Yesterday, the Court of Appeals for the 2nd Circuit threw out major penalties levied against Bank of America in connection with the financial crisis. The Wall Street Journal and Bloomberg have more.

Statement from Peter Wallison, the Arthur Burns Fellow in Financial Policy Studies at the American Enterprise Institute:

The appeals court decision in the so-called Hustle case, overturning a District Court’s decision against Bank of America, is important for the appellate court’s close reading of the law of fraud, but it won’t have much effect on the many cases in which large banks settled with the government for huge sums, estimated by the New York Times at $45 billion. 

The Hustle case was about the sale of whole mortgages to the GSEs Fannie Mae and  Freddie Mac; the large bank settlements were in cases involving the sale of mortgage-backed securities (MBS) and thus involved the much stricter liability laws that cover the sale of securities. Most press reports have missed this refinement. 

Still, there are reasons to believe that the banks settled with the government too soon and for much too much. There are a few cases involving foreign banks and the same securities issues that are on appeal, possibly because these foreign banks have less to fear than US banks from the adverse publicity of litigating with the US government. 

The appeal documents in some of these cases reflect what may have been sustained bias against the banks by the US District Judge who tried all the cases. In at least one of the cases on appeal, the appellants have asked that if the decision is overturned the appellate court should send the case back to a different judge. 

If in fact the cases are reversed on appeal, they will point to a familiar fact, that judges, like the rest of us, watch the news and are influenced by the sensational and often biased reporting that occurs there. The financial crisis was a much more complicated story than most Americans—including judges—have been led to believe.

For more from Wallison on the financial crisis, check out his book, Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis—and Why It Could Happen Again