comments_image Comments

When Giant Banks Pay Fines, Where Does the Money Go? Does It Stop Crime?

Fines are bigger than ever, but financial firms keep making profits, and the rest of us pay.

Photo Credit: © Gl0ck/


If somebody broke into your home and stole your belongings, you’d expect to see some serious consequences if they got caught. But when banks and financial firms rob, defraud and mismanage the money of Americans—and even cast them out of their own homes illegally—the worst that usually happens is a fine.

Since the recent financial crisis and housing collapse, some of Wall Street’s biggest banks have faced fines from regulators reaching into billion-dollar territory. In the latest news, JPMorgan Chase is looking at $11 billion in fines for pushing crap mortgage securities on unwary investors. 

That sounds like a hefty amount of cash—it’s about the gross domestic product of Kenya, and tops that of Iceland and Bahrain. As journalist Pat Garafalo has noted, $11 billion is equal to what all the major banks paid together in 2012. The sum would be the largest single financial fine in history, if in fact it ever is paid (JPMorgan Chase is reported to be in negotiations that might reduce it).

So what happens to all that dough? Will it really change anything?

Let’s follow the money trail.

Who gets fined, and for what?

Investigators from the SEC, the U.S. Justice Department, a smorgasbord of state governments, and other regulatory agencies have been fining financial institutions for everything from concealing risky products, to illegally kicking soldiers out of their homes, to trying to scam bailout money.

The SEC has a list of firms whose activity “led to or arose from” the financial crisis on its website. It tells you what they have been charged with, what fines have been sought and what has been paid. The list is pretty long. Here’s just a small sample of the 161 entities and individuals charged for a grand total of $2.73 billion collected so far in settlements:

  • Goldman Sachs: Charged with conning investors on a financial product tied to subprime mortgages as the U.S. housing market started tanking. Goldman agreed to pay a record penalty in $550 million settlement and reform its business practices. A jury found former Goldman Sachs vice-president Fabrice Tourre liable for fraud.
  • Citigroup: The SEC charged the company and two executives with misleading investors about exposure to subprime mortgage assets. Citigroup paid a $75 million penalty to settle charges, and the executives also paid penalties.
  • Bank of America: Charged with misleading investors about billions of dollars in bonuses being paid to Merrill Lynch executives at the time of its acquisition of the firm, and failing to disclose ginormous losses that Merrill sustained. BofA paid $150 million to settle charges.

Now, keep in mind that so far we’re only talking about the SEC, which deals with various kinds of market scammers like inside traders, accounting fraudsters, and crooks who dupe investors.

If you start going through all the various agencies and the frauds they deal with, you may feel as if you’ve plunged into the 9 Circles of Financial Hell.

The U.S. Commodity Futures Trading Commission has its own list of enforcement actions, which covers hustlers who screw around with futures and option markets. Then there’s the Consumer Financial Protection Bureau, which deals with jerks who rip off consumers with products like credit cards and criminals who take kickbacks that raise prices on things like mortgage payments.  Over at the Department of Justice, they watch out for your price-fixers, your rate-riggers, and your money launderers. The Office of the Comptroller of the Currency handles swindlers of the sort who steal your financial info and make up phony investment programs, along with debt collectors. And so on.