By Matt Taibbi, Rolling Stone
21 December 11
Strongly recommend this piece at the Huffington Post by Jeff Connaughton, a former aide to Senator Ted Kaufman. Jeff has long been one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal. He takes particular aim at Barack Obama, who tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency. Here’s Jeff’s take:
Speaking in Kansas on December 6, [Obama] said, “Too often, we’ve seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there’s no price for being a repeat offender.” Just five days later on 60 Minutes, he said, “Some of the least ethical behavior on Wall Street wasn’t illegal.” Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?
The President is confusing “legal” with “difficult to prosecute successfully.”
The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal. Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.
Beyond that, as Jeff points out, Obama is simply not telling the truth about the insufficient penalties available to regulators. Employing the famous “mistakes were made” use of the passive tense, Obama copped out in his December 6 speech by saying that “penalties are too weak.” As Jeff points out, what Obama should have said is that “the penalties my own regulators chose to dish out were too weak”:
Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don’t pay relatively paltry – and therefore painless – penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.’s latest settlement with Citigroup, an action even the Wall Street Journal called “a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan.”
What makes Obama’s statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud. Here’s how Jeff puts it:
In Ron Suskind’s book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, “The confidence in the system is so fragile still… a disclosure of a fraud… could result in a run, just like Lehman.” The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama’s top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.
In other words, Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud! This is exactly the mindset that led Lehman to the abuses of the “Repo 105” accounting trick, in which loans were disguised as revenues in order to prevent the outside world from knowing the dire state of the bank’s balance sheet.
Now Obama and Geithner are engaged in the same sort of activity, only they’re trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world was made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer – and suffer, incidentally, on Barack Obama’s watch. Better, apparently, the Band-Aid the problem now, and let the real mess happen later on, on someone else’s watch, or at least in a second term, when there’s no need to worry about re-election.
Of course, this is exactly the wrong way to go about things. If Geithner and Obama really wanted to convince the world that America’s markets weren’t broken, they would effectively police fraud, and by extension prove to everybody that at the very least, our regulatory system is not broken. By taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they’re doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well.
The problem with companies like Lehman and Enron is that their executives always think they can paper over illegalities by committing more crimes, when in fact all they’re usually doing is snowballing the problem so completely out of control that there’s no longer any chance of fixing things, thereby killing the only chance for survival they ever had.
This is exactly what Obama and Geithner are doing now. By continually lying about the extent of the country’s corruption problems, they’re adding fraud to fraud and raising such a great bonfire of lies that they won’t ever be able to fix the underlying mess. If they looked at the world like public servants, and not like corporate executives, they’d understand that the only way out is to come clean. That they don’t look at things that way should tell people quite a lot.
MATT TAIBBI writes a political column for Rolling Stone. He also appears regularly on left-liberal shows, such as Keith Olbermann’s.
Comments (Selects from original thread)
# Tippitc 2011-12-21 17:37
Isn’t this the same guy who campaigned on transparency in government?? Well, now would be a good time. And some truth and even a little justice would be a good thing also!!
And if Obama wants to change his story maybe he should make sure the stories have a few elements in common!!
+98
# Richard Raznikov 2011-12-21 20:08
Obama’s failure to pursue criminal penalties against the bankers and other Wall Street fixers is deeply offensive and morally reprehensible. The argument that prosecuting these people would jeopardize a ‘fragile’ public confidence in the system is a perversion of the actual truth: failure to prosecute is what has destroyed public confidence.
Here we have a President who periodically expresses his dismay at the damage these people have caused while raking in millions in campaign contributions from the same people and surrounding himself with Geithner, Bernanke, Summers, and that ilk.
It’s a disgrace. Obama has been an utter failure as President. It is pathetic that we seem thus far to have no better choices because he has forfeited the support of many people.
I can’t wait to see his 2012 campaign swing into action. What will the new slogan be? “This time I really mean it”?
# Erdajean 2011-12-22 19:00
Well, it’s the same as when Obama decided — once in office — to “let bygones be bygones” with whatever criminal acts the Bush Administration had done. Those atrocities ruined us at home — where those with conscience still suffer about our “part” in them — and they ruined us around the world, where we can certainly no longer strut about as “the GOOD guys” — everybody now knows better. This guy reminds me of too many modern parents — who choose not to see the unbearable behavior of their children — which I suspect some of them actually secretly enjoy as vandalism against society. Purely sicko! When NOTHING is ever corrected, what can we expect?
+19
# Michael_K 2011-12-21 21:47
“Here we have a President who periodically expresses his dismay at the damage these people have caused while raking in millions in campaign contributions from the same people and surrounding himself with Geithner, Bernanke, Summers, and that ilk.”
The latter named miscreants being un-indicted co-conspirators. Let’s DEMAND that O’Bama be challenged in a primary, so that we can present a proper candidate for the presidency.
+18
# Dave45 2011-12-21 22:13
Connaughton and Taibbi indirectly call into question another social weakness in America, namely, the state of the legal profession. The goal of the legal profession seems hardly to be to bring about just solutions to social problems but, rather, to manipulate the law for clients (and, more especially, to manipulate the law for rich clients). It is not hard to understand why Obama, himself a recognized professor of constitutional law, seems to have such little interest in the law. Indeed, to express such an interest would be in open conflict with his deeper lust for plutocratic relationships that will further his political career.
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