Royal Bank of Scotland, RBS, just announced it would pay U.S. Federal Regulators $5.5 billion in fines associated with the mortgage-backed securities fraud that went on during the run-up  to the 2008 financial crisis.

Wow. 10 years later.  Now, that’s prompt protection for consumers and effective regulatory action.

Here are the details from Zerohedge:

“This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions” said RBS CEO Ross McEwan, adding that it was an “important step forward in resolving one of the most significant legacy matters facing RBS”. There was some good news: RBS is eligible for a $754 million reimbursement under indemnification agreements with third parties.

According to the WSJ, RBS said in a statement that it had already set aside funds to cover most of the cost of the settlement. The 71% U.K. government owned bank will have to take an additional charge of $196 million which will be realized in its coming results in August.

Translation:  Blah blah blah. We’re sorry.  It won’t happen again until the next time.  

Here’s the real scoop. With $2.2 trillion sitting in accounts with the Fed, now drawing 1%, the major banks have been building a slush fund with money the Fed gave them in the first place.

This was always the plan.  Take the crap off their hands, hand them a bunch of cash and allow them to stash it gaining a quarter-point to re-capitalize them while we struggle with zero-bound growth AND zero-bound interest rates.  Then hey, let’s embark on QE to keep the U.S. Treasury afloat and bail out Fannie and Freddie.

While we’re at it, let’s now raise interest rates into a recession because politically-important like Illinois have pension systems that are terminally under-capitalized.

I could go on, but what’s the point.

The worst part about this is RBS isn’t paying that $5.5 billion fine with the money from the Fed. RBS is paying that fine with INTEREST ON THE MONEY THE FED GAVE THEM.

That’s the takeaway here.

They’re paying back with rent handed to them by the Fed in the first freaking place.  And you wonder why the Left is turning violent in response to this disastrous perversion of capitalism?  Or why the libertarian right is in ascendance politically?

The timing on this is designed to placate the AstroTurf protesters who tried to burn Hamburg to the ground this weekend.