New York, New York: In 2008, just after Barack Obama Announced his candidacy for the Presidency, he went to work out in a hotel gym. Sweating at his side was a young lawyer, a Stanford grad alongside the Harvard grad. Both were black, both were politically driven.

You have heard of one but it may be that the other had a lot more to do with keeping the Administration afloat.

His name is Tony West. He just announced he is stepping down as the #3 man in the Justice Department. He’s the brother in law of California’s Attorney General.

The New York Times calls West the “top nemesis of big banks” for the role he’s played in wresting billions of dollars in fines for a variety of crimes and misdemeanors committed by financial institutions in causing the financial crisis.

Most of that money went straight into the Justice Department and helped keep the government going at a time that Republican obstructionism blocked stimulus spending on the economy, and tried to hold the government hostage to no-spending pledges.

Attorney General Holder had nothing but praise for West’s negotiating strategies that forced banks to transfer all that money from their coffers to government accounts. Why did the banks do it? The alternative was worse!

Even as the New York Times announced his departure, there was a range of comments on their DealBook story. One sounded off enthusiastically, saying, “We need to find several DOZEN Tony West’s and sic them all on the Big Banks and Financial establishments.”

Oliver Buddle who describes himself as a former long-time Wall Streeter was much more skeptical,” “Wall Street does not hate Tony, it positively loves him. It just can’t convey that on the record yet. Mark my words, West, Holder, Breuer, Caldwell, Bharara and Reisner will go down in history as the most captured and corrupt Justice team America has ever known. The key takeaway here is that there were no criminal prosecutions of any senior Wall Street executives, despite the millions of lives they disrupted and the trillions of dollars in damages they caused.”

Between those two comments is a needed analysis of why the banks paid these record fines, and why most of the people who were victimized by subprime mortgage scams got so little compensation while few bank officers went to jail.

The business press has paid attention to the larger issue, but the implications of such a large transfer of wealth has been downplayed.

Looking askance at these maneuvers, from its editorial high horse in London, The Economist asked, “Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China?  The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

The amounts are mind-boggling. So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.

In many cases, the companies deserved some form of punishment: BNP Paribas disgustingly abetted genocide, American banks fleeced customers with toxic investments and BP despoiled the Gulf of Mexico. But justice should not be based on extortion behind closed doors. The increasing criminalization of corporate behavior in America is bad for the rule of law and for capitalism.”

You can understand why a booster of Capitalism is unhappy, but they didn’t bother to look too closely at who benefited in the end. In principle, who but the banks won’t support punishing financial fraud and related crimes?

At the same time, there is more to the story than meets the eye. If the right is angry, the left if hostile, but for other reasons.

Freelancer David Dayen writes on Naked Capitalism: “We know the raw numbers you see in headlines – $36.65 billion spread among the three settlements. We also know that these numbers are wrong. The JPMorgan settlement includes the $4 billion agreement with FHFA, even though it was settled weeks before DoJ announced. Yves (Smith, editor of Naked Capitalism) quite properly coined the phrase “bullshit to cash ratio” to describe how the consumer relief portions of the settlement – where banks can use other people’s money, get credit for routine operations like donating homes and even money-making enterprises like making loans, and satisfy their obligations through HAMP loans that allows them to collect incentive payments – look nothing like any kind of penalty you would see in any other format. No bank robber is told that he can serve out his sentence by opening a lemonade stand.

When you weed out the bullshit, you get $5 billion from JPMorgan, $4.5 billion from Citi and $9.65 billion from BofA…

Let’s do the math!

$5 billion + $4.5 billion + $9.65 billion = $19.15 billion

$19.15 billion – $7.66 billion = $11.49 billion.

We’ll round up for convenience’s sake. So that’s $11.5 billion in penalties – almost all of them to the Justice Department themselves, and none to the actual investors in mortgage-backed securities who got swindled. That’s the results from nearly three years of work…”

If investors got screwed, so did the homeowners intentionally victimized by the mortgage frauds that were the basis of the Justice Department actions in the first place.

I asked Martin Andelman, who writes extensively on foreclosures and housing fraud as Mandelman, about this. He sees it as a scam, but notes a relatively few victims did get something:

“You could argue that some of the settlement money is earmarked for borrower assistance in one form or another.  One problem is that, as Paul Leonard, founder of the Center for Responsible Lending explained, “Who actually gets this help, though, is up to BoA. “Bank of America still gets to make all the final calls,” Leonard explains.

Another problem is that the amounts… like $2.15 billion in principal reductions, in the case of the Bank of America settlement, aren’t nearly as large as they sound.  For example, $2.15 billion in principal reductions might have an impact on 20,000 loans, which just isn’t enough to change the world by any means.

Lastly, many of those principal reductions would have happened anyway… there’s also things like writing down seconds (second mortgages) that are underwater and therefore had no value to begin with, and the elimination of “other debts.”  And then there’s the credits for tearing down blight, and making loans to people in bad areas that still have high FICO scores… and I can’t even talk about that without wanting to chew on glass.”

His conclusion: “Most of the money doesn’t get anywhere near homeowners, which is what’s been happening since the National Mortgage Settlement started being pirated by the various state legislatures.’

Lynn Parramore, writing on Alternet, confirmed my suspicions. It was hard for her to even get calls to federal agencies returned. Her question. “Where does the money go?”

“That’s the billion-dollar question,” she writes. “Regulators love to brag about all the money they extract from financial transgressors, which comes in the form of various fines and “disgorgements” (returns of wrongful profits) to settle charges.

But does the money go to victims? Does it end up in the Treasury? Do regulators use it to fund more investigations? Buy snazzy new furniture for the office? The answers are not always easy to come by.”

And, not very reassuring when you do get them. She reports, “Restitution for victims is rare, and constitutes a trivial amount of what the DOJ brings in. In 2011 the DOJ took in $2 billion in judgments and settlements, and only $116 million went to restitution.

At the SEC, I got hold of a spokesperson who tersely informed me that money collected from fines does not ever come back to the agency, but rather goes into the Treasury’s general fund.”

So, in the end, all of these pathetic settlements just become an alternative revenue-generating scheme, not an act of justice. What’s most shameful is that these fines are then touted by the Administration as evidence that it has upheld the law and fought for victim’s rights!

One update: Departing legal strategist Tony West has hired Washington insider, lawyer Robert Barnett who has worked for Bill Clinton and many media luminaries as clients, to find him a new high-profile job based on his years of public service.

News Dissector Danny Schechter blogs at News Dissector.net and edits Mediachannel.org.  He wrote three books and made two films including Plunder: The Crime of Our Time on the financial crisis. Comments to [email protected].

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