Exceptional Criminogenic Environment

(11 am. – promoted by ek hornbeck)

For all those who had been hoping for swift but fair judicial treatment for criminal bank actions … dont hold your breath. “The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision have spent the past few days completing the settlements with some of the largest U.S. banks, including Bank of America Corp, Wells Fargo & Co, JPMorgan Chase and Citigroup Inc. The pacts would resolve only part of a large probe involving a group of 50 state attorneys general and about a dozen federal agencies.” But don’t worry, banks won’t actually have to part with even one dollar:

For all the “investigations” into criminal behavior by the largest Wall Street banks it is Main Street that has felt the pain. According to the NYT some 6.7 million homes have already been lost in the housing bust, and another 3.3 million will be lost through 2012. According to Zillow a staggering $9 trillion in home equity has been lost since the real estate market peaked in June 2006.

Caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the savings and loan crises in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail.

A lawsuit filed against the SEC over the Madoff ponzi scheme was ruled on Tuesday. The suit alleged that the SEC had been repeatedly tipped off to the Madoff situation and flat-out failed to address it.

In any event, a federal judge on Tuesday dismissed the suit, which alleged the SEC had acted with “gross negligence.” U.S. District Judge Laura Swain ruled that the plaintiffs had failed to “identify any specific, mandatory duty that the SEC violated.”

Nevertheless, Swain excoriated the SEC, calling its behavior “sloppy,” “uninformed,” and “irresponsible.”  That said, continued Swain, “that the conduct in question defied common sense and reeked of incompetency does not indicate that any formal, specific, mandatory policy was ‘likely’ violated.”

It has become all to apparent that in todays Washington, Wall Street environment that being a bumbling idiot, even to the point of criminal will only get you a “strongly” worded reprimand and, quite possibly, a promotion.  

William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government’s director of litigation during the savings and loan crisis sums it up this way:

“This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity,  But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.”

As the crisis was starting to deepen in the spring of 2008, the Federal Bureau of Investigation scaled back a plan to assign more field agents to investigate mortgage fraud. That summer, the Justice Department also rejected calls to create a task force devoted to mortgage-related investigations, leaving these complex cases understaffed and poorly funded, and only much later established a more general financial crimes task force.

The SEC even went so far to dismiss an opportunity to recoup taxpayer dollars when they adopted an internal guideline in which they cautioned about “pushing for hefty penalties from banks that had received bailout money“. The SEC was concerned about taxpayer money being used to pay for settlements.

Tim Geithner, treasury secretary, apparently reported in today’s “New York Times” was calling people saying don’t bring cases, it will unsettle the markets, so they let these guys go free. Meanwhile, he signed off on $12.9 billion to Goldman to cover a bad bet they made.”

“When regulators don’t believe in regulation and don’t get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions,” said Henry N. Pontell, professor of criminology, law and society in the School of Social Ecology at the University of California, Irvine. “If they don’t understand what we call collective embezzlement, where people are literally looting their own firms, then it’s impossible to bring cases.”

Anderson, before I sued, went after Merrill Lynch, which was the first case we filed many years back, I was told by their lawyer — this is a direct quote — “Be careful, we have powerful friends”…and the kicker: “Do you think the Justice Department will prosecute? Spitzer: If they don’t, shame on them. If they don’t, the Attorney General should resign if he can’t bring this case.”

But data supplied by the Justice Department and compiled by a group at Syracuse University show that over the last decade, regulators have referred substantially fewer cases to criminal investigators than previously.

The university’s Transactional Records Access Clearinghouse indicates that in 1995, bank regulators referred 1,837 cases to the Justice Department. In 2006, that number had fallen to 75. In the four subsequent years, a period encompassing the worst of the crisis, an average of only 72 a year have been referred for criminal prosecution.

Law enforcement officials say financial case referrals began declining under President Clinton as his administration shifted its focus to health care fraud. The trend continued in the Bush administration, except for a spike in prosecutions for Enron, WorldCom, Tyco and others for accounting fraud.

The thrift supervisor, however, has not referred a single case to the Justice Department since 2000, the Syracuse data show. The Office of the Comptroller of the Currency, a unit of the Treasury Department, has referred only three in the last decade.

The Countrywide Saga

In March 2007, Countrywide switched oversight of both units to the thrift supervisor. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush.

Robert Gnaizda, former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Mr. Reich about Countrywide’s reckless lending.

“We saw that people were getting bad loans,” Mr. Gnaizda recalled. “We focused on Countrywide because they were the largest originator in California and they were the ones with the most exotic mortgages.”

Mr. Gnaizda suggested many times that the thrift supervisor tighten its oversight of the company, he said. He said he advised Mr. Reich to set up a hot line for whistle-blowers inside Countrywide to communicate with regulators.

