The Top Five Bank Bailouts We Never Heard About

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JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the United States, prepares to testify before the Senate Banking Committee about how his company recently lost more than $2 billion on risky trades. June 2012. (AP Photo/Haraz N. Ghanbari)

JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the United States, prepares to testify before the Senate Banking Committee about how his company recently lost more than $2 billion on risky trades. June 2012. (AP Photo/Haraz N. Ghanbari)

Gallons of ink have been devoted to Wall Street executives’ lack of accountability for a global financial meltdown that was built on top of a mountain of fraud.

Nobody at the top has faced criminal prosecution. Executive compensation and bonuses have rebounded nicely. And while taxpayers committed trillions to keeping those “too-big-to-fail” institutions afloat, the foreclosure crisis persists six years after the crash.

And while the Troubled Asset Relief Program (TARP) sparked outrage, it wasn’t the only bailout Wall Street bankers have enjoyed since their casino came crashing down around them.

Elizabeth Warren flagged a special ruling by the Treasury Department that allowed AIG to carry over losses it incurred before the bailout for tax purposes. In 2012, she and several colleagues wrote in The Washington Post that the insurance giant’s “profits increased a staggering $17.7 billion — from a loss of $2.2 billion a year earlier — because of [the] special tax breaks.”

In 2010, economist Dean Baker and others argued that Fannie Mae and Freddie Mac’s continuing losses were in fact a matter of intentional policy — that the government-owned lenders were acting as a conduit to take bad securities off of the big banks’ balance sheets without raising the public’s ire by creating another TARP-style pot of cash.

And that same year, Newsweek’s Stefan Theil reported that the Fed’s “near-zero interest rates are shifting hundreds of billions from the pockets of savers — including millions of pensioners now earning next to no interest on their investments — into the coffers of banks and their investors.” Theil described it as a “stealth bailout…worth nearly $1 trillion in the US alone.”

But what may be the most egregious of these behind-the-scenes bailouts have been a series of settlements with the big banks for blatant wrongdoing that were structured in such a way that they could write the penalties off of their tax bills.

The dollar figures may not be as large as the $700 billion TARP program, but TARP was ostensibly an effort to pull the global economy back from the brink of another Great Depression. These settlements are about financial institutions’ wrongdoing — and compensating their victims. There’s no economic rationale for taxpayers to pick up a share of the tab. The opposite is true: by subsidizing the banks’ settlements, we’re only encouraging them to commit more fraud in the future.

Here’s a little bit of background: Under the law, punitive fines for criminal or civil wrongdoing aren’t tax deductible, but fees and compensation to victims are.

Settlements can be negotiated to stipulate that a bad actor can’t write any part of a settlement off of its tax bill — earlier this year, for example, the DoJ refused to let Credit Suisse deduct its $2.6 billion settlement for helping Americans evade US taxes. But as Gretchen Morgenson reported for The New York Times, “the government rarely specifies what the tax treatment of a settlement should be, leaving enforcement to the Internal Revenue Service.” And when left up to their legions of tax lawyers, financial corporations take an expansive view of what’s deductble.

In order to bring these stealthy bailouts into the sunlight, we take a look below at five of the biggest taxpayer-subsidized settlements reached with financial institutions as a result of the financial crisis — and what they did to earn their sanctions.

1. The 2012 National Mortgage Settlement (NMS)

The NMS was announced with great fanfare. Billed by the Justice Department as “the largest consumer financial protection settlement in United States history,” five of the country’s largest lenders reached a deal with 49 states and the federal government to compensate borrowers to the tune of $26 billion for “mortgage servicing, foreclosure, and bankruptcy abuses.” They included the widespread practice of “robo-signing” — the practice of falsifying documents when a bank couldn’t prove that it actually owned the loan on a property. Two million homeowners were promised relief.

Earlier this year, the banks completed their obligations, and it didn’t work out quite as expected. According to the government, 600,000 homeowners got help from the settlement, but as Alan Pyke reported for ThinkProgress, “that official figure falls apart under scrutiny, and in fact fewer than 85,000 homeowners got the kind of mortgage modifications that actually help keep people in their homes.”

A good chunk of the “damages” were just an accounting gimmick: The banks were already writing down principle on some loans — with the collapse of the housing market, they often had no choice — and some of these write-downs that they had to do anyway were counted as homeowner assistance under the settlement.

