In 2008, the government asked large banks to save small banks. However, Bank of America, for example, was found liable for frauds committed at Countrywide Mortgage that occurred before Bank of America took over Countrywide. In addition, JPMorgan Chase has faced billions of dollars in penalties for offenses that were standard business practices before the government changed their mind.
In all, banks have paid about $100 billion in fines and penalties over the past five year, and additional payments are likely. While wrongdoing should be punished, the large fines might serve as a disincentive to cooperate with authorities next time the financial system stands at the brink of collapse.
Next time, bankers will remember the investigations and costs and have less incentive to save the system. The truth is Bank of America could have developed a mortgage business without Countrywide and enjoyed only profits rather than liabilities. In that case, the regulators would have been forced to clean up the mess without the resources and expertise Bank of America had.
Regulators have taken a number of steps to avoid a repeat of 2008. They might not be worried about that possibility anymore and are now trying to satisfy a populist outrage against Wall Street.
Unfortunately, the next crisis will not be like the last one. If regulators could anticipate what would cause the next crisis, they could avoid it. Each crisis takes its own form and beating up the survivors from the last crisis is unlikely to make them eager to help next time.
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