Holder and the banks’ controlling managers that are settling these cases know the following real world dynamics. First, the controlling managers are in an inescapable conflict of interest that should require them to recuse themselves from any involvement in the settlement. They led the accounting control frauds that caused the financial crisis and the Great Recession. Their potential criminal and civil liability is immense. They should be imprisoned for lengthy terms and they should be required to pay punitive damages that bankrupt them. They are very wealthy, powerful, and high-status people and they control the bank – not the shareholders or the board of directors. (Witness the JPMorgan proof of this point where Jamie Dimon got a raise for leading a bank that DOJ found to be a criminal enterprise.) The obvious “solution” from the perspective of the fraudulent bank CEO is to trade off agreeing to fines – indirectly paid for by the shareholders – to escape any personal liability. The CEO’s prime priorities are to keep out of prison, retain his fraud proceeds and wealth, and keep his job and income. The fraudulent CEOs controlling our largest banks get superb legal advice (paid for by the bank) that allows them to optimize these settlements. They know that Holder and Presidents Bush and Obama dread the prospect of putting elite banksters in prison and losing political contributions that are controlled by bank CEOs. They know that it is unwise to throw any officers to the wolves if they were aiding the approved fraud schemes because DOJ may “flip” them and have them testify against other officers. The CEOs gladly trade off fines paid for by the bank (in economic substance, the shareholders) for de facto or de jure immunity from prosecution and compensation “claw backs” for the officers. This tradeoff is even easier when the bank is a systemically dangerous institution (SDI) (aka “too big to fail”) because DOJ’s policy is never to “cause” (sic – the fraud, not the remedy, causes a failure) an SDI to fail. Therefore, the CEO knows going in to the negotiations that the fine will sound large to the public but can never be substantial relative to the immense size of the bank lest the fine “cause” even the slightest risk that the bank will fail. Holder is clueless about the Citigroup fine being “beyond … the mere cost of doing [fraudulent] business.” (Note that Holder did not use the word “fraudulent” in his press statement.) The quoted phrase is a non sequitur. DOJ did not impose any “cost” on the officers who led the frauds and grew wealthy through those frauds. If Citi proves to be like JPMorgan the CEO may even get a raise for getting Holder to enter into yet another deal imposes zero cost on the officers and directors for leading the frauds that made them wealthy. The toxic mortgage fraud schemes that Citi’s managers used the bank to commit caused vastly greater societal losses than the $7 billion total settlement (and a large chunk of that deal is phony “consumer relief” fluff that isn’t a real expense to Citi).
Posted on: Sun, 20 Jul 2014 17:29:07 +0000
Trending Topics
Recently Viewed Topics
© 2015