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YOU AND I SAVED THE BIG BANKS – WHAT DID WE GET FOR OUR MONEY?

March 29, 2012

YOU AND I SAVED THE BIG BANKS – WHAT DID WE GET FOR OUR MONEY?

There is no end to corporate propaganda. We are yet today hearing that the big Wall Street banks were “too big to fail,” but that is precisely what they were doing when we came in with our big bailout check and “saved” them, thus choosing their shareholders and continued enterprise over you and me, which    resulted, among other things, in a huge addition to the deficit you and I and our progeny must somehow and someday pay. The reckless conduct of the big banks in selling funny (and uncollateralized) paper all over the globe was thus forgiven. We don’t really know whether they were “too big to fail;” we did not test the reality. They escaped bankruptcy with a bit of government socialism (which they pretend to detest unless, of course, the socialist largesse is directed to replenishing their coffers). The rest of us, innocent bystanders who bought and sold no funny paper, got the bill. This seems strange since the big banks by their misconduct are the ones who ran up their liability to a point of collapse, not us. What if the big banks had gone to bankruptcy court and their shareholders (and others) had taken the hit rather than you and me? History is linear; we will never know what would have happened had our (occasionally) socialist government not bailed them out. We are told they could not get the money to survive anywhere else, that we were “lenders of last resort,” and that the whole system would collapse unless we bailed them out – so we caved – and added it to our deficit (a deficit that these same bankers complain about, speaking of irony). We will never know what would have happened had the big banks gone through bankruptcy court.

In any event, what did we get for our money? Were we adequately compensated by the recent negotiated settlement had between our government and the errant bankers we “saved?” The answer, of course, depends upon the damages suffered by not just “the government” but by you and me as a result of the bank’s gross negligence in marketing funny paper based upon values of underlying mortgages that they knew or should have known were virtually worthless. Apparently the “settlement” had to do with the funds we advanced to them when they were going under. Did that “settlement” of funds advanced encompass all their liability to those directly and indirectly affected adversely by their gross negligence?

In my opinion, ABSOLUTELY NOT! The “negotiated settlement” is an outrage. The big banks should be held responsible for ALL damages flowing from their misconduct, not just some discharge of liability they may have had in connection with the money advanced to them by “the government.” That “settlement” was for peanuts and ridiculously inadequate to cover all the damages they did to a host of people and organizations. Let us look to one area only; net market value of our homes (formerly the main asset of the middle class). Per the December (2011) edition of the AARP Bulletin, the Federal Reserve recently published a statistical document in which they found that the decline in net home equity since 2007 (when the banks’ funny paper began going sour) to 2011 went from 12.9 trillion to 6.2 trillion (“a stunning decline”). That loss to American middle class homeowners of 6.7 trillion exceeds the size of the entire Chinese economy or the size of the German and French economies combined, the Bulletin continues, and still doesn’t take into account the human consequences of almost 4 million homes that have been foreclosed and the 27 percent of homes that are  currently “underwater” (i.e., worth less than their outstanding mortgages).To this report I would add damages all the way from having to sleep in cars to hundreds of thousands of new individual bankruptcies(and the losses of their creditors in those proceedings) and divorces and. . . . I could draw up a long list of liabilities caused by the big banks’ (perhaps criminal but at least gross negligence) but for time and space limitations. My point is this: That the big banks may well be liable (subject to proof) for trillions of dollars in liabilities to millions of Americans whose economic lives were destroyed by the banks’ misconduct irrespective of any “settlement” they may have concluded with “the government.” (Aside to fellow lawyers – I think a remoteness of causation defense can be overcome by expert testimony and that damages can be apportioned in comparative negligence jurisdictions.)

I am sure that people who used to have homes before Wall Street banks’ misconduct put them under the bridge did not authorize “the government” to act on their behalf and that they have live claims against the banks for damages arising from the banks’ misconduct, subject perhaps, to a statute of limitations (which may vary from state to state).  As things now stand, there is a good possibility that the big banks are going to get away with another big hit on these people living under the bridge (who are already liable for the deficit resulting from the banks’ first big hit since it is unclear that what settlement money that was recovered went to reduce the deficit).

I think the banks’ continuing liability for damages to millions of Americans should be sorted out where perhaps their first misadventure should have landed them – in bankruptcy court – and this time let’s just see if they are too big to fail. If they do, at least the people under the bridge will get a share of the banks’ assets, which is more than they are getting now. So, will the system fail if such a draconian event should transpire? I don’t know; maybe the non-Wall Street banks can pick up the slack until some banking equilibrium returns to the marketplace. The big Wall Street banks are threatening us that they are still”  “too big to fail,” and until we regain the old prohibition of mixing commercial with investment banking under the now repealed Glass-Steagall Act, they may be right.

Meanwhile, what is America going to do about all of the outstanding liabilities of these Wall Street banks to millions of her citizens? Anything? Are they going to get away with another one?  GERALD E

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