The biggest settlement has finally been reached between the U.S. government and a corporation. The Bank of America has agreed to claim its role in the financial crisis and will pay $16,65 billion dollars in penalties to the U.S. government.
According to Attorney General, Eric Holder, such a payout is the first step in holding those responsible, whose actions destabilized and threatened the integrity of the financial markets.
The Justice Department analyzed the situation and issued a document detailing the actions for which Bank of America has to pay for. This “Statement of Facts” includes the events connected to Merrill Lynch and Countrywide, which were acquired by the Bank of America, as well as countless emails and statements from Bank of America executives and employees.
The situation began when the Bank of America together with Merrill Lynch sold securities based on home loans. When buyers would pay their loan back, investors would make money but if buyers would default, investors would lose. As such, both companies had to provide investors with reports showing how safe such loans actually were. The problem appeared when both BoA and Merrill failed to disclose to their investors if a loan was risky, despite them knowing with certainty that they were troubled.
Some emails contained in this “Statement of Facts” actually address this issue. Employees ask whether the due diligence that must be performed isn’t just a front and that in spite of what the reports say, the loans close either way.
Countrywide, for instance, also has featured emails in the document, and it seems they are near-cartoonish in nature. Countrywide sold mortgage-backed securities and according to the Justice Department, the company also offered loans to anyone who would ask for it, regardless of financial security. Apparently, the only thing Countrywide cared about was whether loans could later on be sold to someone else.
Angelo Mozilo, Countrywide Financial Corporation chairman also voiced his concerns and explained that average borrowers were not sufficiently sophisticated and could consequently not completely understand the consequences of the loans or mortgages they were taking on. As such, they were much more likely to default. He added that their bank could face foreclosure in the wake of the consequences that could arise from such an attitude and that this would mean both a financial and reputational catastrophe.
Now, the Bank of America must face regulatory and financial consequences for the actions that contributed to the financial crisis that almost froze the entire world.