between the fifa and brazilian officials. lucia newman, al jazeera rio de janeiro. >> inside story >> shattered lives and an economic crisis. that's what the attorney general said that citigroup contributed to. it's the "inside story." >> hello, i'm libby casey. citigroup's agreement to pay

$7,000 to settle a federal administratio investigation--to pay $7 billion settlement including a record-breaking $4 billion penalty for its role in the 2008 financial crisis. in a press conference at the department of justice attorney general erik holder called the terms appropriate. >> the bank's misconduct was egregious, and the bank has admitted to misdeeds in detail. the bank's ms. deeds contributed to shattered lives around the country and around the world. >> reporter: it comes from tense negotiations between the government and the bank an and it's investigation of toxic

mortgage securities. >> they sold defective loans including federally insured financial institutions. made false statements to investors, marketing materials and even in documents filed with the securities and exchange commission. the investigators and the public were led to believe that these financial products were in compliance with the law, which is often not the case. >> reporter: $4 billion in fines goes to the justice department. $2.5billion will fund consumer aid programs including principle reductions and other relief options for homeowners and communities, and $500,000 goes to five states and the federal don't corporatio insurance corporation. but it does not protect the bank or employees from further criminal charges.

in a statement: >> back in november there was a settlement with jp morgan bank, and now bank of america, the country's second largest bank. holder touch odd than investigation in his press conference. >> the investigation will remain open, we'll continue to move forward guided by the facts and guided by the law to achieve justice for those affected by the financial crisis. these investigations are not only about holding those who violate the public trust to account, but they're also intended to deter banks from participating in this kind of con be duct in the future. >> reporter: the settlement with citigroup represents half of the bank's $13 billion in profits

last year. >> citigroup reportedly wanted to settle the case for $363 million based on what says its share of the mortgage security market was at the time. but the government held out for billions. joining us now to discuss the citigroup settlement and what it means for consumer and wall street reform in stanford, california, professor of economics at stanford. author of "what's wrong with banking and what to do about it." here in studio, mark calebria. and in new york, matt zitlan, business reporter for buzz feed. matt, kick the conversation off for us. how significant is this settlement? >> i think the most significant part is the civil penalty that citigroup has to pay $4 billion of the total $7 billion that's going to the justice department. and that's the largest civil

penalty from a bank. for example, jp morgan paid $2 billion even though they had a much larger security business before the financial crisis. >> so $2.5 billion for aid to struggling consumers, what will it do? >> well, i'm not sure how they're going to administer this, but the question is why they need to go through this length to help consumers to settle debt that presumably some of these consumers quite quite handle. it would an corporate relief to people who are.

>> i don't know how to judge these amounts of money. they're very large amounts of money and small amounts 6 money when considering the size. >> it's not really very much money, i don't think it will go to the heart of the problem. that's the real issue. what exact way does it deter of those who were described by mr. holder. >> mark, does it get to the heart of the problem? does the settlement of this nature deal with it? >> i don't think it really does. you start with the basic principle, the wrongdoer should pay, and the people who were

wronged should receive. people who were paid were the shareholders. as far as i can tell not one single executive, and then the money transferred. this is about investors. that's who the fdic represents. but most of the money is going to consumers. some of it is going to real estate construction. my suspicion most of the money going to consumers who are with citibank already, and it will be recognition of loans that they're not going to recover any how. they're going to do a reduction on a loan that we're not going to get back any how. to me it sounds bigger than it is. the civil money penalty is the big item. of course part of that is actually tax deductible. how much of that will they pay out in cash is an open question. probably closer to $2 billion in cash, but again it bothers me that most of this--there is more

money going to the government than to investors or consumers, which are supposed to be the parties harmed here. >> put it in context for us. how significant of a chunk of change is this for citigroup itself? >> i think it actually is pretty significant. this morning citigroup reported earnings for the second quarter, and they fell off some--their profits fell 96% from second quarter last year. they only earned $131 million. that's money that could be going to shareholders, money that could be going to fund operations in the bank and they are putting forward a sizable chunk of cash. >> how much money they would pay to the government as part of this settlement, they were talking about hundreds of millions of dollars. hey, this wasn't all of our fault. how do they get to that $7 billion, matt? >> it's always a little mistous because these settlements like with the jp morgan one last

