This article here talks about the US justice department is suing bank of america for "Hustling" them with sub-prime mortgages and other questionable financial practices during the financial crisis. I don't know about you, but as I read this it made me sick. It almost reads as if the government didn't realize this until just now. The $1 billion they seek from the firm pales in comparison to the bailout the government already gave to them. What is the message being sent here by bailing them out for $15 billion in the bailout and now seeking $1 billion back from them for their actions? Seems like either way Bank of America wins here, despite being one of the perpetrations in the disaster in the first place.
Am I wrong here? What in the world is going on?
This honestly makes no sense! The U.S. government bailed out bank of America because they were simply too big to fail. This is what happens when our nation's finances are so heavily concentrated in major nation-wide financial institutions. The U.S. government had no choice but to bail out bank of America because they feared affects to our economy would be more catastrophic if they chose not to. The bottom line is that banks are profit seeking institutions and are going to innovate and search for more ways to make money by bending the system or finding loopholes (its their job)! With banks highly focused on making a profit they are not considering affects of their actions on the rest of the economy. The government should be there first to regulate before bailing out or suing. If Dodd Frank didn't exist today, banks would be doing the same thing they were just a few short years ago but just with other products since the mortgage market has already been tainted. The reason why? Because it is the quickest way to make a buck and that is what banks care about.
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ReplyDeleteI could be wrong, but I thought the total bailout for BofA was something more like 45 billion, which makes the amount being sued for even more ridiculous. I agree that their acquisition of Country Wide Financial, and the continuation of the 'Hustle' program is absolutely a major cause in their financial distress and that because of this continuation, a more severe penalty should be assigned. I find it astounding that the former CEO, Angelo R. Mozilo, settled out of court for 67.5 million. Yes, that's a ton of money, but the practices which he oversaw clearly come at a higher price.
ReplyDeleteThis makes it clear that our financial regulations do not have the teeth necessary to really make executives check themselves. How are we supposed to expect a billion dollar fine after a 45 billion dollar bailout will induce banks to avoid these practices? It is not going to. Perhaps limited liability for shareholders is a good thing, but perhaps we also need to increase liability for executives.
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ReplyDeleteIt should be noted that the Bank of America has repaid all 45 billion of the loans provided by the government and stock bought by the treasury has been repurchased.
ReplyDeletehttp://dealbook.nytimes.com/2009/12/10/bank-of-america-finishes-tarp-repayment/
Futhermore the TARP act has a built in clause that states five years after the provision of funds congress has the right to act on behalf of the taxpayers to recoup the entire amount of funds provided to finiancial industry through means at their discretion. Giving them wide power to act and prevent the TARP fund expenditures from adding to the deficit. This 1 billion although small, is still a punishment because it is going beyond the 45 billion already payed back. I think we should keep in mind that these companies were not outright given money like Bank of America, there were strings attached. of the 269 billion loaned to financial institutions 169 billion has been fully repaid, with AIG having the largest outstanding debt which is on track to be returned to the treasury.