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Another Slap On the Wrists

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In case you might be wondering whether the miscreants responsible for causing the financial crisis might ever be prosecuted by Attorney General Eric Hold-harmless – don’t hold your breath.  At the close of 2010, I expressed my disappointment and skepticism that the culprits responsible for having caused the financial crisis would ever be brought to justice.  I found it hard to understand why neither the Securities and Exchange Commission nor the Justice Department would be willing to investigate malefaction, which I described in the following terms:

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products – who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

During that same week, former New York Mayor Ed Koch wrote an article which began with the grim observation that no criminal charges have been brought against any of the malefactors responsible for causing the financial crisis:

Looking back on 2010 and the Great Recession, I continue to be enraged by the lack of accountability for those who wrecked our economy and brought the U.S. to its knees.  The shocking truth is that those who did the damage are still in charge.  Many who ran Wall Street before and during the debacle are either still there making millions, if not billions, of dollars, or are in charge of our country’s economic policies which led to the debacle.

“Accountability” is a relative term.  If you believe that the imposition of fines – resulting from civil actions by the Justice Department – could provide accountability for the crimes which led to the financial crisis, then you might have reason to feel enthusiastic.  On the other hand if you agree with Matt Taibbi’s contention that some of those characters deserve to be in prison – then get ready for another disappointment.

Last week, Reuters described plans by the Justice Department to make use of President Obama’s Financial Fraud Task Force (which I discussed last January) by relying on a statute (FIRREA- the Financial Institutions Reform, Recovery, and Enforcement Act) which was passed in the wake of the 1980s Savings & Loan crisis:

FIRREA allows the government to bring civil charges if prosecutors believe defendants violated certain criminal laws but have only enough information to meet a threshold that proves a claim based on the “preponderance of the evidence.”

Adam Lurie, a lawyer at Cadwalader, Wickersham & Taft who worked in the Justice Department’s criminal division until last month, said that although criminal cases based on problematic e-mails without a cooperating witness could be difficult to prove, the same evidence could meet a “preponderance” standard.

On the other hand, William K. Black, who was responsible for many of the reforms which followed the Savings & Loan Crisis, has frequently emphasized that – unlike the 2008 financial crisis – the S&L Crisis actually resulted in criminal prosecutions against those whose wrongdoing was responsible for the crisis.  On December 28, Black characterized the failure to prosecute those crimes which led to the financial crisis as “de facto decriminalization of elite financial fraud”:

The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis.  While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders.  The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.

What has gone so catastrophically wrong with DOJ, and why has it continued so long?  The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals.

This isn’t (just) about revenge.  Bruce Judson of the Roosevelt Institute recently wrote an essay entitled “For Capitalism to Survive, Crime Must Not Pay”:

In effect, equal enforcement of the law is not simply important for democracy or to ensure that economic activity takes place, it is fundamental to ensuring that capitalism works.  Without equal enforcement of the law, the economy operates with participants who are competitively advantaged and disadvantaged.  The rogue firms are in effect receiving a giant government subsidy:  the freedom to engage in profitable activities that are prohibited to lesser entities.  This becomes a self-reinforcing cycle (like the growth of WorldCom from a regional phone carrier to a national giant that included MCI), so that inequality becomes ever greater.  Ultimately, we all lose as our entire economy is distorted, valuable entities are crushed or never get off the ground because they can’t compete on a playing field that is not level, and most likely wealth is destroyed.

Does the Justice Department really believe that it is going to impress us with FIRREA lawsuits?  We’ve already had enough theatre – during the Financial Crisis Inquiry Commission hearings and the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal.  It’s time for some “perp walks”.


 

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Home Improvement With Norm And Ted

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December 15, 2008

The battle for Norm Coleman’s Senate seat, representing Minnesota, continues to drag on toward the new year.  Democratic candidate Al Franken inched closer to victory when the state Canvassing Board ruled that more than 1,600 absentee ballots were improperly rejected by local officials.  As Curt Brown reported in the December 14 Minneapolis Star Tribune:

The recount has revealed numerous missteps, some involving enough ballots to tip the balance.