year, they're negotiated between the banks' lawyers and the justice department, they reach some mutually agreeable figure. one thing that is strange is that security groups share before the financial crisis in the settlement covered is smaller than jp morgans, but they're paying larger civil penalty. one reason people think that is because of the behavior described does seem egregious. you have employees who are made aware by a third party firm about the deficiencies in these pools of mortgages that they're selling to investors, and then they describe those mortgages more optimistically to the investors than they know what is happening. when you have that type of damning evidence it's easy for the justice department to bring up the tab on one of these settlements because everyone wants to avoid a long long,

drawn-out trial. >> how significant is that to you? we're not talking about the heydays of investing, we're talking about wrongdoing, about banking on things that really weren't true assets. >> oh, it's a slap on the wrist. i agree with mark there, who actually did this? who are these employees? and how are they impacted? and what does it mean for the future? it seems pretty far off to say well, it's the cost of doing business. we're going to make money in all kinds of ways, and you know, times things don't work out, and then we have to pay a penalty. it really doesn't, again, get to the heart of the problem. what were their incentives, why did they do that? you can sort of imagine why it works for them. it worked for the firm at the

time and that's what they could see. now the shareholders, and the shareholders have to deal with it, and those who did it really didn't pay any much consequences. >> maybe if i can reconcile a little bit what they're saying. you can have a large number. i do think it's percent of earnings, and of course they're using numbers that let you leverage, this is based on how many harm the banks dealt. so the $500 million is based on how much money did banks that were insured by the federal department insurance commission lose. so the investor who is being taken advantage of are other banks, really. that's how they contemplated the damaged. and then of course there is possibility there. the point i want to make will can a large number but it can't

be a deterrent if it is not changing the behavior of the individuals. it's a large headline number. again, if you were the executive of a bank, and they told you that option a was to give us very large check of the shareholders money or option b, go to jail. i think they're going to take option a. >> when we come back we'll look at what is next. the possibility of bank of america being next to go. we'll be right back.

>> welcome back to inside story. i'm libby casey. on this edition of the program we're talking about the $7 billion settlement between citigroup and the department of justice. $4billion is the cash penalty. $2.5billion goes to consumer relief program. the government is also in negotiation with bank of america. let's talk about how today's deal may impact those talks.

we'll start with you, bank of america, one of the largest banks in the country, second biggest, what are we looking at in terms of what it may be facing? >> well, it's hard to say, but one thing we can be sure of is that it will be substantially larger than what citibank paid and probably larger than what jp morgan paid last year. there is feeling from the justice department that the settlement with jp morgan was too math, and bank of america had a massive program when you consider country wide that they acquired, and they were one of the most egregious. >> what will you be watching to come out of this?

>> i think its important for citibank to set the precedence. we're going to have a third of this go to consumer protection, consumer payments, and then the larger part of it will be dade to doj with some pay out to state attorney generals. i'll be curious to watch what the numbers--i think they've argued their crisis through countrywide and that argument carries some wait, but i don't think it's going to be as high as matt has mentioned. i think it's too early to tell, but certainly cit, and b of a, you have to keep in mind all the bailouts, all the assistance i in 2008 and 2009 were fundamentally about citi and b of a. this is really about these two banks. i think these are the two most significant in terms of moving forward. >> out of money what will the government be trying to get out of the settlement in bank of america as we look forward to the next steps. >> i don't have any special

information about that. i agree with mark again that citi and bank of america are truly the two most disturbing institutions around, the fact that they continue to around at all where they probably were insolvent multiple times is itself a problem. i want to bring up a different possibilities and that in the credit suisse settlement, it was a different issue. it appears that the government wanted to get in, the attorney general of new york, wanted to get into what the governance is in their organization, and i wonder if it makes sense to make sure for the future, since these corporations themselves were involved in these things, how it's not going to happen again? how are they going to put in

place controlled systems that would make sure it won't happen. if they can't figure out their own governance, maybe the regulators need to help them with that. >> matt, do we see that component coming in the settlements. >> if there is a monitor, it's usually the form of a prosecutor to oversee the settlement and the distribution properly. what we're talkin we are not talking about are the nutsal bottoms, annuts and bottles, bolts, and i don't see them doing that. >> i think the bank has a lot of stake holders, and it seems not clear that governance is working in the corporations. governance can be a knob other corporations, but it can an severe problem for banks who get to play with a lot of people's

monies and have no voice of governance, and in the end they're all involved in one way or another. i think there is something broken in this system, the fact that we keep see wrongdoing. thithis proportionally coming from the financial industry. >> what about governance. >> i think that's a very important point. we've seen this repeated behavior. it's easy to paint a broad brush across all the banks, but how many times have we bailed out citi banks? certain banks have done a good job and certain banks have done a poor job. now, you aren't seeing these sort of changes. we saw this where the where was 30-some executives would leave

the bank, and that was agreed to. we weren't seeing any changes. we're seeing with both citibank and bank of america there have been changes in leadership since the crisis. >> let's dig in to what the picture would be when we talk about criminal charge. the government is not closing the door in bringing criminal charges against citibank and even jp morgan chase. is it too late for that shoe to drop at this point? >> i think if you were going to see substantial criminal charges against executives of large banks involved in the financial crisis we would have seen them. or at least an indication that a criminal charge was coming. we're running out on the statute of limitation, and a lot of has happened in 2006 and 2007, and there is just not a clear road map for them to bring a charge.

