- Goldman and Wells were small-fry, and not one executive has been penalized.
- American corporate governance relies on boards of directors to guide and control senior officers, and the American people are paying these fines through additional institutional fees.
Goldman Sachs’ $5 billion and Wells Fargo’s $1.2 billion settlements of mortgage wrongdoing would be grounds for giggling if it were not all so painful.
Goldman has — at last — this week settled with the Department of Justice for securitizing bad loans from 2005-2007, and Wells for lousy underwriting of FHA loans from 2001-2008.
The most painful part here — eight years after the collapse of the worst miscreant firm, Lehman — is this: We still do not have a national understanding of the cause of the credit bubble. Especially on the political right, many still blame Fannie and Freddie. On the left, blaming “big banks” is in vogue again.
Both of those angles are Tales of the West without foundation or merit. Horrifying reality follows here:
1. Goldman and Wells were small-fry. Goldman was the only player that left the game early, hoping to escape, but still got caught in the whirlpool. Wells, of all the players, probably made fewer loans destructive to borrowers, but it escaped rules which most of us followed.
2. Total fines and settlements from the bubble are now over $100 billion. The institutions pay the fines — therefore, their customers pay, from new post-Bubble profits. There has been no clawback from officers or directors or salespeople.
3. Small or big institution, not one senior executive or director has been forced by regulators to resign in disgrace. Let alone charged with a crime or even civil wrong. We charged hundreds of executives when savings and loans collapsed, which involved losses perhaps one-twentieth of those in the bubble.
4. The senior officers have escaped by telling this fairy tale over and over: “How were we to know that housing prices would go down?” You knew, cold. You knew you were creating mortgages which could not possibly perform.
You Wall Street investment bankers are the finest credit underwriters in the world. You have been underwriting mortgages for securitization and syndication in volume since the 1920s, and the methodology goes back a few hundred years.
5. Astounding transmutations aided the escape of the senior bankers. Lloyd Blankfein has been at Goldman since 1982, CEO since 2006 succeeding Henry Paulson (who became Treasury Secretary), who succeeded Jon Corzine (later U.S. Senator, governor of New Jersey, and disgraced and convicted CEO of MFGlobal).
Blankfein, like all Wall Street CEOs, is one of the finest salespeople alive, and he has climbed to the top of an organization filled with the toughest people this side of Special Ops sergeants. But, in his repeated post-bubble testimony, Blankfein turned himself into a harmless, fuzzy little creature out of Wind In The Willows. Fooled ya!
6. American corporate governance relies on boards of directors to guide and control senior officers. Hah.
As a group, these people are so adept at working the system (that’s what they do for a living — a big living) that no administration or attorney general may have been able to rope them in.
However, able or not, we should have tried. We should have gone after the people, not just the banks. If we could not prove criminal intent, fire the officers and their directors anyway, on safety and soundness grounds granted by acres of regulatory legislation.
Forbid them to work in markets again. Shun them. Make them go to court to prove that they acted properly in their jobs, and were removed unfairly, instead of this absurd Keystone Kops routine.
It’s old news, I suppose, but it’s a shame to let it all pass into history without learning the lessons. As one result, today an immense new regulatory apparatus races around, falling off fire engines — chasing wrongdoing that no longer exists.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at firstname.lastname@example.org.