HSBC Too Big To Jail, Too Big To Nail
Roy Oppenheim’s commentary was originally published on Yahoo Homes! and is being republished on South Florida Law Blog with their permission.
The Department of Justice, as much as they will try to tell you otherwise, believes it.
When push came to shove, prosecutors did not have the stones to do what is right, and what is absolutely necessary.
Wall Street has been given the road map to the land of Business As Usual. Just get as big as you want, do whatever you want, and have no fear of being caught. You will still be off-limits from criminal prosecution.
By choosing not to indict HSBC for money laundering, and instead handing them a nearly $2 billion settlement in order to defer prosecution, that is what the DOJ is effectively saying.
HSBC didn’t get handcuffs. They got a tax write off, otherwise known as the cost of doing business in today’s banking industry. Are we really supposed to call that a deterrent?
What’s troubling, and not the least bit ironic, is this is the same government that screams that homeowners who strategically default are creating a moral hazard.
That is exactly what federal prosecutors have done by not seeking an indictment. They have created a moral hazard on Wall Street, a slippery slope that will only get worse unless the DOJ reverses direction.
And this hazard will have a much greater impact on the real estate market than when a homeowner decided to walk away from a worthless underwater mortgage.
Edward DeMarco, acting director of the Federal Housing Finance Agency, has repeatedly made the argument that it is wrong for Fannie Mae or Freddie Mac to offer principal reduction to someone who is behind on their mortgage because it will encourage other homeowners to engage in risky behavior in order to benefit financially.
He is afraid someone who has a job and is still trying to pay their mortgage every month would feel like a chump and look to get a better deal for themselves.
But in the HSBC scenario, it is the smaller banks that will end up playing the role of the disgruntled neighbor. If other banks are looking in at HSBC, don’t you think they are just a tad bit jealous?
What the DOJ has done is encourage other banks to grow and grow and grow. And then those same banks will take more and more risks, since they now know if worst comes to worst they too will be slapped on the wrist.
And of course former Massachusetts Gov. Mitt Romney never let us forget that corporations are people too. Citizens United made that the law of the land, and corporations were allowed to infuse unlimited amounts of corporate dollars to try to influence our political process.
Yet when HSBC takes those same dollars and launders it on behalf of rogue regimes, like Iran, or criminal enterprises such as the Mexican drug cartels, suddenly they are not people.
So which is it? If they are in fact people, then you have to prosecute them like people.
You can’t have it both ways. And please don’t try to sell me the line these economic sanctions will carry the same weight as an indictment would. If you can finger a business as a den of thieves or a criminal enterprise, and the evidence suggests prosecutors could do just that, than nothing can take the place of a criminal indictment.
Assistant attorney general Lanny Breuer called the government’s deferred prosecution a “sword of Damocles” over HSBC.
It is more like one of those balloon swords a clown would give out at a kids’ birthday party.
There has been a policy determination in the government that prosecuting these enterprises might bring the entire financial complex down.
To which I say, so what?
Even if you believe that doomsday scenario, I’d argue in the long run, you and I would be better off if Wall Street was turned into a modern day Sodom and Gomorrah.
Maybe HSBC will comply with the law and operate above board from now on.
But there is no guarantee the next bank will do the same. And by encouraging banks to grow so large that it is problematic to prosecute them, you are guaranteeing there will be other rogue banks in the future.
And then we will be right where we are now, and I will be writing the exact same blog.
HSBC’s board of directors is still in place. Their management is still in place. There has been no individual accountability, responsibility or liability, nothing to deter future bad behavior.
The message from Washington is clear: Banks are too big to fail, too big to jail, too big to nail, just not too big to bail out.
Real estate attorney Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title. He is also creator of the South Florida Law Blog, named the best business and technology blog of 2011 by the South Florida Sun-Sentinel.