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When Pat Robertson Gets It Right and Obama Gets It Wrong

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Of course, televangelist Pat Robertson says lots of strange things.  The host of the Christian Broadcasting Network’s program, The 700 Club has drawn criticism for such absurd statements as his claim that Hurricane Katrina was sent by God to punish America for leaglized abortion as well as his 2003 suggestion that State Department headquarters should be blown-up with a nuclear weapon.

Given that background, it must be particularly painful for President Obama when Pat Roberson is congratulated for speaking out sensibly on an issue which Obama is too timid to address.  Beyond that, when Robertson asserts a position which is supported by clear-thinking, prominent members of society, it must be particularly embarrassing for a President who has abdicated the “bully pulpit”.

Pat Robertson turned some heads in March, when he spoke out in favor of marijuana legalization.  Jesse McKinley of The New York Times discussed the reaction to a pro-legalization statement made by Robertson during a broadcast of The 700 Club:

Mr. Robertson’s remarks were hailed by pro-legalization groups, who called them a potentially important endorsement in their efforts to roll back marijuana penalties and prohibitions, which residents of Colorado and Washington will vote on this fall.

“I love him, man, I really do,” said Neill Franklin, executive director of Law Enforcement Against Prohibition, a group of current and former law enforcement officials who oppose the drug war.  “He’s singing my song.”

*   *   *

Mr. Franklin, who is a Christian, said Mr. Robertson’s position was actually in line with the Gospel.  “If you follow the teaching of Christ, you know that Christ is a compassionate man,” he said.  “And he would not condone the imprisoning of people for nonviolent offenses.”

*   *   *

And while Mr. Robertson said his earlier hints at support for legalization had led to him being “assailed by those who thought that it was terrible that I had forsaken the straight and narrow,” he added that he was not worried about criticism this time around.

“I just want to be on the right side,” he said.  “And I think on this one, I’m on the right side.”

It appears as though Pat Robertson is on the right side of another issue, with his recent comment about the Obama Justice Department’s failure to prosecute those responsible for causing the financial crisis.  While reading a great posting on Washington’s Blog about institutional corruption, I encountered a link to a piece by James Crugnale of the Mediaite blog, which focused on Robertson’s praise of Iceland for prosecuting its banksters and setting an example for countries such as the United States:

 “Guess what country is getting itself out of a financial problem by some draconian measures?” Robertson asked his co-host Terry Meeuwsen.  “Greece?” she asked.  “No, not even close.  Iceland!”  Robertson exclaimed.  “They are putting people in jail.  Prime ministers are being indicted.  They are going after banks.  The people said the banks are ripping us off.  We don’t like what they did, and they brought our country to ruin.  Suddenly, Iceland is turning around and they look like a big success story!”

“Think we could learn something?” Meeuwsen asked.

“We sure could!” Roberson continued.  “We could start putting all of those bankers in jail.  There was not one banker prosecuted and so many people were lying, and so-called “no-doc loans” and liars’ loans, and none of them have been held accountable.  I’m not for putting people in jail.  I’m sick of these – we’ve got too many penalties.  Too many penalties, too many criminal sanctions, too many people in prison.  But here is an opportunity for the people who wanted, you know, to enforce laws, to enforce that one.  There must be some laws against lying on documents.  I’m sure there are.”

“Lying to banks is a super no-no,” he added.  “It has criminal sanctions, but nobody so far has had to pay the price, but Iceland is leading the way and their GDP is growing, and all of a sudden, they were in a terrible mess, terrible mess, and look what is happening!”

With the release of the Department of Labor’s non-farm payrolls report for April, attention is again being focused on the issue of whether President Obama did enough to help the country recover from the financial crisis.  As the aforementioned Washington’s Blog essay made clear, the institutional corruption facilitated by the Obama administration’s failure to prosecute the culprits who caused the financial meltdown has brought even more harm to the American economy.  Consider this passage from the Washington’s Blog piece:

Nobel Prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work.  If the legal system is seen as exploitative, then confidence in our whole system starts eroding.  And that’s really the problem that’s going on.

