Yet one way Bank of America stands out from its competitors: shareholders are suing the company over its purchase of Merrill Lynch, claiming company executives failed to disclose the worst about Merrill until after the deal had closed. The bank (without admitting or denying guilt) already settled SEC charges that it deceived its shareholders over the Merrill acquisition, paying $150 million — a dollar figure the federal judge approving the deal called "paltry." Another way Bank of America stands out: its handling of its roughly 1.3 million mortgage accounts that are delinquent.
Customers of all the big banks complain that being behind on your payments means a Kafkaesque journey through a maze where straight answers are impossible to come by and the odds are high that you'll need to send in your paperwork several times before the right person actually receives it. Still, Bank of America distinguishes itself even among this crowd. A study by Moody's released at the end of last year found that Bank of America took longer than any of the other major banks to resolve a delinquent loan. And data from HAMP, the program the Obama administration set up to help homeowners avoid foreclosure, shows that Bank of America has the highest number of customers eligible for a loan modification under HAMP — but the lowest rate of success: it provided loan modifications to fewer than one in three homeowners eligible for the program. (Not that the other banks have done much better: Bank of America has granted permanent loan mods to 32 percent of those who have gone through the program, compared to 35 percent for JPMorgan Chase, 36 percent at Citi, and 39 percent at Wells.)
Bank of America received two bailouts from Washington totaling $45 billion — and since that time has spent more than $9 million on D.C. lobbyists. The bank was particularly generous to Ken Lewis, the deposed CEO behind the ill-conceived purchases of Countrywide and Merrill: he left the company with an exit package of nearly $64 million in retirement pay. It has been similarly munificent with Brian Moynihan, who took over the company at the start of 2010. Under his stewardship, BofA's share price has fallen nearly 60 percent, but the board of directors awarded him $9.1 million in stock at the end of his first year on the job, above and beyond his $950,000 annual salary.
Bank of America has admitted that its employees paid "kickbacks" to government officials to win deals in the lucrative muni bond market. The Goldman Sachs advantage, in contrast, is that so many of its former partnersare the government. Henry Paulson, the CEO and chairman of Goldman Sachs before becoming George W. Bush's secretary of the Treasury, let Lehman Brothers (a longtime Goldman rival) die because he believed in the free market. Several days later, however, Paulson helped save Goldman's bacon when he spent $85 billion in government money to bail out the insurance giant AIG.
No financial institution was a bigger customer of AIG's than Goldman, which had used AIG to "short" (in English, to bet against) the subprime market. And no institution outside AIG itself was as dependent on the insurance giant's survival as Goldman was. AIG owed Goldman $13 billion in credit-default swaps — and, incredibly, the deal terms hammered out with the government had Goldman receiving all $13 billion (as opposed to the 13 cents on the dollar Merrill Lynch received from other failed insurers, according to New Yorkmagazine).
Today, Goldman faces a rash of lawsuits from aggrieved clients who feel betrayed — betrayed by an investment adviser that continued to sell billions of dollars' worth of mortgage-backed securities to its customers even as it failed to inform them that the firm was making enormous bets that these would turn out to be terrible investments.
In mid-2009, Goldman paid $60 million — literally less than the amount of revenue booked in a half-day that year — to end an investigation by the Massachusetts attorney general into its subprime-mortgage activities. New York's new attorney general is investigating the mortgage-backed securities operations at Goldman (and also Bank of America and Morgan Stanley).
And, of course, there's Abacus and the $550 million the company paid the SEC (without denying or admitting guilt) because it failed to inform clients that it had allowed John Paulson, a prominent hedge-fund manager seeking to bet against its success, to handpick subprime home loans he thought had the greatest chance of failing.
Goldman didn't originate subprime loans like the other big banks. Instead, it bankrolled top subprime lenders like New Century and (along with Citigroup and Merrill Lynch) financed CompuCredit, a top subprime credit-card issuer which, after it was sued by the FTC for engaging in "deceptive conduct in connection with marketing credit cards," agreed to refund at least $114 million to customers.
Critics castigate other banks for abusing individual investors. Goldman they accuse of rigging whole markets. The German magazine Der Spiegel published a long piece last year charging Goldman Sachs of helping the Greek government mask the true extent of its debt (Goldman denied comment when contacted by the magazine). Harper's ran a provocative article by Frederick Kaufman that essentially charged Goldman with messing up the world market for wheat simply to turn a buck — and inadvertently causing widespread hunger across the globe. (Again, Goldman declined comment.) Rolling Stone political writer Matt Taibbi — he of the unforgettable description of Goldman as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" — lays much of the blame on Goldman for the spike in the price of oil several years back.
Goldman received $10 billion in TARP money — and then seemed to spit in the face of those choosing to bail out Wall Street's banks. It ended 2008 with $2.3 billion in profits but paid only $14 million in taxes that year — rather than the $800 million it would owe if paying the standard 35 percent that corporations even sometimes pay. Goldman explains a tax rate of less than 1 percent by pointing to a change in its "geographic earnings mix" — or as Lloyd Doggett, a Democratic congressman from Texas, explained it, "With the right hand out begging for bailout money, the left is hiding it offshore." That left hand is also giving themselves huge bonuses, starting with CEO Lloyd Blankfein. Goldman's reputation, and also its stock, is down, but Blankfein's compensation is way up. At the start of the year, the Goldman board bumped his base salary from $600,000 to $2 million annually and showered him $13 million in stock.
It's enough to make you want to stuff your earnings under a mattress rather than trusting your money to one of these malefactors. But then you'd need to rely on a check casher to pay the rent and other bills — and Wells Fargo, JPMorgan Chase, and Bank of America are among the big banks profiting off the check-cashing business.
Research Assistance by David Graham