Why There Haven’t Been Any Wall Street Prosecutions

Posted on June 26, 2011 in Justice Scoundrels

I have to admit that it has bugged me, too. For eight years, Wall Street ran rampant over America. We gave them a bailout and they gave themselves bonuses. Their hedge funds and their mortgage manipulations led to the collapse of our economy in December 2007. So why haven’t we done anything about it?

The latest issue of The New Yorker has a long and interesting article about the largest insider trading prosecution in U.S. history. In the middle of it, there is this bit of information:

Fraud abetted the financial crisis, from the marketing of deceitful financial products to the banks’ concealment of losses after the housing market collapsed. Then why are no executives in jail? One reason is that criminal law often founders in what prosecutors call a “dead-body case.” During the mortgage bubble, the possible crimes were committed before any investigations had begun. By the time the government could have gathered enough evidence to obtain wiretaps, any incriminating conversations would have long since taken place.

The Department of Justice also played a role in inhibiting vigorous prosecutions. In 2008, the department, under President George W. Bush’s Attorney General, Michael Mukasey, distributed the major new investigations across different offices. Countrywide went to the U.S. Attorney’s office in Los Angeles; Washington Mutual was claimed by Seattle; A.I.G. was pursued out of Washington, D.C., with the coöperation of New York’s Eastern District, in Brooklyn. Lehman Brothers was split among New Jersey and the Eastern and Southern Districts of New York. The Southern District, with its superior experience and expertise in accounting fraud, was largely cut out. Neil Barofsky, a former Southern District prosecutor who left the office in December, 2008, to become the first inspector general of the Troubled Asset Relief Program, considers this a mistake. “The Department of Justice made a decision that decreased the probability that those cases are going to get made,” he said. He suggested that the attorneys in the Southern District weren’t happy about missing the chance. “Getting the C.E.O. of a major bank is not a career killer,” he said. “It’s a career maker.”

So the investigations didn’t take place because when prosecutors were hobbled at the very time when their investigations could have proved decisive. We blame Obama for not taking action, but The New Yorker article suggests that the opportunity had long passed by the time he got in office. So agents concentrated on the frauds that they could nail down. Their activity now serves as a deterrent.

Which leaves the question: if we punish Obama for not trying Wall Street (and probably failing giving the standard of proof) by handing over power to the likes of [[Eric Cantor]] — whose investments are poised to collect in the event of the failure of U.S. Treasury Bonds — and the Tea Party, does it make any sense? Is Wall Street going to be better controlled or allowed to run even more rampant? Evidence suggests that Obama is being blamed for another Bush transgression. If we turn him out, we will return to the merry, malevolent chaos of the Bush years. My advice is not to buy the line of certain Tea Party-friendly progressives and vote to reelect our president. Even Lincoln and Jimmy Carter were misapprehended in their times. Let’s not allow the mistakes of 1980, 2000, and 2010 to repeat themselves because we don’t understand the law.