Before the Election was Over, Wall Street won

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy.

For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside.

Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

In addition, though much is made of each candidates' tax plans, and the related math that doesn’t add up (for both presidential candidates), the bottom line is, Obama hasn’t explained exactly WHY there’s $5 trillion more in debt during his presidency, nor has Romney explained HOW to get a $5 trillion savings. 

For the record, both missed, or don’t get, that nearly 32% of that Treasury debt is reserved (in excess) at the Fed, floating the banking system that supposedly doesn’t need help. The ‘worst economic period since the Great Depression’ barely produced a short-fall of  an approximate average of $200 billion in personal and corporate tax revenues per year, according to federal data.)

Consider that the amount of tax revenue since 2008, has dropped for individual income contributions from $1.15 trillion in 2008 to $915 billion in 2009, to $899 billion in 2010, then risen to $1.1 trillion in 2011. Corporate tax contributions have dropped (by more of course) from $304 billion in 2008 to $138 billion in 2009 to $191 billion in 2010, to $181 billion in 2011. Thus, at most, we can consider to have lost $420 billion in individual revenue and $402 billion in corporate revenue, or $822 billion from 2009 on. The Fed has, in addition, held on average of $1.6 trillion Treasuries in excess reserves. That, plus $822 billion equals $2.42 trillion, add on the other $900 billion of Fed held mortgage securities, and you get $3.32 trillion, NOT $5 trillion, and most to float banks.

The most consistent political platform is that big finance trumps main street economics, and the needs of the banking sector trump those of the population.  We have a national policy condoning zero-interest-rate policy (ZIRP) as somehow job-creative. (Fed Funds rates dropped to 0% by the end of 2008, where they have remained since.)

We are left with a regulatory policy of pretend. Rather than re-instating Glass-Steagall to divide commercial from investment banking and insurance activity, thereby removing the platform of government (or public) supported speculation and expansion, props leaders that pretend linguistic tweaks are a match for financial might. We have no leader that will take on Jamie Dimon, Chairman of the country’s largest bank, JPM Chase, who can devote 15% of the capital of JPM Chase, which remains backstopped by customer deposit insurance, to bet on the direction of potential corporate defaults, and slide by two Congressional investigations like walks in the park.

Pillars of Collusion

A few months ago, Paul Craig Roberts and I co-wrote an article about the LIBOR scandal; the crux of which, was lost on most of the media. That is; the banks, the Fed, and the Treasury Department knew banks were manipulating rates lower to artificially support the prices of hemorrhaging assets and debt securities. But no one in  Washington complained, because they were in on it; because it made the over-arching problem of debt-manufacturing and bloating the Fed’s balance sheet to subsidize a banking industry at the expense of national economic health, evaporate in the ether of delusion.

In the same vein, the Fed announced QE3, the unlimited version – the Fed would buy $40 billion a month of mortgage-backed securities from banks. Why – if the recession is supposedly over and the housing market has supposedly bottomed out – would this be necessary? 

Simple. If the Fed is buying securities, it’s because the banks can’t sell them anywhere else. And because  banks still need to get rid of these mortgage assets, they won't lend again or refinance loans at faster rates, thereby sharing their advantage for cheaper money, as anyone trying to even refinance a mortgage has discovered. Thus, Banks simply aren’t ‘healthy’, not withstanding their $1.53 trillion of excess reserves (earning interest), and nearly $900 billion in mortgage backed securities parked at the Fed. The open-ended QE program is merely perpetuating the illusion that as long as bank assets get marked higher (through artificial buyers, zero percent interest rates, or not having to mark them to market), everything is fine.

Meanwhile, Washington coddles and subsidizes the biggest banks - not to encourage lending, not to encourage saving, and  not to better the country, but to contain harsh truths about how badly banks played, and are still playing, the nation.

