The American bank Citigroup has just been condemned by the Department of Justice to pay a fine of $7billion for its role in the subprime crisis. “Citigroup knew about serious and generalised deficiencies with the more and more risky loans it was transforming into bonds” and, nevertheless, it kept on with it, explained Eric Holder, the United States’ Attorney General. The big banks are being investigated by American justice for their responsibility in the subprime crisis: JP Morgan has already paid $13 billion in fines and there is talk of about a $17 billion fine that could be imposed on Bank of America, pending discussions. Banks would rather pay a large fine than have to face potentially lengthy and risky civil procedures.

One could be tempted to applaud these hefty sanctions on wrong-doing banks... and think that they will be more prudent in the future; it’s a possibility. But one could also decry several elements that are going against this possibility. Firstly, solely the bank’s moral responsibility is at stake, and not the one of the former CEOs, including the CEOs of failed companies like Angelo Mozziloo’s Countrywide (one of the worst examples). If, at that time, the courts would have seized all of their salaries and stock options, this would have, arguably, deterred the actual CEOs from doing the same thing! But this is not how things went.

Secondly, when we take a look at how this $7billion fine is distributed, there appears another reason to worry: $4billion goes directly to the Department of Justice, which gives the impression that the federal State is looking for extra revenue to reduce its budget deficit, and $500million is split between State attorneys involved in the process and the Deposit Insurance Fund. In other words the latter, that is supposed to limit the impact of financial crises and protect the depositors, will only get a few crumbs... a funny way of preparing for the future! The rest of the fine, $2.5Billion, will be used to finance the softening of credit conditions for individuals trapped by the real estate crisis. Now, again, this is incredible! The federal State is subsidizing first home buying, i.e. it’s doing the same mistake that caused the subprime crisis!

In the case of the subprime crisis, there are more than one culprit: Banks were reselling products that they knew were toxic but, at the beginning, it’s the U.S. government that pushed for easy access to a home by limiting the banks’ power to refuse credit (with the Community Reinvestment Act) and by largely subsidizing and guaranteeing two public agencies, Fanny Mae and Freddy Mac, both acting as super laundry machines for mortgages.

With these hefty fines being imposed to the banks, the State thereby exempts itself from any responsibility or any self-criticism. Worse, it is repeating the same errors. And, again, it will not be surprising to see the current bankers pocket large bonuses (banks are making their highest profits), while neglecting the risks that are there for them to see. They will let their successors and other governments try to solve this problem. Meanwhile, this toxic mix of Keynesian policies and short-term greed continues, along with all the havoc it causes to the economy.