I was just on KPFK in Los Angeles with RJ Eskow, and we have fairly similar ideas about the foreclosure fraud settlement, even though they may sound different. He thinks that we need to use the pressure available to ensure that the settlement is a beginning and not an ending. I’m just trying to be realistic about what the settlement means. But one area we agreed is that the lack of deterrence implied by this settlement is absolutely corrosive for the future. Eskow described it as socially corrosive, and a way that people lose faith in their government. I concur completely. It’s not just that a failure to prosecute makes it more likely that the same bad actors engage in the same bad actions over and over again. It’s not just that this furthers a financial oligarchy that has been historically responsible for most major economic crises in this country. It’s that a two-tiered system of justice is terrible for civil society. A failure to hold people responsible for crimes creates a decay at the heart of our politics. Not to get all moral, but it really is a moral decay. Rick Santorum would call it the breakdown of the family, perhaps; I call it the breakdown of order. We wouldn’t accept this if it were flipped, if society were tough on financial crimes but showing mercy for people who stole televisions. To hear tell from conservatives that’s the way the legal system actually is. But we know better.
This idea of criminal deterrence came up at a spirited debate at NYU between Eliot Spitzer, former federal prosecutor Mary Jo White, former head of SIGTARP Neil Barofsky, and Lanny Breuer, the Justice Department official who has happened to be on the Financial Fraud Task Force the past couple years, and who is a co-chair of the “Schneiderman panel,” the RMBS working group that is supposed to be the next step on this fight against the banks, where we’ll REALLY nab the perpetrators. The panel was called “Crooks on the Loose? Did Felons Get a Free Pass in the Financial Crisis?” The results were not pretty for Breuer.
Shots were fired almost immediately when the moderator Neil Barofsky, a former special inspector general of the Troubled Asset Relief Program, asked Breuer why he hasn’t done more to go after those responsible for one of the country’s biggest financial meltdowns in history.
Elliott Spitzer chimed in, offering tips on how Breuer’s office should go after alleged perpetrators of the financial crimes.
Breuer stood his ground. “I just don’t accept the fact that we haven’t done anything,” he said, pointing to a myriad of recent insider trading convictions and Ponzi scheme busts. Breuer said he finds the excessive greed risk and risk-taking that led to the 2008 global financial crisis “abhorrent,” but said not all of it was criminal.
That’s the worldview of the co-chair of the RMBS working group, someone with as much power on that panel as Schneiderman. I don’t have to go over the numerous instances of fraudulent behavior, including Sarbox violations and control fraud. Read your Bill Black. There’s plenty to work with here.
But later in the panel, Marcy Wheeler notes, they did get at this issue of criminal deterrence:
Breuer: Look, I want to be clear, I don’t want to suggest for a moment that we don’t–and we will–aggressively pursue cases criminally but, I guess both as a defense lawyer, which I was for many years, a white collar defense lawyer and now as AAG, I don’t think we should completely discount the deterrent effect when we investigate cases even if we don’t bring them.
If a CEO or CFO of a major institution feels that he or she is subject to criminal liability, when we interview them or put them in the grand jury, they have lawyers and this is hanging over their head for years and years. It may be at the end we decide not to prosecute the company or the individual but I think it’s really inaccurate to suggest that that doesn’t have a very strong effect. I’m not sure CEOs on Wall Street right now feel as if they can do what they want and there’s no deterrence.
Marcy highlights how Lloyd Blankfein lied to Congress and doesn’t seem particularly concerned about it. She’s right. And the fact that the banks have still been robo-signing, and continue to do so, despite testifying to Congress that they stopped, despite agreeing to stop in consent decrees with the OCC, and despite agreeing again to stop in the foreclosure fraud settlement is just another example.
Lanny Breuer thinks that investigations where no prosecution results are deterrence enough. He thinks that “mortgage fraud is a top priority of this Administration.” He thinks that the system is working. It’s just a different worldview. And it’s one that furthers this decay in our politics, namely the lack of accountability and justice.