***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison.  Absolutely.  These are not just white-collar crimes or little accidents.  There were victims.  That’s the point.  There were victims all over the world.

***

Economists focus on the whole notion of incentives.  People have an incentive sometimes to behave badly, because they can make more money if they can cheat.  If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Think about it:  Joe Stiglitz and Pat Robertson are on the same page, while President Obama is somewhere else.  Yikes!


 

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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Be Sure To Catch These Items

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As we reach the end of 2011, I keep stumbling across loads of important blog postings which deserve more attention.  These pieces aren’t really concerned with the usual, “year in review”- type of subject matter.  They are simply great items which could get overlooked by people who are too busy during this time of year to set aside the time to browse around for interesting reads.  Accordingly, I’d like to bring a few of these to your attention.

The entire European economy is on its way to hell, thanks to an idiotic, widespread belief that economic austerity measures will serve as a panacea for the sovereign debt crisis.  The increasing obviousness of the harm caused by austerity has motivated its proponents to crank-up the “John Maynard Keynes was wrong” propaganda machine.  You don’t have to look very far to find examples of that stuff.  On any given day, the Real Clear Politics (or Real Clear Markets) website is likely to be listing at least one link to such a piece.  Those commentators are simply trying to take advantage of the fact that President Obama botched the 2009 economic stimulus effort.  Many of us realized – a long time ago – that Obama’s stimulus measures would prove to be inadequate.  In July of 2009, I wrote a piece entitled, “The Second Stimulus”, wherein I pointed out that another stimulus program would be necessary because the American Recovery and Reinvestment Act of 2009 was not going to accomplish its intended objective.  Beyond that, it was already becoming apparent that the stimulus program would eventually be used to support the claim that Keynesian economics doesn’t work.  Economist Stephanie Kelton anticipated that tactic in a piece she published at the New Economic Perspectives website:

Some of us saw this coming.  For example, Jamie Galbraith and Robert Reich warned, on a panel I organized in January 2009, that the stimulus package needed to be at least $1.3 trillion in order to create the conditions for a sustainable recovery.  Anything shy of that, they worried, would fail to sufficiently improve the economy, making Keynesian economics the subject of ridicule and scorn.

Despite the current “ridicule and scorn” campaign against Keynesian economics, a fantastic, unbiased analysis of the subject has been provided by Henry Blodget of The Business Insider.  Blodget’s commentary was written in easy-to-read, layman’s terms and I can’t say enough good things about it.  Here’s an example:

The reason austerity doesn’t work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy.  And when you further reduce tax revenue, you increase the deficit and create the need for more austerity.  And that even further clobbers the economy and tax revenue.  And so on.

Another “must read” blog posting was provided by Mike Shedlock (a/k/a Mish).  Mish directed our attention to a rather extensive list of “Things to Say Goodbye To”, which was written last year by Clark McClelland and appeared on Jeff Rense’s website.  (Clark McClelland is a retired NASA aerospace engineer who has an interesting background.  I encourage you to explore McClelland’s website.)  Mish pared McClelland’s list down to nine items and included one of his own – loss of free speech:

A bill in Congress with an innocuous title – Stop Online Piracy Act (SOPA) – threatens to do much more.

*  *  *

This bill’s real intent is not to stop piracy, but rather to hand over control of the internet to corporations.

At his Financial Armageddon blog, Michael Panzner took a similar approach toward slimming down a list of bullet points which reveal the disastrous state of our economy:  “50 Economic Numbers From 2011 That Are Almost Too Crazy To Believe,” from the Economic Collapse blog.  Panzner’s list was narrowed down to ten items – plenty enough to undermine those “sunshine and rainbows” prognostications about what we can expect during 2012.

