John Walsh testified before the Senate Banking Committee that after a probe of 2,800 foreclosure cases, the agency determined that banks violated state and local foreclosure laws adversely affecting mortgage markets' function and the US economy as a whole.

Walsh did not identify what sanctions the US Treasury would seek to impose saying that regulators had yet to agree on the size of a possible settlement because they had not yet added up the actual violations and the appropriate value of each.

Sanctions are obviously the key to meaningful reform and the public will certainly welcome sanctions stiff enough to indicate that the US Treasury Department is not subject to regulatory capture by the banks it purports to regulate.

The government's credibility in imposing some sanctions has been damaged over the past three years with many suggesting that "regulatory capture" has rendered the government incapable of policing the financial industry.  The SEC's recent embarrassment when federal judge Jed Rakoff admonished the agency for attempting to settle a massive fraud case over executives at Bank of America concealing from shareholders that Merrill Lynch executives would be paid approximately $5.8 billion in bonuses.  The SEC's proposed settlement was for Bank of America to pay $33 million and admit no wrongdoing and for no executive to pay a penny and for none to admit wrongdoing.  Judge Rakoff noted that it would be unfair to impose such a small fine and then noted the fact that the very shareholders who were lied to would effectively pay the fine on behalf of the executives who lied to them.  This embarrassment is the subject of an article by Steven Pearlstein of the Washington Post on September 16, 2009, available here.

Matt Tabbi penned an article in Rolling Stone Magazine titled "Why Isn't Wall Street in Jail" on February 16, 2011 (available here).  Just three days later on February 19, 2011, federal prosecutors announced, as if to confirm Tabbi's conclusions, that Angelo Mozilo most certainly did not commit any act that was remotely criminal in nature.  Mr. Mozilo had settled an insider trading case with regulators in October 2011 for a fine of $67.5 million, of which Bank of America shareholders paid $45 million, apparently as a favor.

While we will all welcome some more serious enforcement of the laws against banks and bankers, the government has been long on rhetoric and short on actual punishment for four years and what seems likely is a small fine with no admission of wrongdoing and not one executive personally fined or punished in anyway.  We can only hope that regulators prove us wrong here.

As an example of where to start for meaningful sanctions, a $500 speeding ticket is 0.5% of the gross income of a person who makes $100,000 a year.  JPMorgan Chase earned total income of about $100 billion last year, so a sanction that would be about as serious as a speeding ticket to an ordinary person would be about $500 million.

We will soon learn if many banks activities submitting intentionally fraudulent declarations, notarized notes, deeds, mortgages, allonges and other falsified documents is treated as less serious or more serious than a speeding ticket to you and me.