Voices from Russia

Saturday, 15 September 2012

Four Years After Lehman Collapse: No Top Wall Street Prosecutions in Sight


On 15 September 2008, investment bank Lehman Brothers filed for bankruptcy, igniting a financial firestorm that sent the global economy careening toward the abyss. Four years on, not a single senior Wall Street executive has faced prosecution over the disaster. According to securities experts and former regulators, this absence of criminal accountability for a crisis that cost the American economy trillions of dollars in GDP and wiped out billions more in personal wealth amplifies the risk of a similar financial meltdown in the future.

John Coffee, a professor at Columbia Law School in New York, a prominent expert on securities law and white collar crime, said, “The US government’s entire response to 2008 suggests this could happen again someday. It’s clear that the Justice Department hasn’t been able to find criminal charges it could prosecute, either because it’s very hard to prove complex criminal cases in the financial world or because they were under pressure not to bring such cases, or simply because no one committed fraud. I think that last explanation is a little too simple”.

At the heart of the crisis were complex financial instruments based on “subprime mortgages”… housing loans with a high risk of default… that generated enormous profits for major Wall Street investment banks. Billions of dollars of taxpayer money rescued many of these institutions when the underlying value of these instruments collapsed. The crisis, which began in 2007 and was accelerated by Lehman’s filing for bankruptcy protection, cost the American economy at least 12.8 trillion USD (391.8 trillion Roubles. 9.75 trillion Euros. 7.9 trillion UK Pounds), according to a report released this week by the independent financial reform watchdog Better Markets… and it called its estimate conservative.

The Securities and Exchange Commission extracted several settlements from major Wall Street players… including a 550 million USD (16.85 billion Roubles. 419 million Euros. 339 million UK Pounds) settlement from Goldman Sachs over charges that the firm defrauded investors in its subprime mortgage products. However, Goldman wasn’t required to admit wrongdoing as part of the deal. Last month, the US Department of Justice said it wouldn’t prosecute Goldman because the “burden of proof to bring a criminal case couldn’t be met based on the law and facts as they exist at this time”. The US Senate Permanent Subcommittee on Investigations made a criminal referral to the Justice Department accusing Goldman of misleading investors in mortgage products, prompting a harshly worded statement from the committee’s co-chair, Senator Carl Levin (D-MI), who said, “The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs’ and other recently discovered misdeeds by financial institutions are ended”.

The Justice Department didn’t respond to a request for comment Friday about the lack of prosecutions of top executives involved in the financial crisis or about the possibility that such prosecutions may be coming in the future. Regulatory bodies like the SEC don’t have prosecutorial powers, although they can exact civil penalties and make criminal referrals to the Justice Department. Former SEC staff lawyer Gary Aguirre However said, “A revolving door between Wall Street and the SEC creates a situation in which regulators are hesitant to vigorously pursue investigations of malfeasance by companies that could be their future employers. If we were to have a war on drugs, and you wanted to bring some tough prosecutors into the Department of Justice, would you reach out to the cartels and ask them for their recommendations?”

Aguirre pointed up that SEC officials can leave the agency and take their expertise to Wall Street firms, where they’re paid tenfold what they earn as public servants. Aguirre was acrimoniously fired from the SEC in 2005 after he began investigating insider trading at the major hedge fund Pequot Capital Management. The investigation was dropped the following year, and, in 2010, the SEC agreed to pay him a 755,000 USD (23.1 million Roubles. 575,000 Euros. 465,000 UK Pounds) wrongful termination settlement. The SEC declined to comment on criticism that it maintains a revolving door personnel policy. However, its director of enforcement, Robert Khuzami, said in comments to Reuters last month that his staff “wouldn’t risk reputation and career and even jail by undermining an investigation for a possible future job prospect”. Khuzami served as general counsel at Deutsche Bank from 2002 to 2009.

President Obama told CBS News in an interview last December that whilst many of the practises that precipitated the crisis were unpalatable, “some of the most damaging behaviour on Wall Street, in some cases, some of the least ethical behaviour on Wall Street, wasn’t illegal. That’s exactly why we had to change the laws. That’s why we put in place the toughest financial reform package since FDR and the Great Depression”, citing the Dodd–Frank Wall Street Reform and Consumer Protection Act he signed into law in 2010.

William Black, a former federal bank regulator and a professor of economics and law at the University of Missouri-Kansas City, said that the deluge of Wall Street money pumped into political parties creates a political atmosphere in which officials may be unwilling to push for criminal prosecutions of the financial élite. According to the Center for Responsive Politics, which tracks money in politics, Wall Street contributed 154 million USD (4.7 billion Roubles. 117.5 million Euros. 95 million UK Pounds) to political candidates and campaigns this year, whilst Obama and his Republican challenger, Mitt Romney, received 4 million USD (122.5 million Roubles. 3.05 million Euros. 2.475 million UK Pounds) and 11.5 million USD (352 million Roubles. 8.75 million Euros. 7.1 million UK Pounds), respectively, in contributions from Wall Street in this presidential campaign. Professor Black, who served as the US government’s director of litigation during the savings and loan crisis, which resulted the conviction of more than 1,000 financial executives, said, “None of these people was bribed… no prosecutors were bribed, but they didn’t have to be. It’s very convenient not to see a leading donor as a potential criminal”.

15 September 2012

Carl Schreck



Editor’s Note:

Let’s keep it focused. The 2007 Meltdown had an immediate cause in the inane Bush II tax cuts to the rich and his concurrent expensive warmongering in foreign parts, but its ultimate cause was Slobberin’ Ronnie‘s Great Deregulation. It’s time to roll-back anarchistic Social Darwinist Neoliberal Libertarian “reform” and return to the regulated pre-1981 economy, as that was more fair than the present rapacious buccaneer system. It’d also be fair to have a one-time tax surcharge on all taxpayers with a net worth of over 5 million present-day baloney dollars. These are the people who’ve raped the country since Ronnie’s day, and, truly, they’ve got to pay for having screwed people over. It’s not an “impossible dream”…

Reflect on this… the “evangelicals” (and the pseudo-Orthodox who ape them) support “Greed is Good” Neoliberal Libertarianism… that’s not even Christian, kids. After all, Our Lord Christ did NOT say, Come unto me all ye who are rich and high in estate, for it is unto these the Kingdom of Heaven belongs. Nope, He sure did NOT say that.



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