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    Thursday, September 29, 2022

    Getting away with economic murder

    The question has nagged at the American public since the 2008 market collapse and economic crisis that ushered in the Great Recession. Why did we never see corporate executives being led out in handcuffs to answer to the fraudulent behavior at the root of the disaster?

    This lack of prosecution suggested a double-standard. Petty crime could get you in prison. Malfeasance and dishonest behavior on a massive scale could get you a bailout.

    Sen. Elizabeth Warren, the progressive Democratic firebrand from Massachusetts, is again asking the question. But now it is more troubling. It appears the government had a case against the CEOs and declined to act.

    For supporters of Sen. Bernie Sanders, who won eastern Connecticut handily in the Democratic primary even though he lost the state narrowly, Warren’s latest push to question Wall Street and its cozy political ties in Washington only adds to the frustration that Warren chose to stay neutral in the nominating process.

    Warren’s ideology was clearly more in line with Sanders’ philosophy, sharing his contention that the big banks remain too big to fail and should be broken up and that the nation remains vulnerable to another fiscal collapse because it has failed to rein in Wall Street abuses.

    Warren never pushed Clinton to release the transcripts from the three speeches she delivered to Goldman Sachs executives, starting in 2013, and receiving $675,000. Her neutrality appeared to be a political calculation; Clinton would likely be the nominee and Warren did not want to inflict damage on her.

    All of this makes Warren’s new focus on the lack of prosecutions in the wake of the 2008 fiscal crisis all the more curious, in that it does not reflect well on the administration of President Obama — since it was his Justice Department that did not prosecute — and again recalls Clinton’s ties to Wall Street. Clinton made eight speeches to big banks, netting $1.8 million, according to a CNN analysis.

    In 2010, the bipartisan Financial Crisis Inquiry Commission, appointed by Congress to investigate the causes of the financial collapse and “refer to the Attorney General … any person that the Commission finds may have violated the laws of the United States in relations to such crisis,” did just that. It sent nine names to the Department of Justice, two implicated twice, for criminal investigation.

    The public, however, did not know this at the time, when the pressure to prosecute was the greatest. Instead, those documents were ordered sealed for several years. In March 2016 they became public.

    The documents show the commission determined that the big banks informed investors the bundled mortgages they peddled “were of high quality and reasonably secure” when executives knew “a significant number of those mortgages were actually highly risky.”

    This, the commission reported, could constitute violations of the Securities Act and “mail and wire fraud.”

    It also informed Justice that Fannie Mae CEO Daniel Mudd and Chief Financial Officer Stephen Swad “may have overstated assets, earnings and capital through various accounting improprieties,” another potential violation of law.

    It found through emails that “UBS — and possibly other investment banks — received advance notice of potential downgrades (of assets backed securities) by Moody’s.” With this insider information, they were able to unload the trash, over-valued securities to other investors.

    The commission alleges that “false representations were made in October 2007” by Citigroup CEO Chuck Prince, Board of Directors Chairman Robert Rubin, and CFO Gary Crittenden. They contended in “statements to the market in 2007 that the company had only $13 billion in subprime mortgage exposure when, in fact, the company ultimately disclosed $55 billion in subprime exposure.” That, the commission suggested to the DOJ, amounted to fraudulent false certifications.

    Rubin, who was the Treasury Secretary for President Bill Clinton and an advocate for repeal of the Glass-Steagall Act, which had placed a wall between commercial and investment banking. Rubin went straight from his position as Treasury Secretary to the Board of Citigroup.

    And the list of allegations from the commission goes on. AIG executives hiding losses of nearly $6 billion. Goldman Sachs’ “deliberate mislead(ing of) the rating agencies.” Merrill Lynch executives hiding their massive exposure to asset-backed collateralized debt obligations. And that “Citigroup knowingly sold Fannie Mae and Freddie Mac loans that were not underwritten to" government-sponsored enterprises standards.

    Warren, whose staff dug through the released records, is asking the Office of Inspector General to find out whatever happened to those investigatory referrals. And she would like a report from FBI Director James Comey on what his agents found, citing the precedent he set in releasing extensive information about the investigation into Hillary Clinton’s emails, even though she was not charged.

    I’d like to find out what happened, wouldn’t you? But unlike the Clinton emails, there does not appear to be any outpouring of demands from Washington when it comes to Wall Street. According to OpenSecrets.org, the financial/insurance/real estate sector has contributed $693 million to political campaigns — 40 percent to Democrats, 60 percent to Republicans — this election cycle. In other circles, that’s called hush money.

    Paul Choiniere is the editorial page editor.

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