Finally holding the banks’ feet to the fire

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Finally holding the banks’ feet to the fire
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Too Big To Jail, Too Big To Fail - Banks in America

Last week was quite a week for the banking industry. First U.S. Attorney Eric Holder admitted what everyone else has been saying for a long time: There are banks in America that are too big to fail! A few days later, Sen. Elizabeth Warren (D-Mass.) blasted federal regulators for failing to stop banks from allowing money laundering.

Their testimony comes on the heels of other misbehaviors by banks including the Libor scandal, which has continued to widen, jumping from investigations of European banks to those in the U.S, robosigning, abusive lending, and mortgage packaging, to name a few.

Let's start with Holder who said during Senate testimony last week: "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute -- if we do bring a criminal charge -- it will have a negative impact on the national economy, perhaps even the world economy."

But Holder offers no solutions to what has become an epidemic of fraud that led to one of the worst economic crises in our country. By allowing banks to perpetrate fraud by selling mortgage securities they knew were not worth the paper they were written on, the Justice Department might be considered just as guilty for failing to hold banks to the fire.

It's like the courts saying a murderer can't be prosecuted because the accused is too big to jail. Holder's argument is not defensible.

So, now that the elephant has been acknowledged what are we going to do about it? The logical response would be to break up the banks -- but as Neil Sedaka sings, "breaking up is hard to do."

Louisiana Sen. David Vitter and Ohio Sen. Sherrod Brown have proposed legislation to do just that. So far, the Senate has passed its bill telling the Government Accountability Office to look at whether banks with more than $500 billion -- that's billion with a "b" -- received favored status because they know the government will always be there to bail them out. Much like a parent who continually bails out their wayward child, this does no one, except of course the banks, any good.

We'll have to see how far that bill travels through lawmaking process.

And then there's Warren, who last week slammed Treasury officials for refusing to say why banks should not receive stiffer penalties for turning their heads while drug dealers launder their money.

During a Banking Committee meeting Warren asked: "How many billions of dollars do you have to launder from drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution?"

Warren, you might recall, pushed for the creation of the Consumer Financial Protection Bureau after the financial meltdown.

Nearly a dozen banks have reportedly been penalized for failing to comply with anti-money laundering rules. Treasury officials passed the buck saying it's the Justice Department that is responsible for prosecuting banks.

Warren essentially is saying the same thing that Holder now admits -- banks are too big to jail.

"If you're caught with an ounce of cocaine, the chances are good you'll go to jail. If you're caught repeatedly, you can go to jail for life. Evidently, if you launder nearly $1 billion for drug cartels and violate our government's sanctions, your company pays a fine and you go home and sleep in your own bed at night. I think that's fundamentally wrong."

With Holder and Warren on the warpath, banking executives shouldn't get too comfortable in their own bed.

Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law with his wife in 1989 in Fort Lauderdale, Florida. He is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.

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