Wall Street's Buddy
President Obama, summoning all his (severely limited) populist fervor, gave on December 6 a speech in Osowatomie, Kansas in which he noted
Remember that in those same years, thanks to some of the same folks who are now running Congress, we had weak regulation, we had little oversight, and what did it get us? Insurance companies that jacked up people’s premiums with impunity and denied care to patients who were sick, mortgage lenders that tricked families into buying homes they couldn’t afford, a financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy.
The assumption, of course, was that the President disapproves of the roguish mortgage lenders and outrageous financial sector which "nearly destroyed our entire economy."
Only up to a point, it turns out. In April, The New York Times reported
several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loaninstitutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail. Among the best-known: Charles H. Keating Jr., of Lincoln Savings and Loan in Arizona, and David Paul, of Centrust Bank in Florida.
Former prosecutors, lawyers, bankers and mortgage employees say that investigators and regulators ignored past lessons about how to crack financial fraud.
As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud. That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.
Leading up to the financial crisis, many officials said in interviews, regulators failed in their crucial duty to compile the information that traditionally has helped build criminal cases. In effect, the same dynamic that helped enable the crisis — weak regulation — also made it harder to pursue fraud in its aftermath.
A more aggressive mind-set could have spurred far more prosecutions this time, officials involved in the S.&L. cleanup said.
Earlier this month, Jeff Connaughton, chief of staff to former Senator Ted Kaufman (D-DE), explained in The Huffington Post
The Obama Justice Department hasn't tried a single Wall Street executive in a criminal court. Against a handful, it decided to let the S.E.C. bring civil charges of fraud, which are easier to prove. So if defendants' wrists are merely being slapped by the S.E.C. instead of cuffed by the Justice Department, Obama has only his appointees to blame.
For three important reasons, the President needs to explain why the Justice Department has filed away its investigations of big banks and Wall Street firms without indicting anyone. First, American confidence in the system is deeply shaken. Second, it strains credulity for millions of Americans -- and has impelled thousands of them to occupy public places in protest -- that no banking or insurance executive deserves criminal prosecution for the actions that brought on the financial crisis. Third, by failing to prosecute a single high-profile Wall Street actor today, the Administration is failing to deter financial fraud tomorrow.
Secretary of the Treasury Tim Geithner surely deserves his share of the blame- which is huge. Early in the Administration, he ignored an order from the President to consider breaking up Citigroup and, armed with a rosy scenario, has been a constant advocate for emphasizing deficit reduction over economic stimulus, thus helping prolong the economic slump. More recently, he successfully encouraged Obama not to appoint Elizabeth Warren to head the Consumer Financial Protection Bureau, her brainchild, unsurprising given her stated skepticism over the Administration's tepid efforts to tamp down on home foreclosures.
It's hard to pin down blame for the abysmal response of Washington in the financial aftermath, with the FBI, the SEC, the Justice Department, the Treasury Department all failing in their law enforcement, oversight, or advisory functions. But we know the result, as illustrated in this graph from journalist David Cay Johnston showing criminal prosecution involving financial firms down markedly since fiscal 1999.
There is insufficient attention paid to President Obama's role in all this. The two leading GOP candidates prefer to blame Fannie Mae and Freddie Mac, the Community Reinvestment Act, and anything that might be lying around, so as to spare the private sector any responsibility for destroying American lives. Democrats don't want to expose the President months before the presidential election to attack for what Wall Street and, to a lesser extent the previous Administration, bear responsibility. And to the mainstream media, the whole issue is not sexy enough and may not be so easy to lay off in its "pox on both their houses" framework.
Now, though, Barack Obama is President. He should bear ultimate responsibility- and, increasingly, blame.