Even if Bank of America coughs up its share of the $26 billion settlement, the deal is woefully inadequate to address the wider fraud that went on in creating and pooling mortgages. "It's like handing a box of tissues to someone whose immune system has been destroyed by AIDS," says Rosner. "It doesn't come close to addressing the scale of the problem." Many Wall Street observers think that without the waiver from federal prosecution provided by the settlement, Bank of America would have faced billions in lawsuits for robo-signing offenses alone.
Oh, and one more thing, since we're talking about avoiding bills: Bank of America didn't pay a dime in federal taxes last year. Or the year before. In fact, they got a $1 billion refund last year. They claimed it was because they had pretax losses of $5.4 billion in 2010. They paid out $35 billion in bonuses and compensation that year. You do the math.
And here's the biggest scam of all: After all that help – all the billions in bailouts, the tens of billions in Fed loans, the hundreds of billions in legal damages made to disappear, the untold billions more of unpaid bills and buybacks – Bank of America is still failing. In December, the bank's share price dipped below $5, and after being cut off by Fannie in February, the bank announced a truly shameless plan to jack up fees for depositors by as much as $25 a month – what one market analyst called a "measure of last resort."
The company reported positive earnings last year, with net income of $84 million, but analysts aren't convinced. David Trainer, a MarketWatch commentator, switched his rating of Bank of America to "very dangerous" in part because its accounting is wildly optimistic. Among other things, the bank's projections assume a growth rate of 20 percent every year for the next 18 years. What's more, the bank has set aside only $8.5 billion for buybacks of those crap corn-dog loans from enraged customers – even though some analysts think the number should be much higher, perhaps as high as $27 billion. Because more lawsuits are so likely, says Mehta, it's "virtually impossible to decipher if Bank of America requires more equity, or even another taxpayer bailout."
But the only number that really matters is this one: $37 billion. That's the total bonus and compensation pool this broke-ass, state-dependent, owing-everybody-in-sight bank paid out to its employees last year. This, in essence, is the business model underlying Too Big to Fail: massive growth based on huge volumes of high-risk loans, coupled with lots of fraud and cutting corners, followed by huge payouts to executives. Then, with the company on the verge of collapse, the inevitable state rescue. In this whole picture, the only money that's ever "real" is the fat bonuses the executives cash out of the bank at the end of each year. "Fraud is a sure thing," says Black. "The firm fails, unless it is bailed out, but the controlling officers walk away wealthy."
The Dodd-Frank financial reform approved by Congress last year was supposed to fix the problem of Too Big to Fail, giving the government the power to take over and disband troubled megafirms instead of bailing them out. "The way to cut our Gordian financial knot is simple," MIT economist Simon Johnson wrote in The New York Times. "Force the big banks to become smaller." But few in the financial community believe that will ever happen. "If Bank of America crashes, the first thing that would happen is Dodd-Frank would be revealed as a fraud," says Rosner. "The Fed and the Treasury would ask Congress for a bailout to 'save the economy.' It's the worst-kept secret on Wall Street."
In a pure capitalist system, an institution as moronic and corrupt as Bank of America would be swiftly punished by the market – the executives would get to loot their own firms once, then they'd be looking for jobs again. But with the limitless government support of Too Big to Fail, these failing financial giants get to stay undead forever, continually looting the taxpayer, their depositors, their shareholders and anyone else they can get their hands on. The threat posed by Bank of America isn't just financial – it's a full-blown assault on the American dream. Where's the incentive to play fair and do well, when what we see rewarded at the highest levels of society is failure, stupidity, incompetence and meanness? If this is what winning in our system looks like, who doesn't want to be a loser? Throughout history, it's precisely this kind of corrupt perversion that has given birth to countercultural revolutions. If failure can't fail, the rest of us can never succeed.
This story is from the March 29th, 2012 issue of Rolling Stone.
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