ABSTRACT: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly. The fines that have been imposed haven’t been a sufficient deterrent to stop this bad behavior. Multiple big banks have paid penalties of over $100 million for 1) money-laundering for countries subject to US economic sanctions, 2) selling inappropriately risky investments to conservative investors including municipalities and non-profits, 3) fraudulently foreclosing on mortgages, 4) interest rate manipulation in multiple scenarios, and 5) discriminating against minority borrowers.
Despite this repeated wrong doing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and our economy.
These huge financial corporations are not just too big to fail, they are simply too big and complex to control by either internal management or outside regulators. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.
FULL POST: Things are rotten in the big financial corporations. News of illegal activity continues to surface regularly across a broad range of banks and financial activities. Here are some of the latest. The fines that have been imposed (which sound like big amounts but are small compared to the size and profitability of these corporations) haven’t been a sufficient deterrent to stop this bad behavior. (In terms of the size of these financial firms, JP Morgan Chase took a $6 billion loss on internal, speculative securities trades and still had a profit for the quarter.)
- Standard Chartered, a big British bank, has agreed to a $340 million penalty with New York State to settle charges of money-laundering for countries subject to US economic sanctions. It admitted to concealing transactions with Iran of over $250 billion over nearly 10 years. The bank made hundreds of millions of dollars in fees on the transactions. It agreed to increased monitoring but received no other sanctions on its business. A former US Treasury official noted his disappointment in the small penalty and the lack of criminal charges. A federal investigation is on-going. Since 2005, the US Treasury has imposed fines of over $2 billion on banks for violating US economic sanctions including ING Bank ($617 million), Lloyds Bank ($350 million), UBS ($100 million), Barclays ($176 million), and JP Morgan Chase ($88 million). HSBC bank has been accused of laundering billions of dollars for drug cartels and terrorists and has yet to settle, but has set aside $700 million for potential penalties. [1][2]
- Wells Fargo bank is paying $6.5 million to settle charges that it sold inappropriately risky investments to conservative investors including municipalities and non-profits. A Wells Fargo vice president will pay $25,000 and serve a 6 month ban on working in the securities industry. Wells Fargo and its vice president have neither admitted nor denied wrongdoing, as is typical in these cases. Last month, Wells Fargo paid $175 million to settle charges that it discriminated against minority borrowers. [3]
Despite repeated wrongdoing, the Securities and Exchange Commission (SEC) and the Justice Department announced recently that they have ended their investigation of Goldman Sachs for fraud related to selling mortgage-backed securities to customers when it knew the securities were likely to be bad investments. They will not pursue criminal charges against the corporation or its employees. This occurred despite President Obama’s announcement of a special investigative task force in January, despite a formal notice from the SEC in February that it intended to pursue legal action, and despite the $550 million fine Goldman Sachs paid in 2010 for failing to make appropriate disclosures to investors on a similar security. This is the latest indication that there will be no significant accountability for the banks that brought on the collapse of the financial sector and the economy, especially given that the deadline to file cases is fast approaching. [4] [5]
Whatever the reasons are for these huge financial corporations not being held accountable, it is clear that they are not just too big to fail, but simply too big and complex to control. Internal management seems unable to control traders and stop illegal activity (assuming they intend to). Outside regulators have an extremely difficult time detecting and responding to illegal and harmful behavior, not to mention doing so in a timely manner that might prevent the worst of the consequences.
Dramatic changes are needed. Either these huge financial corporations need to be broken up into smaller and less complex entities, or government regulation of them needs to be dramatically changed and strengthened. Otherwise, the risk that they will do serious damage to our economy again is simply too high. We cannot allow them to continue to pocket the gains from their risky business practices when we know that we will bear the costs when things go wrong.
[1] Rooney, B., 8/14/12, “Standard Chartered pays $340 million to settle Iran charges,” CNN Money
[2] Sanati, C., 8/8/12, “Why London bankers are shrugging of Standard Chartered threat,” CNN Money
[3] O’Toole, J., 8/14/12, “Wells Fargo in $6.5 million SEC settlement over risk disclosure,” CNN Money
[4] Protess, B., & Ahmed, A., 8/9/12, “SEC and Justice Dept. end mortgage investigations in Goldman,” DealBook of The New York Times
[5] Mattingly, P., 8/10/12, “US won’t prosecute Goldman Sachs, employees over CDO deals,” Bloomberg Businessweek
Lippitt's Policy and Politics Blog 
What’s going on here? Obama doesn’t want to move because of the election? Leave it all to Cuomo? Not exactly profiles in courage.
You’re quite right; there are no profiles in courage here. The Obama administration has failed to aggressively support sanctions, including prosecutions, that would send the signal that this behavior has to stop. Part of the reason is that he and other Democrats still get lots of campaign money from Wall St. And Romney and the Republicans get even more.