Eric Holder, The Attorney General of the United States, the son of an immigrant from Barbados – described as “historic” the agreement between the Department of Justice and Bank of America.
The financial giant will pay a penalty of nearly $ 17 billion for selling “junk” risky, mortgage-backed securities to investors. It is not certain that Bank of America will actually pay that amount. Experts estimate they will ultimately will pay $12 billion.
That is certainly a huge amount, however, the price of the bank’s stock closed up 4 percent after the announcement of the agreement. Definitely a message of relief to investors.
The figures are an indication of the size of the fraud committed, and the degree of responsibility that lies with the banks for the economic crisis that very nearly demolished the international financial system.
One element, however, is missing from the agreements the DOJ signed with the banks until now: The attribution of responsibility to management and their consequent punishment.
In other words, the leaders of the banks have not been charged with responsibility for knowingly, as they have admitted, selling junk which devastated the buyers – their clients – and for which they received bonuses, raises and promotions.
Can the fine alone act as a deterrent to future wrongdoing if it is not accompanied by punishment to make examples of those who committed crimes?
What personal motive will bank managers have in the future not to do something analogous when they know they can become rich illegally and yet not go jail?
On the other hand, in Greece, the banks do not bear responsibility for the financial crisis. They were undermined by the actions of the state, such as the haircut on the government bonds they held.
However, for a long time there has been a coordinated, comprehensive effort to conceal the dire state in which some of them are in now.
It is now clear that the stress tests performed by supposedly independent companies were far too optimistic. That is the position of the IMF according to the New York Times.
Non-performing loans, say the IMF, constitute not 28 percent as the BlackRock reported but amount to 34 percent of their portfolios: 75-77 billions euro.
Thus, according to a leading banker in Greece, who refused to revealed his name, the European Central Bank of Europe is expected to ask the four biggest banks to collectively increase their capital by 5-8 billion euros.
Will they be able to do this considering the non-performing loans and other problems faced by other European banks, too?