Several months ago, I became fed up with bank regulators and their never-ending lawsuits against the major banks. I wrote a column when the fines imposed on J.P. Morgan Chase reached $25 billion. My brother Frank, who headed the American Bankers Association, liked the article and sent it to Jamie Dimon, J.P. Morgan’s chairman. Mr. Dimon responded with a thank you.
In the interest of piling on, Gretchen Morgenson wrote an article for the Sunday New York Times entitled “Fixing Banks by Fining the Bankers.”
Ms. Morgenson begins with a “Ho Hum” another week and another huge money settlement with regulators by offending banks. Such news has become commonplace. During the Obama presidency, of all the money taken from the banks, practically none has reached those depositors and borrowers that the regulators are so concerned with. The money stays with the regulators to cover their lavish lifestyles.
Ms. Morgenson writes, “As has become all too common in these cases, not one individual was identified as being responsible for the activities once again, shareholders are shouldering the costs of unethical behavior they had nothing to do with.”
In this game, no one admits guilt. No one goes to trial since it would be too expensive and time-consuming. Just pay the fine and go down the road.
Who would ever sue the government except Hank Greenberg?
However, the fines are not enough. FINRA’s Chairman Richard Ketchum said, “Nearly a decade after the financial crisis, some firms continue to experience systemic breakdowns manifested through significant violations due to poor cultures of compliance.”
In order to restore investor confidence and trust in the securities industry, new solutions must be found. One proposal advanced by Professors Claire Hill and Richard Painter of The University of Minnesota Law School calls “for making financial executives personally liable for a portion of any fines and fraud based judgments a bank enters into including legal settlements.”
The professors call this “covenant banking.” Their plan contains a crucial element requiring “the best paid bankers in the company to be liable for a fine whether or not they were directly involved in the activities that generated it.”
Where do these people come from? First of all, the federal government bears most of the responsibility for the 2008 financial crisis.
They allowed nonqualified individuals to buy homes with no money down or proof of income and insured those mortgages through Fannie Mae and Freddie Mac.
When borrowers could no longer flip their properties or pay the monthly payments, the game was over and thousands of homes were abandoned, foreclosed or walked away from.
Instead of allowing companies like Countrywide and Washington Mutual to go under, the government forced Bank America and J.P. Morgan Chase to buy them as they did with Bear Stearns and Merrill Lynch.
That is where so many fines and settlements came from. The government sued the banks for the sins of the companies they forced them to acquire.
Why not use Ms. Morgenson’s reasoning of “if executives had to pay up personally, maybe the cheating would stop” and go in another direction?
Would the same logic apply to the Obama administration? Who has been fined or gone to jail for IRS abuses of conservative groups or allowing veterans to die awaiting medical appointments?
Who also has been punished for allowing open borders or sanctuary cities? Was anyone prosecuted for fast and furious gun running? Of course not.
If we are going to go after the bankers, let’s not forget the lawlessness of the Obama administration and its cover-ups and protection for political allies.