there is no reason to rule it out and there is no reason to give it away in a settlement if they don't have to. but i don't think we'll see it soon. >> how difficult would it be to see the penalty that is we're seeing? >> it really depend on how you look at it. if you bring up a civil charge you'rif you're incentivizeing this behavior. maybe the way to address it is at the corporate level as a whole. it's not obvious that bringing a criminal charge would make things actually better.

in the snl surprises we put plenty of bank necessary jail, and that did not solve the problem 15, 20 years later when we saw the same behavior. >> when we come back we'll talk did deterrents. how do you do you deter bad business practice in banking? when you run a business, you can't settle for slow.

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>> welcome back to "inside story." i'm libby casey. it's five and a half years since the financial crisis that started the great recession and the government is still investigating the banks. jp morgan and citigroup have stole settled for a total of $20 billion, the housing and economy is slowly coming back, but what has changed since those days before the crash. still with us, professor of finance and economic at stanford. mark, director of financial regulation studies at the kato institute. and from new york, business reporter for buzz feed. professor, let's start with you. have things significantly changed since before the great recession? in terms of banking practices and what is happening? >> it is disturbing how little has changed really. we're talking about lots of

things, but when you look at the bottom line of everything it's really disturbing how much the same everything is. >> mark, do you agree? >> i largely agree. by and large--i would even go as far as saying in some areas things are worse. >> yes. >> things are worse than before the crisis? >> why? >> certainly if you look at markets and what didn't seem like in 2007 saying that these big banks were given that much of an advantage. during the crisis that expanded. it's contracted a little bit, and all indicators are that it's driven by a perception of being bailed out. and i think quite frankly dodd frank i don't think anybody would let it happen today. >> not just in the economy but in the banks themselves, are people cynical at this point? >> i think people are cynical, and i think mark is completely

right. in a lot of ways you can point to specific ways in which this situation is worse. and and a big huge problem and remains so, and it makes these banks particularly reckless. i think there were practices that were often not appropriate, their lending decisions are all distorted. >> how so? >> well, they behavior, they're lending too much and too little at the same time. they were part of different kinds of lendings. they responded to their own indebtedness a behaving in ways that shows significant overhang of debt, and the fact that they can benefit from the upside and

leaving the down side to others and pass their costs to others. the nor they grow, the more that's the case. i think people are not trusting the banks, and i think they're right not to trust the banks. >> as they talk about the justice department's settlement, and they hope that this would deter banks from bad behavior in the future. what is the aim? >> i think the deterrent question is interesting. citigroup made a settlement in how it's contributed loans to investors and backed securities. there is much less lending to at-risk borrowers that really drove the housing boom. when those loans soured, and then drove the financial

crisis. the market reality as well as new regulation the justice department did not have a role did change how the mortgage industry worked. as for deter represents in the future every large bank has more time and money on compliance, more single people would say they're trying to meet the letter of the law and their behavior hasn't really changed. maybe when i talk to bankers, they're talking about what they are not able to do, it sounds like this has really abated since the financial crisis. >> what does this mean for someone trying to buy a house? >> i think for the meantime time the difference is we'll see again the housing crisis will go up. we're not quite there yet. for the next few years it will

be difficult for marginal borrowers to get credit. after that, we have not cured the business cycle or lipping cycle. it's still with us and if anything we made it worse. >> we'll leave it there and that brings us to the end of "inside story." our program has come to an end but the conversation continues. send us your thoughts on facebook page or twitter. and you can reach me directly @libby casey. we'll see you for the next "inside story." in washington, i'm libby casey. >> coming up on al jazeera america. the death toll continues to go up in gaza, and hospitals can't

help everyone. now egypt is getting involved with the cease-fire plan. we'll take a look at the possible early movement towards the diplomatic solution to the crisis. also a town in canada is closing down. what the government is doing to convince residents to leave. and we'll look at how the government plans to look at garbage in outer space. we have that and more coming up at 6:00.