Judge: Banks Broke the Law, Caused Financial Collapse
For years, Wall Street sympathizers have defended actions of bankers in the lead-up to the collapse of the housing market and subsequent financial crisis.
While many practices within the financial industry have drawn criticism, under special scrutiny was the practice of packaging shoddy mortgages and then selling them to unsuspecting investors prior to 2008. Some have danced around bank’s liability, with many suggesting it was in fact the fault of consumers, who took on loans far in excess of what they could afford.
But in a recent decision that spanned more than 360 pages, a federal judge issued a scathing assessment of bankers’ actions that directly conflicts with their version of history.
The ruling, against the Royal Bank of Scotland and Nomura Holdings, a Japanese financial firm, was part of a government case that started with 18 defendant banks over deceptive loans. All other defendants settled the claims out-of-court before they went to trial. Those included Bank of America and Goldman Sachs, which collectively shelled out $18 billion. In so doing, they avoided the public delving into their dealings prior to the crisis.
Judge Denise L. Cote of the Federal District Court of Manhattan, ruled the scope of the lies – even when conservatively measured – is “enormous.”
The lawsuit was filed under intense public pressure to hold Wall Street accountable for actions leading up to the crisis. But mostly, the result was a series of multi-billion dollar settlements that shed little light on what actually happened, or the extent to which bank abuses occurred.
Our Miami foreclosure lawyers know this trial was the first time the public really had an opportunity to see how heavily banks were involved in the subprime mortgage business at the height of the housing bubble.
The case had been slated to go before a jury, but the government dropped the one charge that would have been litigated. Instead, it was the judge who was given the authority to oversee and decide the outcome.
Industry insiders were a bit surprised when the two banks still refused to settle, though it’s likely that because these banks primarily operate overseas, so they were less concerned about maintaining a positive reputation in the U.S.
Government has yet to submit its proposal for damages, though some have speculated it will likely cross the $500 million threshold.
Some in Wall Street and in the real estate market have insisted bankers’ actions, while certainly greedy and careless, were not outright deceptive. But this was not Cote’s conclusion. She pointed to a host of examples given at trial that indicated a systemic disregard for good business practices, and also noted “disturbing examples” in which the Japanese bank in particular clearly knew the loans were defective, and yet packaged and sold them anyway.
Cote commented on the complexity of the case, but said it all boils down to a very simple question: Whether defendants described the home mortgages they were selling to the government-backed Fannie Mae and Freddie Mac accurately? The answer, she ruled, is a resounding: No.
Both banks are expected to appeal.
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