The SEC’s Role

According to the SEC’s own report card on “Enforcement Actions: Addressing Misconduct that led to or arose from the Financial Crisis”: the SEC has levied charges against 112 entities and individuals, of which 55 were CEOs, CFOs, and other Senior Corporate Officers.

In terms of fines; the SEC ‘ordered or agreed to’ $1.4 billion of penalties, $460 million of disgorgement and prejudgment interest, and $355 million of “Additional Monetary Relief Obtained for Harmed Investors. That’s a  grand total of $2.2 billion of fines. (The Department of Justice dismissed additional charges or punitive moves.)

Goldman, Sachs received the largest  fine, of $550 million, taking no responsibility (in SEC-speak, “neither confirming nor denying’ any wrongdoing) for packaging CDOs on behalf of one client, which supported their prevailing trading position, and pushing them on investors without disclosing that information, which would have materially changed pricing and attractiveness. (The DOJ found nothing else to charge Goldman with, apparently not considering misleading investors, fraud.)

Obama-appointed SEC head, Mary Shapiro, originally settled with Bank of America for a friendly $34 million, until Judge Rakoff quintupled the fine to $150 million, for misleading shareholders during its Fed-approved, Treasury department pushed, acquisition of Merrill Lynch, regarding bonus compensation. (Merrill’s $3.6 billion of  bonuses were paid before the year-end of 2008, while TARP and other subsidies were utilized). Still embroiled in ongoing lawsuits related to its Countrywide acquisition, Bank of America agreed to an additional $601.5 million in one non-SEC settlement, and $2.43 billion in another relating to those Merrill bonuses. Likewise, Wells Fargo agreed to pay $590 million for its fall-2008 acquisition of Wachovia’s foul loans and securities. These are small prices to pay to grow your asset and customer base.

Citigroup agreed to pay $285 million to the SEC to settle charges of misleading investors and betting against them, in the sale of one (one!) $1 billion CDO. Judge Rakoff rejected the settlement, but Citigroup is appealing. So is its friend, the SEC.  Outside of that, Citigroup agreed to an additional $590 million to settle a shareholder CDO lawsuit, denying wrongdoing.

JPM Chase agreed to a $153.5 million SEC fine relating to one (one!) CDO. Outside of Washington, it agreed to a $100 million settlement for hiking credit card fees, and a $150 million settlement for a lawsuit filed by the American Federation of Television and Radio Artists retirement fund and other investors, over losses from its purchase of  JPM’s Sigma Finance Hedge Fund, when it used to be rated ‘AAA.’

There you have it. No one did anything wrong. The total of $2.2 billion in SEC fines, and about $4.4 billion in outside lawsuits is paltry. Consider that for the same period (since 2007), total Wall Street bonuses topped $679 billion, or nearly 309 times as much as the SEC fines, and 154 times as much as all the settlements.

The SEC & Dodd Frank Dance

The SEC embarked upon 90 actions, divided into 15 categories, related to the Dodd-Frank Act that amount to proposing or adopting rules with loopholes galore, and creating reports that summarize things we know. Some of the obvious categories, like asset backed related products or derivatives, don’t even include CDOs, which got the lion’s share of SEC fines and DOJ indifference.

Rather than tightening regulations on the most egregious financial product culprits; insurance swaps, such as the credit default swaps imbedded in CDOs, the SEC loosened them. It did so by approving an order making many of the Exchange Act requirements not applicable to security-based swaps. In one new post-Dodd-Frank order, it stated, a “product will not be considered a swap or security-based swap if ,,, it falls within the category of…insurance, including against default on individual residential mortgages.” Thus, credit default swaps, considered insurance since their inception, warrant no special attention in the grand land of sweeping reform.

The credit ratings category includes 20 items proposed, requested, or adopted. Under things accomplished, the SEC gave a report to Congress that basically says that the majority of rating agency business is paid for by issuers (which we knew), and proclaims (I kid you not) that a security is rated “investment grade” if it is rated “investment grade” by at least one rating agency. Further inspection of SEC self-labeled accomplishments provides no more confidence, that anything has, or will, change for the safer.

