Friday, August 23, 2013

Legal Costs For Biggest Banks Pale In Comparison To Profits, Harm Of Crisis

The biggest banks have run up a legal bill of more than $66 billion since the beginning of 2010. But considering how much money they’ve made in the same period, they would probably call that a bargain: The eye-popping sum is less than a third of what the companies have banked in profits and barely 1 percent of the most conservative estimate of what the financial crisis has cost.

The $66 billion in litigation costs includes settlement payments as well as payments to law firms. While it is a large amount of money by many standards – the entire economy of Belarus is just $63 billion – it is tiny compared to the magnitude of the financial crisis. A study released this summer estimated that the crisis had cost the economy $6 trillion at the very least and put the likely harm of the collapse closer to $20 trillion. In effect, the crisis likely wiped out an entire year’s worth of American economic output.

Whatever satisfaction there might be in the $66 billion figure for the homeowners and unemployed workers who were most directly victimized by the crisis will probably recede when those victims consider bank profits in recent years. The six largest financial companies have registered a combined $207 billion in profit since the beginning of 2010. In general, the banking industry has bounced back so quickly and completely from the crisis that it has already made up for the trillions of dollars that disappeared from balance sheets in the first years following the collapse.

These comparisons serve to underscore the government’s weak regulatory and law enforcement response to the financial wrongdoing that created the crisis. While Attorney General Eric Holder recently issued a pledge that major prosecutions for crisis-era misdeeds would begin this fall, the past four years have produced almost no substantial punishment for the banks. Holder was recently caught exaggerating his department’s accomplishments in prosecuting housing abuses. A national settlement over mortgage fraud, billed as a major victory by the administration, has provided very little relief to homeowners. Banks continue to use abusive practices thatviolate the terms of the settlement, as do companies that weren’t party to the deal. The Securities Exchange Commission recently scored its first admission of guilt in an enforcement case in years, yet it was not a major housing crisis case but a relatively minor hedge fund violation that hurt wealthy investors not homeowners.

Major financial companies have instructed their employees to lie to homeowners, manipulated markets for electricity, oil, metals, and currencies at the expense of consumers, and exhibited ethics that one survey labeled a “ticking economic timebomb.” But it’s cost them far less in legal fees than it won them in profits.

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