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Friday, September 02, 2011

Big Banks are Trusts in Need of Busting

Vintage political cartoon with trusts as pirates making Uncle Sam walk the plank
It's one of those good news/bad news sort of things. The good news is that the Federal Housing Finance Agency is set to sue some big banks for the securities fraud that brought down the American economy.

New York Times:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The bad news, of course, is that the Federal Housing Finance Agency is set to sue some big banks for the securities fraud that brought down the American economy. Criminal charges are clearly in order here. If I'd defrauded one person out of their home and life-savings, I'd be a few miles north of here at Waupun Correctional right now. These people did the same thing, thousands of times over, and they won't even see the inside of Camp Cupcake. John Edwards may have been the worst husband ever and a bullet we dodged, but he was right about one thing; there are two Americas.

On hearing the news, the banksters were quick to grab the nearest hostage.

[P]rivately, financial service industry executives argue that the losses on the mortgage-backed securities were caused by a broader downturn in the economy and the housing market, not by how the mortgages were originated or packaged into securities. In addition, they contend that investors like A.I.G. as well as Fannie and Freddie were sophisticated and knew the securities were not without risk.

Investors fear that if banks are forced to pay out billions of dollars for mortgages that later defaulted, it could sap earnings for years and contribute to further losses across the financial services industry, which has only recently regained its footing.

Bank officials also counter that further legal attacks on them will only delay the recovery in the housing market, which remains moribund, hurting the broader economy. Other experts warned that a series of adverse settlements costing the banks billions raises other risks, even if suits have legal merit.

So we should leave banks alone, "even if suits have legal merit." Look at that blockquote carefully and see if you can spot the legal argument. That's right, there isn't one. They clearly have no legal defense here, they aren't protesting their innocence, they're basically arguing that their function as economic load-bearing walls puts them above the law. Too big to fail becomes too big to police. Not only shouldn't they go to prison, they argue, there should be no consequence for massive fraud at all -- purely as a matter of national interest, mind you.

There is no better argument for a round of good old fashioned trust busting. "Too big to fail" and "too big to regulate" should be seen as synonymous with "too big to exist." When a bank is this big and has this much influence over the American economy -- and, for that matter, the economy of the globe -- we can go ahead and slap the label "monopoly" on it. It serves no one's interest, other than a handful of elite bankers, to have so many eggs in one basket. Concentrated wealth and power translates to concentrated risk. You can't argue with this, we just saw it happen. And when that concentration of risk blows up, then you and I wind up paying for it with our tax dollars and that handful of very wealthy elite bankers remains a handful of very wealthy elite bankers. Socialism for them, austerity for you.

The lawsuits should be seen as good news, don't get me wrong. But they should also be the first step in re-regulating an industry that's been allowed to grow too concentrated and too powerful and far too corrupt for far too long. We should get back the money they stole from us, then we should break them up into a hundred pieces, so they can never steal with impunity again.


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