Big Number Means Next Too Nothing

Trey Smith

The US government has urged that Bank of America Corp pay $863.6m in damages after a federal jury found it liable for fraud over defective mortgages sold by its Countrywide unit.

In a filing late Friday in the US district court in Manhattan, the government also asked for penalties against Rebecca Mairone, a former mid-level executive at the bank's Countrywide unit who the jury also found liable, "commensurate with her ability to pay".

The government said the penalties were necessary to punish the bank and Mairone "and to send a clear and unambiguous message that mortgage fraud for profit will not be tolerated".

Bank of America and Mairone were each found liable for defrauding government-controlled mortgage companies Fannie Mae and Freddie Mac through the sale of shoddy loans purchased from Countrywide in 2007 and 2008. The case centered on a mortgage lending process at Countrywide, which Bank of America bought in July 2008, known as the "High Speed Swim Lane," or alternatively "HSSL" or "Hustle". (my emphasis)
~ from US Seeks $864 Million From Bank of America After Mortgage Fraud Verdict via Reuters ~

Here we have yet another example of a big number that isn't nearly as big as it seems. According to Wikipedia, around the time that this fraud was committed, Bank of America (BoFA) controlled "20–25% of the home loan market." That is a staggering percentage and it means they were pulling in a staggering amount of money. We're not talking about millions of dollars either. Try over $100 billion per year.

Let's take a look at the proposed fine from another angle. In 2012 alone, BoFA had $83.33 billion in revenue. They held $236.95 billion in equity and had total assets of $2.209 trillion. As a percentage of these vast assets, $863.6 million represents 0.000425628. That's not even one-tenth of one percent!

As I have done before, let's bring down these high brow numbers to something most of us can get a handle on. If you or I was fined $1,000 for some offense and we only had to pay at the rate of 0.000425628, the actual fine would be...drum roll please...43 cents. Not even one measly dollar! Do you think this would dissuade you from committing a similar offense again?

The point here is that the real message the government is sending is the OPPOSITE of what they say. A fine of such a miniscule amount sends a clear and unambiguous message that mortgage fraud for profit WILL BE tolerated, if not encouraged. It is saying, as Cenk Uygur likes to say, "Have at it, Hoss!"