Wall Street Still Trying To Avoid Paying For Fraud That Created Great Recession

We are over eight years out from the financial crisis and we are still waiting for Wall Street to be brought to even reasonable account for their actions. And, even to this day, Wall Street firms are fighting tooth and nail to keep from paying for the fraud they committed and the chaos they created. A number of the big financial firms are hoping to deep-six a mortgage backed securities fraud case against them by appealing to the Supreme Court, claiming the government waited too long to file the case against them. Among those litigants is Credit Suisse, the troubled Deutsche Bank, and the most recently revealed serial offender, Wells Fargo.

The case involves the collapse of a bank in Alabama in 2009 and the Wall Street firms are accused of underwriting and/or issuing the over $300 million of mortgage backed securities whose collapse helped drive the bank under. The government alleges that the banks misrepresented the risks of those securities, even providing false information about them. The government filed its case in 2012, which is 5 years after the bank originally purchased the securities and three years after the bank was forced to close. Under the Securities Act of 1933, the first major legislation to actually regulate Wall Street, the statute of limitations to file cases like this was three years. But Congress passed a law in the 1980s, after the savings and loan crash, another financial meltdown fed by massive fraud, which allowed the government an extended period to file cases beyond the original statute of limitations. The banks are contending the original three year limit should still be controlling and therefore the case should be thrown out. The banks originally won in a lower court but that was overturned by a federal circuit court, so they are now taking their case to the Supreme Court. It is interesting to note that the banks are supported by briefs by some the agencies set up to self-regulate the financial industry such as the Securities Industry and Financial Markets Association (SIFMA) and the American Bankers Association (ABA). While pretending to help regulate the industry, these groups are nothing more than mouthpieces for the financial community.

Lastly, one of the banks in this litigation is, as mentioned, Wells Fargo. For years, Wells Fargo was considered one of the best run banks on Wall Street. In fact, they managed to avoid most of the contagion that was set off by the Lehman bankruptcy. They initially refused to take the TARP money that the government gave all the banks to keep them afloat simply because they didn’t think they needed it. Bush Treasury Secretary Hank Paulson made them take it because he needed to include all the big banks in order to protect the weaker ones from being specifically targeted. But recent history has shown Wells to be just as bad as all the other banks. The reason they escaped from the financial crash relatively unscathed is because their focus was more on retail banking. But, as we’ve seen, they were perpetuating a massive fraud against their customers since 2005. Their were signing customers up for life insurance policies without authorization. Even today, after promising to make their customers whole, they are forcing them into arbitration in order to get the money that the bank stole from them back. Earlier this week, the bank once again failed the Too-Big-To-Fail test and now faces sanctions because it does not have an adequate plan to close down business in an orderly manner. It is the first bank to face sanctions for this failure, as its plans have now been rejected twice by regulators. And now Wells is trying to avoid paying for its role in the bank failure in Alabama. The repeated criminality and refusal to accept the consequence is just par for the course for Wall Street. And Wells was considered a “good” bank which shows you just how deep the culture of corruption in the industry runs.

The sickening irony of this Supreme Court case is that it is clear that the banking industry was in such tenuous shape after 2008 that the government was loathe to go after them legally for fear that the very existence of a legal case would bring another bank down, set off the contagion that followed from Lehman Brothers collapse, and threaten the worldwide financial system. Having shown the discretion to allow the banks time to actually survive, the banks are now claiming that the government waited too long to go after them. No senior executive at any of the big financial firms has gone to jail the massive fraud perpetuated, which was especially rampant in the area of mortgage backed securities. In fact, none have even been charged. As Dennis Kelleher says in the article, “Those who were most guilty of causing the financial crash in 2008 have fought tooth and nail to avoid being held responsible — and they have been wildly successful at doing that. One of the reasons we’re seeing political earthquakes in the U.S. is the lack of accountability on Wall Street.” I couldn’t have said it better myself.