The final item on my list of “must read” essays is a rebuttal to that often-repeated big lie that “no laws were broken” by the banksters who caused the financial crisis.  Bill Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City in the Department of Economics and the School of Law.  Black directed litigation for the Federal Home Loan Bank Board (FHLBB) from 1984 to 1986 and served as deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC) in 1987.  Black’s refutation of the “no laws were broken by the financial crisis banksters” meme led up to a clever homage to Dante’s Divine Comedy describing the “ten circles of hell” based on “the scale of ethical depravity by the frauds that drove the ongoing crisis”.  Here is Black’s retort to the big lie:

Sixty Minutes’ December 11, 2011 interview of President Obama included a claim by Obama that, unfortunately, did not lead the interviewer to ask the obvious, essential follow-up questions.

I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal.

*   *   *

I offer the following scale of unethical banker behavior related to fraudulent mortgages and mortgage paper (principally collateralized debt obligations (CDOs)) that is illegal and deserved punishment.  I write to prompt the rigorous analytical discussion that is essential to expose and end Obama and Bush’s “Presidential Amnesty for Contributors” (PAC) doctrine.  The financial industry is the leading campaign contributor to both parties and those contributions come overwhelmingly from the wealthiest officers – the one-tenth of one percent that thrives by being parasites on the 99 percent.

I have explained at length in my blogs and articles why:

• Only fraudulent home lenders made liar’s loans
• Liar’s loans were endemically fraudulent
• Lenders and their agents put the lies in liar’s loans
• Appraisal fraud was endemic and led by lenders and their agents
• Liar’s loans could only be sold through fraudulent reps and warranties
• CDOs “backed” by liar’s loans were inherently fraudulent
• CDOs backed by liar’s loans could only be sold through fraudulent reps and warranties
• Liar’s loans hyper-inflated the bubble
• Liar’s loans became roughly one-third of mortgage originations by 2006

Each of these frauds is a conventional fraud that could be prosecuted under existing laws.

It’s nice to see someone finally take a stand against the “Presidential Amnesty for Contributors” (PAC) doctrine.  Every time Obama attempts to invoke that doctrine – he should be called on it.  The Apologist-In-Chief needs to learn that the voters are not as stupid as he thinks they are.


 

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Democrats Share The Blame

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January 21 brought us Episode 199 of HBO’s Real Time with Bill Maher.  At the end of the program, Bill went through his popular “New Rules” segment.  On this occasion, he wound it up with a rant about how the Republicans were exclusively at fault for the financial crisis.  Aside from the fact that this claim was historically inaccurate, it was not at all fair to David Stockman (a guest on that night’s show) who had to sit through Maher’s diatribe without an opportunity to point out the errors.  (On the other hand, I was fine with watching Stephen Moore twist in the wind as Maher went through that tirade.)

That incident underscored the obvious need for Bill Maher to invite William Black as a guest on the show in order to clarify this issue.  Prior to that episode, Black had written an essay, which appeared on The Big Picture website.  Although the theme of that piece was to debunk the “mantra of the Republican Party” that “regulation is a job killer”, Black emphasized that Democrats had a role in “deregulation, desupervision, and de facto decriminalization (the three ‘des’)” which created the “criminogenic environment” precipitating the financial crisis:

The Great Recession was triggered by the collapse of the real estate bubble epidemic of mortgage fraud by lenders that hyper-inflated that bubble.  That epidemic could not have happened without the appointment of anti-regulators to key leadership positions.  The epidemic of mortgage fraud was centered on loans that the lending industry (behind closed doors) referred to as “liar’s” loans — so any regulatory leader who was not an anti-regulatory ideologue would (as we did in the early 1990s during the first wave of liar’s loans in California) have ordered banks not to make these pervasively fraudulent loans.

*   *   *

From roughly 1999 to the present, three administrations have displayed hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their opposition to vigorous regulation.  When these administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in regulating, the administration attacked the regulators.  In the financial regulatory sphere, recent examples include Arthur Levitt and William Donaldson (SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).

