Big Banks – Too Big To Jail?

“To the dismay of many of Obama’s supporters, nearly four years after the disaster, there has not been a single criminal charge filed by the federal government against any top executive of the elite financial institutions.” Daily Beast, May 6, 2012.

The Story. A few days ago, an interesting post appeared on the news and opinion website, Daily Beast.  It was taken from a Newsweek article, a magazine that is trying valiantly to remain both relevant and solvent in the digital age.  With Tina Brown at the helm of both, many of Newsweek’s cover stories have become decidedly controversial and unrepentantly left-leaning.  And with the assistance of the Beast, this news aged magazine – one year short of becoming an octogenarian –  gets more attention than it would if it just ended up at your local dentist’s waiting room.  But, I digress….

So, I was mildly surprised to see the following article posted on Daily Beast’s website on May 6, 2012: “Why Can’t Obama Bring Wall Street to Justice?”.  I thought perhaps the story was actually about our President’s all-too-common habit of saying one thing, but doing – well, nothing.  However, the post did go a long way in revealing the sub rosa story as to why, despite the President’s famous rhetoric, we are not likely going to see any criminal charges brought against those people most responsible for the financial meltdown that began nearly five years ago, and still haunts us today.

The Fix. Herewith is the “CliffQ-Notes” summary of this interesting story:

  • Financial-fraud prosecutions by the Department of Justice are at 20-year lows.
  • Back during the S&L crisis, circa 1980-1990, William Black [now an associate professor of economics and law at the University of Missouri, Kansas City] was a government regulator in the 1980s.  He helped clean up the S&L mess, and according to the story, “…the feds dealt with the S&L crisis with harsh justice, bringing more than a thousand prosecutions, and securing a 90 percent conviction rate.”
  • When Mr. Obama was elected, well enough into the financial crisis to know of the Big Bank shenanigans, he could have appointed any number of hard-nosed prosecutors to administer some “rough justice” to those responsible.  He didn’t.  Instead, he chose Eric Holder. In 2008, Mr. Holder was an Obama “bundler,” that is, he acted as a fundraiser, collecting large donations to the presidential campaign.
  • Mr. Holder had worked in the Justice Department under former President Clinton, and then joined the Washington DC office of Covington & Burling, “…a top-tier law firm with an elite white-collar defense unit.”  During 2008 Mr. Holder made $2.1 million as a Covington partner, and then following his appointment to head up the Justice Department, he received a going away gift [including “deferred compensation” – whatever that means], of $2.5 million from the firm.  Wow! $4.6 million! Not a bad gig for a one year stint at Covington & Burling.
    • According to the Beast: “Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Deutsche Bank are among the institutions that pay for Covington’s legal advice, some of it relating to matters before the Department of Justice.”
    • Another Covington partner, Lanny Breuer, who had co-chaired the white-collar criminal defense group, was then chosen to lead the criminal division at Obama’s Justice Department. In addition, two other Covington lawyers also went to Justice.
    • Eric Holder’s principal deputy, James Cole, came from a large international law firm, Bryan Cave LLP, that, according to the Beast, has ‘A-list finance clients.’

Riddle Me This Batman. How does a Justice Department attorney, on loan from his powerhouse law firm that advises Big Banks, now put on a prosecutor’s hat and investigate those same banks?  If that attorney has the IQ of a gnat, he isn’t going to go after his former [and likely future] Big Bank clients to put them in jail.  [If Eliot Spitzer hadn’t become “Client-9” he’d have been my first choice as special prosecutor. Testosterone, mixed with equal parts ego and power, can be hazardous to one’s political health. – PCQ]

  • According to the Beast: “Justice’s inaction regarding the big Wall Street firms is not for a lack of suspicious activity. Three different government entities exhaustively examined the practices that contributed to the financial collapse, and each has referred its findings to the Department for possible criminal investigation.”
  • There was Abacus 2007-AC1, where Goldman Sachs created and marketed an investment that it bet against, without informing their clients who invested in it.  The clients lost over $1 billion.
  • In April 2011, the Senate Permanent Subcommittee on Investigations, chaired by Democrat Carl Levin, identified several transactions, including the now infamous Abacus scam, they believed should be investigated by the Justice Department. Goldman and its CEO, Lloyd Blankfein, lawyered up. Result: No criminal indictments. In July 2010, the SEC reached a settlement with Goldman Sachs. It agreed to pay $550 million, but admitted no wrongdoing. Although “(t)he agency touted the amount of the fine as the biggest ever–but to Goldman it was a relative pittance. The fine amounted to about 4 percent of the sum that Goldman paid its executives in bonuses ($12.1 billion) in 2007, the year of the Abacus transaction.”
  • During this time, President Obama continued to ask Wall Street for campaign donations. “(S)everal Goldman executives and their families made large donations to Obama’s Victory Fund and related entities, some of them maxing out at the highest individual donation allowed, $35,800, even though 2011 was an electoral off-year. Some of these executives were giving to Obama for the first time.”

All Talk, No Action.  According to the Beast, in November 2009, “…Attorney General Holder, with Treasury Secretary Timothy Geithner at his side, announced the creation of another special unit–the Financial Fraud Enforcement Task Force–that was similarly charged with investigating securities and mortgage fraud that contributed to the financial meltdown. Since its creation, that task force, which critics say was drastically under-resourced, has produced not a single conviction (or even indictment) of a major Wall Street player related to the financial disaster.[Underscore mine.  PCQ]

  • Then during his 2012 State of the Union speech, Mr. Obama announced that he was going to “…create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis…’” He “…vowed again to ‘hold accountable those who broke the law.’”
  • Who did Mr. Obama appoint to co-chair this “work group”?  New York Attorney General Eric Schneiderman. According to the Beast, Mr. Schneiderman “…is in the tough-guy mold of his predecessors, Eliot Spitzer and Andrew Cuomo…” But significantly, Mr. Schneiderman was one of the A.G.s in the then-proposed national settlement with five Big Banks, who had been holding out for tougher sanctions. Quoting from one observer the Beast reported that “Schneiderman had been co-opted by the Chicago Way.”
  • And today, what’s happened? “(I)t is not clear what, if any, progress the ‘working group’ has made. The unit was only promised 55 investigators, attorneys, and support staff–a tiny fraction of the resources afforded to similar groups investigating the S&L and Enron/WorldCom scandals–and it is not clear that even that commitment has materialized. ‘I think what happened is what usually happens: the administration rope-a-doped,” says [Mike Gecan, of the Industrial Areas Foundation] ‘There’s no office, there’s no director, there’s no staff, there’s no space, there’s no phone.’”

Conclusion. Well, isn’t this refreshing news? After five years of platitudinous threats, we learn the new sheriff is shooting blanks.  While millions of ordinary folks suffer for Wall Street’s excess, we have an incestuous administration that is in bed with the Big Banks and their lawyers. I suspect they all share the same toothbrush in the morning. Ugh!  So much for Hope and Change….