Filler: Shareholders share the cost of the financial crisis

A Wall Street sign is seen at an

A Wall Street sign is seen at an entrance to the New York Stock Exchange. (May 11, 2007) (Credit: AP)

Lane Filler

Portrait of Newsday editorial board member Lane Filler Lane Filler

Lane Filler is a member of the Newsday editorial board.

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Imagine you're the absentee owner of a convenience store and your employees are total nimrods. The crew is not so good with math, or morals, and often gives customers, particularly their friends, $160 in change when $1.60 is owed. And since these workers don't understand market timing or risk, they tend to order 1,000 cases of strawberry flavored skim milk that go bad, because who would drink that?

Let's say, for the sake of the analogy, the employees cost you $6 billion. Stunned, you go to the police and say, "These guys are breaking the law, and using bad judgment, and I just found out. It's cost me a fortune, and the sour strawberry milk smell will never come out of my favorite fleece."

Imagine your surprise when you must pay another $900 million in fines as punishment for being taken by your employees and losing all your money.

That's what happened to the shareholders of JPMorgan Chase last month. Rogue employees hid toxic investments and risk from their superiors, and governments in Washington and London, until it all blew up. The mess cost shareholders $6 billion in losses, but did not harm society or cost those governments anything.

The fine was agreed to by managers at JPMorgan, including chairman Jamie Dimon. So the leaders charged with preventing such losses agreed that the shareholders, whose interests they didn't safeguard, would pony up more in fines.

And why not? It's very little skin off their nose. Trader Bruno Iksil, nicknamed the "London Whale" for the size of the plunges he took for JPMorgan's London office, has been granted immunity by federal prosecutors. Two of his small-time employees have been charged with fraud and the like, following the proud tradition of scapegoating everywhere. Will Dimon and other senior executives end up broke or in real trouble? They're executives at a major bank. They don't do consequences.

This was one of three huge bank settlements making news of late. The biggest also involves JPMorgan, which has tentatively agreed to pay $13 billion to settle federal charges that it oversold bundled mortgages as top-notch, when they should have been labeled with a skull and crossbones.

As far as the fines, this is the fairest of the settlements. JPMorgan and two firms it bought, Bear Stearns and Washington Mutual, profited from their antics, so clawbacks from the bank are in order. And much of the money will go to mortgage holders and investors who were damaged by the actions of these banks. But it's unlikely any of the employees responsible for the madness will pay for it financially, or with jail time.

My favorite bank fine is the up to $848 million that Bank of America was ordered to pay Wednesday over defective mortgages it sold. They were actually sold by Countrywide, a mortgage broker BofA bought like three hours before the mortgage world exploded in 2008, for $4 billion.

It's estimated that purchase has cost BofA $50 billion in fines and settlements.

Countrywide founder Angelo Mozilo, after making at least $500 million thanks to subprime loans borrowers couldn't pay, agreed to a civil fine of $67.5 million in 2011. BofA paid $45 million of it, though, because . . . life is hard on shareholders. Charges against Mozilo were dropped, even though he called the loans his company was selling "toxic" and "poison" in emails.

There has been punishment in the wake of the financial crisis, but almost always of the same shareholders who lost their tuchuses in the meltdown and did nothing to cause it.

Those who caused it? They're mostly fine, thanks.

Lane Filler is a member of the Newsday editorial board.