1. Bank fines

As I mentioned in class last Thursday, there was a lot of unsavoury activity during the Great Recession. One example is in this article: Citibank pays $590 million fine

The skinny: accounting rules required "mark-to-market" pricing of securities. This means the bank has to adjust the value of securities it holds as assets continuously as the price of such securities changes. This is a legal issue so I will quote:

"The allegations date back before the 2008 financial crisis erupted. Plaintiffs allege that Citi, the nation’s third largest bank behind JPMorgan Chase and Bank of America, lied to its own shareholders regarding tens of  billions of dollars in toxic mortgage-backed securities on its books. The bank did not writedown the positions down even though executives there knew the assets were worth less than what the books reflected, shareholders claim."  (the quote is from Forbes)

Another quote from the same article in Forbes: "The settlement of $590 million, which has yet to be approved by a New York judge, is a hefty sum for Citi but it helps clear some of its ongoing litigation related to the financial crisis. The bank, which denied wrongdoing, saw shares pop up almost 2% and led financial stocks today."

This means that:

- nobody is guilty, as long as  they can pay the fine;

- according to markets, the fine was not too high (in fairness, the increase in the price of the stock could reflect the elimination of uncertainty".