The 2008 financial crash was accompanied by a stunning level of greed and disregard for the law by some of the leading titans of the financial industry. As a result, millions of people lost homes, retirement savings or were otherwise financially devastated. And yet, four years later, no financial sector executive has been even been indicted, much less jailed, for what appear to be clear violations of the law.
The mortgage fraud task force led by New York Attorney General Eric Schneiderman is charged with building a legal case against the people responsible for crashing the economy and destroying the finances of millions of people. But a new report released today by the Institute for America’s Future raises critical questions about whether that task force is being allowed by the Obama administration to do its job, and whether as a result Wall Street bankers guilty of criminal acts will go scot-free.
The report, “Rhetoric or Resources: it’s Time To Get Serious,” is written by Bart Dzivi, former Special Counsel to the Financial Crisis Inquiry Commission. It focuses on the federal government’s legal response to the financial crisis and the looming statute of limitations on legal claims against financial institutions for their role in the crisis.
In contrast to the savings and loan scandals of the 1980s and the Enron scandal of 2001, the report says the effort to mount indictments against wrongdoers who contributed to the 2008 crash is “hampered by a lack of adequate resources, weak oversight and poor coordination of interagency efforts, creating the appearance of an unwillingness to follow the chain of evidence wherever it may lead. The Federal government’s efforts also appear to lack a sense of urgency, despite the fact that the statute of limitations is expiring in many instances where there was apparent fraud. The implications for failing to respond adequately to this crisis are enormous, both in ensuring that justice is done and in preventing future crimes and future crises of this kind.”
This report confirms what other concerned knowledgeable observers are beginning to conclude. Phil Angelides, the former state treasurer of California who was chairman of the Financial Crisis Inquiry Commission, warned in Politico today that “the jury is still out on whether the investigation will bring Wall Street CEOs to justice and deter future wrongdoing.”
On Sunday, The New York Times editorialized that the investigations led by Schneiderman “has been slow to produce results,” noting that “no suits have yet been filed” against mortgage bankers whose actions have caused millions of homeowners to become underwater on their mortgages or lose their homes altogether. “The economy will not recover and justice will not be done unless and until the mortgage mess is resolved,” the Times wrote.
At the heart of the financial crash was the sale of bundles of mortgage-backed securities and collateralized debt obligations that contained such items as “no-doc” mortgages and other fraudulent debt instruments that were written by employees of the financial firms. With the aid of ratings firms, they were sold as top-rated financial instruments when in fact they were not. The Wall Street firms that bundled these instruments, knowing the rot inside, also placed bets against the instruments in an effort to profit even if these instruments went bust, as they inevitably did.
“The essence of the widespread criminal fraud suspected to have existed at many banking organizations is that their sales forces not only sold bad securities to their clients, but that they did so knowingly,” the report says. “It would be stunning if a review of the relevant emails, text messages and recorded telephone conversations routinely used by securities traders did not reveal a sufficient mens rea on the part of some of those involved to justify federal indictments.”
As the report notes, if the effort to prosecute wrongdoers in this financial crisis is allowed to founder, the lesson to Wall Street is that it is free to reap the rewards of recklessness and lawlessness, and allow Main Street to pay the penalty in lost jobs, ruined finances and long-term economic insecurity. That cannot be allowed to stand.