...why I won't be voting for Obama again. This was my major beef with Obama, after promising to go after Wall Street.
http://www.thedailybeast.com/articles/2012/10/01/how-the-government-failed-to-fix-wall-street.html
How the Government Failed to Fix Wall Street
In new accounts, insiders reveal why Wall Street big shots werenât prosecuted and reforms faltered.
Four years have passed since Lehman Brothersâ collapse; two since Obama signed financial reform into law; one since the occupation of Zuccotti Park. But the Justice Department has yet to convict a single high-profile banker. And despite the Dodd-Frank reform package, critics suggest that the system is hardly safer than it was in 2008âfrom JPMorganâs beached âwhaleâ to MF Globalâs missing billions. In a recent report (PDF), the International Monetary Fund called the capital markets just as âvulnerableâ to crash and fraud as they were four years ago.
Why? Thereâs no simple, satisfactory answer. But in recent weeks, memoirs by crisis insiders such as former Federal Deposit Insurance Corporation Chairman Sheila Bair have shed new light on the financial crisis. Interviews with officials like former senator Ted Kaufman lend further color to the crystallizing narrative. The Obama Justice Department was too timid and short-staffed to hunt down the bad guys. The White House, Treasury Department, and Federal Reserve stifled or sold out real financial reform, leaving megabanks too big to fail, and dangerous crisis-era practices untouched. Months after taking office, Obama told the CEOs of the nationâs third biggest banks, âMy administration is the only thing standing between you and the pitchforks.â It has served as an effective shield.
In a departure from previous administrations, Eric Holderâs Justice Department wonât say how many bankers it has convicted. President Obama formed a âFinancial Fraud Enforcement Task Forceâ in November 2009 to âhold accountable those who helped bring about the last financial crisis.â The current group says that the department is âworking hard to investigate and prosecuteâ Wall Street âcriminal activity,â and has sent many mortgage fraudsters to jail.
But the Obama administration has generally chosen to pursue institutions over individuals. As the head of the Justice Departmentâs Criminal Division, Lanny Breuer, put it in a speech in September 2012 at the New York City Bar, âour prosecutors ⦠know the difference between a rogue employee and a rotten corporation.â Last February, the Justice Department settled with five of the nationâs biggest banks, which agreed to pay homeowners a collective $25 billion over charges of mortgage fraud. In July, it settled with Wells Fargo for $175 million over predatory subprime lending, targeted at minorities.
Sure sounds rotten. But none of these settlements entailed admissions of wrongdoing. And the price tags are little more than the cost of doing business. Meanwhile, Wall Street bankers have generally remained safe from criminal prosecution. Last month, the Justice Department declined to prosecute Goldman Sachs in a financial fraud probe. Former senator Ted Kaufman, appointed to fill Vice President Joe Bidenâs senate seat in late-2008, says that the lack of individual prosecutionsâof those who lost billions, not millionsâis âa cause for wonderment.â
Wall Street
The Justice Departmentâs task force was a successor to Bushâs version, established after Enron. Neil Barofsky, later appointed chief cop for TARP, served on Bushâs and Obamaâs. He characterized both as having âa lack of sophistication and high degree of timidityâ when it came to financial crime. After 9/11, the lionâs share of its resources was redirected to counterterrorism, said Barofsky and a former Justice Department official. And many staffers lacked the accounting wherewithal to untangle the complex and toxic derivative products at the crisisâs ground zero, Barofsky added. The âinability of prosecutors to wrap their heads around [these] cases was somewhat stunning,â he said. Cases the FBI or Justice Department didnât have the time or money to pursue were handed to the Postal Service. The taskforce âwas much more of a press release repository,â says Barofsky. âThey took preexisting cases and marketed them.â