The White House & Congress

Yet, the Obama White House wants us to believe that Dodd-Frank was ‘sweeping reform.’ Romney and the Republicans are up and arms over it, simply because it exists and sounds like regulation, and Democrats defensively portray its effectiveness.

Ignore them both and ask yourself the relevant questions. Are the big banks bigger? Yes. Can they still make markets and keep crappy securities on their books, as long as they want, while formulating them into more complicated securities, buoyed by QE measures and ZIRP? Yes. Do they have to evaluate their positions in real world terms so we know what’s really going on? No.

Then, there’s the Volcker Rule  which equates spinning off private equity desks or moving them into asset management arms, with regulatory progress. If it could be fashioned to prohibit all speculative trading or connected securities creation on the backbone of FDIC-insured deposits, it might work, but then you’d have Glass-Steagall, which is the only form of regulatoin that will truly protect us from banking-spawned crisis.

Meanwhile, banks can still make markets and trade in everything they were doing before as long as they say it’s on behalf of a client. This was the entire problem during the pre-crisis period. The implosion of piles of toxic assets based on shaky loans or other assets didn’t result from  private equity trading or even from isolating trading of any bank’s own books (except in cases like that of Bear Stearns’ hedge funds), but from federally subsidized, highly risky, ridiculously leveraged, assets engineered under the guise of 'bespoke' customer requests or market making related ‘demand.’ 

When the Banking Act was passed in 1933, even Republican millionaire bankers, like the head of Chase, Winthrop Aldrich, understood that reducing systemic risk might even help them in the long run, and publicly supported it. Today, Jamie Dimon shuns all forms of separation or regulation, and neither political party dares interfere.

But things worked out for Dimon. JPM Chase’s board (of which he is Chairman) approved his $23 million 2011 compensation package (the top bank CEO package), despite disclosure of a $2 billion (now about $6 billion) loss in the infamous Whale Trade. He banked $20.8 million in 2010, the highest paid bank CEO that year, too. In 2009, Dimon made $1.32 million, publicly, but really bagged $16 million worth of stock and options. He made $19.7 million in total compensation for 2008, and $34 million for 2007. Still a New York Fed, Class A director, he’s proven himself to be untouchable.

Yet, the kinds of deals that were so problematic are creeping back. According to Asset Backed Alert, JPM Chase was the top asset-baked security (ABS) issuer for the first half of 2012, lead managing $66 billion of US ABS deals.

In addition, according to Asset Back Alert, US public ABS deal volume rose 92.8% for the second half of 2012 vs. 2011, while issuance of US prime MBS (high quality deals) fell 50.6%. Overall CDO issuance rose 50.2%. (Citigroup is the lead issuer (up 552%.))

ZIRP’s  hidden losses

According to a comprehensive analysis of data compiled from regulatory documents by  Bill Moreland and his team at my new favorite website, www.bankregdata.com, some really scary numbers pop out. Here’s the kicker: ZIRP costs citizens and disproportionately helps the biggest banks, by about $120 billion a year.

Between 2005 and 2007, US commercial banks held approximately $6.97 trillion of interest bearing customer deposits. During the past two quarters, they held an average of $7.31 trillion. During that first period, when fed funds rates averaged 4.5%, banks paid their customers an average of $39.6 billion of interest per quarter. More recently, with ZIRP, they paid an average of $8.9 billion in interest per quarter, or nearly 77% LESS. In dollar terms - that’s about $30.7 billion less per quarter, or $123 billion less per year.

Since ZIRP kicked into gear in 2008, banks have saved nearly $486 billion in interest payments. Average salary and compensation increased by approximately 23%. Dividend payments declined by 14.05%.