We don’t know exactly how much those five giant banks wrote off of their tax bills, but we do know that a majority of the settlement was in the form of direct compensation to homeowners and the states, and we can therefore assume that they wrote off the lion’s share. At the 35 percent corporate tax rate, that’s a subsidy of around $8.4 billion, courtesy of Joe and Jane taxpayer.

2. BofA’s $17 billion 2014 settlement

You may have heard of this one — it created outrage when it was announced in August.

Bank of America, and companies it had purchased, including Countrywide Financial, knew that they were selling a lot of garbage loans that would go belly up if the housing bubble didn’t continue to expand. Rather than disclose what they knew to investors, as they were required to do by law, they kept the good loans on their books and sold off the junk to investors. It was a massive case of fraud, and the DoJ had internal memos and emails to prove it — certainly enough evidence to bring criminal charges.

Instead, they agreed to a settlement of $16.65 billion — the largest amount paid by a single institution in the aftermath of the financial crisis.

As The New York Times reported, “the actual financial burden for Bank of America, however, may not exceed $12 billion.”

At issue is how much of the cost of the $7 billion in “soft dollars,” or help for borrowers, the bank will bear under the settlement. Some of the relief the bank will provide involves cutting the principal of a loan to make it easier for the borrower to pay. The dollar amount of that reduction gets credited toward what it needs to fulfill the settlement. But Bank of America wrote down many of its troubled mortgages years ago. And investment firms, not Bank of America, may now own some of the loans that get written down, potentially shielding the bank from a financial hit.

But even if BofA ends up on the hook for all $16.65 billion, they’ll get help from you and me and other taxpayers: The Justice Department allowed BofA to write $12 billion of it off the bank’s taxes, according to tax attorney Robert Wood. That amounts to around $4 billion that we may end up paying for their fraud.

3. JPMorgan Chase’s $13 billion 2013 settlement

The facts of this case were similar to that of the one above. According to Reuters, the Justice Department concluded that JPMorgan Chase “had regularly and knowingly sold mortgages to investors that should have never been sold.” Again, the bank admitted that it had defrauded investors by telling them that “the loans it was selling them met particular standards.”

But in this case, the Justice Department allowed the mega-bank to write $11 billion in penalties — 85 percent of the total settlement — off of its tax bill. At the 35 percent corporate tax rate, that’s a subsidy of around $3.9 billion.

4. BofA’s $10 billion settlement with Fannie Mae

As Chris Isadore reported for CNN, “the purchase of bad home loans by Fannie Mae led to massive losses, a government takeover in 2008 and a $116 billion bailout to keep it functioning as a major source of home loans.” The loans were originated by the notorious predatory lender, Countrywide Financial.

But the $10.3 billion value of the settlement is an overstatement. BofA paid Fannie Mae $3.55 billion in cash, and then it repurchased 30,000 shaky mortgages for $6.75 billion. It is expected to take losses on the loans it repurchased, but it won’t lose every dollar. Nobody knows how much they’ll ultimately recoup on those loans, but we do know that despite the fact that Fannie Mae is owned by the government, the settlement is considered to be one between two private parties, so the whole enchilada will be tax-deductible.

5. BofA/ Countrywide’s 2008 predatory lending settlement with 11 states

Countrywide’s lending practices were frequently compared to the hustles featured in the 2000 crime movie, “Boiler Room.” In 2007, Gretchen Morgenson reported that “Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers.” They used heavy-handed sales pitches, routinely steered customers into higher cost loans when they were eligible for cheaper ones and wildly misrepresented the terms of the mortgages they were peddling.

In 2008, then-Attorney General of California Jerry Brown announced that he and top law enforcement officials from 10 other states had reached an $8.68 settlement with Countrywide, which had already been acquired by BofA at that point.

The settlement didn’t require Countrywide/BofA to admit any wrongdoing, and didn’t include any punitive fines. It was all tax deductible. Had Countrywide completed the settlement before being taken over by BofA, the latter wouldn’t have been able to carry those losses over to its own books (and wouldn’t be able to deduct them from its taxes). But BofA completed the purchase three months before the settlement was reached and took an active role in the negotiations.

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Joshua Holland was a senior digital producer for and now writes for The Nation. He’s the author of The Fifteen Biggest Lies About the Economy (and Everything Else the Right Doesn’t Want You to Know about Taxes, Jobs and Corporate America) (Wiley: 2010), and host of Politics and Reality Radio. Follow him on Twitter: @JoshuaHol.
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