Bank of America’s Record Settlement: The tsunami of wrongdoing and excess that caused barely a ripple of inconvenience at the top.

The indisputable economic (and moral) fact of our time is that America’s most wealthy, from whom capitalism’s CEOs, directors, guardians and gatekeepers  are drawn, not only allowed this torrent of financial chicanery and deception to occur, they profited handsomely from it.

These pages have voiced strong doubts over the years about the leadership and compensation practices that prevail at many of America’s corporations. Chief among the criticisms were that these plans provided incentives and rewards that caused companies to take improper risks which allowed CEOs to rack up huge gains in the short run while investors — and, ultimately, society — were left holding the costly bag of empty promises when reality came crashing down.

Take Bank of America, for example, which recently settled with the U.S. Justice Department by agreeing to pay a record $17 billion in penalties and restitution.  In the long history of American business, there has never been anything approaching this outsized penalty.  It stems from improprieties at Countrywide Financial, which B of A bought in another fit of misguided thinking, just before the onset of the Great Recession. There were also irregularities involving disclosures about its takeover of Merrill Lynch as well as with Bank of America’s own mortgage practices.

You might think that CEOs and boards are paid well for keeping companies out of trouble and avoiding these kinds of disasters.  Half of that observation is certainly true.  In the five years leading up to the crash of 2008 and the beginning of the worst recession since the Great Depression, B of A’s CEO Ken Lewis was paid more than $200 million.  Each of the bank’s directors awarded themselves a minimum of $1.5 million in the same period.  Many collected more.

When  he retired in 2009, Mr. Lewis walked away with a further $83 million in retirement benefits. Others connected with B of A, such as former Merrill Lynch CEO John Thain and Countrywide Financial’s former CEO Angelo Mozilo, also made off with huge fortunes as a result of deals made with the bank under Mr. Lewis.

And for all that, one of America’s most prominent financial institutions did not walk — it ran — into the giant propeller of U.S. government in a predictable and avoidable financial collision that resulted in this staggering record payout.

Bank of America was, as we documented over the course of several years, far from alone in practicing financial acrobatics that were more suited to a travelling carnival than an iconic institution of capitalism.  Yet in this mighty tsunami of boardroom wrongdoing and excess that nearly upended Main Street, barely a ripple of bother was felt among the first-class decks of Wall Street and America’s financial elites.  No CEO has been sent off to jail.  No director  or chief executive has been forced to return any pay.  As we noted in The Fallacy of Giants, in most cases when these kinds of eye-popping settlements are announced, the company’s stock shoots up.  Government fines, no matter how staggering, and accusations of abuse and betrayal by top management and boards, no matter how shameful, are regarded by many business insiders and much of the market as just another cost of doing business.

The indisputable economic (and moral) fact of our time is that America’s most wealthy, from whom capitalism’s CEOs, directors, guardians and gatekeepers  are drawn, not only allowed this torrent of financial chicanery and deception to occur, they profited handsomely from it.  The result is that those same elites in the period between 2007 and now managed to gain an even larger choke hold on the wealth and income of America than at any time since the 1920s.  This, despite the fact that were it not for the bailout provided by America’s taxpayers who largely live on Main Street, not only would this expansion of wealth not have occurred, but capitalism itself  might not have survived.  On that point, is it not interesting that the same voices that are generally quick to rail against government excess and demand fiscal discipline when it comes to the public purse are uncharacteristically silent when it comes to the $5 trillion the U.S. Fed paid to finance the bailout? Does that have any connection with reality, or is it just another case, like CEO compensation, for instance, where there is one set of ever accommodating rules for those at the top and another for everyone else?

What happened with Bank of America, and other prominent institutions like it, and the ease with which moral and legal improprieties can be sloughed off with little consequence for those in charge, is at the heart of the current record level of public disaffection with  capitalism and those who lead it. Having spent nearly half a century working with and around capitalism and its leaders, it is hard for me to imagine that one day it may cease to exist.  But the too often overlooked reality is that the fundamental currency that sustains modern capitalism is not capital at all — it is the consent of the public.

If present trends in income equality and  corporate immorality continue, and its leaders fail to ensure that capitalism is governed by a set of values that is consistent with the needs and dreams of Main Street, it is hard to imagine how it will survive.