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(photo: peterkreder)
I truly fear the next financial collapse, which indeed will happen, because over the past three years, both Republican and Democratic administrations haven’t just killed moral hazard for the larger financial sector, they have dragged its corpse down Wall Street in an elaborate funeral procession for all to see. The latest example of comes from the Huffington Post:
The nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers’ home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department.
[...]
The dollar figure also provides a basis for regulators’ internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners’ mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it’s worth.
Let’s assume just for the sake of argument that this $20 billion made by the banks cheating regular people was the correct amount and the only important number, which, as Yves Smith explains, is a largely made up number and unimportant compared to the huge potential liabilities.
Even if the banks get slapped with the “large” $30 billion penalty, that is only a net loss of 50% more than was saved by cutting corners. More likely, though, the settlement will cost the banks less than $30 billion. If I know the maximum punishment for robbing a bank was only being required to pay back what I stole plus at most another 50%, my life of crime would start tomorrow.
Add to this the fact that no major players have gone to jail as a result of this meltdown, all the biggest firms were bailed out by the government so they can return to record profitability, and none of the individual bonuses that resulted from the artificially inflated the bubble were ever clawed back. Everyone can see that moral hazard on Wall Street is totally dead. The behavior that will become common as a result of total freedom from any punishment or responsibility in the coming years should truly terrify anyone who isn’t a member of the financial overclass.
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and they’ll have your social security to play with too
I love reading Shahien Nasiripour… he’s a darn good business reporter.
And since we won’t stop spending on 3 stupid wars we will have to raid SS to pay for another bank bailout.
Yes, but somehow the “fault” of the collapse of Soc Sec will be laid at the feet of leftwingers, as we’ve seen in other posts today.
Thanks for the post; really really aggravating. Unsure what else to say at this point.
RICO, maybe? Or is that legally no doable?
I think the meaning of “moral hazard” is the opposite of what you think it is.
Heh. Only in the minds of the just and the wet dreams of criminal prosecutors everywhere.
Never happen. They will not indict eachother.
But, surely,(he asked pensively) we can hope for perp walks for some low-level crooks, expendable crooks, crooks who were’nt liked by other crooks, crooks with no information to reveal except their own crimes?
Just one?
and is tax-deductible in some cases.
(Needless to say, IANAL. Nor a CPA.)
Moral hazard means getting rewarded for bad behavior. So “killing moral hazard” would mean getting punished for bad behavior. Not the way you used it, Jon.
Let’s assume just for the sake of argument that this $20 billion made by the banks cheating
You are ASSUMING that they are cheating..I assume that they are not..I assume that the banks and mortgage companies want to get those who are not, cannot, dont want to: pay their mortgages, OUT of those dwellings so we can finally move on and get the housing crisis over and done with.
I owe you a drink (10). What’s your pleasure?
Nope. It’s been 3 years. We would’ve seen that already if we were going to see it at all.
Read Taibbi last month in Rolling Stone. He talks about the incestuous nature of Wall Street and the regulatory bodies, and how the regulatory bodies have actually squashed cases and buried evidence, fired people, etc., in order to keep this mess from having any legal consequences for the perpetrators.
Is that why they’re keeping those foreclosed properties off the books?
Oy, trolls are back. I’m outta here.
Laters!
Robo signing foreclosure documents under penalty of perjury IS cheating, in case you aren’t aware of that. So is foreclosing on property where there is no mortgage (and that has happened multiple times)
You see, banks have to follow the laws just as everyone else does and instead of following the laws, the mortgage companies went for expedience.
That is patently false. I call bullshit. What evidence do you have of this?
*g*
Yeah, yer right – I guess I grew up in the wrong century.
Back when that thing called “rule of law” still existed for the most part.
the Big banks have bought the country lock, stock, and barrel. They’ve certainly bought all the politicians in washington.
that you are not a troll.
Sorry, cant do it alamode. it’s impossible to engage in debate with someone who is willfully blind to the facts. Have fun on Redstate!
You and me, both! Great line. Funny, but perfectly sums up the situation.
Didn’t you get the memo? Rule of Law was soooo 90′s.
I’m not terrified, I’m pissed off.
These bankers aren’t impressive in any way, let’s remember, they’re a bunch of greasy little ivy league wanks.