There are a couple of similarities between the Senatorial election in Minnesota and the Senatorial election in Alaska.  When Alaska Senator Ted Stevens lost his bid for re-election in the 2008 Senate race, it was the count of absentee and questioned ballots that determined the outcome of that event, as reported in the November 20 Seattle Times.  More importantly, the crucial factor motivating voters in the Alaska election was also discussed in that article:

A week before the election, a jury convicted Stevens of seven felonies for lying on his financial-disclosure forms about more than $250,000 in gifts, including renovations of his Girdwood, Alaska, home.

Prior to the resolution of that race, there was a good deal of discussion concerning the likelihood that the Senate would not tolerate the membership of a convicted felon in their exclusive organization.

Meanwhile, Senator Norm Coleman is facing questions from reporters over his own home improvement scandal.  Although he is not presently facing criminal charges for any wrongdoing in this matter, the FBI has begun an investigation into the money trail left by $75,000 in campaign contributions.  On Thursday, December 11, Fox 9 of St. Paul provided this:

The FBI is now reportedly investigating the allegations that Nasser Kazeminy tried to funnel $75,000 in campaign contributions through the Senator’s wife.

*      *     *

Norm Coleman’s home in St. Paul’s Crocus Hill neighborhood is not lavish — but it’s a lot nicer than it used to be, thanks in part to contractor Jim Taylors, who helped remodel the home two years ago.

“Put in a second floor master bedroom/bathroom, the bedroom was there, we just added a bathroom and closet and a kitchen remodel, actually turned into half the house remodel by the time we painted and refinished floors and did some landscape work,” says Taylors.

The remodeled kitchen was the backdrop for some of the Senator’s campaign commercials.  FOX 9 learned the woman in charge of the project was Shari Wilsey, an interior designer.  Wilsey, along with her husband Roger, are longtime friends of the Coleman’s and financial contributors to the Senator’s campaigns.

*     *     *

Two lawsuits allege that in spring of 2007, Edina businessman Nasser Kazeminy began a series of $25,000 payments to Coleman from Deep Marine Technology, a company he controlled in Texas, to Hays Companies, the Minnesota Insurance company where Laurie Coleman works.

*     *     *

While Coleman didn’t agree to sit down for a interview, his campaign did agree to share billing records of the remodeling project.  Original projections in 2006 estimated a cost of $328,000, but four months later, the construction cost was estimated at $414,000, over-budget by $86,000.

During that time is when, the lawsuit alleges, Kazeminy was trying to get money to Coleman.

According to the lawsuits, in March of 2007, Kazeminy said that “U.S. Senators don’t make s—” and he was going to try to find a way to get money to Coleman.

“On the one level it could just be a coincidence, on the other level this could be one of the reasons he’s getting that money from elsewhere, to try to make up for his, to be able to pay off a loan, pay off a line of credit,” says Schultz.

Records provided by the campaign show that Coleman paid Wilsey in full for the renovation — $414,000.  In part, by refinancing his home in March 2007, for $775,000.

The Senator acknowledges, that like a lot of people in America, he now owes more on his home than it’s actually worth.

What we know is this: the Senator had costly and over-budget renovations to his home at the same time a contributor was allegedly trying to funnel him money.  But he’s still criticized for walking away from reporters, while the questions aren’t going away.

It’s nice to know that we can count on a Fox news outlet for a good scandal, and if we’re lucky, it might even involve a Republican.  Although Coleman was not named as a defendant in either lawsuit, the FBI investigation into the campaign contributions could eventually give Coleman some more serious headaches.  At this point, it seems as though Coleman could document that he paid for the remodeling project by refinancing his home.  However, did the refinancing cover the entire $414,000 cost?  Even if Coleman is re-elected, could we eventually get to the point where the Senate, itself, has to consider giving him the boot?  Stay tuned.