Watchdog: Five Years After Wall Street Meltdown, 'Toxic Culture of Greed and Risk' Remains

Government oversight agency says that despite some prosecutorial success, dysfunctional oversight of Wall Street persists

According to the government watchdog created to guard over the federal bailout of the Wall Street banking industry in the wake of the 2008 housing collapse and financial crisis, all of the sinister ingredients that created the crisis five years ago--including "rampant risktaking," "greed," and "significant unchecked power"--remain pervasive throughout the "toxic" corporate culture that rules the financial industry.

When the industry was on the verge of total collapse in late 2008, the Treasury Department, Congress, and the Federal Reserve stepped in to backstop teetering Wall Street banks with a cash infusion of $700 billion in taxpayers' funds under a program call the Troubled Asset Relief Program (or TARP). Subsequent to the allocation of those funds, Congress established an oversight agency, the Office of the Special Inspector General for the Troubled Asset Relief Program (or SIGTARP), designed to monitor the program, make sure the funds were used appropriately, and offer feedback to lawmakers and Treasury officials.

Released on Tuesday, SIGTARP's latest public quarterly report paints a picture of ongoing dysfunction, systemic risk, and complains that much of the advice it has offered to government agencies regarding the restructuring of the financial system and possible ways to help still-struggling homeowners has been ignored.

According to the report (pdf):

The financial system has stabilized in part due to five years of the TARP bailout, but the toxic corporate culture that led up to the financial crisis and TARP has not sufficiently changed. At the core of the financial crisis was a pervasive culture at financial institutions throughout the country of rampant risk-taking and greed combined with significant and unchecked power. SIGTARP has uncovered, stopped, and investigated crime related to TARP in the banking, housing, and securities industries. The crimes we have detected serve as an important lesson to be learned from the financial crisis: that toxic corporate cultures can serve as a breeding ground for criminal activity.

Lauding itself for the level of abusive practices it has been able to halt and the number of criminal fraud charges initiated by their oversight work, the report states:

Today 65 individuals have been sentenced to prison for their crimes investigated by SIGTARP and its law enforcement partners, 112 individuals have been convicted and await sentencing, 154 individuals have been criminally charged and face trial on those charges, and 60 individuals have been banned from their industries.

Many of these defendants were at the highest levels of banks or companies that applied for or received TARP bailout money. They were trusted to exercise good judgment and make sound decisions. However, they abused that trust.

However, SIGTARP was critical of other financial oversight agencies that have repeatedly refused to treat bankers and other financial service corporations with the same kind of aggression. As Agence France-Press reports:

The watchdog was harshly critical of the Treasury's oversight of the Hardest Hit Fund, set up in February 2010 to help families in places hurt the most by the housing crisis.

The Treasury allocated $7.6 billion in TARP funds for the HHF program in 18 states and Washington, DC, administered by local authorities.

But states have reduced their proposed numbers of homeowners needing help, and the Treasury has ignored the SIGTARP's conclusions of an audit reported in April 2012.

"Rather than fix the problem that SIGTARP warned Treasury about in its audit, Treasury allowed the problem to get worse. Rather than following SIGTARP's recommendations, which were designed to make Treasury and states set goals and work hard to achieve those goals, Treasury is refusing to hold itself or the states accountable to any goal of the number of homeowners to be assisted in HHF, and the result has been that the program is reaching far fewer homeowners than the states expected," the agency said.

Senator Elizabeth Warren, who rose to prominence by demanding accountability for Wall Street crimes in the wake of the 2008 financial meltdown, recently said that SIGTARP should be an example to the Treasury Department and the Securities and Exchange Commission--both of which have significantly larger budgets and staffs--that tough oversight and criminal prosecution of financial crimes are possible.

In a letter written to the Fed Chairman Ben Bernanke, SEC Chair Mary Jo White, and Comptroller General Thomas Curry last week, Warren presented SIGTARP statistics as a way to pressure those agencies to do more. She also requested that they comply with her request for specific statistics from each agency, including the number of criminal and civil charges filed and an update on successful prosecutions.

"As you know," Warren wrote, "last month marked the fifth anniversary of the 2008 financial crisis. The crisis took an enormous toll on this country's economy. According to a recent analysis by the Federal Reserve Bank of Dallas, the crisis cost the U.S. up to $14 trillion in lost economic activity. "While we must continue working to create jobs and accelerate economic recovery, we must look back to ensure that those who engaged in illegal activity during the crisis and its aftermath are held accountable."


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