The elephant in the room is still why there have been no criminal prosecutions of the banks, executives and Wall Street traders who were primarily responsible for the 2008 financial crisis. There has been no obvious answer, although our Department of Justice continues to dance around the question.
In his most recent article, my friend William D. Cohan, author of the newly released book The Price of Silence, and several outstanding books on the financial crisis, gives us a clue and poses some thought provoking questions. A former investigative reporter for the Raleigh Times, he worked on Wall Street for seventeen years as a senior mergers and acquisitions banker.
In this recent post, he states “One of the enduring mysteries of the 2008 financial crisis has been why the Justice Department made so few attempts to prosecute the individuals responsible for it, given the abundance of tangible evidence of wrongdoing by Wall Street bankers, traders and executives in the years leading up to the great unwinding.”
A mystery indeed. He writes that, according to Eric Holder, the former United States Attorney General, the Justice Department did not charge specific individuals after the 2008 financial crisis because it “simply did not have the proof.” So the DOJ instead pursued large settlements paid with the shareholder’s money using Firrea’s more generous ten year statute of limitations.
Mr. Holder also defended the DOJ’s lack of prosecutions on David Axelrod’s Axe File podcast. Mr. Axelrod, the former chief strategist of Barack Obama’s two presidential campaigns asked Mr. Holder, “Why were so few Wall Street bankers, traders and executives held accountable for the 2008 financial crisis, compared to the many individuals who were sent to jail for their roles in the savings-and-loan crisis of the 1980s?” Holder’s response …” Do you actually think that if we could have brought these cases, we would not have?”
Holder may feign frustration at the lack of prosecutions but the fact remains, Wall Street got slapped on the wrist and no one has gone directly to jail! Extracting settlements is not the same as holding the wrong doers accountable. The Department of Justice has not been as diligent as it promised to be. The evidence has certainly been there, as I can personally attest to.
There’s more to this story. When I saw the appeal of the Countrywide verdict, the first case to rely on Firrea, which was reversed by the United States Court of Appeals for the Second Circuit, I was decidedly upset.
I believe that the real reason the Department of Justice (D.O.J) was not prosecuting cases is that they knew if there were convictions there would be appeals and a very real possibility that it would be found that the D.O.J. couldn’t legally use Firrea to prosecute in these circumstances. Firrea allows for bringing cases against those who harm government insured financial institutions. However it was not designed to prosecute banks themselves, only those who harm them. The argument that Firrea could not be used in this case was that to do so would call for the bank to be prosecuted for harming itself, and since you cannot harm yourself, the legal argument was that given the circumstances, Firrea could not be used.
The appeals court, however, did not even opine on the legal argument that Firrea could not be used to convict Countrywide for harming itself. They instead acknowledged that even though even though Countrywide knowingly and intentionally violated the terms of its contract, because the Department of Justice did not prove that Countrywide had the intent to defraud Fannie and Freddie when it originally executed the contracts years before, then fraud was not committed. An insane argument, but it allowed them to avoid ruling on the merits of the Firrea “harm yourself” argument.
As I told William in an email he quotes in his article, the D.O.J. could not stand the embarrassment of pursuing prosecutions, only to then have the courts throw out those convictions because the D.O.J. had no legal grounds to pursue them under Firrea. That would be the ultimate proof of the D.O.J.’s incompetence and the real reason they have not pursued prosecutions despite the evidence.
I’m not a lawyer but the legal argument against Firrea is a compelling one. It leaves the door wide open for additional bank fraud as the banks now know they will not be prosecuted, at least under Firrea. Greed will win after all.
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Department of Justice – Encouraging Whistle Blowing or Blowing Smoke?
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
