(4 pm. – promoted by ek hornbeck)
Subverting the rule of law? How dare I? Well the 4th amendment, due process, kill lists, and the NDAA also speak to my title. Yes, they speak to it despite those that decided politicians were more important than the principles they pretended to have in 2004 now outed as hypocrites mostly. However, that being said, I’m talking about subverting the rule of law in a different way but equally as damaging on the economic front.
After all, it was at the SOTU merely just a year ago that President Obama assured us that something was going to be done about the Wall St. perpetrators of our mortgage and foreclosure crisis. This was a crisis in which they defrauded consumers with sub-prime NINJA loans pumping up the housing bubble and then dumping the private debt overhang onto the economy destroying over 10 trillion in housing wealth. This left consumers with massive loads of private debt and everyone else jobless like this recovery.
This White House’s DOJ has made a complete mockery of the concept of Justice in and of itself. That illusion of Justice is perpetuated to this day and normal people are devastated because of it. Let President Obama know you are not amused. I have.
There was a reason this performance was trotted out at last year’s SOTU. Clearly Wall St was starting to worry about some of the traction a number of state AGs were making in some of their cases against them. It is a shame President Obama kept the pitch forks away from them once again convincing NY AG Eric Schneiderman and the other Justice Democrats to sell out while offering them hollow promises of assistance at the federal level they never received creating a fake task force. This fake task force was sold to all of us as supposedly restoring some semblance of a legal standard in our financial system. David Dayen lays out the proof.
Within a few months of the State of the Union announcement, a hearing in the House Financial Services Committee confirmed the essentially invisible nature of the task force. Maxine Waters, then a senior member of the committee and now the Democratic ranking member, asked Robert Khuzami, then the head of enforcement for the Securities and Exchange Commission, whether the entity had sufficient resources to investigate. Khuzami replied that the agencies involved – the SEC, the New York AG’s office and the Department of Justice – were supplying the resources. No new dollars were dedicated to the effort. When Waters asked when the task force would hire an executive director, Khuzami said they hired a “coordinator” to facilitate inter-agency activity. Specifically, he uttered this incriminating evidence: “We hired a coordinator, but most of the investigative work being done here is not really being done by a staff that belongs to the task force, it’s being done by the individual investigative groups that make up the task force.”
This is the key point. There are no offices, no phones and no staff dedicated to the non-task force. Two of the five co-chairs have left government. What “investigators” there are from the task force are nothing more than liaisons to the independent agencies doing their own independent investigations. In the rare event that these agencies file an actual lawsuit or enforcement action, the un-task force merely puts out a statement taking credit for it. Take a look at this in action at the website for the Financial Fraud Enforcement Task Force, the federal umbrella group “investigating” financial fraud. It’s little more than a press release factory, and no indictment, conviction or settlement is too small. The site takes credit for cracking down on Ponzi schemes, insider trading, tax evasion, racketeering, violations of the Americans With Disabilities Act (!) and a host of other crimes that have precisely nothing to do with the financial crisis. To call this a publicity stunt is an insult to publicity stunts.
It was all a lie proven above by the excellent David Dayen whom it is great to see writing again. In addition to his yeoman’s work, some of us warned this was all just kabuki and that this insult to publicity stunts would go nowhere.
That diary was referenced by Yves Smith at Naked Capitalism whom was also proven right once again. It has now been a year later, and this fake mortgage/financial fraud task force put together by that foreclosure fraud sham of a “settlement” has done nothing just like she said. I wrote a couple of pieces on this, but some still wanted to deny it. Some even attacked victims of foreclosure and sub-prime mortgage fraud in those pieces blaming them specifically for the crisis rather than admit the truth.
It’s really brings no joy to be so consistently right about the sad state of affairs that have become the real state of the union because people are continually suffering. There was very little about this suffering in the current SOTU. There were just more empty proposals to help “responsible” home owners instead of those “irresponsible” ones defrauded. They were not given access to the information needed to make a responsible decision. Such information is crucial when taking out a mortgage which is why Nobel prize winning economists Joseph Stiglitz, Michael Spence, and George Akerlof laid out the concept of information asymmetry in their Nobel prize winning paper on the subject.
Only the elites like the President’s “savvy” friend Jamie Dimon, the JP Morgan CEO who recently lost over 8 billion dollars in the London Whale debacle, can be so irresponsible yet still considered responsible by this President. Working people defrauded by the so called “experts” do not get that luxury or even any respect from this White House. They only get lip service and are disrespected in code such as the constant reference to helping out only “responsible” home owners. Former TARP IG Neil Barofsky talked about this stigma as the immoral and inaccurate framing that it is when I saw him at the foreclosure fraud panel at Netroots Nation 2012 with David Dayen.
There are many lies still peddled about the financial crash. The most egregious one is that the fraud the banks were perpetuating was legal. We have heard this from the President and assistant AG Lanny Bruer continually peddling this same lie to protect Wall Street. This was exposed by PBS in their Front-line special the Untouchables. Glenn Greenwald has an excellent synopsis of all of it.