And now you’re showing your intentional ignorance, for it is a FACT that bankers and mortgage companies cheated, the only question remaining is whether or not, and by what manner, they will be held accountable.
Something you should want, since you say you believe in RESPONSIBILITY.
But that they cheated is not in doubt, call your own state AG if you don’t believe me, ALL 50 AG’s are in discusstions now on how to deal with the cheaters.
Like I said, I can’t believe anyone in their right mind would pay for such nonsense. No way you’re a paid troll.
Yep, me too!!!
Hey, you know what, maybe this is the way to hold the bankers responsible!!!!
Make the penalty for robbing them so low bank robber becomes a high job growth sector!!!
Hey, two birds with one stone. Unemployment AND accountability to the banksters!!!!
Would you like to discuss how SISA & NINA loan programs solicited fraudulent loan applications?
The
wbankers did not ensure the people borrowing money under these program had the ability to repay the loans (which is called fiduciary responsibility).What part of “breach of fiduciary duties” (aka: fraud) do you not understand?
Eh? Conservatives and/or rightwing bloggers and/or sockpuppet trolls soley and only understand “breach of fiduciary duties” when it’s applied to “small people.” Such terminology should never be considered when discussing our Elitist overlords & criminal banksters, crooks running the WallSt Ponzi Casino or theiving Hedgefunders.
Seriously: it’s like continuing to state with absolute BLIND conviction that Saddam Hussein paid off Al Qaeda to do 9/11.
Anyone who reads the FACTS knows: a) Saddam Hussein had nothing to do with 9/11, and b) the Banks & Mortgage Companies engaged in fraud and other criminal activities, which all 50 State AG’s are currently pursuing, and which had the much bigger role in the crash of 2008 than “small people” who didn’t pay off their mortgages correctly or whatever.
The end.
Responsibility is only for old people who weren’t fortunate enough to be born wealthy.
You know, I am more-than-a-little bothered by the assumption that “moral” is a word that even belongs in the same sentence with words like “corporation”, or “business” or “economics”.
If the root assumption is that free markets are by their very nature amoral–or more correctly “only interested in profit”, a monetary fiction—then “morality” isn’t a part of that nature.
Now I realize folks who worship at the altar of Free Market Divinity claim that business cannot ignore society (“the customer is always right” argument), and that “corporate citizens” are supposed to guided by some sort of “ethical” compass, or at least one mandatory semester class on the subject in business school. But the former is simply untrue and all evidence shows it, while the latter demonstrates the only attraction of a market compass is to the greedy magnetism of money.
Morality is simply not in the nature of business or economics. Quit pretending that it is.
What do you mean “killed moral hazard”?
The Federal government has CREATED more moral hazard by bailing out the big banks and failed corporations. The moral hazard is that now everyone expects to be bailed out, all the time. No one takes any responsibility for whether they succeed or fail.
I think you are using the term moral hazard backwards.
http://en.wikipedia.org/wiki/Moral_hazard
ditto
You’re right; clearly the law only applies to small people. Let a poor black kid snatch someone’s purse with $20 inside and he goes to prison for at least 5 years, but let banksters rip off citizens’ savings, retirement accounts and homes, and it’s time to look forward and not backward. In fact, Bush and, a fortiori, Obama bail them out and buy up their toxic assets at taxpayer expense. Instead of the federal authorities taking a role, under the pathetic Eric Holder and craven Tim Geithner, it’s left to state attorneys general to litigate.
The only moral hazard recognized inside the Beltway, the nesting place of Foleys, Gingriches and Vitters, is the hazard that a member of the hoi poloi might not pay its master.
Hey all you city foks, it’s a prairie man’s world.
Borrrnn in Souuuth Dakoooowda…
Huh! Huh!
Dakoda.
http://www.youtube.com/watch?v=xM5n8023hrY
I find it quite amusing that a small number of people have arranged the theft from the commonly owned assets of more money, each year, than the total number of all of the thieves, armed robbers, confidence men, black market dealers, who have been put in prison in this country in all of the years back to the first American prison.
They are just so casually evil. They are in a logic loop that they can’t break.
Exactly where do these piss poor human beings think they are going to go to spend their money? China?