The Accountability Shortage
Accountability is about responsibility, the responsibility to answer for your actions. The largest bank failure in U.S. history happened in 2008 with the colossal collapse of Washington Mutual. Three high-ranking executives, who were brought to task, recently reached a $64.7 million settlement with bank regulators. The settlement was categorized as “small potatoes,” especially when compared to the enormous damage inflicted on the housing market and the bloated compensation given to one of the individuals, amounting to $88 million between the years 2001-2007. There truly is not even a small modicum of reckoning as the settlement will be mostly made up of the executives' golden parachutes (retirement funds), with a large portion to be paid by the officers' liability insurance policies.
The Security and Exchange Commission recently sued six former Fannie Mae and Freddie Mac executives for fraud, stemming from their alleged under representation of the exposure the GSEs took with the subprime mortgage debacle. The executives claimed they were pressured by shareholders, regulators and Congress to become steadily more complicit with these types of mortgages. Though all of that may be true to a certain extent, it does not discount their responsibility to their respective companies to represent the long-term best interest of the stockholders. The intoxication of the housing bubble swayed many who either knew better, or more importantly should have known better, to choose the wrong path. The actions of these individuals and the company cultures that fostered their behavior have had a direct impact on the taxpayers of the U.S. as we continue to subsidize the operations of the GSEs, including the legal defense fees of the accused executives. This is normal protocol, “As part of standard director and officer insurance policies, Fannie and Freddie pay the legal fees of former executives,” reported The Wall Street Journal. The SEC has entered into a nonprosecution agreement with both Fannie Mae and Freddie Mac in exchange for their cooperation in uncovering and disclosing the alleged fraud.
“It's been three years since the financial crisis crippled the American economy, and much to the consternation of the general public and the demonstrators on Wall Street, there has not been a single prosecution of a high-ranking Wall Street executive or major financial firm even though fraud and financial misrepresentations played a significant role in the meltdown.” As these types of fraudulent activities are brought out into the open, the shortage of accountability for those found guilty in the court of public opinion continues to fan the flame of public dissatisfaction.
Diane Gozza is executive vice president, business development, Integrated Mortgage Solutions, Houston.