The biggest banks are the biggest takers. Consider JPM Chase’s cut. Although its deposits disproportionately increased by 46% from 2007 (pre ZIRP and helped by the acquisition of Washington Mutual) to 2012, its interest expenses declined by nearly 89%. From 2004 to 2007, Chase paid out $34.4 billion in interest to its deposit customers. From 2008 to mid-2012, it paid out $3.4 billion. JPM Chase’s ratio of interest paid to deposits of .27% is the lowest of the big four banks, that on average pay less than smaller banks anyway.

The percentage of JPM Chase’s assets comprised of loans and leases is lower at 36.04% compared to its peers’ percentage of 52.4%. Its trading portion of assets is higher, as 14.78% vs. 6.88% for its peers, and 4.23% for all banks.

Looking Ahead

To recap: savers, borrowers, and the economy are still losing money due to the preservation of the illusion of bank health. More critically, the big banks grew through acquisitions and the ongoing closures of smaller local banks that provided better banking terms to citizens.  The big banks have more assets and deposits, on which they are over-valuing prices, and paying less interest than before, due to a combination of Fed and Treasury blessed mergers in late 2008, QE and ZIRP. Yet, we’re supposed to believe this situation will somehow manifest a more solid and productive economy.  

Meanwhile, past faulty securities and  loans will fester until their transfer to the Fed is complete or they mature, while new ones take their place. This will inevitably lead to more of a clampdown on loans for productive purposes and further economic degradation and instability. Financial policy trumps economic policy. Banks trump citizens, and absent severe reconstruction of the banking system, the cycle will absolutely, unequivocally continue.

Jon Corzine, MF Global, and Unaccountability

In April 2007, former New Jersey governor, 'honorable', Jon Corzine had an altercation with a Garden State Parkway guardrail. A year later, he addressed a bevy of reporters at the swanky Drumthwacket mansion and expressed appreciation for “family, friends, and the fragility of life.” During his recovery period, he advocated seatbelt safety, before returning to New Jersey's budget, extracting $500 million in austerity measures from farmers, educators, and environmentalists, and hiking tolls on New Jersey roadways.

On the one-year anniversary of his accident, his chief-of-staff, Bradley I. Abelow declared,  “Corzine has returned to his former self as a thorough and exacting boss.” (Italics mine.)

Fast forward to the current MF Global flameout. Abelow shifted to Corzine’s Chief Operating Officer. And not only did Corzine ratchet up the ante on ways to really piss off farmers, but after several days of engaging in verbal dodge ball with Congress, this ‘thorough and exacting boss’ maintained his Forest Gump type cloak of secrecy regarding the stolen $1.2 billion of his customers’ segregated money.

After days of political-reality TV, we knew nothing more about its evaporation. Corzine and his stewards, Abelow and Chief Financial Officer, Henri Steenkamp, executed a perfect chorus of  ‘I don’t recalls’, ‘I didn’t intends’ and ‘the butler did its’.

For the most part, testimony from the various regulators didn’t shed additional light on the ‘missing’ funds either (everyone’s extremely sorry and deep in search mode) but they did reveal extreme, pass-the-blame incompetence, in the spirit of AIG.

Acronym alert. SEC director, Robert Cook testified that MF Global Holding Company (like AIG) had no official consolidated supervisor regulating it; one of its subsidiaries, MF Global UK Limited, fell under the UK Financial Services Authority (FSA.) The other one, MF Global Inc. (MFGI) was registered under the Commodity Futures Trade Commission (CFTC) as a FCM (futures commission merchant) and also, under the SEC as a broker-dealer. It was the Chicago Board of Options Exchange (CBOE) supposedly overseeing MFGI’s broker-dealer activities, while its futures activities fell under the CFTC, National Futures Association and the Chicago Mercantile Exchange (CME). Somewhere in the mix lurked the private self-regulatory body, the Financial Industry Regulatory Authority (FINRA). Really, how many inept regulatory bodies does it take to screw customers out of $1.2 billion?

