According to news reports, Bank of America has agreed to the largest single federal settlement in U.S. corporate history, stemming from the sale of toxic mortgage-backed securities.
Selling toxic mortgage-backed securities that helped fuel the economic crisis will cost Bank of America nearly $17 billion, news reports say.
“After months of lowball offers and heels dug in, it took only 24 hours for Bank of America to suddenly cave in to the government, agreeing to the largest single federal settlement in the history of corporate America,” The New York Times said.
The settlement surpasses similar crisis-related settlements related to mortgage-backed securities. Citigroup paid $7 billion in July, and JPMorgan Chase settled for $13 billion in November, Vox.com said.
Although $17 billion seems like a massive amount, even for a bank with $90 billion in revenue last year, Vox said it’s difficult to put a price on the actions that led to the financial crisis. In addition, the settlement does little to deter similar actions in the future. Vox added:
“Think of the message it sends,” says James Angel, professor of finance at Georgetown University’s McDonough School of Business. “Let’s say you’re a sleazy bond trader and you can’t think beyond this year’s bonus, and you kind of look the other way at some of the dodgy stuff your department might be selling, and six years from now your employer pays the penalty. Is that going to deter you from doing anything bad?”
Bloomberg, in an editorial, also said the deterrent effect of this type of settlement is minimal at best. The editorial said:
None of the settlements holds individuals to account. Shareholders and insurers are covering the bills — and the penalties include mortgage buybacks, refinancings and the like that may never reach actual victims. The banks haven’t been made to plead guilty to crimes. Because the settlements were worked out in secret with no judicial oversight, the lessons for future bankers are murky, making the deterrent effect doubtful. Such settlements also hold little legal sway over other judges.
Bank of America had argued that it should not be punished for the wrongs committed by Countrywide Financial and Merrill Lynch, both companies Bank of America purchased during the crisis. Said the Times:
In the case of Merrill, the bank argued that federal regulators pressured it to go through with the acquisition. With Countrywide’s mortgages, Bank of America claimed that it did not assume legal liabilities stemming from many of the loans that it had made before its acquisition.
Although banks have paid billions of dollars in settlements, the debate about whether justice has been served will likely continue.
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