Senator Kaufman and his former chief of staff, Jeff Connaughtonâauthor of a new bookârecall several frustrating meetings with Justice Department officials. In September 2009, Kaufman met with Lanny Breuer, then Assistant Attorney General for the Criminal Division, to ask why so few cases were underway. According to Kaufman and Connaughton, Breuer explained that âwe take the cases the FBI brings to us.â
In an interview, a high-ranking Democratic official and Justice Department veteran called that explanation âdisturbing ⦠While some federal prosecutors might just sit and wait to see what comes through the door, the good ones are ready, willing, and able to initiate investigations on their own.â As Barofsky puts it, âIâd be hard pressed to say if a single additional case was made becomes of one of these task forces.â Kaufman adds: âIt was pretty damning that there were no referrals from the regulatory agencies on this.â
Connaughton says that Kaufmanâs office then called a U.S. attorney's office, a full two months after the Breuer meeting, to ask about prosecutions progress. The office told the senate staff that the Justice Department had only just been in contact, âasking [them] if they were working on any financial fraud cases.â By then, says Kaufman, âthe trail had gone coldâ on several promising cases, from Washington Mutualâs mortgage lending fraud to charges of false reporting at the ratings agencies. In late-November, 2009, the Justice Department lost its high-profile case against two Bear Stearns hedge-fund managers: a huge blow to morale.
Money was also shorter than anticipated. While the Fraud Enforcement and Recovery Act had approved $165 million in new funds for the Justice Department, the Senate Appropriations Committee only approved $30 million.
The New York Southern District, Barofsky says, had a better understanding of financial fraud. But according to Kaufman, Connaughton, and another member of the senatorâs staff, Ray Lohier, the head of the Southern Districtâs Securities Fraud Division, didnât make financial crime Lohierâs âtop priorityâ in 2008 and 2009, when the trail was still hot. According to Kaufman, Lohier told the then-senator that his âtop priorityâ was âcybercrimeââthat is, the threat that hackers pose to large banks. Kaufman was incredulous. âIâm spending every day trying to put these guys in jail, and he responds âcybercrimeâ?â the former senator said. âThat was a genuine shocker.â
(cont next post)
http://www.thedailybeast.com/articles/2012/10/01/how-the-government-failed-to-fix-wall-street.html
How the Government Failed to Fix Wall Street
In new accounts, insiders reveal why Wall Street big shots werenât prosecuted and reforms faltered.
Four years have passed since Lehman Brothersâ collapse; two since Obama signed financial reform into law; one since the occupation of Zuccotti Park. But the Justice Department has yet to convict a single high-profile banker. And despite the Dodd-Frank reform package, critics suggest that the system is hardly safer than it was in 2008âfrom JPMorganâs beached âwhaleâ to MF Globalâs missing billions. In a recent report (PDF), the International Monetary Fund called the capital markets just as âvulnerableâ to crash and fraud as they were four years ago.
Why? Thereâs no simple, satisfactory answer. But in recent weeks, memoirs by crisis insiders such as former Federal Deposit Insurance Corporation Chairman Sheila Bair have shed new light on the financial crisis. Interviews with officials like former senator Ted Kaufman lend further color to the crystallizing narrative. The Obama Justice Department was too timid and short-staffed to hunt down the bad guys. The White House, Treasury Department, and Federal Reserve stifled or sold out real financial reform, leaving megabanks too big to fail, and dangerous crisis-era practices untouched. Months after taking office, Obama told the CEOs of the nationâs third biggest banks, âMy administration is the only thing standing between you and the pitchforks.â It has served as an effective shield.
In a departure from previous administrations, Eric Holderâs Justice Department wonât say how many bankers it has convicted. President Obama formed a âFinancial Fraud Enforcement Task Forceâ in November 2009 to âhold accountable those who helped bring about the last financial crisis.â The current group says that the department is âworking hard to investigate and prosecuteâ Wall Street âcriminal activity,â and has sent many mortgage fraudsters to jail.
