Where Are the Financial Crisis Prosecutions?

The world was almost brought low by the American banking system and we are supposed to think that no one did anything wrong?

Palm Coast, FL – December 8, 2010 – You may have noticed that prosecutors in this country are in something of a white-collar slump lately.
The stock options backdating prosecutions have largely been a bust, not because it wasn’t a true scandal. The Securities and Exchange Commission and the Justice Department investigated more than 100 companies. Over a hundred took accounting restatements. Yet only a handful of executives went to prison, with some high-profile cases fizzling out.
Prosecutors also stumbled in other high priority corporate fraud prosecutions, like the KPMG tax shelter and the stock-exchange specialists cases.

The most spectacular prosecutorial flameout was the case against the Bear Stearns hedge fund managers. The consequences of that disaster are still reverberating. The United States attorney’s office in Brooklyn rushed to haul low-level executives in front of a jury based on a few seemingly incriminating emails. The defense was easily able to convince jurors that these represented only out-of-context glimpses of fear as markets swooned, not a conspiracy to mislead.
Now we have a supposedly new push: the insider trading scandal.
The United States attorney in Manhattan, Preet Bharara, and the United States Attorney, General Eric H. Holder Jr., are hyping their efforts. “Illegal insider trading is rampant and may even be on the rise,” Mr. Bharara dubiously pronounced in a speech in October. The Feds are raiding hedge funds and publicly celebrating their criminal investigations related to insider trading.
The storyline is that Wall Street now lives in fear. Hedge fund managers’ phones might be tapped, any stray remark is suspect, and old trades are being exhumed so that the entrails can be examined.
In fact, plenty of folks on Wall Street are happy about the investigation. A scant few — the ones with clean consciences — like the idea that the world of special access to favorable tips is being cleaned up.
But others are pleased for a different reason: They realize the investigation is a sideshow.
All the hype carries an air of defensiveness. Everyone is wondering: Where are the investigations related to the financial crisis?
John Hueston, a former lead Enron prosecutor, wonders: “Have they committed the resources in the right place? Do these scandals warrant apparent national priority status?"
Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted. All former American International Group executives are running free. No big mortgage company executive has had to face the law.
How about someone other than the Fabulous Fab at Goldman Sachs? How could the Securities and Exchange Commission merely settle with Countrywide’s Angelo Mozilo — and for a fraction of what he made as C.E.O.?
The world was almost brought low by the American banking system and we are supposed to think that no one did anything wrong?
The most common explanation from lawyers for this bizarre state of affairs is that it’s hard work. It’s complicated to make criminal cases in corporate fraud. Getting a case that shows the wrong-doer acted with intent — and proving it to a jury — is difficult.
But, of course, Enron was complicated too, and prosecutors got the big boys. Ken Lay was found guilty (he died before he served his time). Jeff Skilling is in prison now, though the end result was bittersweet for prosecutors when much of his conviction was overturned by the Supreme Court. WorldCom’s Bernie Ebbers and Tyco’s Dennis Kozlowski are wearing stripes.
Sure, it takes time to investigate complicated cases. Many people think that the S.E.C,., at the least, will bring some charges against top executives at Lehman Brothers. The huge, ground-breaking special examiner’s report [9] on Lehman Brothers laid bare problems with Lehman’s accounting. But that report came out back in March — on a bank that blew up more than two years ago. That seems awfully slow.
The most popular reason offered for the dearth of financial crisis prosecutions is the 100-year flood excuse: The banking system was hit by a systemic and unforeseeable disaster, which means that, as unpleasant as it may be to laymen, it’s unlikely that anyone committed any crimes.
Or, barring that wildly implausible explanation (since, indeed, many people saw the crash coming and warned about it), the argument is that acting stupidly and recklessly is no crime.
As I ride the subway every morning, I often fantasize about criminalizing stupidity and fecklessness. But alas, it’s not to be.
Nevertheless, it’s hardly reassuring that bankers, out of necessity, have universally adopted the dumb-rather-than-venal justification. That doesn’t mean, however, that the rest of us need to buy it. It’s shocking how pervasive and triumphant this narrative of the financial crisis has been.
Just as it’s clear that not all bankers were guilty of crimes in the lead-up to the crisis, it strains credulity to contend no one was. Corporate crime is usually the act of desperate people who have initially made relatively innocent mistakes and then seek to cover them up. Some banks went down innocently. Surely some housed bad actors who broke laws.
As a society, we have the bankers we deserve. Sadly, it’s looking like we have the regulators and prosecutors we deserve, too.
Source: ProPublica
Toby’s Commentary: This commentary mentions but does not give enough weight to how closely the financial scandal was tied to the mortgage and housing crisis. Where are the mortgage fraud prosecutions? I know of one case that was turned over to authorities three years ago. I’m told the investigation is still active but no additional details are provided, even though it was I who filed the complaint. I understand that they cannot comment on an ongoing investigation, but really – three years!!!

2 replies
  1. Alex
    Alex says:

    You don’t really want to know……..

    Members of Congress expect to receive campaign contributions from the financial, energy and other industries.

    You can’t investigate the institutions you depend on for re-election.

    That is why "reform" is a meaningless word.

  2. silvia pugs
    silvia pugs says:

    Big fish get away….

    The real culprit of our financial tragedy yet is not told as it really was. In 2004 Fed Chairman Greenspan kept interest rates artificially at 1% all time lows alleging the bogus reason to prevent inflation, when actually inflation was triggered by gas at the pump at $4/gal. Meanwhile he was advising all lending institutions (Banks, Countrywide alike etc) and applicants (credit troubled individuals and businesses) to load on variable rates loans as means of achieving their American Dream. In 2005 to 2006 almost at the same time Wall Street Hedge Fund founders and VIP’s like John Paulson, Paulson Hedge Fund and other elites with insider access to Goldman Sachs and other priviledged close to the Fed Chief were betting billions that all lending institutions stock, will hit bottom soon if a mortgage bubble would burst!! When all these scenario was in place…Mr. Greenspan raised interest rates about 19 times in about 12 months all the way up to over 5.5 percent from the original 1 percent…Sure he knew what he was doing as Fed Chairman and who’s bet was he favoring on the backs of all those that took the variable rates loans…That was the last orchestrated action Greenspan took before finishing his term. He made John Paulson and other elite billionaires, as were betting down lenders and mortgages. It took since 2006 after Greenspan outrageous interest rate, until 2008 for the snow ball effect that we are still enduring today!

    Now I happen to learn recently that Greenspan has been hired in 2008 and works for John Paulson Hedge Fund among others. The very guy he made a billionaire with his interest rates increases in 2005-06 just before his term in the Fed was over with. What about being prosecuted for insiders information all people from the Goldman Sachs school. Goldman Sachs has been investigated over their double betting with John Paulson…but nothing came out of it…simple because the big fish gets away with it meanwhile the American middle society and lower classes pay for it and go homeless, jobless, hungry, sick and businesses bankrupted. As usual the millions of small fish took the bait!

    Greenspan started his term and immediately the Black Friday of 1987 was orchestrated and ended his term with the greatest financial tragedy endured by our middle society since the Great Depression.

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