuting big banks will result in “collateral consequences” to financial markets and the economy. They argue that too-big-to-fail banks had to be rescued by the government to stave off total economic collapse and this should be considered in deciding whether to file charges. The latter view has prevailed, with the government settling for cash rather than seeking prison sentences. Softball tactics.

In addition to being paid for by shareholders, the settlements lack transparency. They are sealed. The government does not spell out what the company did wrong or how the amount of the fine was determined. How can the public ever know how tough the government really was?

This was not always the case. After the savings and loan scandals of the 1980s, when hundreds of banks failed due to reckless real estate loans, the Department of Justice prosecuted and convicted over a thousand bankers for their transgressions.

But if you are a small family owned bank in Chinatown that’s a different story.

Abacus Federal Saving Bank a small Chinatown-based bank wedged between two noodle shops and catering to poor immigrants in New York, New Jersey and Connecticut – along with 19 of its former employees were charged by the Manhattan District Attorney in a massive mortgage fraud scheme. It was the only bank indicted for mortgage fraud related to the 2008 financial crisis. The 240-count indictment handed down in 2012 claimed that the bankers allegedly falsified loan applications to secure hundreds of millions of dollars in loans for unqualified borrowers through the Federal National Mortgage Association, known as Fannie Mae.

At the time, Abacus was the nation’s 2,651st largest bank with about $300 million in assets. During the trial, it was learned that the bank’s default rate was 0.3 percent during the period covered by the indictment, from May 2005 to February 2010, far below the national average.

After a four-month trial in 2015 that cost the bank more than $10 million, a jury found Abacus and its senior officers not guilty of grand larceny, conspiracy, falsifying business records, mortgage fraud and other charges.

You don’t have to be Sherlock Homes to conclude big banks get away with their crimes for a pittance. No one goes to jail and no one ever gets prosecuted. The fines are just a cost of doing business.

Originally Published: Feb 17, 2018