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The Great Recession

Tough road for Great Recession victims: Column

Poor and minority communities struggle to recover eight years after Bear Stearns collapse.

Vijay Das and Arjun Singh Sethi

Eight years ago this week, the iconic 80-year-old investment bank Bear Stearns collapsed and roiled the financial world. The event foreshadowed a global recession that cost the U.S. economy $22 trillion and devastated millions of American homeowners.

A foreclosure sign in front of a home in Miami, March 4, 2008.

The origin of the crisis lay in part with financiers, who lured borrowers with low income, poor credit or limited documentation to assume subprime mortgages they couldn’t repay. The loans were then passed along to big banks, which pooled them together into marketable and investable securities stamped triple A by rating agencies like Moody’s and Standard and Poor’s. Investors of all kinds then bought the products thinking they provided a safe, solid yield in a low-interest-rate environment.

Nobody was spared when the housing bubble collapsed. Communities of color and low-income neighborhoods were hit the hardest. They had long faced abusive financial practices like predatory lending, payday loans and tax scams; this time was no different. Nationally, blacks and Latinos were 80% and 70% respectively more likely to receive subprime loans than whites. Once the recession hit, communities of color were three times more likely to face foreclosure and twice as likely to have negative equity in their homes as white borrowers, a Chicago-area study found. These communities have had a tougher road to recovery as well. From 2010 to 2013, for example, San Antonio’s poorest neighborhoods experienced job loss, while its most prosperous ones saw a 20% jobs increase.

Main Street never got a bailout when faced with the ramifications of the crisis. But Wall Street did.

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In addition to the $700 billion emergency bailout in 2008, the Federal Reserve later revealed that it loaned an additional $7.7 trillion in secret emergency funds to the banks. Wall Street was also the beneficiary of three rounds of quantitative easing, in which the Federal Reserve bought securities from companies in order to inject greater liquidity into the market. The result was a stock market rally that yielded more than 200% in just 6 years, a lucrative return that most on Main Street never enjoyed.

Wall Street got a legal bailout too. Despite countless financial crimes, including making false statements regarding the creditworthiness of mortgage backed securities, only one major executive from the big banks or the rating agencies has been successfully prosecuted by the U.S. Department of Justice.

This miscarriage of justice has its roots in 1999, when then-Deputy Attorney General Eric Holder wrote an influential memorandum asserting that any and all corporate prosecutions must consider the “collateral consequences” of litigation, including a bank failure or economic calamity. Too big to jail was born. Justice Department officials reaffirmed this principle in 2012, noting that they had to consider the health of the economy, the banking industry, and financial markets before bringing a single criminal case relating to the 2008 financial crisis.

The department has defended its policies of non- and deferred-prosecution by pointing to the heavy fines paid by Wall Street since 2008. A total of 49 financial institutions paid out $190 billion in fines to states, the federal government and executive agencies. But did these settlements achieve anything? The fines were paid by institutions and thus the money came from shareholders, not individual corporate executives. Indeed only one corporate executive, a chief operating officer for Countrywide Financial Corporation, was required to pay a fine in an individual capacity.

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The government’s response to these crimes marked a departure from recent history. In the savings and loan crisis that began in 1983 and ended in 1992, more than 1,000 criminal prosecutions were brought by federal prosecutors and more than 839 convictions were obtained. These investigations and prosecutions were the result of more than 30,000 referrals made by regulators to law enforcement. These same regulators made zero referrals after the 2008 financial crisis.

Although Attorney General Loretta Lynch has since reversed course and issued guidance rejecting the too-big-to-prosecute philosophy, it’s of little consequence. The statute of limitations for most of the crimes has already passed, because the wrongdoing was committed largely prior to the financial meltdown.

The bottom line is that taxpayers bailed out the banks, but they’ll never know the depth of the machinations, backroom dealing and fraud that almost destroyed the global economy. Nor will they see justice done. This is a recipe for impunity, not deterrence.

Vijay Das is a healthcare policy advocate with Public Citizen’s Congress Watch and a writer on consumer protection and other issues. Follow him on Twitter@vijdasArjun Singh Sethi is a writer, lawyer, and Adjunct Professor of Law at Georgetown University Law Center. Follow him on Twitter @arjunsethi81.

In addition to its own editorials, USA TODAY publishes diverse opinions from outside writers, including our Board of Contributors. To read more columns like this, go to the Opinion front page.

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