7 Things About Prosecuting Wall Street You Wanted to Know (But Were Too Depressed to Ask)
The headquarters of JPMorgan Chase in Manhattan on October 2, 2012. US banking giant JPMorgan Chase said Thursday that it is facing parallel civil and criminal investigations over its sale of mortgage-backed securities before the financial crisis.
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President Obama's Justice Department, under the direction of Attorney General Eric Holder, hasn't indicted a single bank executive for the massive Wall Street crime wave that devastated the economy. The regulatory reform which followed the 2008 crisis wasn't nearly enough, and yet Republicans are trying to weaken even that.
And just this week there were several news stories about bank crime. What do they mean? Why haven't any bankers gone to jail? What's going on in this country?
Here are seven things about Wall Street crime and Washington "justice" you might have wanted to know, but were probably too depressed to ask. It's true that there's a shortage of justice where bankers are concerned. But don't get depressed. Get serious - about demanding change.
1. Why did Holder say mega-banks are "too big to jail"?
Attorney General Holder recently said the Justice Department can't indict too-big-to-fail banks because it would endanger the nation's, and possible the world's, economy. Those comments were misleading at best, because Holder doesn't offer any plausible reason not to indict individual bank executives at those institutions.
Criminal indictments against bankers are necessary -- both for the cause of justice, and the safety of our economy. And yet no bank executives have faced criminal prosecution.
Why did Holder make these comments? It's called misdirection. It gets everybody thinking about one question -- Why aren't they indicting banks? -- so they won't think about a more important question: Why aren't they indicting bankers?
2. If hurting 'too big to fail' banks is such a concern, why did the Justice Department and the SEC just sue Bank of America? By some measures it's the biggest mega-bank of them all.
The latest lawsuit against Bank of America describes massive, systematic, and very deliberate fraud against investors who backed residential mortgage-backed securities (RMBS). Those investors included many pension funds, like the one that serves Detroit's retirees. There's evidence BofA bankers knowingly sold securities in which up to 40 percent of the mortgages failed to meet underwriting standards. That's against the law.
Shareholders bear the costs and the consequences of these suits, which are directed against the banks as institutions -- even when the suit in question involves fraud against the shareholders themselves. That means the executives who profit from criminal behavior have absolutely no reason not to commit those crimes again and again and again -- which, as the record shows, is exactly what they have been doing.
Suits like these do not endanger the institution being sued. The amounts of money involved -- $850 million, in this case -- sound large. But they're negligible when compared to the revenue at America's bloated mega-banks.
The Justice Department's indictment says things like this: "The Offering Documents contained untrue statements of material fact and omitted to state other material facts required to be disclosed that misled investors." Note the use of the passive voice: The indictment doesn't say "Defendants A through E published untrue statements..."
For the first statement to be true, the second statement must also be true. But to hear the Justice Department tell it, it's as if these frauds committed themselves. Its pattern has been: Sue the bank, but only for amounts it can easily pay. And never hold the individuals who committed the fraud personally responsible.
3. Why sue Bank of America at all, if they're in the banks' pockets?
Here we're getting into the realm of speculation. But Washington officials have multiple constituencies, presumably including wronged investors who want restitution of some kind.
They presumably want to make sure the banks' exposure is kept manageable -- from the bank's perspective -- but don't want to anger the investors any more than necessary.