A judge in New York has rejected a proposed financial settlement between Citibank and the Securities and Exchange Commission (SEC) over the bank’s handling of some mortgages leading up to the Crash of 2008. The judge says he wants to know the truth of what happened.
The truth is that Citibank is liable for what happened, but the US government is even more so. The US government printed the money which fueled the bubble, which may have been illegal under the Federal Reserve Act, and also engaged in a variety of ill judged and arguably illegal actions, particularly with regard to its agents Fannie and Freddie. Unfortunately the US government cannot sue itself and we can’t sue the government either.
The idea of the settlement, in which Citibank offered to pay the US government several hundred millions, is itself risible. This is the same bank that was rescued from likely bankruptcy by the government, not only with Congressionally appropriated TARP money, but also with huge and secret subsidies of newly printed money from the Federal Reserve. Bloomberg estimates that the big banks in general earned $13 billion just from holding the secret infusions from the Fed which were borrowed at negative real rates of interest, which were in effect a free gift. So one arm of the government secretly gives massive sums and another wants a bit back in a public legal settlement. What we need is real banking reform and it will require government reform as well.