What’s most egregious and shows the most disdain for the public is how PBS was threatened by the White House with no more access just for telling the truth about this DOJ’s dismal record. People that actually know what they are talking about know it’s absolute garbage to claim no laws were broken by Wall St. They just aren’t being enforced because this DOJ is subverting the rule of law. This has become a pattern whether we are talking about financial crimes or the war crimes of the Bush administration. Speaking of which, even the George W. Bush administration’s pathetic record of prosecutions is better than President Obama’s. I laid all of this out clearly over a year ago as well.
And now I have to take down a few right wing Goldman Sachs lawyer type arguments taken up by some calling themselves “pragmatic” progressives to defend this administration by defending Goldman Sachs. They claim that a buyer beware clause somehow exonerates the lies Goldman Sachs told to their investors while laughing and calling them Muppets in emails. Of course this is also perpetuated on the lie that this crash was all about risk and just too much risk not accounted for instead of deliberate accounting control fraud on top of appraisal fraud and deregulation.
At Goldman Sachs, John Paulson’s synthetic derivative ABACUS is sometimes cited for this type of flawed argument recently even though this derivative was designed to fail. This is not the market at work. Therefore buyer beware could not make buyers be aware that ABACUS and other investments were designed to fail because the rules of the game were rigged. “Read the fine print” is a sorry excuse anyway, but here it holds absolutely no sway. James Kwak co-author of 13 Bankers laid this out back then.
ABACUS was different. There was a reference portfolio. But instead of selling CDS protection on all of those bonds, Goldman said (to paraphrase), “Imagine we sold CDS protection on all of those bonds. Then imagine we used those CDS premiums to issue bonds in tranches A-1, A-2, B, C, D, and FL. The derivative I’m selling you is one that will behave exactly as if it were an A-1 (or A-2) bond in that scenario – even though we’re not actually selling all of the tranches.”
Does this matter? To think about that, I recommend yet another post by Waldman, in which he takes apart Goldman’s claim that it was brokering a trade between a long side and a short side. Goldman likes to say this because it implies that the long side had to know there was a short side, and hence the failure to disclose Paulson’s role was not material. But that’s not what was going on.
This was criminal fraud, but instead there was an SEC case pursued against Goldman Sachs and John Paulson was fined about half a billion dollars which is considered the biggest fine in SEC history. However, this fine is still a joke because John Paulson made twice that back betting against his designed to fail ABACUS drivative. Market dynamics, market risk, and market fundamentals had nothing whatsoever to do with Goldman Sachs and their criminal fraud towards investors or the public. This is why criminal charges need to be pursued because even the biggest fines are a joke. SEC fines are anything but a deterrent and just the cost of running the casino backstopped by the public.
Now there is another excuse which is strangely peddled out even though it is a defense of the Bush administration. This excuse states that criminal prosecutions are impossible, despite over a thousand of high level bankers being prosecuted during the S&L crisis. This excuse relies on the failure of the Bush DOJ to prosecute Bear Sterans executive Matthew Tannin and hedge fund manager Ralph Cioffi after two high-profile funds run by Cioffi collapsed in June 2007 with exposure to mortgage backed securities. There were also scandalous emails exchanged between them, but they were not blatant as the Muppets Goldman Sachs emails. Nevertheless, they were potentially damaging.
That being said, this was not a strong case. The same delusional outlook of our economy and financial system invoking letting criminal fraud go unpunished was at the forefront of the Bush administration’s DOJ when they brought this case. Their logic was that it was safe to only go after Bear Stearns, because it essentially didn’t exist anymore after it was acquired by JP Morgan and supposedly wouldn’t “disturb the market.” The Obama DOJ and the Bush DOJ have the same delusional market magic trickle down economic view about the rule of law disrupting financial markets instead of providing stability or anything that resembles a fair market at all. This case was merely just a face saving measure in the beginning of the crisis and it was not pursued well at all. It is anything but a steady rubric as an excuse to let Wall St off the hook.
Bear Stearns was a safe bet,” said Bachner. “Prosecutors knew there wouldn’t be a huge ripple effect on the market because it didn’t exist anymore. In that respect it was a fairly safe target. They could send a message without hurting the markets or costing people jobs.”
NPR has learned from two sources close to the case that the fact that Bear Stearns no longer existed – it was purchased at firesale prices by JPMorgan Chase & Co. – was a part of the prosecutors’ decision to indict Cioffi and Tannin first. While it wasn’t the only reason and prosecutors felt they had a solid case, the fact that it would have little or no market impact did play into prosecutors’ calculations, officials close to the case said. The U.S. Attorney’s Office and the FBI declined to discuss the case.
The investigation of the e-mails and witnesses is trying to get to the bottom of one thing: Did Cioffi and Tannin intend to mislead investors in the spring of 2007? Stanley Arkin, a prominent Wall Street lawyer, said there is a human case to be made.