But, here’s how we know Corzine was lying – besides the nervous body movements.

During the summer of 2011, the CBOE and FINRA told MF Global Inc. that it didn’t have enough capital behind its repo-to-maturity (RTM) positions in European sovereign bonds – the positions Corzine put on. By mid-August, the SEC got involved and met with Corzine and other MF Globalites. They then had to file a net capital deficiency notice on August 25^th for $150 million.

During  the week of October, 17^th – MF Global Holding had to increase capital again at MFGI - for the same positions. The next week, on October 25^th, it released abysmal quarterly earnings, and got downgraded to almost junk status. The stock plummeted and customers were heading for the hills, the fastest ones getting their money out, others getting locked out. The SEC set up camp at MF Global headquarters in Manhattan on October 27^th to “monitor the situation” and “engage with senior management regarding the steps that were being taken by the firm” regarding possibilities like selling the firm, selling the customer business, or selling the RTM positions.

On Sunday afternoon, October 30, a perspective buyer for MFGI’s customer business emerged: Interactive Brokers (whose judgment I question, so watch out for them). In the wee hours of Monday morning, October 31, – the ‘missing’ funds were detected.  Interactive Brokers balked. Bankruptcy proceedings begun at  9 AM.

The CME’s testimony stated that just past mid-night on October 31,^st Christine Serwinski, the chief financial officer of MF Global's North American division, and Edith O’Brien, a treasurer, told Mike Procajlo, an exchange auditor that about $700 million in customer money was transferred on October 27th, 28th and possibly October 26 from the broker-dealer side of the business to ‘meeting liquidity issues.’ The CME hadn’t noticed this while reviewing the firm’s books prior to bankruptcy. Another $175  million was used by MF Global UK.

The CFTC disclosed that MF Global’s general counsel, Laurie Ferber notified them Monday evening, October 31st about “a significant shortfall in its segregated funds account”.  Neither the SEC, nor the CME had picked up on this beforehand.

As a broker-dealer registered with the SEC, MFGI was not just subject to CFTC rules, but also to the SEC's customer protection rule that prohibits use of customer funds or securities to support proprietary trading or expenses. It also prohibits customer funds or assets from being pledged as collateral for the firm’s own trades or to raise funds, plus requires a reserve account  be maintained that is bigger than their holdings – just in case.

The CFTC has a more lax rule, called Reg 1.25, weakened courtesy of MF Global, JPM Chase, and others that enables segregated customer funds to be used for investing in foreign sovereign bonds (investing – not posting as margin or acting as collateral). But as Janet Tavakoli pointed out in her excellent MF Global analysis; the ‘missing’ customer funds were not in the currency of the foreign sovereign bonds, as per the rule’s stipulation. Plus, none of the required replacement assets were held against those funds. Indeed, there is no element of Reg 1.25, the reg cited as a potential legal loophole by various media, that allows segregated customer funds to be used for risky purposes – like saving a firm from destruction long enough to sell it. Translation – the ‘missing’ funds were stolen against rules, from their rightful segregated customer accounts. Corzine claimed no knowledge of this.

But the reality is - the clock ran out on Corzine’s big bet and customer funds were the only way to keep it ticking until a potential sale of the firm could be confirmed. If the funds hadn’t been switched, the firms seeking margins would have taken losses. The motive was to optically alter the appearance of MF Global and exit, leaving the bag with someone else. You can’t have that clear a motive and no idea of how to achieve it. It’s implausible.

Let me put $1.2 billion into a perspective that the House committees didn’t. According to its second quarter SEC filing, MF Global had $3.7 billion of available liquidity.  The funds were equivalent to a third of that liquidity. That’s not a tiny figure. If you’re running a firm buckling under the weight of the bets you’re losing, you’re damn well aware of your liquidity lines – they are your life raft.

