Too Big to Jail
“Neither a borrower nor a lender be,” said Polonius, who meant well but tended to hide behind the wrong draperies. He should have advised his son, Laertes,
“Never a borrower, only a lender be.”
This week Bank of America announced it will take a $20 billion hit, including $8.5 billion to settle claims from angry investors who lost money on bundled mortgage securities from Countrywide – the largest mortgage company in the U.S. until it was acquired by BofA.
Right.
And now where’s the deal to reimburse the hundreds of thousands of homeowners steered into toxic mortgages by Countrywide before that den of thieves was absorbed into BofA?
The Wall Street Journal calculated three years ago that 61% of the homeowners trapped by subprime mortgages at inflated rates and fees could have qualified for conventional, fixed-rate mortgages at lower costs and lower rates – and most of them would not be facing foreclosure. Countrywide was the biggest offender, and a fourth of its loans are now in default or seriously delinquent.
Those borrowers are the real victims. But who gets their money back from BofA? Met Life, Black Rock, Pimco, the Federal Reserve Bank of New York, and 18 other big investors who should have known better to begin with and were all part of the same greedy, grasping, over-leveraged system that created the 2008 meltdown and nearly wrecked the economy.
Something’s rotten in the state of banking.
Notice, also, who is being prosecuted in the backwash from this whole fiasco – a very few bankers and brokers, inside traders and fund managers who cheated big investors. None of the people who defrauded small borrowers. Not Angelo Mozilo, certainly, the ex-chairman of Countrywide who presided over the systematic cheating of home buyers.
Mozilo paid a fine (a fraction of his huge gains), got a slap on the wrist, and no indictment. Likewise, to this day no manager with a major Wall Street firm during the time leading up the crash has had to face charges.
Apparently, too big to fail is also too big to jail.
Among those magically immune individuals are all the other bankers and mortgage brokers who knowingly steered borrowers into ruinous mortgage loans. Lenders are simply above the law.
In this society, a few debtors can get away with reckless adventurism, but only if they manage to borrow such staggering sums that their lending institutions might collapse if the loans were ever called in – AIG, for example, or Citigroup, Chrysler, Donald Trump, Argentina, Portugal, or the Federal Reserve.
Greece’s problem is that it’s not quite big enough to qualify for a Get Out of Jail Free pass.
And that, it must follow as the night the day, is also your problem and mine