This morning we bring you good news and bad news about the government’s role in managing the ongoing financial crisis. Which do you want first? Hopefully it is the bad news because there isn’t actually any good news — we lied! But don’t worry, there is plenty of bad news, beginning with the fact that the FDIC has been secretly settling cases with banks in order to help them avoid bad press. From the L.A. Times, which filed a FOIA and received over 1600 pages of FDIC settlements made in the past eight years:
Since 2007, 471 U.S. banks have failed, nearly depleting the FDIC deposit-insurance fund with $92.5 billion in losses. Rather than sue, the agency has typically preferred to settle for a fraction of the losses while helping the banks avoid bad press…The agreements constitute a catalog of fraud and negligence: reckless loans to homeowners and builders; falsified documents; inflated appraisals; lender refusals to buy back bad loans.
Too late, everyone already hates the banks and now they will be hating the banks even more, good work FDIC!
Anyway, as Yves at Naked Capitalism points out, the REAL reasons for the secrecy clause may be 1. to help the banks avoid litigation, rather than avoid bad press, and 2. to avoid publicizing the meager settlement amounts. So don’t say that Wonkette doesn’t keep its promises — we promised you even more bad news and here it is!
Overall, the FDIC collected $787 million in settlements by pressing civil claims related to bank failures from 2007 through 2012 — a fraction of its total losses.
Don’t worry, very little of this actually came out of anyone’s pocket, it came from insurance policies or from “the shareholders.”
FDIC spokesman David Barr said the agency always tries to settle failed-bank cases before filing lawsuits and that it announces settlements only when damage payments are large and media interest intense. He declined to discuss the legal strategy behind the Deutsche Bank deal and other no-press-release agreements. A Deutsche Bank spokeswoman declined to comment.
Well duh, there is no legal strategy behind any of this. Also let us clarify on behalf of David Barr that the FDIC does not ever file lawsuits against banks, but it’s nice that he is worried about “intense” media scrutiny. This way, the banks have plenty of time to issue 43-page-long dress codes and throw lavish cocktail parties.
Here is what we think will happen: this discovery will become a matter of Great Concern and all kinds of Senators and Congresspeople will offer soundbites about how very awful this is, and only a few of them (Elizabeth Warren being one of them, of course) will actually try to do anything about it. Meanwhile, certain Very Serious People in the media will explain at us why it is for our own good to not know what our government is doing, especially where the banks are concerned. Then the banks will make some hefty donation to someone or other, and no progress will be made on fixing any of this.
We do not HOPE this will happen, of course, but we haven’t really seen hard evidence of anyone (other than Elizabeth Warren and Bernie Sanders, really) wanting the system to change. Here is to the system, let’s all go buy pitchforks!