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Thursday, 04 May 2017 06:11

Why Aren't Individual Bankers Held Accountable?

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wallstreetWhy aren't individual bankers accountable for massive fraud on Wall Street? (herr_hartmann)

Over the years since the financial meltdown of 2008, BuzzFlash has published numerous commentaries about banks being fined for deceptive practices relating to subprime mortgages. Here we are in 2017, and banks are still being fined for illicit activity dating back 10 or more years. A May 3 Reuters article reports:

Credit Suisse Group AG (CSGN.S) paid $400 million to settle claims that the Swiss bank sold toxic mortgage securities that contributed to the demise of three federal credit unions, a U.S. regulator said on Wednesday.

The National Credit Union Administration said the settlement resolves the 19th of 20 lawsuits it filed in the last six years against banks over their underwriting or sale of securities to five credit unions that failed in 2009 and 2010.

Including a $445 million accord with UBS Group AG (UBSG.S) announced on Monday, the NCUA said it has recovered roughly $5.1 billion from the banks from these lawsuits.

The collapsed credit unions were persuaded by the banks to invest in high-risk mortgage securities in the years before their demise. In fact, the National Credit Union Administration (NCUA) has successfully argued that the banks' insidious profiteering off of knowingly distressed securities led to the failure of the credit unions.

What is common to these lawsuits from the NCUA -- and to situations in which banks were prosecuted by the Department of Justice (DOJ) for fraudulent banking practices before 2008 -- are two things. Banks and bankers, almost to the one, do not admit criminal responsibility for their actions, and no individual bankers are held accountable. In essence, as I have noted before, the banks consider the levies against them simply part of the cost of doing business. In some cases, the fines and settlements are even tax-deductible.

Consistent with this reality, Reuters reports, "Credit Suisse did not admit wrongdoing." That is par for the course in the DOJ cases too.

What is particularly disturbing is that the DOJ doesn't banish the bankers who are responsible for toxic schemes that have devastated millions of people. The National Credit Union Administration was formed in the Great Depression as a result of the Federal Credit Union Act. It has no authority to hold bankers accountable for their illegal professional actions, but the DOJ does. However, the DOJ not only doesn't pursue personal charges based on the numerous successful lawsuits and settlements; it doesn't demand individual professional accountability in its own settlements. If prosecutors applied the same standards to people who cash stolen checks, a lot fewer people would be in prison (and appropriately so).

The DOJ's kid-glove treatment of bankers who knowingly foisted distressed assets onto bank customers such as credit unions is dismaying. In one of my many commentaries on the issue I noted a $5.06 billion settlement with the DOJ by Goldman Sachs in April of 2016. I also noted that Goldman Sachs appeared content with an outcome that did not require any major systemic changes in the way that it does business, and exempted individuals from responsibility. "We are pleased to put these legacy matters behind us," Lloyd Blankfein, Goldman Sachs' Chief Executive Officer, said in a news release posted on the firm's website.

That sounds eerily similar to Credit Suisse's attitude to its settlement, as revealed in the Reuters article:

A spokeswoman, Nicole Sharp, said the bank was pleased that "another legacy matter has been resolved," and had set aside enough money for the settlement in the first quarter.

The term "legacy matter" is a euphemism. In reality, Blankfein and Sharp are saying, "We broke the law and got a slap on the wrist; it's all in the past!" Remember that the Wall Street executives who condoned these illegal schemes were all allowed to stay in their positions.

Credit Suisse can breathe easy now. According to Reuters, "The NCUA voluntarily dismissed its case against Credit Suisse on Tuesday in connection with the settlement, court records show."