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Tuesday, 15 July 2014 07:22

Banks Too Big to Fail Continue to Commit Criminal Acts Without DOJ Holding Anyone Accountable

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citigroup(Image: Mike Licht NotionsCapital.com)

Yesterday, Thom Hartmann, lamented in a commentary posted on Truthout that the most recent Department of Justice (DOJ) settlement with Citigroup (its second this year, amid other fines levied by the DOJ for criminal behavior against other banks) was an example of the US government coddling banks engaged in illegal activities while leaving most homeowners who were victims of their malfeasance without adequate compensation or assistance.

Hartmann wrote:

Of the $7 billion total settlement, $4 billion will be in the form of a civil monetary payment to the Department of Justice, $500 million will go to state attorney's general and the Federal Deposit Insurance Corporation, and an additional $2.5 billion will go towards "consumer relief."

But make no mistake about it. This agreement is another win for the big banks.

Under the agreement, Citigroup will most likely get a $500 million tax write-off. And in pre-market trading on Monday, Citigroup stocks rose by nearly 4 percent, despite the $7 billion agreement.

This is nothing more than a slap on the wrist for Citigroup; basically a cost of doing business.

And as for the mere $2.5 billion in consumer relief, while it will be going towards loan modifications, principal reduction and refinancing for distressed homeowners, it's nowhere near enough. And there are no guarantees it will make its way into the hands of the people Citigroup victimized, either.

As The New York Times reported on the Citigroup settlement:

Wall Street watchdog groups and housing advocates said the terms of the $7 billion settlement highlight how the federal government has fallen short in its effort to hold banks accountable, noting that neither Citigroup nor any of its executives have been criminally charged for the bank’s mortgage problems.

The bible of the financial industry, The Wall Street Journal - contrary to other reports that only a small tax deduction was included in Citigroup's settlement - posted an article, "Citigroup to Get Tax Silver Lining in $7 Billion Settlement":

The costs incurs in providing $2.5 billion in assistance to distressed homeowners and other consumer relief – will be tax deductible, the bank and outside experts said Monday. So will the $500 million Citigroup is paying to state attorneys general and the Federal Deposit Insurance Corp. The $4 billion fine the bank is paying to the Justice Department will not be deductible, however.

It would be fair to say that criminals who aren't banks are not granted tax deductions on penalties. However, a different standard is generally applied by the DOJ to Wall Street:

Tax deductibility of banks’ big settlements with the government became an issue last fall, when J.P. Morgan Chase JPM +4.10% & Co. reached a $13 billion settlement with the government over similar issues and acknowledged that $7 billion of that amount would be deductible.

Such settlements don’t have to be deductible – regulators and companies can agree to waive a settlement’s deductibility and have that written into the settlement agreement, as was the case when Credit Suisse CSGN.VX +0.43% agreed to pay $2.6 billion in May to settle criminal allegations that it aided tax evasion. But there is no such provision in Citigroup’s civil settlement agreement.

Add the tax deductions banks receive based on the latest DOJ PR move - fining them but not prosecuting them - and they make out, well, like bandits.

The New York Times notes:

The Justice Department said Citigroup routinely ignored warnings that a significant portion of the mortgages it was packaging and selling to investors in 2006 and 2007 had underwriting defects. In one internal email cited by prosecutors, a Citigroup trader wrote “went thru Diligence Reports and think that we should start praying … I would not be surprised if half of these loans went down.” But the bank securitized the loans anyway....

In a boon for Citigroup, the deal with the Justice Department forgoes any potential cases against the bank related to collateralized debt obligations, or C.D.O.s, which were often tied to mortgages. While Citi was a relatively small player in the mortgage securities market, it was a leader on Wall Street in C.D.O.s.

As BuzzFlash has noted in many commentaries, the Department of Justice has gone through many contortions to make it appear as if they are getting serious with cracking down on Wall Street crimes, but they are just engaging in Kabuki theater.

If you want to know how the government's settlement with Citigroup hurt the "bank too big fail," take careful note of this excerpt from the New York Times article on the deal:

Investors drove Citigroup’s shares up 3 percent on Monday, relieved that a settlement had been completed and heartened that the bank’s latest results were better than expected.

The agreement between Citigroup and the Department of Justice achieved its goal, assisting the bank while presenting the appearance of punishing it.

The Department of Justice, as BuzzFlash has observed before, could take action that would lead to the sanctioning of banks in specific areas of practice - and even the revocation of their charters for engaging in criminal behavior - but it won't.

That is, perhaps, because many of the top people prosecuting the banks (including Attorney General Eric Holder and his chief appointees at the DOJ) come from the DC white collar legal defense firm of Covington & Burling. As BuzzFlash reported in March of 2013, "Lanny Breuer Cashes in After Not Prosecuting Wall Street Execs, Will Receive Approximate Salary of 4 Million Dollars" at Covington & Burling.

Where might you ask did the person who replaced Lanny Breuer as head of the DOJ criminal division end up after leaving the Department of Justice?  An April 28 New York Times article answers that question:

Covington, the firm where Eric H. Holder Jr. practiced law before becoming attorney general, will announce on Tuesday that Mythili Raman is the latest former senior Justice Department official to join its ranks. Ms. Raman, who will be a partner in Covington’s white-collar crime and litigation practices, led the Justice Department’s criminal division until last month.

After departing the criminal division, where she oversaw investigations into some of the world’s biggest banks, Ms. Raman followed a well-trod path to Covington. She is the fourth recent criminal division prosecutor to join Covington and the fifth senior official under Mr. Holder to do so. Lanny A. Breuer, her predecessor as chief of the criminal division, is now Covington’s vice chairman.

“Reuniting with my former Justice Department colleagues was one of the biggest draws of Covington,” Ms. Raman, 44, said in an interview. “It was an easy choice.”

Unfortunately for the voters in the United States, we didn't elect Covington & Burling to build its client business by laxly enforcing criminal violations at the Department of Justice against banks and bankers.

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