Wednesday, June 02, 2010

Prosecute the Scum

In two succeeding articles, the Wall St. Journal recently reported that the large banks at the heart of the current recession, Citibank, Bank of America, and so forth, all have followed the practice of falsifying their capital to loan ratios in the quarterly reports they are obliged to give to the federal banking authorities. They have done so, apparently, by using off-balance sheet maneuvers, like those that Lehman Brothers employed, to "move" many of their liabilities off their balance sheets. By doing so, they make their equity to debt ratio look healthy when in fact it is not.

They claim that in doing so they are adhering to the letter of the law, in that on the exact day in question, the last day of the quarter, they do not have the liability. They also claim that despite the uniformly favorable result for them, these maneuvers happen in the ordinary course of business.

I don't know the details, but on the surface, at least, they are violating criminal prohibitions against filing false reports and conspiring to defraud others (bank examiners, investors). Their technical defense should not hold water; plenty of people have claimed that they adhered to the letter of the law in avoiding taxes, only to have the courts invalidate their action because it had no legitimate business reason other than tax avoidance. I am sure there are many other examples in which the deliberate circumvention of a law and its goals have resulted in criminal prosecutions. As t their second claim, it is so preposterous that it calls out for investigation at the very least. I am waiting for Attorney General Holder to launch a criminal inquiry.

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