This week, Bank of America agreed to a $16 billion settlement to resolve charges that it had sold toxic mortgage-backed securities to investors in the run-up to the 2008 financial crisis. It's "the largest settlement ever reached between the U.S. and a single company," writes The Wall Street Journal, and the government is touting the enormous price tag as evidence that it has cracked down on pre-crisis malfeasance.
But it's not so straightforward. The New York Times reports that BofA has already written down many of its mortgages, easing a requirement under the settlement that the bank aid struggling homeowners to the tune of $7 billion. Furthermore, some portion of the settlement will ease BofA's tax bill:
The actual pain to the bank could also be significantly reduced by tax deductions. Tax analysts, for instance, estimate that Bank of America could derive $1.6 billion of tax savings on the $4.63 billion of payments to the states and some federal agencies under the settlement. Shares of Bank of America jumped 4 percent on Thursday, suggesting investors believe that the bank could take the settlement in stride.
"The American public is expecting the Justice Department to hold the banks accountable for its misdeeds in the mortgage meltdown," said Phineas Baxandall, an analyst with the U.S. Public Interest Research Group, a consumer advocacy organization. "But these tax write-offs shift the burden back onto taxpayers and send the wrong message by treating parts of the settlement as an ordinary business expense." [The New York Times]
Talk about too big to fail.