By: Al Lewis
December 30, 2013
Opinion: No top executives in prison five years after the crisis
You will never hear a federal judge complain that federal prosecutors do not put drug lords behind bars.
You will never see a federal judge lament that federal prosecutors do not go after prostitutes, moonshiners, street thugs, gang-bangers or even peddlers of counterfeit merchandise.
If you turn to the current issue of The New York Review of Books, though, you can read an essay by United States District Court Judge Jed S. Rakoff titled “The Financial Crisis: Why have no high-level executives been prosecuted?”
The judge from Manhattan tallies the victims in his first paragraph: “Millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope.”
The Federal Bureau of Investigation was just too busy chasing terrorists following 9/11 to bother with suspicions of systemic white-collar crime, Rakoff wrote.
The Department of Justice was so overwhelmed that it passed the task of mortgage and securities fraud onto prosecutors in its regional offices who likely did not have the experience to handle such complex cases, and did not produce results, he said.
The Securities and Exchange Commission, which was the primary agency that should have been investigating massive securities fraud, was too busy answering questions about why it missed a single crime perpetrated by Bernie Madoff.
The agency then spent the next five years prosecuting far smaller Ponzi schemes than Madoff’s and suing people for insider trading — because those cases are far easier to prove than the big ones, Rackoff said.
This is pretty much how it works in the Justice Department, according to Rakoff:
“Of course, she would put her energy into the insider-trading case, and if she was lucky, it would go to trial, she would win, and, in some cases, she would then take a job with a large law firm. And in the process, the financial fraud case would get lost in the shuffle.”
I don’t believe Osama bin Laden could have planned a more perfect set of conditions in which to erode capitalism — if that was his goal.Once the U.S. was fixated on an abstract war on terrorism — against no particular nation, or perhaps the wrong nation — banks, corporations and Wall Street players could loot the Treasury before our blinded eyes. It was a crime so large it spawned a growing class of Americans who now wonder if maybe socialism might be less corrupt.
Rakoff is one of the few federal judges to take a stand for justice in the financial crisis. He’s tried to block high-profile settlements with regulators and banks that would like to settle fraud allegations without admitting nor denying guilt.
In November 2011, for instance, he delayed a $285 million settlement between the SEC and Citigroup, which didn’t want to admit guilt in the case. So was there a crime or wasn’t there? Somehow, only one inquiring judicial mind wanted to know . “Doesn’t the SEC have an interest in what the truth is?” Rakoff asked. An appeals court rebuffed his decision.
Rakoff allows in his essay that it is, of course, possible no one committed a crime in the financial crisis. But he also notes that this is not the prevailing view in government. The Financial Crisis Inquiry Commission, for instance, found that “the signs of fraud were everywhere to be seen.”
“The Department of Justice has never taken the position that all the top executives involved in the events leading up to the financial crisis were innocent,” he wrote. “Rather it has offered one or another excuse for not criminally prosecuting them — excuses that, on inspection, appear unconvincing.”
One of the biggest impediments to successful prosecutions may be that the government itself was responsible for the scams, Rakoff said. Repealing key regulations, such as the Glass-Steagall Act, and encouraging risky lending were just a few ways government fueled the fake boon that led to the great bust and the ensuing bailouts.
“Regulators made almost no effort to hold accountable the financial institutions they were bailing out, to wonder whether the government, having helped create the conditions that led to the seeming widespread fraud in the mortgage-backed securities market, was all too ready to forgive its alleged perpetrators.”
It’s essential reading for anyone who wonders what happened. At the top of the essay is an editorial cartoon from New York Times, from the last century, asking “Who stole the peoples’ money?” It portrays likely suspects all standing in a circle, each pointing to someone else.
When everyone does it, no one can be found guilty.
Gold Goliath is not your typical gold dealer.