Expounding on To Big To Fail, SEC Policy, DOJ prosecution action
Linda posted here on To Big To Fail and made suggestions as to how to fix it. I want to just add some more background information to the discussion.
Via Bob Swern at Daily Kos who linked to a post by Pam Martens at Wall Street on Parade comes a bit of transcript from the confirmation hearing for Mary Jo White for the SEC.
Senator Brown: When you were U.S. Attorney, my understanding is you consulted Bob Rubin and Larry Summers when considering whether to bring charges against financial firms. Is that correct?
White: I actually consulted the Deputy Attorney General who had Mr. Summers call me back. I was asking a factual question.
Senator Brown: Did they reject the argument that institutions could not be prosecuted to the fullest extent of the law?
White: I’d like to answer that yes or no but I can’t. Essentially, I was seeking information based on an argument that had been made by the lawyers for the institution that I ultimately indicted, as to whether an indictment of that institution would result in great damage to either the Japanese economy or the world economy. And the answer I got back is that I should proceed to make my own decision; which I took to mean that it would likely not have that impact.
Pam then notes:
There actually is an official policy but its finer points have certainly not been expanded upon by either Attorney General Holder or SEC nominee Mary Jo White. The policy is called Title 9, Chapter 9-28.000: Principles of Federal Prosecution of Business Organizations.* The policy thoroughly advocates the prosecution of corporations — especially when there is a serial history of fraud as in the case of Wall Street.
She quotes from the policy:
“…Virtually every conviction of a corporation, like virtually every conviction of an individual, will have an impact on innocent third parties, and the mere existence of such an effect is not sufficient to preclude prosecution of the corporation.”
Just saying.
*The link for the actual policy is in Pam’s article.
Prosecutorial discretion–ugh, it’s civ pro all over again, only on a more destructive level. The cronyism for banks/financial institutions is sickening. The federal government has the tools to step in, but it is apprehensive to do so. Why? Look no further than what Robert Rubin did when he finished his tenure as Sec. of Tres., which included silencing Brooksley Born and her attempts to regulate the derivatives market? Went to work on Wall Street. The revolving door. That is the issue.
Assume for the sake of argument that a financial organization is big enough to create the likelihood of collateral damage from any possible prosecution. Any act of a business has to be initiated and approved by the employees of that business. The limited liability aspect of a corporation extends to the share holders of that company, but it does not shield the illicit actions of its employees. The question in my mind is why haven’t any individual executives of those financial institutions faced prosecution for the criminal behaviors said to have been perpetrated by the corporations? While there may be acceptance in some legal circles that a corporation enjoys some of the characteristics of personhood still such organizations cannot act other than as the result of real human activity in the name of the corporation. Why haven’t the banksters been prosecuted, assuming that individual executives are themselves not too big to fail?
because they are rich.
and if you hurt the feelings of the rich
they will sulk
and the lights will go out in New York.
“Why haven’t the banksters been prosecuted, assuming that individual executives are themselves not too big to fail?”
I am not up on the nuances of corporate law enough to make an informed opinion on the legal side of it. However, if people want criminal sanctions for the civil mis-doings of bankers, they will likely be disappointed EVEN IF prosecutions went forward (that is a very high burden to meet and not something courts are commonly known to do).
But as I mentioned before, and what I think is relevant here, is the revolving door between the regulators and those who are regulated. It’s the same reason I see the regulation of the legal profession kind of a joke–you are basically asking people to sanction themselves, or to potentially sanction themselves. In other words, if the SEC Chair (or some other government position) knows they are likely to go back to Wall Street after their tenure, why would they set a precedent by going after Wall Street types when some time down the road they might be in the current position of those Wall Street types.
These two pieces are worth a read regarding why there are no prosecutions. Not much on the legal angle (though Greenwald make conclusive statements about bankers committing fraud and therefore exposed to criminal sanctions).
http://www.businessinsider.com/why-wall-street-execs-werent-prosecuted-2013-1
http://dealbook.nytimes.com/2013/02/11/s-e-c-s-revolving-door-hurts-its-effectiveness-report-says/
anirrational
furthermore, it is not good for one’s career to make enemies of one’s future employer.
though someone around here made the excellent point that the financial services industry just couldn’t do their job if they always had to worry about going to jail for what they are doing.
No executive in the financial services industry need worry about going to jail if they only act in accordance with the law and provide truthful disclosure in regards to the many financial products that they sell.
Jack
the man said the business couldn’t be run that way.
So is it a sad fact that we have had two recent Treasury Secretaries (Rubin, Paulson) who have knowingly presided over the commission of massive financial fraud as heads of criminal banking institutions? And a most recent Treasury Secretary who was such a failed regulator as NY Fed president that he had the nerve to admit during his confirmation hearing that he did not do his job as regulator because he did not view that to be his job?