But the Obama administration has generally chosen to pursue institutions over individuals. As the head of the Justice Departmentâs Criminal Division, Lanny Breuer, put it in a speech in September 2012 at the New York City Bar, âour prosecutors ⦠know the difference between a rogue employee and a rotten corporation.â Last February, the Justice Department settled with five of the nationâs biggest banks, which agreed to pay homeowners a collective $25 billion over charges of mortgage fraud. In July, it settled with Wells Fargo for $175 million over predatory subprime lending, targeted at minorities.
Sure sounds rotten. But none of these settlements entailed admissions of wrongdoing. And the price tags are little more than the cost of doing business. Meanwhile, Wall Street bankers have generally remained safe from criminal prosecution. Last month, the Justice Department declined to prosecute Goldman Sachs in a financial fraud probe. Former senator Ted Kaufman, appointed to fill Vice President Joe Bidenâs senate seat in late-2008, says that the lack of individual prosecutionsâof those who lost billions, not millionsâis âa cause for wonderment.â
Wall Street
The Justice Departmentâs task force was a successor to Bushâs version, established after Enron. Neil Barofsky, later appointed chief cop for TARP, served on Bushâs and Obamaâs. He characterized both as having âa lack of sophistication and high degree of timidityâ when it came to financial crime. After 9/11, the lionâs share of its resources was redirected to counterterrorism, said Barofsky and a former Justice Department official. And many staffers lacked the accounting wherewithal to untangle the complex and toxic derivative products at the crisisâs ground zero, Barofsky added. The âinability of prosecutors to wrap their heads around [these] cases was somewhat stunning,â he said. Cases the FBI or Justice Department didnât have the time or money to pursue were handed to the Postal Service. The taskforce âwas much more of a press release repository,â says Barofsky. âThey took preexisting cases and marketed them.â
Senator Kaufman and his former chief of staff, Jeff Connaughtonâauthor of a new bookârecall several frustrating meetings with Justice Department officials. In September 2009, Kaufman met with Lanny Breuer, then Assistant Attorney General for the Criminal Division, to ask why so few cases were underway. According to Kaufman and Connaughton, Breuer explained that âwe take the cases the FBI brings to us.â
In an interview, a high-ranking Democratic official and Justice Department veteran called that explanation âdisturbing ⦠While some federal prosecutors might just sit and wait to see what comes through the door, the good ones are ready, willing, and able to initiate investigations on their own.â As Barofsky puts it, âIâd be hard pressed to say if a single additional case was made becomes of one of these task forces.â Kaufman adds: âIt was pretty damning that there were no referrals from the regulatory agencies on this.â
Connaughton says that Kaufmanâs office then called a U.S. attorney's office, a full two months after the Breuer meeting, to ask about prosecutions progress. The office told the senate staff that the Justice Department had only just been in contact, âasking [them] if they were working on any financial fraud cases.â By then, says Kaufman, âthe trail had gone coldâ on several promising cases, from Washington Mutualâs mortgage lending fraud to charges of false reporting at the ratings agencies. In late-November, 2009, the Justice Department lost its high-profile case against two Bear Stearns hedge-fund managers: a huge blow to morale.
Money was also shorter than anticipated. While the Fraud Enforcement and Recovery Act had approved $165 million in new funds for the Justice Department, the Senate Appropriations Committee only approved $30 million.
The New York Southern District, Barofsky says, had a better understanding of financial fraud. But according to Kaufman, Connaughton, and another member of the senatorâs staff, Ray Lohier, the head of the Southern Districtâs Securities Fraud Division, didnât make financial crime Lohierâs âtop priorityâ in 2008 and 2009, when the trail was still hot. According to Kaufman, Lohier told the then-senator that his âtop priorityâ was âcybercrimeââthat is, the threat that hackers pose to large banks. Kaufman was incredulous. âIâm spending every day trying to put these guys in jail, and he responds âcybercrimeâ?â the former senator said. âThat was a genuine shocker.â
(cont next post)
