Here’s something the administration may want to take to heart: Trust is a lot like money. If you spend more than you earn, it could be gone when you need it the most.
Consider the Attorney General’s highly-touted announcement of a “crackdown” on financial fraud. Americans have been waiting for this ever since bank crimes shattered the economy, leaving them with millions of lost jobs and billions in lost savings. Finally, after years of inaction against the fraudsters, the Justice Department began dropping hints that a big Wall Street bust was coming. And this week Eric Holder announced that a probe launched in August has already led to more than two hundred arrests and dozens of other investigations.
“Where are all the big names?” wrote one observer, who added: “The ‘too big to fail’ are also the ‘too big to prosecute.'” Another commentator called it “Too much form. Too little substance. Too many government officials elbowing for the spotlight. Too little, too late.” A third said “It’s bad enough that there have been no criminal convictions of any of the executives who helped bring the banking system and our economy to its knees. Now the Justice Department is touting trumped-up numbers …”
And that was just the business media. (The comments are from a Forbes columnist, another Forbes columnist, and Jonathan Weil from Bloomberg.) The Columbia Journalism Review rounded up some other press reactions in a piece called “The Obama Administration’s Financial-Fraud Stunt Backfires.” Their citations include a New York Times report which found that Holder’s figures were artificially inflated. As Weil at Bloomberg observed: “First they tracked down every small-fry Ponzi scheme, affinity fraud and penny-stock pump-and-dump they could find that had advanced through the courts since mid-August. Then they totaled them up and called it a sweep …”
The Columbia roundup concludes with the hope that “the Obama administration’s laughable attempt to show it’s tough on financial fraud will cause enough of a backlash in the press that it forces them to actually do something …”
This mythical sweep, a trumped-up bag of unrelated cases which the administration tried to present as a coordinated crackdown on financial crime, was called “Operation Broken Trust.” The punchline writes itself.
Not that unemployed Americans or households with an underwater mortgage are likely to laugh. Meanwhile one of Obama’s key economic advisors just joined Citigroup, and the president’s reportedly interviewing another Wall Street kingpin to run his Council of Economic Advisors. The President promised during his campaign to “close the revolving door” between government and big business, but it’s revolving as always. And as bankers pass through it, America’s cops just tip their caps and say “Good morning, sir.”
Wild in the Street (Wall Street, that is)
The “Broken Trust” target list resembles that of the President’s “Interagency Financial Task Force,” which has concentrated on minor criminals while studiously avoiding the big (and still deadly) fish (see “A Banker Can’t Get Arrested In This Town“). Most of the Task Force’s indictments involved a category of financial criminal we call “ABB” — “anybody but bankers.” There were software entrepreneurs, family investment firms, some Florida retirement advisors … even a fraudulent psychic who claimed he could predict stock performance! (And no, it wasn’t Jim Cramer.)
Holder’s list of alleged “Broken Trust” victories is a similarly Faginesque assemblage of small-time grifters. It would make an ideal cast of characters for a Damon Runyon story or a Bertolt Brecht musical: There’s a Miami-based Ponzi schemer who used his loot to buy basketball tickets and make yacht payments, a retired Ohio cop who scammed \fellow police officers and some firefighters, and the New Jersey hustler who scammed people so he could buy three luxury cars and two country club memberships.
Throw in a hooker with a heart of gold and you’ve got yourself a show, baby!
But there were no indictments for the AIG deceptions that precipitated the worldwide crash (we described the prima facie evidence that a crime had been committed here and here). There were no indictments at Goldman Sachs. And there were none for Citigroup’s $40 billion subprime lie. It’s true that the CFO was fined $100,000 — but that’s after taking home $19.4 million the same year the crime was committed.
Citi’s crooks didn’t just get a free pass. We bailed out their bank, too. That’s good news for former Obama advisor Peter Orszag, who cashed in just this week with a high-paying Citi job as a “senior global banking advisor.”
It gets worse. Banks criminally laundered billions in drug money from Mexican drug cartels. Wachovia Bank alone laundered $374 billion, in what was called “a virtual carte blanche” for “cocaine cartels.” Number of criminal indictments: Zero. As a Senate investigator observed: “There’s no capacity to regulate or punish them because they’re too big to be threatened with failure.” That policy holds, even when banks conspire with drug dealers who have killed 22,000 people.
The free ride for Wall Street criminality helps explains the public outcry earlier this year when a top Morgan Stanley broker committed hit-and-run and left a wounded bicyclist lying in the street with spinal cord and brain injuries. He wasn’t indicted … because of his high income. Even the even-tempered Felix Salmon called that decision “shocking.” A local DA’s terrible decision came to symbolize the immunity crooked bankers are routinely given in Washington.
Sure, bankers can probably get indicted for something. The law would presumably still crack down if, say, some Wall Street hotshots wore Satanic robes and ate a live baby in Times Square. But there’s still the nagging suspicion that Washington would indict some nannies in Ohio instead and call it “Operation Baby Wipe.”
Right now, somewhere in this country, a banker is committing a crime. And guess what? He’s not worried about going to jail.
Your home, their castle
Historians now say that droit de seigneur — the right of a Lord to invade any home on his estate to take a young woman’s virginity — never really existed. But our banking lords can invade the sanctity of a private home to screw their serfs in other ways. The “your home is your castle” principle has been around since the Magna Carta and was the foundation for centuries of property rights law – until now.
As we and others have reported, bankers have used the MERS system and other tools to systematically violate property rights laws and procedures around the country. So far, the Obama administration’s response to this systematic criminality has been to say that it’s not interested in looking at past abuses, and to deny the existence of systematic abuses while publicly insisting that shady foreclosure practices must be declared legal “to get the market moving again.”
Meanwhile the Attorneys General of all fifty states have gotten into gear. These Democratic and Republican AGs alike (bipartisanship at last!) have combined their efforts in a joint probe designed to bring this criminality under control. But the 51st Attorney General — the most powerful of them all — is barely visible. After getting pressure from House Democrats and Nancy Pelosi, he finally announced a foreclosure investigation in October. There’s been no movement since then.
Don’t worry, though. The guy with the boat in Miami is gonna face the music, and that ex-cop in Ohio is going down.
Full Faith and Credit
This week we saw the President become visibly angry when his good intentions were doubted as he announced the tax deal. Yet this was also the week Orszag took that Citi job. And it was also the week his Attorney General bragged about the results of an “operation” that began August 16 — “results” that included an arrest in 2009 and others in May and July. With announcements like that, the administration better get used to being doubted.
It’s wrong — and a terrible blunder — to dishonestly present a smattering of small-time cases as the fruits of some bold new Federal initiative. But the real breach of trust is the government’s unwillingness to go after the Wall Street fraudsters who ruined the economy. Once again we’re seeing the administration’s approach to financial crime: Target petty hoodlums and let the capos go free. If the White House wants to restore the public’s faith it needs to get serious about investigating bank fraud — real bank fraud, the kind that brought down the economy once and could do it again.
Administration officials seem perpetually surprised when they’re not taken at their word, and this week was no exception. They should have known that a skeptical, burned public would see through “Operation Broken Trust.” If they didn’t see that coming, then they shouldn’t have busted that Wall Street “psychic.” They should have hired him.
RThis post was produced as part of the Curbing Wall Street project. He can be reached at “email@example.com.”