By William K. Black.
I’ll get the obvious out of the way first and then turn in future columns to the aspects of the Department of Justice’s (DOJ) civil suit against Bank of America (B of A)/Countrywide that are vital to understand but are more subtle. The obvious issue arises from the facts that the DOJ alleges that its investigation has found. The complaint and the DOJ press release state that elite financial criminals committed tens of thousands of “brazen” frauds targeting U.S. government funds. We’re on the hook for all the resultant losses because Fannie and Freddie were systemically dangerous institutions (SDIs) that the Bush administration concluded had to have their creditors bailed out to prevent a far graver global systemic crisis. DOJ alleges that the fraud persisted for years, that senior officers were warned that the lending program they designed would cause endemic fraud, that the senior officers knew that B of A was selling billions of dollars of fraudulent loans to Fannie and Freddie by making false representations, that B of A’s senior leadership consciously covered up the information that the loans were commonly fraudulent, that the senior leadership created perverse bonus systems for their junior (non- professional employees with the expectation, desire, and actual knowledge that doing so led to the origination (and sale to Fannie and Freddie) of endemically fraudulent loans, and that even when Fannie and Freddie confronted B of A with its violations of its representations and warranties B of A refused to honor it contractual obligation to repurchase the fraudulent loans. DOJ alleges that the frauds persisted for years and continued after B of A purchased Countrywide. The obvious question (not asked by the AP, WSJ, and NYT articles about the lawsuit in the version on line last Wednesday night) is: why the DOJ has refused to bring a criminal prosecution of the senior officers who led this “brazen” fraud?
The only slightly less obvious question (again, not asked by any of the three articles) is: if the DOJ is going to bring only a civil complaint, why did it fail to include the culpable senior executives in that civil lawsuit? It does not appear that the reporters asked the DOJ either of these questions. Our top reporters are so used to DOJ abdicating its responsibility to prosecute elite frauds that they approach the newest example of elite impunity from criminal sanction as not worthy of discussion or even note. The obvious has become unfathomable to our elite media.
Bill Black is an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, and a former senior financial regulator. He was an expert witness for OFHEO in its enforcement action against the former senior leaders at Fannie Mae. Bill Black is the author of The Best Way to Rob a Bank is to Own One.