Eric Holder has often seemed unsure of himself when tackling white-collar crime. Photo via Flickr user North Charleston
It's not especially controversial to say that the American legal system has taken a major step backward under the stewardship of Barack Obama, who by most accounts was a brilliant constitutional law professor in Chicago before he became a politician. Once-unthinkable measures like drone assassinations, extraordinary rendition, and the prison at Guantanamo Bay are now widely accepted—during the Bush years, at least, these tools of the war on terror could be lambasted as evils that might soon be corrected, whereas now it's obvious they're here to stay. In the eyes of Attorney General Eric Holder, corporate crime seems to exist solely in the form of relatively trivial insider trading schemes, while the powerful men (they are almost invariably men) who wrecked the economy in the years leading up to the crash 2008 and desperately want Hillary Clinton to become president walk the streets of New York like kings. Wall Street bankers routinely do things in the spirit of "disruption" that normal citizens simply can't get away with, while our judges and prosecutors target the working poor for incarceration in an increasingly for-profit prison system. Shamelessly destructive innovation is the name of the game, a reality many of us have begun to accept as the way the world works now.
But it didn’t quite fit that dystopian picture when, on Monday, the Justice Department took Wall Street behemoth Citigroup to task for its role in hawking shady, mortgage-backed investments in the run-up to the financial crisis. Touting a $7 billion settlement that includes the largest civil penalty ever imposed, Holder might as well have been thumping his chest as he celebrated this alleged triumph for the little guy.
“Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last,” the attorney general said at a Washington, DC, press conference. “The bank’s misconduct was egregious. As a result of their assurances that toxic financial products were sound, Citigroup was able to expand its market share and increase profits… The bank's activities shattered lives and livelihoods throughout the country and also around the world.”
Could it be that at long last Holder is giving us a legitimate round of score-settling? Thus far in the Obama era we’ve heard more about populist rage from former president Bill Clinton—he always did have his pulse on the electorate, that Arkansas hick—who privately suggested to former Treasury Secretary Tim Geithner that the only way to really appease the angry horde would be to slit the throats of guys like Goldman Sachs CEO Lloyd Blankfein. Does the Citi settlement, when taken together with some other hefty fines recently slapped on banks like JP Morgan ($13 billion) that played the mortgage repackaging game, mean Obama’s lawyers are ready to answer the bell and finally take real steps to prevent another financial catastrophe?
If the performance of Wall Street banks on the stock market in the hours after the settlement was announced serves as any indication, not so much. Citigroup shares were on the upswing by the afternoon, suggesting that the fine wasn't enough to seriously harm the company’s brand or its profits (it'll take just one quarter’s corporate earnings to pay that huge cash settlement, by the way). In addition to absolving Citigroup for its relatively minor dabbling in the mortgage-backed security market, the government is also letting it off the hook for its much more systematic exploitation of collateralized debt obligations (CDOs). And unlike BNP Paribas, the French bank the Feds actually extracted a guilty plea from recently, Citi doesn’t have to formally plead guilty to a crime so much as cop to amoral errors and pony up dough.
Of course, Holder did his best to inspire fear when he suggested at his press conference that criminal prosecution of Citigroup employees is still not completely out of the question. But who believes him when he suggests even a single American might one day go to jail for trying too hard to make money too fast? Deterrence requires an element of raw fear, and there’s just no reason to be afraid of the Obama Justice Department, which has been paralyzed with anxiety of its own about prosecutorial failure from day one.
"DOJ's thick packet of self-serving public relations spin cannot hide the fact that it has again failed to disclose any meaningful information about Wall Street's massive, systemic, illegal fraudulent conduct," Dennis Kelleher, CEO of the non-profit financial reform advocacy group Better Markets, said in a statement in response to the Citigroup settlement. "Today’s actions again confirm the indefensible double standard of justice DOJ established of treating Wall Street’s biggest, richest, most politically connected banks more favorably than anyone else. History is going to judge DOJ harshly for not only letting Wall Street off, but for letting the American people down."
In fact, taken with NYC US Attorney Preet Bahara finally losing an insider trading case last week after cruising through his previous 85, one might argue the entire legal system’s legitimacy is reaching a crisis point. When the government can't even successfully prosecute insider trading cases, a crime that seems laughably old-school in comparison to the complex derivative swapping schemes masterminded by the guys who ruined the economy, you know we're in trouble.
That the attorney general is still pursuing the mortgage scheming is something, I guess. The banks are paying large sums of money. Great. But Holder is displaying a special brand of ignorance when he drops rhetorical gems like this one about charging big fines rather than putting people in jail:
"It boggles my mind that this would not have deterrable impact, but if it does not we will hold people accountable yet again," he said Monday. In other words, companies that make massive profits off of illegal activities have to pay some of those profits to the government in the form of fines, which should be enough to scare them from breaking laws in the first place. We can expect another round of this game when the government (almost) inevitably reaches a deal with Bank of America in the coming weeks for its own mortgage trickery. And if that doesn't do the job, Holder will try the same thing over and over again and see how that works out.
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