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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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From Cover-up to Bailout

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It has been one year since the earthquake and tsunami which caused the Fukushima nuclear power plant catastrophe.  From the very beginning (March 14, 2011) I suspected a cover-up:

Since the Fukushima nuclear crisis began, we were given spotty, uninformative reports about the extent of the damage to the critical equipment, despite assurances that the “reactor vessels remain intact”.

Throughout the year following the Fukushima disaster, there has been an unending series of accounts concerning efforts by the plant operator, Tepco, as well as by governmental officials to cover-up the true extent of this tragedy.  The hazardous radiation levels to which local residents were subjected, have become the focus of the most recent news reports exposing cover-up tactics.  Asia Times correspondent Pepe Escobar was recently interviewed for Russia Today.  Escobar reported that Fukushima officials concealed radiation data vital to safely evacuate people from that area.  This was accomplished by the deletion of e-mails detailing the spread of radiation.  An unidentified official (or several officials) from Fukushima prefecture should face responsibility for the loss of that data.  At one point during the interview, Escobar remarked that the situation “sounds and looks and quacks like a major cover-up”.  He expects that ultimately, “a low-level official” will take the fall for this transgression, with no consequences other than a generous severance package.

The Mainichi Daily News report on this suspicious situation revealed that officials from Fukushima prefecture deleted five days of early radiation dispersion data.  In typical bureaucratic fashion, Fukushima prefecture officials claimed that “it was the responsibility of the central government to release the data”.

The obfuscation tactics employed by the plant operator, Tepco, have been apparent since the onset of this disaster.  Nevertheless, Tepco continues to “play dumb”.  In a March 28 report by Karen Sloan of the Associated Press, Tepco characterized the situation with the explanation that “conditions could be worse than officials had pictured”.  The report pointed out that there are “fatally–high radiation levels” at the #2 reactor with less water than anticipated available  for cooling the reactor.  The damage is so severe that Tepco will need to “develop special equipment and technology” to decommission the plant.  Worse yet, the other reactors which experienced meltdowns “could be in worse shape”.  You can watch the video version of Karen Sloan’s report here.  As for those “fatally–high radiation levels”, Anne Sewell of the Digital Journal pointed out that measurements revealed those levels to be “up to 10 times the lethal dose”.  Beyond that, Ms. Sewell didn’t hesitate to remind her readers of the continuing problems encountered by those who have reported on this crisis:

Japanese authorities and Tepco representatives have been caught lying about the true situation at Fukushima on numerous occasions, which adds to the overwhelming stress on the residents.

First-hand accounts of the situation in Fukushima prefecture are provided by blogger Lori Mochizuki and her cohorts at the Fukushima Diary website.  Their motto appears on the masthead of the site:  “We are against the media blackout – Please support us so that we may inform the world.”

Those interested in keeping-up with the slow trickle of truth about this tragedy can follow the Fukushima Update website.   Arnie Gundersen, Chief Engineer of Fairewinds Associates, is another source who provides regular updates on Fukushima.

As we have witnessed in the aftermath of the financial crisis, those entities responsible for the world’s worst disasters always find themselves rewarded with taxpayer-funded bailouts.  The Fukushima nuclear catastrophe is yet another example of this principle.  On March 29, Kentaro Hamada of Reuters reported that Tepco has asked the Japanese government for a $12.6 billion taxpayer-funded bailout.  (This amounts to 1 trillion yen.)  This amount would be in addition to the 850 billion yen which Tepco requested from the government in order to provide victim compensation.  That’s right – a free $10.7 billion insurance policy!  Is that coverage available to other companies?  I’m afraid to ask!  Nevertheless, some Japanese officials insist that the indemnity should come at a price – as the Reuters article explained:

The government is keen to obtain an initial majority stake in Tepco in return for the fund injection, with an option to boost the stake to two-thirds if the firm drags its feet on corporate reforms.  A final decision, however, would have to wait until the company finds a new chairman, a second source with knowledge of the matter said.

*   *   *

Trade Minister Yukio Edano, who is responsible for approving a public fund injection, has said he wants the government to have a significant say in managing Tepco, but the two sides have differed over how big the government stake should be.

Moral hazard and nuclear radiation hazard make such a wonderful combination!


 

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