Besides that, MF Global’s net revenue for the second quarter was $206 million and for the six months ending September 30, 2011, it was $520 million. The ‘missing’ customer money was more than twice the firm’s net for the first half of their year.

To recap. Corzine was obsessed with the European sovereign bet. So, he fired his risk officer, Michael Roseman for questioning it,  and replaced him with a yes-man, Michael Stockman whose job description appeared to have included stroking Corzine's – er – ego, and to remain quiet about any trade concerns. He rides the trade through a succession of flailing earnings and intense market volatility, while meeting with regulators questioning its sustainability. He knows he’s got to pony up a chunk of capital in the summer to appease them and stick with it. And when finally, MF Global’s ratings were downgraded on October 25th, a bunch of calls transpire between him and NY Fed head and former Goldmanite, William Dudley before the firm goes bankrupt a week later, with nearly $1.2 billion in customer money ‘missing.’ 

We’re supposed to believe this ‘thorough and exacting’ man knew nothing about where it went? Or that his sense of entitlement and bravado was so big, he didn’t think it was wrong to take that money? Or that he wasn’t aware it was available? At all?

No. Not possible. And yet, over half a dozen regulatory bodies were oblivious to the fund heist. Finding Corzine guilty of a crime would be like asking them to indict themselves. The CFTC Enforcement division can refer criminal matters to the Department of Justice for prosecution. But the DOJ has punted on every Wall Street crime related to the 2008 subprime crisis. So what will probably happen –  is that Corzine may get a little fine from the Washington regulators. Legislators will move on to figuring out how to incorporate MF Global into stump speeches. Those that had their money stolen will battle it out in civil suits for years. And again, no lessons will be learned. No practices altered. No heads will roll.

Pocket-Change SEC Fines: Barely a Bark and No Bite

There's a reason yesterday's announcement that JPM Chase would 'settle' for a fine of $156.3 million, while neither admitting nor denying any wrong-doing, thereby forking over the whopping equivalent of a normal person's weekly grocery budget, pisses people off. Because it's a marginal fleabite on the teflon hand of the nation's second largest bank in terms of punitive pain, and absolutely meaningless in altering the grand scheme of toxic securities creation or  complex financial institution business as usual. 

The trivial settlement appears even tinier in comparison to the financial aid JPM Chase received in the wake of its financial crisis. Despite all of CEO Jamie Dimon's disingenuous, though fervently delivered, remarks to the contrary (he didn't need a bailout, he took it for the 'team' to ensure no bank would be singled out to sport a scarlet 'B' of bailout shame), JPM Chase at one point, during the height of the bank's federal subsidization program, floated on nearly $100 BILLION dollars worth of - exceptional assistance. That figure included: $25 billion from the TARP fund, which has since been repaid, $40.5 billion dollars of new debt backed by the FDIC's Temporary Liquidity Guarantee Program (TLGP), which has since been retired, about $6 billion through various aspects of the TARP HAMP program which aided a fraction of underwater borrowers, and $28.8 billion behind its Fed-backed, Treasury-pushed acquisition of Bear Stearns, which is still in place. That's aside from its government aided acquisition of Washington Mutual.

There are those that believe that the bailout program (which they continue to equate to just the $700 billion TARP program) was a success (like the Fed, Treasury Department, or any Administration).

Yet, subsidizing Wall Street's most powerful creatures, altered nothing for the banks that survived, while promulgating ongoing economic pain for the general population caught in the wake of a $14 trillion dollar asset creation machine, which became a globally leveraged $140 trillion still-decaying mess, spurred by rapacious speculation, that sat on just $1.4 trillion of sub-prime loans and various other properties. 

Banks want us to believe that widespread economic pain has nothing to do with them, that they were innocent participants. Maybe they made a few mistakes - for which they're paying SEC directed fines, but hey, we all do.

