In our culture, there have been more than a few catchphrases in the past several years that we cringe when we hear. “Fiscal cliff”, “sixteen trillion” and our personal favorite, “too big to fail”. Turns out, the majority of us happen to believe the nation’s biggest banks are indeed too big to fail. Not only that, but we also agree they are both too powerful and too entitled as a whole.
A full sixty one percent of respondents who participated in the Huffpost – YouGov poll said that
banks and financial institutions have grown too big and powerful,
while just 17 percent believe there’s no problem and that their size is appropriate. There’s a certain political twist to this debate. Republicans believe the financial sector as a whole is over-regulated. Naturally, they believe none of the banks are – or ever have been – too big. They also want to repeal the Dodd Frank Act, abolish CFPB and do away with the 2009 CARD Act. In doing so, they would essentially pave the way for banks to continue with their “play by our own rules” mentality – and this is what played an overwhelming role in the collapse of our economy.
Perspective can sometimes be found by looking to the past and for many Americans, their perspective is is crystal clear.
You may recall Bank of America’s $1 billion fine, levied against it less than two years ago, for “fraudulently and recklessly” underwriting loans to unqualified borrowers. In short, the bank was found to have defrauded the Federal Housing Administration (FHA).
Just a few months ago, it was discovered that taxpayers are still paying $83 billion each year to keep the banks open – and the majority of those billions go to the country’s 5 biggest banks.
In another Bank of America lawsuit, the bank being accused of continuing a scam that Countrywide began years ago. BoA bought out the troubled lender a few years ago, but with that buyout came a host of lawsuits. The Justice Department describes the bank’s actions as “slipshod” and that even if Countrywide began the process of lending to risky borrowers who would never be able to maintain their payments, BoA shouldn’t have continued it. Preet Bharara, who is a US Attorney in Manhattan has his own harsh words,
The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. This lawsuit should send another clear message that reckless lending practices will not be tolerated.
Divide and Conquer
It’s little wonder, then, that Americans – 40% of them – favor a law that would limit the size of banks and a process for dismantling the largest ones into smaller units. Still, another 40% say they’re not sure what should be done. Of those who want to limit the size of banks, most are Democrats.
The survey also brought to light how few of us actually trust banks, other lenders and the financial sector as a whole. Only 9% of consumers trust those entities. Three quarters of Americans believe another recession is possible in the near future.
And then there are the arrogant and entitled CEOs heading up these banks. Many of us are distrustful of them, especially since more than a few of them are prone to public and embarrassing outbursts. It’s difficult to trust someone with your money if the bank’s own CEO can’t hold his tongue. Let’s not forget the other scandals, either, including allegations of drug trafficking, embezzlement and others. These all lend to the lack of faith consumers have in their banks. It’s also one of the biggest reasons so many believe the banks are too big.
And then there was LIBOR.
Libor is an acronym for London Interbank Offered Rate and is a standard used around the world that determines rates for this like short term loans. The scandal has resulted in admissions of acting improperly and efforts to manipulate the rates that affected trillions of dollars in mortgages loans and other financial products. It’s also cost at least three banks close to $3 billion in fines so far – more are sure to come. This past December, a U.S. federal court filed a complaint against a former Citibank executive, who was subsequently arrested as a result of his actions. The exchange between two traders is one of the first documenting the involvement of a trader at a U.S. bank.
But Citi isn’t the only U.S. bank involved. JPMorgan Chase reported in an August 2012 SEC filing that it had received Libor-related subpoenas and requests for documents from the Department of Justice, as well as financial regulators in other countries. Bank of America also confirmed its receipt of subpoenas and other requests from the same agencies. Both banks continue to cooperate with authorities.
It’s not just government regulators these banks have to worry about. Both U.S. and global banks continue to receive notices of class-action lawsuits over suspected Libor rigging. In fact, close to fifty cases have been filed and those filing them run the gamut: cities, labor unions, financial funds and individuals – and most have been consolidated in a federal multidistrict litigation matter in Manhattan federal court.
Even worse, some of the emails that have been subpoenaed show blatant greed and dismissal of ethics and a commitment to follow the law. In one email that has been submitted as evidence, a broker wrote in an email, “mate yur getting bloody good at this libor game…think of me when yur on yur yacht in monaco won’t you.” To be sure, this is sure to get worse long before it ever begins to improve. In fact, in many ways, it’s just now coming to light and there’s no shortage of financial minds who are sweating the details, wondering where it will lead.
So what are your thoughts? Do you believe the banks are too big? Do you believe unless they’re broken up, we remain vulnerable to a repeat of what we’ve seen in the past several years? Do you think you might have been a victim to the LIBOR rate scandal? If you do, you’re not alone – many of the lawsuits are being filed from consumers who believe their interest rates were affected as a result of the rigging practice.
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