Citibank (C) is close to settling its mortgage securities legal battle with the Department of Justice, likely paying a settlement in the neighborhood of $7 billion. The Wall Street Journal is reporting the two sides were far apart only weeks ago, but significant progress has been made in the interim.
While it is a large sum in terms of dollars, the fact of the matter is a grand total of zero people have been put in jail considering the malfeasance that was occuring. Barry Ritholtz of Ritholtz Asset Management says the government can only blame itself when it comes to a lack of criminal prosecutions.
In the days right after the financial crisis, Ritholtz notes the government was reluctant to come after the banks due to the weakened state the financial institutions found themselves in. “I disagreed with that,” Ritholtz says about not prosecuting back then in the attached video. “What we now have [instead] is corporate executives basically taking shareholder money and saying to the prosecutors, ‘Hey listen, don’t criminally prosecute us, we’ll write you a big check.’”
Macke notes the top six U.S. banks have shelled out more than $100 billion to "settle" cases related to the financial crisis, but settlements haven’t bought them anything but more investigations. While the banks may consider fines now a “cost of doing business.” Ritholtz opines whether you like the manner of the fines or not, the civil penalties are changing bank behavior for the better.
“I’m the last guy to compliment Goldman Sachs (GS), but since the ‘Fabulous Fab,’ and since that case kind of went away, you’ve seen a big change in corporate culture,” he says. “They haven’t been in the headlines, they’re not getting fined, they’re not getting sued – somebody there said, ‘enough of this nonsense, we’re putting a stop to this,’ and they still are fabulously profitable.”
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- Barry Ritholtz