Too Timid to Nail?

Attorney General Eric Holder thinks the biggest banks on Wall Street are not only too big to fail, but also too big to jail, even when they are caught laundering illicit profits for Mexican drug cartels. So it is time for President Barack Obama to find a new attorney general who is willing to protect the public interest without fear or favor.

Holder told the Senate Judiciary Committee March 6 that the Justice Department may have to restrain its prosecutors in dealing with the big banks because it has to consider the possibility that a prosecution could lead to financial instability. He was explaining why the Justice Department brought no criminal charges against the British megabank HSBC last December after bank officials admitted laundering money for customers in Iran, Libya, Sudan, Burma and Cuba as well as Mexican drug lords. The Department of Justice settled for a $1.9 billion fine, or about five weeks’ profit for the bank, but the feds didn’t require any individual fines or jail time. Holder acknowledged that the sheer size of the big banks “has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate. That is something you (members of Congress) all need to consider.”

Matt Taibbi of Rolling Stone noted in February that for at least half a decade HSBC, a storied British colonial banking power, helped to wash hundreds of millions of dollars for drug mobs, including Mexico’s Sinaloa drug cartel, which is suspected in tens of thousands of murders in just the past 10 years. The bank moved money for organizations linked to al Qaeda and Hezbollah, for Russian gangsters, helped countries like Iran, Sudan and North Korea evade sanctions — and also aided countless common tax cheats in hiding their cash, Taibbi wrote.

That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis, Taibbi noted. What was different about this settlement was that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that if US authorities had decided to press criminal charges, HSBC would have lost its banking license in the US, the future of the institution would have been under threat and the entire banking system would have been destabilized.

Robert Borosage noted that Holder’s admission means that the big bankers know they operate above the law. “That renders all the argument about regulations and legal limits laughable. Bankers spend tens of millions lobbying to weaken regulations and starve regulators of authority and resources. But when the action gets hot, the bubble starts to inflate, the music keeps playing, they can trample the laws, mislead the regulators and defraud their customers, swathed in the confidence that the laws will not apply to them ...

“Clearly, institutions that are above the law and beyond the discipline of the market cannot exist in their current form,” Borosage wrote. “Congress has only two choices. The big banks can be nationalized and treated as public utilities. The public would pocket their profits and cover their losses. Or the big banks can be broken up, and be accountable to both the law and the market.”

The six largest Wall Street banks have grown exponentially in recent decades and now hold assets worth more than 60% of the American economy, Travis Waldron noted at ThinkProgress.org.

The Dodd-Frank reform bill of 2010 was supposed to rein in the excesses of the big banks whose reckless gambles had brought the world financial markets to the brink of collapse in 2008. But bank lobbyists have fought the implementation of the regulations ever since.

Sens. Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore.) are leading the drive to break up the big banks but the Obama administration has opposed those efforts and Republicans in Congress have shamelessly offered themselves as Wall Street’s protectors in exchange for campaign money, Borosage noted, though Sen. David Vitter (R-La.) and Sen. Chuck Grassley (R-Iowa) have joined in the criticism of the big banks.

Sen. Elizabeth Warren (D-Mass.) has made an impact in her first few months on the Banking Committee as she challenged regulators on the lack of civil or criminal prosecutions. In a Feb. 26 committee hearing, she grilled Federal Reserve Chairman Ben Bernanke on whether Wall Street banks should have to pay back US taxpayers for the advantage they receive by virtue of being viewed as “too big to fail.”

Prosecution of financial fraud hit a 20-year low in 2011, even amid broad findings of fraud that took place at the biggest banks, the Transactional Records Access Clearinghouse at Syracuse University reported. The government has instead reached settlements over mortgage and foreclosure fraud, and other alleged crimes with a multitude of banks, and while those settlements are significant, they have also been plagued with problems. And as Warren noted, settling out of court has also prevented the public from hearing testimony from banking officials.

In a March 12 Banking Committee hearing on the nominations of Mary Jo White to chair the Securities and Exchange Commission and Richard Cordray to head the Consumer Financial Protection Bureau, Warren blasted Senate Republicans who have blocked the confirmation of Cordray, the former Ohio attorney general who was nominated in July 2011 and got a recess appointment to head the bureau in January 2012.

“I think the delay in getting him confirmed is bad for consumers, it’s bad for small banks, bad for credit unions, for anyone trying to offer an honest product in an honest market,” said Warren, the Harvard law professor who advocated the creation of the bureau as part of the Dodd-Frank financial reform bill in 2010 but then was blocked from becoming its first director by Republican senators at the behest of the banks who didn’t want to answer to her. (Fooled them.) “The American people deserve a Congress that worries less about helping big banks,” she added, “and more about helping regular people who have been cheated on mortgages, on credit cards, on student loans and on credit reports.”

However, Republicans are expected to continue blocking Cordray’s confirmation, mainly because they think the bureau is too independent of congressional (and banking lobby) control.

The Banking Committee conducted a relatively perfunctory review of White, concluding after less than two hours of questioning. White earned a reputation as a tough prosecutor of Wall Street miscreants as US Attorney in Manhattan from 1993 through 2001. But for the past 11 years she has been a lawyer on Wall Street, defending banks and corporate interests, including JPMorgan Chase, News Corp. and former Bank of America CEO Ken Lewis on disputes over the bank’s takeover of Merrill Lynch.

White said her work for Wall Street firms and figures would not hinder her ability to lead the SEC. “If, in this instance, I’m confirmed, the people will be my client,” she said.

Borosage noted of White, “As a defense attorney for the big banks, she knows where the bodies are buried. Is she able and willing to use that information? Her husband [who is also a Wall Street lawyer] has been lobbying against the Dodd-Frank regulations. Is she willing to spurn his arguments? Or is her nomination a most perverse expression of the ‘regulatory capture’ that has rendered the SEC and other financial regulatory agencies toothless?”

Asked by Sen. Robert Menendez (D-N.J.) about Holder’s comments that some banks were so big that prosecuting them could endanger the economy, White noted that the SEC can only take civil actions but she would “proceed quite vigorously against anyone.” She added, “At the SEC, there’s no institution too big to charge.”

She said her private work would not prevent her from voting on rules and other policies. And on enforcement issues, she said, the scope of the potential conflicts is “quite narrow” and she would recuse herself from cases involving her husband’s firm.

White might earn back our trust. Holder has lost it. —JMC

From The Progressive Populist, April 1, 2013



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