UPDATE: Bank of America Fined Another $16 Billion for Fraud

By L. Randall Wray

Bank of America just agreed to pay another $16 Billion fine for one of its frauds—selling trashy securities to its investors. Another day, another fraud exposed. No surprises there. This is so routine it barely deserves a headline.

According to Bloomberg, that raises the total it has agreed to pay for its mortgage lending frauds to $70 billion. Most of this is related to its purchase of Countrywide, where Mairone oversaw much of the fraud. See here.

BofA rewarded Mairone for creating Countrywide’s “Hustle” fraud by hiring her. So far that woman’s criminal expertise contributed toward mounting costs to BofA of $70 billion. Quite an accomplishment!

Her portrait ought to hang right next to CEO Ken Lewis’s at corporate headquarters as among the bank’s most costly mistakes in its history. As CEO, Lewis bought Countrywide for $4 billion, but the $70 billion of fines directly related to that purchase bring the direct cost up to $74 billion and counting.

As Bloomberg notes, Moraine’s Hustle program “lasted only nine months yet managed to write almost 30,000 subprime mortgages, which Fannie Mae and Freddie Mac bought for about $5 billion. Defect rates on stated-income loans (in which the borrower’s income isn’t verified) reached 70 percent.”

Mairone is now at JPMorgan, and one must wonder how much she’s going to cost that bank.

The Bloomberg editorial goes on to note that these settlements provide no incentive to the Banksters to change behavior. First, they’ve insured themselves against their frauds, so insurance companies pay much of the fine. Second, while the fines sound big, they are peanuts compared to what the banks raked-in as they sucked wealth out of the housing sector. Banksters view this as a cost of doing (fraudulent) business. Third, at worst, stockholders suffer, not top management. Fourth, the Attorney General refuses to go after the top management, so none of those who actually benefitted from the control frauds have been prosecuted for criminal activity. Indeed, they haven’t even been held personally liable for civil fines. And Fifth, all these negotiations and the settlement details are Top Secret—so no one really knows what was admitted. That is no way to make an example of fraudsters.

Mairone was the exception, and the judge in the case clearly meant to make an example of her. As Bloomberg reports:

“[Judge] Rakoff said the Countrywide loan-approval program was ‘the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.’”

Bloomberg goes on to argue that this case against BofA and Mairone disproves all the conventional arguments against prosecuting the fraudsters. It is often claimed that the cases will be too hard to win: they are too complex for juries to understand; or it is too hard to prove that individuals are culpable. Bloomberg rejects all that:

“This case is the only one in which a large bank has had to defend its conduct in the housing boom, and it challenges the idea that bringing fraud prosecutions in this area is a hopeless endeavor. Apparently juries can cope with financial complexity after all. An assistant U.S. attorney explained what went on at Countrywide without needing to dwell on the arcana of collateralized mortgage obligations….

Other reasons, aside from complexity, have been advanced to justify the lack of prosecutions. One is that the U.S. government was itself involved because of its housing policies. The trial showed it was Countrywide, not a U.S. official, who told loan officers not to screen out risky borrowers and to fill their quota of applications before going home at night. It was Countrywide that rewarded bankers with the speediest approval rates, no matter how poorly underwritten their loans.

The idea that well-shielded executives can’t be implicated also got debunked. Testimony emerged that Mairone silenced and penalized bankers who complained about the quality of hustle loans. Rakoff is requiring Mairone to personally pay her $1 million penalty. Perhaps most important, the case suggests that midlevel employees could have been persuaded to give evidence against their seniors, enabling prosecutors to move up the chain….

The jurors in last year’s trial sent out a note during deliberations asking why more senior Countrywide executives weren’t being sued with Mairone. Many American taxpayers, homeowners and investors cannot be blamed for wondering the same thing.”

Exactly. Why isn’t Eric Holder going after the senior executives? Start with Bob Rubin, Hank Paulson, Bryan Moynihan, Ken Lewis, and Jamie Dimon. Seek prison terms on conviction. That would incentivize the banks.

9 responses to “UPDATE: Bank of America Fined Another $16 Billion for Fraud

  1. As always, thank you.

    From 2011 “Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval”

    http://seekingalpha.com/article/301260-bank-of-america-dumps-75-trillion-in-derivatives-on-u-s-taxpayers-with-federal-approval

  2. OK so I understand that what constitutes an impeachment is largely up to Congress to decide and therefore has a degree of fluidity but exactly why isn’t the Republican Party with its residual Tea Party influence not seeking to impeach Obama over his failure to bring the Bank fraudsters to justice in the criminal courts. After all wasn’t the Tea Party supposed to be incensed about the fraud taking place on Wall Street? Or was that all spin for the benefit of a Chump-Bait democracy?

  3. “Why isn’t Eric Holder going after the senior executives?”

    ROFL

  4. Surely insurance policies exclude losses due to fraud or other crimes by the insured, don’t they? If not, then at least their rates will go up.

  5. Norman Allen

    That isn’t the half of it. I have personal knowledge of how far big banks are willing to go to bury their dirty deeds, including criminal acts, not just civil frauds against citizens, but also felony frauds in and on the courts, from local to appellate. The banks committed criminal acts designed to bury their mortgage frauds from inception to foreclosure. It continues to amaze me what the courts will allow big banks to get away with, this mess is not over.

    • Norman, thanks. I’m not a lawyer, but afaik, if the government can bring evidence to a judge of a cover-up, the judge, it’s a way to get around the statute of limitations.

  6. I’m shocked that some Big Shot Law firms hve not filed a RICO suit against anyone who was trading mortgage derivatives! Damages to the consumer are in the $Trillions which get tripled under RICO!
    Read the law- google RICO – read Grell, there is a clear case for Financial Fraud under RICO as well as Wire and Mail Fraud and Extortion of the American Consumer!

    • Jim, thanks.

      I am not a lawyer, but afaik, only the government has jurisdiction to make the criminal referrals which could lead to RICO….

      Unfortunately, under Bush and Obama, DOJ seems more interested in prosecuting high profile sports figures, Lance Armstrong, Barry Bonds, Roger Clemens. Wall Street CEO’s, and the rest of the oligarchs, have bought large segments of the federal and state judiciary.

      Where federal funds are concerned, and the whistleblower has standing, and compelling evidence, the Federal False Claims Act http://en.wikipedia.org/wiki/False_Claims_Act might apply.

  7. I can guess why we only hear about Bank of America and no longer Angelo Mozillo, and we don’t hear about other banks like the former Chevy Chase Bank and BF Saul’s CEO who were following the same script as detailed above. Sometimes there’s only room for so much information.