“I told John, ‘This is what any police chief does if he wants to solve a crime,’ ” Mr. Gnaizda said in an interview. “John was uninterested. He told me he was a good friend of Mozilo’s.”

After a two-year bipartisan probe into the financial crises a Senate panel has concluded that Goldman Sachs Group Inc. profited by betting billions against the subprime mortgage market, then deceived investors and Congress about the firm’s conduct. Findings in the report have been referred to the SEC and Justice Department for possible criminal or civil action, said Sen. Carl Levin (D-Mich.), the panel’s chairman.

“It shows without a doubt the lack of ethics in some of our financial institutions,” said Sen. Tom Coburn (R-Okla.), the subcommittee’s top Republican, who approved the report along with Levin.

However as we have seen to date that the worst thing that has happened to the banksters has come as nothing more than strongly worded diatribes. How hard is to sit before self righteous politicians and be berated before the cameras and then collect your taxpayer funded $19M bonus for doing god’s work?

There is absolutely no incentive for them to stop their robbery of the US Treasury when there are no criminal prosecutions, indictments, or the simplest clawback provisions. Why? Because the big banks are essentially GSE’s. As Kansas City Fed President Thomas Hoenig said recently:

Big banks like Bank of America Corp and Citigroup Inc should be reclassified as government-sponsored entities and have their activities restricted. “You’re a public utility, for crying out loud,” he said.

Thomas Hoenig has been a vocal critic of rescuing the biggest banks rather than allowing them to fail. He has criticized the Fed’s easy money policies in the wake of the crisis.

The Financial Crisis Inquiry Commission, created by Congress to investigate the origins of the disaster, held its first public meeting in January 2010.

In a January 2010 memo, Brad Bondi and Martin Biegelman, two assistant directors of the commission, outlined their recommendations for investigative targets, Countrywide and Mr. Mozilo were specifically named according to Tom Krebs, another assistant director of the commission.

However, the two soon received a startling message: Countrywide was off limits. In a staff meeting, deputies to Phil Angelides, the commission’s chairman, said he had told them Countrywide should not be a target or featured at any hearing, said Mr. Krebs, who said he was briefed on that meeting by Mr. Bondi and Mr. Biegelman shortly after it occurred. His account has been confirmed by two other people with direct knowledge of the situation.

In 2008 staff at the SEC had received phones calls from Scott Alvarez, general counsel at the Federal Reserve in Washington.

The purpose of these discussions regarded S.E.C. investigations into improprieties by several of the nation’s largest brokerage firms. Their actions had hammered thousands of investors holding the short-term investments known as auction-rate securities.

UBS and Goldman Sachs operated auctions of these securities, promoting them as highly liquid investments. As the subprime mortgage crisis began to spread, investors holding hundreds of billions of dollars of these securities could no longer cash them in. As the S.E.C. investigated these events, several of its officials argued that the banks should make all investors whole on the securities, as they had been marketed as AAA investments.

But Mr. Alvarez suggested that the S.E.C. soften the proposed terms of the auction-rate settlements. His staff followed up with more calls to the S.E.C., cautioning that banks might run short on capital if they had to pay the many billions of dollars needed to make all auction-rate clients whole, the people briefed on the conversations said. The S.E.C. wound up requiring eight banks to pay back only individual investors. For institutional investors – like pension funds – that bought the securities, the S.E.C. told the banks to make only their “best efforts.”

“The primary consideration was remedying the alleged wrongdoing and in fashioning that remedy, the emphasis was placed on retail investors because they were suffering the greatest hardship and had the fewest avenues for redress.”

The solution let these banks off the hook for over $12 billion in investments to institutions while only having to fork over $7 to certain individuals.

To date there have been no criminal cases brought forth, no charges filed against the multitude of perpetrators. There are too many accomplices involved it will take a miracle to find out who didn’t get paid off while this happened. Who on Wall Street, in Washington, in the regulatory agencies themselves. Who by the way have political appointees as directors, that now garner favor in lucrative Wall Street careers.

I only have one question to ask. Are you tired of the b.s. yet? Any groundswell of discontent for the status quo must arise from the streets. There is no motivation by Washington, Wall Street, or the regulators to change anything until the masses demand change.  


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  1. for all the writers who contributed to this compilation.

  2. Just too long?

    Perhaps an uninteresting topic?

    Not laid out well?

    Old news?

    • TMC on April 24, 2011 at 21:42

    goes directly to the Oval Office and the Obama administration’s refusal to do what they were elected to do, clean up the banking, Wall St, investment mess that brought the world economy to its knees. We are headed down the same path with the same cast of characters

  3. mandatory duty that was violated by the SEC.

    They may have violated all sorts of duties, all sorts of specific duties, but they didn’t violate any specific, mandatory duty. Great stuff isn’t it? I guess the Judge forgot to gargle in the restroom before making that learned observation, cause the ruling reeks big time. But then again, who’s sniffing?

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