Meanwhile, the budget bantering that drones on in Washington keeps missing the fact that part of the bank subsidization process remains on the Fed's books. This includes $1.6 trillion dollars in EXCESS bank reserves - i.e. reserves for which the Fed is paying banks 0.25% to NOT lend, about $900 billion worth of mortgage-backed securities, and $1.5 trillion worth of Treasuries, partly from the QE2 program. That's an awful lot of captive non-stimulus. It sure isn't helping drive job creation or small business expansion sitting there.

Of course, this latest SEC settlement is not the first non-punishment for a bank's role in producing or promoting a leveraged mountain of faulty assets. The hush money action is part of a now-two-year SEC program to address, in the commission's own words, 'misconduct that led to or arose from the financial crisis.'

Leaving aside, the tepid characterization 'misconduct' instead of say 'racketeering', these fines don't, and won't, change the banking system. And nowhere does this fining regulatory body suggest a way to do so. It would be refreshing for the SEC, founded in conjunction with the Glass-Steagall Act that separated banks into institutions that dealt with the public's deposit and financing needs from those that created and traded speculative securities for private profit purposes, to suggest a modern equivalent of that act. It might help the commission do its job of protecting the public before unnecessary devastation, not years afterwards, or at the very least, untangle the web of layered borrowing and debt manufacturing at the core of these complex giants.

But, that's not going to happen. Not as long as small fines, absent any form of attached probation, stringent monitoring, or cease-and-desist requirements, can slowly make the issue go away. Seriously, it takes longer to argue a traffic ticket than it took Goldman Sachs to 'agree' to a $550 million settlement on July 15, 2010, after the SEC charged the firm with defrauding investors only three months earlier. People caught with minor amounts of crack or pot undergo stricter plea processes, probationary measures and detainments. 

To date, the SEC has charged four firms with CDO related fraud, including Wachovia, Goldman Sachs, and JPM Chase, who settled for $11 million, $550 million and $156 million respectively. A case against ICP Asset management remains open. 

The commission has charged five firms with making misleading disclosures to investors about mortgage-related risks, including American Home Mortgage, whose former CEO settled for a paltry $2.45 million fine and a 5-year officer and director bar, Citigroup, that settled for a $75 million penalty, Bank of America's Countrywide, whose former CEO, Angelo Mozilo agreed to a $22.5 million penalty and a permanent officer and director bar (a fraction of his pre-crisis take), and New Century, whose executives paid $1.5 million and agreed to a five-year bar. There is an ongoing case against IndyMac Bancorp.

In addition, the SEC charged six firms with concealing the extent of risky mortgage-related assets in mutual and other similar funds. Those included Charles Schwab that settled for a $118 million fine, Evergreen that settled for $40 million to mostly repay investors, TD Ameritrade that settled for $10 million, and State Street that settled to repay investors $300 million.

Separately, Bank of America agreed to a $150 million settlement for misleading its investors about bonuses paid to Merrill Lynch and not disclosing Merrill Lynch's mounting losses. This didn't stop the Federal Reserve and Treasury Department from remaining steadfastly behind the Bank of America/Merrill Lynch make-a-too-big-to-fail-bank-bigger merger, upon which the settlement was based.

In total, the SEC, mildly policing the vast financial system that pushed a criminal musical chairs game of last-one-holding-a-toxic-asset-or-underwater-mortgage-loses, charged 66 entities and individuals with 'misconduct', imposed 19 officer or director bars, and levied $1.5 billion of penalties, disgorgement, and other monetary relief fines. Put that in perspective, say, with the $28 billion in bonuses that JPM scooped up for just 2010, or the $424 billion in total bonuses the top six banks bagged between the crisis book-end years of 2007-2009, or the $128 billion of bonuses Wall Street got last year. Now, consider that not only is the penalty amount a pittance, but the impact of these fines, is even smaller. And, that's the bigger problem with fines, particularly tiny ones. They offer this illusion of a fix that leaves us worse off from a stability perspective than we were before.