Similarly, the bankers used Congress to extort the Financial Accounting Standards Board (FASB) into trashing the accounting rules so that the banks no longer had to recognize their losses.  The twin purposes of that bit of successful thuggery were to evade the mandate of the Prompt Corrective Action (PCA) law and to allow banks to pretend that they were solvent and profitable so that they could continue to pay enormous bonuses to their senior officials based on the fictional “income” and “net worth” produced by the scam accounting.  (Not recognizing one’s losses increases dollar-for-dollar reported, but fictional, net worth and gross income.)

When members of Congress (mostly Democrats) sought to intimidate us into not taking enforcement actions against the fraudulent S&Ls we blew the whistle.

President Obama’s January 18 opinion piece for The Wall Street Journal prompted a retort from Bill Black.  The President announced that he had signed an executive order requiring “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive”.  Obama’s focus on “regulations that stifle job creation” seemed to exemplify what Black had just discussed one day earlier.  Accordingly, Bill Black wrote an essay for The Huffington Post on January 19, which began this way:

I get President Obama’s “regulatory review” plan, I really do.  His game plan is a straight steal from President Clinton’s strategy after the Republican’s 1994 congressional triumph. Clinton’s strategy was to steal the Republican Party’s play book.  I know that Clinton’s strategy was considered brilliant politics (particularly by the Clintonites), but the Republican financial playbook produces recurrent, intensifying fraud epidemics and financial crises.  Rubin and Summers were Clinton’s offensive coordinators.  They planned and implemented the Republican game plan on finance.  Rubin and Summers were good choices for this role because they were, and remain, reflexively anti-regulatory.  They led the deregulation and attack on supervision that began to create the criminogenic environment that produced the financial crisis.

Bill Clinton’s role in facilitating the financial crisis would have surely become an issue in the 2008 Presidential election campaign, had Hillary Clinton been the Democratic nominee.  Instead, the Democrats got behind a “Trojan horse” candidate, disguised in the trappings of  “Change” who, once elected, re-installed the very people who implemented the crucial deregulatory changes which caused the financial crisis.  Bill Black provided this explanation:

The zeal, crude threats, and arrogance they displayed in leading the attacks on SEC Chair Levitt and CFTC Chair Born’s efforts to adopt regulations that would have reduced the risks of fraud and financial crises were exceptional.  Just one problem — they were wrong and Levitt and Born were right.  Rubin and Summers weren’t slightly wrong; they put us on the path to the Great Recession.  Obama knows that Clinton’s brilliant political strategy, stealing the Republican play book, was a disaster for the nation, but he has picked politics over substance.

*   *   *

Obama’s proposal and the accompanying OMB releases do not mention the word or the concept of fraud.  Despite an “epidemic” of fraud led by the bank CEOs (which caused the greatest crisis of his life), Obama cannot bring itself to use the “f” word. The administration wants the banks’ senior officers to fund its reelection campaign.  I’ve never raised political contributions, but I’m certain that pointing out that a large number of senior bank officers were frauds would make fundraising from them awkward.

Black targeted Obama’s lame gesture toward acknowledgement of some need for regulation, encapsulated in the statement that “(w)here necessary, we won’t shy away from addressing obvious gaps …”:

Huh?  The vital task is to find the non-obvious gaps.  Why, two years into his presidency, has the administration failed to address “obvious gaps”?  The administration does not need Republican approval to fill obvious gaps in regulation.  Even when Obama finds “obvious gaps” in regulatory protection he does not promise to act.  He will act only “where necessary.”  We know that Summers, Rubin, and Geithner rarely believe that financial regulation is “necessary.”  Even if Obama decides it is “necessary” to act he only promises to “address” “obvious gaps” — not “end” or “fill” them.

At the conclusion of his Huffington Post essay, Black provided his own list of  “obvious gaps” described as the “Dirty Dozen”  —  “. . .  obvious gaps in financial regulation which have persisted and grown during this, Obama’s first two years in office.”

Bill Black is just one of many commentators to annotate the complicity of Democrats in causing the financial crisis.  Beyond that, Black has illustrated how President Obama has preserved – and possibly enhanced — the “criminogenic” milieu which could bring about another financial crisis.