There is also the question of why a case that just a couple of years ago would likely have stayed with the SEC and a civil proceeding would be elevated to a criminal offense. That, said Simon, is all about the current environment. “Just as … after Enron we saw a slew of indictments coming down, there was WorldCom and a host of others, so a lot of this is politically driven,” he said.
“This should have been pursued by a civil or regulatory matter by the Securities and Exchange Commission and not turned into a criminal case,” Bachner said. “They did this after Bear Stearns went out of business, they didn’t indict any of the higher-ups in Bear Stearns, and certainly Cioffi and Tannin are going to have a very strong argument that everything they did was OK’d by supervisors and they are being made scapegoats.”
The FBI has said it was investigating at least 19 major firms involved in the subprime mortgage crisis. It only took action here because of the delusional dangerous view that prosecutions of any existing firm’s criminal fraud will somehow disrupt the market. This is of course the exact same crap assistant AG under the Obama administration Lanny Bruer peddled to PBS. Let me repeat, to point to this case as an example of not being able to pursue prosecutions is the height of idiocy and it’s ultimately immoral.
It’s also shameful and dishonest. None of the higher ups including CEO James Cayne and Richard A. Marin whom was responsible for the two hedge funds in question were pursued. This gave cover to Cioffi and Tannin as just two employees following orders. Sarbanes Oxley should have been invoked which is a law on the books making CEOs accountable for their balance sheet statements and practices(what was used to prosecute Enron and Worldcom execs). Vikram Pandit CEO of Citigroup should have been indicted and there should have been criminal charges pursued towards him on this front.
There are and were many other better cases where criminal referrals and indictments could have rained down. This Bear Stearns case only shows how scared or corrupt this Justice Department is to invoke it as a legal standard not to try to go after Wall St. criminals. Yet, they still use that Bush DOJ case against Bear Searns constantly as an excuse not to do its job. There are no valid excuses except for the delusional right wing market magic BS peddled by two identical Justice Departments; the Bush administration and the Obama administration peddled this view. It’s absolute garbage and shameful for anyone who claims to be a liberal or progressive to use this as an inoculation for a Democratic administration.
There is no inoculation. There’s also a simple reason for that. HSBC was caught laundering the drug money of murderous drug lords in Mexico. This was a crime that this DOJ would throw your children in jail for and for most of the rest of their lives. Yet HSBC paid a fine and were still let off the hook by this feckless RW DOJ. HSBC were too Big to Jail because of this pernicious belief in magical criminal markets shared by both the Bush and Obama administrations. So that is the ultimate case where anyone can see there are absolutely no excuses even in the slightest and a slap in the face to the public(many with children in jail for the rest of their lives on such charges) to make an effort at one.
Peddling this crap shows disdain for all of us. You see, when we have a DOJ that believes in market magic and establishing criminal fraud and Laissez-faire crap as legal precedent it subverts the rule of law. It also creates a financial system only good for the Oligarchs that run it and work in the Obama Treasury department like the Bush Treasury department before it. When will this end?
All excuses for the slow subversion of anything resembling financial law governing our system since the New Deal are not only idiotic and dangerous, but also immoral. People need us to advocate for them. They don’t need us to idolize politicians who will be set for life.
They need us to demand real standards, especially underwriting standards. There are none anymore. They don’t need us to suddenly become finance lawyers creating creative legalese excuses for financial crimes for this administration’s benefit instead of the people. They need us to push real legal standards that set fairness and honesty back to the system. Otherwise people can’t establish a standard of living like their parents could. Those that would excuse this system this way have that on their heads to contend with.
What kind of moral standards are these when the brilliant Aaron Swartz is driven to suicide by a Justice department that attacks brilliant young men who invent things that make peoples lives better instead of Wall St CEOs that cause untold ruin to peoples lives?
When this is the kind of system some deem worth defending for any politician’s image or benefit it shows the withering away of the fabric of our society. If there is any future worth having it’s not going to be wrought by anyone that thinks this is in anyway acceptable. Within these pernicious means there is no justifiable end, only the end of anything worthwhile. There can be no real standards unless we demand them and define them with a hunger for Justice.
Some things are just inexcusable. For instance, the cat-food commission should not have been talked about at all in the SOTU; and yet, it was brought back from the dead again. This was in addition to all the economic idiocy about deficit reduction the President says “economists” agree on. What economists? Are they alive or austerity ghosts from the grave that have him possessed? Saying seniors should not have to share all the sacrifice with Oligarchs pissed me off. They should not have to share any whatsoever. It’s callous and cruel to even suggest such a thing.
The cat-food commission is being praised well isn’t that special. #SOTU
– priceman (@therealpriceman) February 13, 2013
Time to demand adherence to the rule of law and actual standards you can believe in instead of no standards. Unless these truths are recognized as the standard we adhere to as a society you might as well ignore all the speeches because they mean nothing.
We want Equal Rights and Justice.