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Fines only deterrent in banking meltdown

wcfcourier.com | September 24, 2015


The 2007-09 banking crisis brought the nation to the brink of financial disaster, shrinking household wealth by $17 trillion, according to the Federal Reserve Bank of St. Louis, and causing millions of Americans to lose their jobs and/or homes.

You would think the Wall Street movers and shakers who perpetrated that mess might have been prosecuted. You would be wrong.

While disenchantment with regulators’ laissez faire attitudes during the Bush administration led to a rebuke of Republicans in the November 2008 elections and Barack Obama becoming president, his administration has been intent on just fining the Big Banks as a supposed deterrent.

The Transactional Records Clearinghouse at Syracuse University, which uses data from government agencies obtained through Freedom of Information Act requests, recently reported federal white-collar crime prosecutions for tax, securities, federal procurement, health-care fraud and similar crimes will be 36.8 percent fewer for this fiscal year, ending Sept. 30, than 20 years ago.

Under former U.S. Attorney General Eric Holder, PBS’ Frontline reported in 2013, the Justice Department had “had no investigations going on. There were no subpoenas, no documents, no wiretaps” in regard to Wall Street misdeeds.

Following a civil fraud trial in November 2013 against Bank of America, which had acquired the remnants of financial disasters Countrywide and Merrill Lynch, Reuters reported U.S. District Judge Jed Rakoff said “while companies have been prosecuted for causing the 2007-09 financial meltdown, Wall Street executives have escaped justice.”

Compare that to the aftermath of the savings and loan crisis in the 1980s when close to 600 top financial executives were successfully prosecuted.

Yet the likes of Angelo Mozilo, the former chief executive officer of Countrywide Financial, who was accused of overstating the quality of loans bundled and sold as securities, were never prosecuted.

According to Countrywide whistleblower Michael Winston, Countrywide’s motto was “Fund ‘Em,” even if the mortgage applicant didn’t have a job. So-called “liar’s loans,” which inflated the borrower’s income, became prevalent.

Countrywide was sued for fraud by 11 state attorneys general, resulting in a settlement of $8.7 billion. Mozilo, who earned $535 million from 1999 to 2008, agreed to a wrist-slap settlement of $67 million.

“Mozilo was the boss of bosses of predatory lending,” said former U.S. and New Jersey prosecutor Mark Malone. “He was the inspiration for MERS (Mortgage Electronic Registration System), the electronic database used to facilitate much of the fraud surrounding predatory lending, mortgage securitization and fraudulent foreclosure practices. If prosecutors are not going to go after low-hanging fruit like Mozilo, the rest of the bankster bosses can sleep well, assured that their fortunes are secure.”

So, it was surprising last week when Deputy U.S. Attorney General Sally Quillian Yates announced an emphasis on prosecuting individuals.

“It is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the board room. In the white-collar context, that means pursuing not just corporate entities, but also individuals through which these corporations act,” she said.

That came after 12 major Wall Street firms agreed to pay a $1.87 billion settlement for colluding to rig prices on Credit Default Swaps, a key factor in the 2008 meltdown. The Justice Department not only didn’t prosecute any individuals, but agreed to a protective order precluding the documents from being made public.

Also last week, five major banks — Citicorp, JP Morgan Chase, Barclays, the Royal Bank of Scotland and UBS — agreed to criminal fines of $2.5 billion for currency manipulation involving the U.S. dollar and the euro.

U.S. Attorney General Loretta Lynch, Holder’s successor, called it a “stark reminder this Justice Department intends to vigorously prosecute all those who tilt the economic system in their favor; who subvert our marketplaces; and enrich themselves at the expense of American consumers.”

Things are certainly awry when individuals receive stiff mandatory minimum sentences for crimes that pale in comparison to unscrupulous bankers bilking the financial system of billions.

President Obama told leading bankers in March 2009, according to Politco, “My administration is the only thing standing between you and the pitchforks.” But his administration has been too willing to buy the pitchforks at discounted prices, while allowing the perpetrators to go free.

 

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