Too Big to Fail, Not Too Big for Jail

U.S. Attorney General Eric Holder appeared before the Financial Crisis Inquiry Commission
today. He cited his strong statutory authority to go after the firms
that had a role in the worst economic disaster since the Great
Depression. His team was tackling securities fraud, accounting fraud,
financial discrimination and fraud related to the stimulus bill. It
was an impressive list, but what was not impressive was the first case
he touted - Bernie Madoff.

You remember Bernie. His kids turned him in. It appears that the FBI
considers this the high-water mark of criminal detective work.

The FBI is to be applauded for finally nabbing Mr. Madoff for his
1920s-sytyle ponzi scheme (named for Charles Ponzi a celebrity
investor, who managed to buildt a house of cards off of international
postal coupons). But can we talk about the modern era and what one professor of criminal law has characterized as "the greatest elite white-collar crime wave in the history of the world"?

While the FBI reports that it is working on some 5,000
investigations including 2,800 mortgage fraud investigations, Bill
Black, who played a key role in the crack-down on S&L officials and
the unraveling of the Keating Five scandal 20 years ago, thinks only
two numbers matter: "Zero indictments and zero convictions of senior
insiders at specialty lending companies."

Commission member Douglas Holtz-Eakin put his finger on another
problem with these impressive sounding numbers. "While mortgage fraud
was important, it is the magnitude of the financial crisis that is
central," he said. Mortgage brokers did not have the capacity to
collapse the global economy. It took major banks and securities firms
with the ability to package and peddle toxic assets around the globe to
do that. But in the year and a half since the Wall Street titans blew a
hole in the economy and forced the government to pony up some $14 trillion
in rescue funds, not one employee of a major Wall Street firm is behind
bars. Not even AIG executive Joseph Cassano, who was labeled the "Man
Who Crashed the World" by Vanity Fair.

Compare this to what happened after the S&L crisis 20 years ago,
which cost taxpayers approximately $350 billion in today's dollars.
According to Department of Justice statistics, no less than 1,852
S&L officials were prosecuted and 1,072 were jailed. 500 were top

What is going on here? Don't we believe in holding people accountable any more?

Black says: "The huge difference between the S&L crisis and now
is that back then, regulators were pushing for criminal convictions.
They were providing enormous resources to DOJ and the FBI, and they
were demanding that they take action. That is what produced the
successful convictions along with some very good FBI agents and

This is clearly not happening today. No congressional committee has
had a hearing on the slow progress of prosecutions. No members of
Congress, certainly not those in the committees of jurisdiction who
receive the vast majority of their campaign contributions from the
financial sector, are subpoenaing JP Morgan Chase, Goldman Sachs, Bank
of America, Lehman Brothers, Bear Sterns or any other financial
institution that pushed toxic mortgage-related securities.

That is why an independent Financial Crisis Inquiry Commission is so
critical. The commission's message to Holder should be that the big
banks may be too big to fail, but they are not too big for jail. The
commission should turn up the heat on Holder and the lackluster SEC in
an effort to get to the bottom of what the big firms knew and when they
knew it, and they should put a spotlight on Ohio Representative Marcy
Kaptur's bill to muscle up these efforts with 1,000 new FBI agents.

This exercise in accountability is critical, because, as later
witnesses made clear, new waves of criminal financial fraud are already
upon us.

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