The first step toward implementing “bipartisan solutions” to our nation’s ills should involve acknowledging the extent to which the fault for those problems is bipartisan.


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Justice Denied

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A recent article written by former New York Mayor Ed Koch 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.

Most of us assumed that the Enron scandal had set a precedent for the prosecution of corporate financial crime.  A few Enron executives received prison sentences and the CEO, Ken Lay, died while serving time.  Enron’s auditor, Arthur Andersen & Company, was forced out of business.  In the wake of the Savings and Loan Crisis of the late 1980s, Charles Keating and a few of his associates were indicted by the State of California.  Keating eventually received a ten-year prison sentence for fraud, racketeering and conspiracy.  Keating’s prosecution resulted from pressure brought by William Black, former litigation director for the Federal Home Loan Bank Board.  At one point during Black’s investigation, Keating issued a written memo to one of his minions, with this directive:  “If you can’t get Wright and Congress to get Black . . .  Kill him dead.”

These days, William Black has been doing quite a bit of speaking and writing about the need to initiate criminal proceedings against the culprits responsible for causing the financial crisis.  On December 28, Black characterized the failure to prosecute those crimes 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.

*   *   *

Our best bet is to continue to win the scholarly disputes and to continue to push media representatives to take fraud seriously. If the media demands for prosecution of the elite banking frauds expand there is a chance to create a bipartisan coalition in Congress and the administration supporting prosecutions.  In the S&L debacle, Representative Annunzio was one of the leading opponents of reregulation and leading supporters of Charles Keating.  After we brought several hundred successful prosecutions he began wearing a huge button:  “Jail the S&L Crooks!”  Bringing many hundreds of enforcement actions, civil suits, and prosecutions causes huge changes in the way a crisis is perceived.  It makes tens of thousands of documents detailing the frauds public.  It generates thousands of national and local news stories discussing the nature of the frauds and how wealthy the senior officers became through the frauds.  All of this increases the saliency of fraud and increases demands for serious reforms, adequate resources for the regulators and criminal justice bodies, and makes clear that elite fraud poses a severe danger.  Collectively, this creates the political space for real reform, vigorous regulators, and real prosecutors.

Hedge fund manager, David Einhorn (author of  Fooling Some of the People All of the Time) was recently interviewed by Charlie Rose.  At one point during the interview, Charlie Rose asked Einhorn to address the argument that regulators lacked the tools necessary for preventing the financial crisis.  Mr. Einhorn gave this response:

I would actually disagree with that.  I think that the problem was that the laws were not enforced.  After Enron you had Sarbanes Oxley.  And there have been hardly any prosecutions under Sarbanes Oxley.  You put in a tough anti-fraud law.  The CEO has to sign there is no fraud.

The CFO has to sign that the financial statements are correct.  If it’s not, there are going to be criminal consequences to all of this.  And the result was that effectively you passed a law but then they didn’t enforce the law.

And once the bad guys figured out that the law wasn’t being enforced, it effectively provided cover because everybody said, look we have the tough antifraud law.  The fraud must have gone away.

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.

While many people have been getting excited about the “insider trading” investigation currently underway, I have been sitting here, wearing my tinfoil hat, viewing the entire episode as a diversionary tactic to direct public attention away from the crimes that caused the financial crisis.  Fortunately, I am not the only cynic with such an outlook.  Jesse Eisenger recently wrote a piece for the DealBook blog at The New York Times entitled, “The Feds Stage a Sideshow While the Big Tent Sits Empty”.  Here is some of what Eisenger had to say about the “insider trading” investigation:

In fact, plenty of people on Wall Street are happy about the investigation.  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.

There’s an old saying:  “Justice delayed is justice denied.”  The government has demonstrated that it is in no hurry to bring any significant criminal charges against the perpetrators of the crimes that caused the financial crisis.  With the passing of time, it becomes increasingly obvious that those crimes will go unpunished.  The cause of justice is simply no match for the ability of certain individuals to operate “above the law”.  In fact, it never has been.


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