Tags: BofA | Countrywide | fine | crisis

Government Ensuring Next Crisis Leads to Global Meltdown

By    |   Friday, 01 Aug 2014 08:17 AM

Bank of America bought Countrywide Financial in July 2008. BofA was fined $1.27 billion this week for a loan program Countrywide offered prior to May 2008. By holding BofA liable for Countrywide's actions, the government has once again reduced the incentive for large banks to help save the financial system in the next crisis.

In 2008 and 2009, as some large banks and brokers flirted with insolvency, regulators encouraged mergers. This allowed regulators to save failing institutions without a direct government bailout. It's logical to assume the mergers would have been difficult to encourage if regulators told buyers they would have multi-billion dollar liabilities for previous bad acts.

Countrywide failed to survive the financial crisis as a standalone company. That should be punishment enough for the company. If individuals were responsible for criminal actions, those individuals should be prosecuted. BofA and its shareholders should not bear the cost of illegal acts committed before they owned the Countrywide.

BofA's fine demonstrates that prosecutors are able to extract large sums of money from large firms. Prosecutors are actually punishing the bank's current shareholders who are the real beneficiaries and risk takers of any publicly traded company's resources.

It might not be popular to defend shareholders or to insist that justice cannot be enforced against a company that no longer exists. But by taking actions that feed a populist frenzy against big banks, the government is ensuring that the severity of the next crisis will not be reduced by mergers. That $1.27 billion fine could have long-term consequences for taxpayers who will pay the full price of a crisis in the future.

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MichaelCarr
Bank of America bought Countrywide Financial in July 2008. BofA was fined $1.27 billion this week for a loan program Countrywide offered prior to May 2008.
BofA, Countrywide, fine, crisis
269
2014-17-01
Friday, 01 Aug 2014 08:17 AM
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