It's Time the Bad Guys Pay for the Financial Meltdown: Bring On the Class Actions!
But as detailed as the 400-plus page majority report is, many more nitty-gritty details of the ugly reality underlying the meltdown will come to light, because the Commission is posting an enormous trove of documents online, including much that hasn't been made public before. That library, which the website notes will soon grow with the addition of an "interactive timeline; audio files; transcripts and notes for interviews conducted by the commission; staff data project files; and additional documents and emails added to the archive" will prove an invaluable resource for people who want to sue the banks, among others. And as large as it is, the blog Naked Capitalism reports, the commission could have gotten -- and thus shared -- so much more.
Still, what the commission will be publishing is more than enough to make banks and associated companies nervous, as the Blog of the Legal Times reported Thursday.
"The commission's final report and its pledge to post raw materials -- apparently including information obtained from companies as well as other government agencies -- is an astounding abuse of process that would effectively create a government-sanctioned Wikileaks," said Lisa Rickard, president of the U.S. Chamber of Commerce's Institute for Legal Reform, according to the BLT. It's worth noting that Rickard didn't claim the documents are false. She and the companies she represents are mad that people will have easier access to the information they need to successfully sue banks for securities fraud or other claims.
From a public policy perspective, why is that a bad thing? Given the lack of widespread civil -- or better yet, criminal -- charges by the federal government or the states over these securitizations, accountability has to come from somewhere. I say bring on the class actions, far more than the several dozen already filed. And make sure the executives and ex-executives who profited so obscenely while they created this mess are named as defendants.
So Many Reasons to Sue
Victims abound, but not all will have good chances of winning a lawsuit. Investors who bought fraudulently issued securities have the best shot of being repaid, as their claims are relatively easy to bring as class actions, and without the potential for a class settlement, attorneys can't afford to put in the tens or hundreds of thousands of man-hours of work necessary to successfully bring a suit.
It would be great if lawsuits could force banks to pay communities for all the foreclosed houses banks aren't maintaining and the damage that those empty eyesores are causing to the communities. Or if they could be compelled to pay for the "bank walkaways" -- homes that banks have started to foreclose on, but left in limbo to avoid having to pay property taxes and maintenance costs. And I'd love to see lawsuits to force the mortgage securitizers to pay communities the more than $1 billion in taxes they avoided by the invention and use of Mortgage Electronic Registration Systems. I don't know if any such suits are possible, much less in the pipeline. But some action to hold those responsible accountable for the damage they've done is necessary.
Of course, better than any of these civilian lawsuits would be effective prosecutions by the government, whether state or federal. The American people need to know that the government will hold suit-wearing crooks accountable. Yes, the government has (belatedly) gone after Ponzi schemers like Bernie Madoff and Allen Sanford. Yes, Securities and Exchange Commission sued Goldman Sachs over one deal.
Where Are the Feds?
But the SEC has faced criticism even from the judges overseeing its cases that its settlements with Bank of America and Citigroup were too lenient. And now the inspector general for the SEC is investigating whether or not its top prosecutor protected Citigroup executives from prosecution in connection with that settlement. Not exactly the image of a government agency fighting financial miscreants in a spirited defense of investors.
And where's the Department of Justice? Kudos to DOJ for going after the banks' defrauding municipalities with bid-rigging, and investigations under the False Claims Act sound good, but oh, there's so much more to be done. As Business Insider asked: "Where are the perp-walks?" The blog Naked Capitalism more than once has pointed out the failure to bring criminal charges or even consider the banks' actions potentially criminal.
Adding to ordinary Americans' skepticism that the system can crack down on the banks, consider what the Bill McBride of the blog Calculated Risk wrote about the Crisis Commission's conclusions:
This is absolutely correct. In 2005 I was calling regulators and I was told they were very concerned -- and several people told me confidentially that the political appointees were blocking all efforts to tighten standards -- and one person told me "Greenspan is throwing his body in front of all efforts to tighten standards."
Recently the government pulled off its biggest mob takedown ever. I'm grateful to see it, but the devastation the banks have wrought has caused more suffering for more people than the mob, and the fact that the damage is mostly monetary instead of violent doesn't make it any less worthy of a similar scale of prosecution. The feds have said they'll use the same tactics on financial fraud, and they appear to have succeeded in an insider trading case. But that's small potatoes compared to what recent lawsuits and the Crisis Commission have revealed. In fact, the Commission has referred cases for prosecution, according to the Huffington Post. And the well-documented allegations in the Ambac lawsuit against Bear Stearns/JP Morgan Chase, if true, constitute criminal insurance fraud, according to the standards laid out in this Dow Jones Newswire account.
Get cracking, government prosecutors. And bring on the class actions.