Tags: bank | mortgage | settlement | tax

LA Times: Big Bank Mortgage Settlements Are Bogus

By John Morgan   |   Wednesday, 15 Jan 2014 07:30 AM

The hidden truth behind the huge fines the federal government has extracted from banks and Wall Street is that because of credits, tax write-offs and other tricks, the penalties are worth only a portion of what was announced, the Los Angeles Times reported.

In a show of non-partisan skepticism, Sens. Elizabeth Warren, D-Mass., and Tom Coburn, R-Okla., have introduced legislation to force a clear picture of what the fines are really worth.

"The measure reflects a rise in public discontent with settlements that look like major penalties but shrivel into wrist slaps when reality is accounted for," the LA Times reported.

Editor’s Note:
38 Trades That Could Turn $1,000 Into $49,000

For instance, Warren's office disclosed that the $25 billion National Mortgage Settlement with five major banks in 2012 actually included a $17 billion credit for "routine conduct" by the banks such as following mortgage disclosure rules.

That same deal also permitted banks to escape a $400 million claim from the U.S. Comptroller of the Currency for free by merely promising to comply with the terms of the mortgage settlement, according to the LA Times.

More recently, a $13 billion settlement JPMorgan Chase reached with government regulators in November over its role in the nation's mortgage securities agonies was trumpeted by the Department of Justice as the "largest settlement with a single entity in American history."

But the LA Times said that of the $13 billion, $7 billion was tax deductible, another $4 billion was actually taken from another settlement the bank reached separately with the Federal Housing Finance Agency and $2 billion represented credits the bank will receive to raise lending in low-income communities.

The "Truth in Settlements Act" legislation from Warren and Coburn would require public disclosure of how much of such settlements is tax-deductible, and how much involves credits for routine conduct.

According to the LA Times, the biggest problem with the settlements between the federal government and the banks over financial misconduct is that "they almost never involved indictments of actual human wrongdoers, up to and including the CEOs who oversaw the shenanigans. That's the necessary next step, without which the white collar wrongdoing will just continue."

Since the 2008 economic meltdown, JPMorgan has become so much larger and profitable that it can take the government fines in stride, The New York Times reported. The bank has amassed $28 billion into its legal reserves since the end of 2009 to pay for its problems.

The New York Times noted some experts believe that banks such as JPMorgan have become so large and complex that it would require breaking them up in order to keep "all employees in line."

In 2013, regulators imposed record amounts of fines on both U.S. and European banks for financial wrongdoing, Reuters reported. The total announced by authorities in the United States was $40 billion, and in Europe amounted to $3 billion.

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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