A FRONTLINE documentary titled “The Untouchables” aired on PBS stations last night. The focus on the financial system meltdown of over four years ago may have been eye-opening to anyone who hasn’t been paying attention to the financial services industry but, for the rest of us who have a Wall Street-sized chip on our shoulders, the excellent documentary served to heighten our disgust at the fact that no bankers were jailed for crumbling the U.S. financial system and nearly bringing down the global financial system along with it.
The program highlights that far too many Wall Street players are ruthless and see the money with which they’ve been entrusted as nothing more than a Monopoly game. Mortgage securitization was brought into the core of traditional banking business. New, risky products that far too few people understood were created and traded upon. Those products, made of repackaged mortgage loans, led to the credit crisis which, in turn, led to the subsequent financial crisis as it became clear that due diligence in reviewing underlying loan applications was compromised — and the people at the top of the financial institutions ignored all of the warning signs in their quest for more money. Clearly, bad things happen when no customer credit profile is considered ‘bad enough’; at institutions such as Countrywide Bank, as one of credit analyst mentioned, “anyone with a pulse” could qualify for a loan — and we now know based on recently settled lawsuits that some banks were targeting various classes of people including low-income, minority and elderly borrowers.
If history was any indication bankers should have expected that a significant number of criminal prosecutions would result from their actions. But it didn’t…so what happened? How is it that some homeowners were booted out of their homes, and even some analysts and mortgage brokers were arrested – but not the bankers? Then Attorney General Eliot Spitzer, nicknamed “The Sheriff of Wall Street,” said the way to go about determining what’s going on at a bank is to start in places like the credit department. Unfortunately, the word ‘fraud’ wasn’t allowed; due diligence during the loan analysis phase by the contract underwriters wasn’t allowed, and up to 60% of the loans they reviewed didn’t meet the policy and standards for underwriting. Not only were there relaxed underwriting standards there are hardly any standards to underwriting mortgages. Mortgage officers were told simply to close the loans and it didn’t matter how they did it — after all, there was money to be made. Continually identified breakdowns and internal controls were met with inaction despite requests for outside investigation due to the risks presented to the banks.
So what were we left with? Those government officials involved in bringing bankers before hearings insisted that the battle for justice was fought as hard as it could be, but there were no grounds for the government to bring charges against any of the bankers. The claim is that there was not enough evidence for a criminal case no matter how unconscionable the bankers’ behaviour. Seriously?
Whatever happened to equally applied laws and one set of rules that applies to everyone? Goldman Sachs’ CEO Lloyd Blankfein, during congressional hearings in 2010, explained his position that his firm is a ‘market maker’ which, in and of itself, is a way of stating his own and his firm’s importance. And people such as Robert Rubin, the former Chairman of Citigroup who seemed to have been at the heart of his firm’s problems, didn’t seem to suffer; despite running a bank with a portfolio full of defective loans he landed on his feet with a position in the Obama administration on the financial/economic dream team and he walked away with an estimated $115 million salary.
When the aforementioned outcome is the result of bad behaviour, the lesson the public learns is that although bankers’ unethical and unscrupulous practises had a direct impact on creating the nation’s recession, they’re too ‘important’ to jail, as evidenced by the fact that none of the prosecutors could charge the bankers with criminal offenses versus slap-on-the-wrist civil charges. We are left with more questions than answers, and we begin to believe that we cannot do anything so that this does not happen again. That’s not true. It’s still financial reform time… because even if the banks are too big to fail, bankers should never be considered too big to jail when it’s clear that they are willfully skirting their fiduciary obligations to their customers and the world’s financial system.